Debt Management
Rebekah Eason
Holiday Cash for Students

By: Becky Eason, CFP®

The holidays are upon us and although 2020 isn’t a traditional year people are still getting into the holiday spirits. Gifts have become a huge part of the holidays, which we all know can add a lot of additional stress. This year there is the added stress of what is the best way to get gifts to loved ones? Shipping can be expensive and you risk packages getting delayed, lost, or broken so I wouldn’t be surprised to see more monetary gifts be given.


Holiday Cash for Students

Asking for a Friend - How much money should I have saved for retirement?

July 18, 2022

Question: How much money should I have saved for retirement? I hear there are different numbers you should have saved based on age, but I am not sure which number I should be aiming for.

Answer: For this question we get to use our favorite answer, “it depends”. We realize that every person is unique, so this number is different for every person, and it depends on your situation. The following are things to consider:

  • Determine how much you need. What are your living expenses, or what do you want to be able to spend in retirement?

  • In our experience most people want to maintain their current lifestyle in retirement, and many people actually spend more in the early years of retirement than they do in their working years.

  • What sources of income do you have? If you have a pension, you will need less in additional savings than someone without that ongoing income stream.

  • How long do you plan to work, or do you plan to work a part time job in retirement? The earlier you plan to retire, the larger the sum of money you will need to have saved.  If you plan to pick up a fun hobby like a part time job, that will reduce the amount you need to have saved.

Hopefully you realize that there are many factors that go into this calculation and that there is not one answer to fit everyone. If you are looking to get insight into what your number is, we would recommend speaking to a financial planner who can discuss these items with you.

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Asking for a Friend - What resources are available for senior parents requiring care?

July 11, 2022

Question: I’m in my early 50’s and my parents are requiring more care; I want to be there for them, but I am still working and can’t retire yet. What resources are available for situations like this?

Answer: We feel for you. Start by looking down through this checklist - What Issues Should I Consider for My Aging Parents? This may unpack some items you haven’t yet considered.

  • Our founder, Amy Irvine, and her husband went through this last year with Brent’s mom. She offers up the following advice: “of course it depends on the type of care your parents need, but you may want to start by hiring a care manager. They may go by many different names, such as case manager, geriatric care manager, or Aging Life Care manager™. The majority of these individuals have a background in either social work or as a registered nurse.” We would recommend searching for someone like this at Find an Expert (aginglifecare.org) or your local Office for the Aging; these folks are in the know about the services available and can make referrals based on your parent’s needs. They can also often serve as advocates, which is often one of the most frustrating parts since we don’t always know the best way to advocate.

  • Additionally, the services you hire will likely depend on if your parents are in need of any of the activities of daily living (bathing, dressing, using the toilet, continence, transferring, or eating), and to what degree. There are basically four types of caregivers:

  • Home health aide (HHA)

  • Nursing assistant (CNA)

  • Licensed practical nurse (LPN)

  • Registered nurse (RN)

  • Each of these individuals has different education requirements and may meet different needs, so you may end up with more than one caregiver.

  • AARP has a good tool that provides you with some estimates on the cost associated with caregiving services: Long Term Care Cost Calculator (aarp.org). These costs vary based on the area your parents live in, so searching by zip code helps narrow that information down a bit from the national averages you often see.

  • We know this is a stressful time for you and your family; we understand that becoming a caregiver for aging parents can be a drain emotionally and can carry financial ramifications not just for your parents, but for you as the caregiving child. If you are working with a financial planner, reach out to them, they may be able to help guide you through this part of your journey in life.

Do your friends ask you financial questions?
Pass those questions on to us at AskRPG@rootedpg.com and we will feature them in our future newsletters.

Asking for a Friend - What are Fixed Index Annuities?

June 27, 2022

Q. What are Fixed Index Annuities?

A. These annuities are probably the most complex.  The best way for me to explain them is to say they are a hybrid of a fixed and variable annuity; which in and of itself sounds rather perplexing.

The moving parts of a fixed index annuity include:

  • Minimum Guaranteed Interest Rate PLUS a “credit” rate that is connected to some particular market index (such as the Russell, S&P, etc.)

  • Spread - this is the minimum return that has to happen on the index you’ve selected BEFORE you will receive a credit.  So, if the spread is 2%, then the index will need to gain at least 2% that year before you get credit.  As an example, if the index only rises by 1%, then you get no additional credit; however, if the index rose 8%, you only get 6%

  • Cap - maximum amount you can earn in a given year, regardless of how well the index you selected performs.  For example, if you have a cap rate of 15% and the index you are in has a 20% rate of return, you will not get credit for the top 5% for that contract year.

  • NOTE: Some contracts have a spread and a cap

  • Participation Rate - this states a maximum % you will get credited.  For example, if the participation rate is 75% and the index increases 10%, then you would get a 7.5% credit for that year.

  • Protection Level - some fixed indexed annuities will protect up to a certain correction level; for example, if the index you selected to get a credit rating on, drops by 10%, you do not “experience” that correction.  If it drops 20%, then you do not recognize the first 10%, but then the next 10% would be reflected.

The benefits of these types of annuities are that they do allow for some market participation without some of the volatility, but because they are an insurance product, not all States have the same exact products and not everyone should have this product.

Do your friends ask you financial questions?
Pass those questions on to us at AskRPG@rootedpg.com and we will feature them in our future newsletters.

Asking for a Friend - What is a variable annuity?

June 20, 2022

Q. What is a variable annuity?

A. This is where I think a lot of confusion about annuities comes into play.

  • Variable Annuities have two parts:

    • i. Insurance (like the fixed annuity I described last week)

    • ii. Underlying investments - these are generally mutual funds (called subaccounts), so the balance can fluctuate.

  • Variable annuities often carry “riders.”  There is an additional cost for those riders, but they act as an “insurance” policy, for lack of a better term, and the buyer needs to determine if the cost of the insurance is worth the additional benefits that are brought to the table.  The top two riders we see the most include:

    • i. Guaranteed minimum accumulation benefit (GMAB) - this benefit provides a minimum growth rate to the base of the annuity.  The goal is to protect the principal from market fluctuations by ensuring a minimum credit (sometimes called interest) rate is applied to the annuity throughout the holding period (called accumulation), and prior to taking withdrawals.

    • ii. Guaranteed minimum income benefit (GMIB) - this provides the policy holder with a “guaranteed” monthly payment (usually expressed as a percentage of the “base”) at a set age.  The benefit of this rider is that even if the portfolio value goes down, the payout will still continue.  Note the guarantee is that of the insurance company, so make sure that their financial statements are strong.

Like any tool that helps you achieve your goals, annuities are not for everyone, but they are a good fit for some.  They get a bad rap sometimes because of their cost, but for some the added cost is worth it and should be used (in our opinion) when it helps improve their plan success rate.

Do your friends ask you financial questions?
Pass those questions on to us at AskRPG@rootedpg.com and we will feature them in our future newsletters.

Asking for a Friend - What is a fixed annuity?

June 13, 2022

Question: What is a fixed annuity?

Answer: A fixed annuity (not to be confused with a fixed-indexed annuity) has two initial components:

  1. Premium (the amount of money you contribute)

  2. Fixed interest rate, for a fixed period of time

Depending on the annuity there may be “free-withdrawal” amounts and “surrender periods.”

  1. Free-withdrawal amounts allow you to take a certain amount of the premium money each year, without a penalty. This would be in addition to the interest earned.

  2. Surrender period is the length of time you need to hold the annuity without any penalty for withdrawing the premium.

You can later elect to “annuitize” a fixed annuity, which moves it from the asset bucket to the income bucket. When something is annuitized, you can base it on a single life expectancy or joint life expectancy.

You can also elect to have a set number of years written into the payout, for example we often see Single-Life with a 10-year guarantee. This means that if something should happen to you in that 10-year window, the annuity will continue to pay your beneficiaries for the remaining 10-years; if you’ve already received 10-years of payment, the payments cease.

Who is this product good for? Someone who is more concerned about principal preservation than growth or inflation.

Do your friends ask you financial questions?
Pass those questions on to us at AskRPG@rootedpg.com and we will feature them in our future newsletters.

Asking for a Friend - A friend told me I shouldn't buy an annuity, that they are too expensive - what are your thoughts?

June 06, 2022

Q: A friend told me I shouldn't buy an annuity, that they are too expensive - what are your thoughts?

A: I think like any investment, not every product is right for every person.  Annuities often do have a higher cost associated with them than some investment products, but they also have some different features.  Understand, annuities are at their core an insurance product, and like any insurance product, there is a cost.  The question we need to ask is, “am I willing to pay for the added features.”  Just like when you are reviewing your home or auto insurance, do you want certain features, or do you want to self-fund?

We believe that annuities have a bad reputation because the products haven’t been fully explained or understood as to how they fit within someone's financial plan.  

As a fee only firm, we don’t receive a commission when we recommend an annuity, and we are thrilled that more and more top insurance companies (Prudential, Nationwide, Allianz, TransAmerica) are offering these products to fee only financial planners now, but there is still an underlying cost, just like mutual funds and exchange-traded-funds have some underlying costs associated with them.

Where we see them most beneficial to clients is when they can give an income stream that is “pension like.”  Shifting some of your invested assets to generate an income stream gives some people comfort and allows them to worry less, especially during market corrections.  Is there a cost to this? Yes, there is, but if the cost-benefit analysis works for you, then it is a good solution.

If you think about it, isn’t Social Security a type of annuity?  How does this play into your plan?  You are paying into the system while you work, and it generates an income stream once you get to a certain age.  If you take that income stream out of the plan and invest it instead, will the plan be better?  Each person's answer will be different because of their personal risk and investment return and when they start drawing on the investment.  This is a topic we will explore more this month as well.

It’s important to understand, there are different types of annuities that exist, and each have a separate purpose:

  • Fixed Annuities

  • Variable Annuities

  • Fixed Index Annuities

  • Immediate Annuities

  • Contingent Deferred Annuity

Stay tuned over the next few weeks as we will be spending time digging in and explaining each of them more in depth.

Do your friends ask you financial questions?
Pass those questions on to us at AskRPG@rootedpg.com and we will feature them in our future newsletters.

Asking for a Friend - Should I move my money out of the stock market right now?

May 31, 2022

Q. Should I move my money out of the stock market right now?

A. Our quick and to the point answer is no.  We believe you should be buying right now, not selling.

  • But listen, we know this is scary.  Gas prices are high, short-term inflation is high, the stock market is down, and the big bad “r” word is becoming mainstream news.  Are we headed for a recession?  Perhaps, the goal of rising interest rates is meant to slow down the economy, so maybe we are headed for a cycle trough in the business cycle.  All these play on our emotions.

  • In the first quarter of 2022, the US gross domestic product contracted 1.4%, consumer spending is slowing, but slowing doesn’t mean recession, it just means slowing.  At this stage of the game, we believe it is a confidence issue, but spending appears to actually be holding up.

Want to geek out with the numbers with us? 

See our resource page that contains the May Chartbook and Volatility and Staying Invested to show the stats.

Do your friends ask you financial questions?
Pass those questions on to us at AskRPG@rootedpg.com and we will feature them in our future newsletters.

Asking for a Friend - I've done well on the savings front with long-term 529 investing. Now how do I ensure proper withdrawals?

May 23, 2022

Q: I’ve done well on the savings front with long-term 529 investing. Now how do I ensure proper withdrawals?

Answer:

  • When taking distributions, be sure not to double count the tax credits (American Opportunity Tax Credit and Lifetime Learning Credit).

  • Make sure you keep the documentation in the event you are audited.

  • USE FOR QUALIFIED EXPENSES:

    • Tuition and fees. Room and Board.

    • Must be enrolled half time.

    • Off Campus allowed up to school’s billed rate.

    • Books and Required Supplies.

    • Computer and Computer Equipment required for student’s education and used primarily by the student.

  • NOT QUALIFIED:

    • Cell phone.

    • Travel or Transportation.

    • Insurance.

    • Health Club / Gym Memberships.

For more information, see When and How to Use 529 Funds - on our resource page

Do your friends ask you financial questions?
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Asking for a Friend - Should I use the 529 funds I saved first, or save those accounts for later?

May 16, 2022

Q: Should I use the 529 funds I saved first, or save those accounts for later?

A: As always, it depends, but here are some things to consider.

  • Non-qualified 529 plan distributions - earnings are subject to income tax and a 10% penalty (sometimes local taxes too), so you want to make sure you use the 529 funds for college.

  • However, you may still want to use the available student loans (Stafford) to fund some of the costs of college, because once the semester passes, you can’t go back on the loan amount you waived; you can now repay $10,000 of the student loan with the 529, so this might make the dollars stretch.

  • But understand, loans come with fees, so using the 529 plan can help you avoid those potentially avoiding the cost of origination fees:

    • Direct - 1.057%

    • PLUS - 4.228%

  • And of course, potentially avoiding interest on loans:

    • Direct - 3.73% - 10/01/2021 - 10/01/2022

    • Graduate - 5.28% - 10/01/2021 - 10/01/2022

    • PLUS - 6.28% - 10/01/2021 - 10/01/2022

Note to Grandparents: this is the time to discuss how these contributions affect financial aid

For more information, see When and How to Use 529 Funds - on our resource page

Do your friends ask you financial questions?
Pass those questions on to us at AskRPG@rootedpg.com and we will feature them in our future newsletters.

Asking for a Friend - I know I need to save for college, but is a 529 plan the best place to save?

May 02, 2022

Q. I know I need to save for college, but is a 529 plan the best place to save?

A. The growing costs of college is one of the main concerns we hear from our clients with children; as you can see by the chart below, there is good reason for that concern.  

When it comes to where to save, we recommend that you diversify your college savings plan, just like we recommend that you diversify your retirement savings plan.  Here are some videos regarding 529 plans that might be of interest to you and the chart below provides you with ideas of the types of accounts you may have heard of for college savings.

Do your friends ask you financial questions?
Pass those questions on to us at AskRPG@rootedpg.com and we will feature them in our future newsletters.

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