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Unleash the Power of Education – Your Guide to 529 Plans

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By Steven T. Merkel, CFP®, ChFC®


In an increasingly competitive and high-skilled job market, a college education is almost a necessity for young people who are jumpstarting their careers. Many employers are demanding a college-educated workforce, and the rise of technology and automation is steadily replacing millions of blue-collar jobs.


Higher education serves as the key that unlocks the door to success and upward mobility, but the opportunities afforded by a college degree come at a cost. College tuition and fees have skyrocketed over the past 40 years, increasing at nearly twice the rate as medical care (see figure 1).


Although public and private university expenses have risen at a comparable rate, the raw increase in costs for private institutions has been far more drastic (tuition and fees at private universities have gone up by more than $19,000 annually – see figure 2).


By steadily saving throughout your lifetime for this investment in your child and grandchildren, you can position them for future success in their career and help to alleviate the burden of student loan debt that could otherwise loom in their future.


Although there are many ways to save, 529 college savings plans are the most popular and effective vehicle for unleashing the power of education in your child or grandchild’s life.


Let’s take a closer look at how 529 plans work, the benefits and limitations of these accounts, and how the new tax law has impacted 529 plans.



Figure 1. The cost of college tuition and fees has increased by more than 1,000% during the 35-year period of 1968-2013 – far outpacing the rate of increase in healthcare, housing and other commodities.



Figure 2. For private universities in the U.S., the average cost of tuition and fees for the 2017-2018 academic year is $34,740. For public colleges and university, tuition and fees in 2017 dollars have more than tripled since 1987.


A 529 college savings plan is a tax-advantaged account that is specifically designed for future education expenses. When you establish a 529 plan, you designate a single beneficiary (typically a child or grandchild) who is the intended recipient of the savings.


The funds in this account may be utilized on behalf of the student at any college, university, trade school, or post-secondary institution that is recognized by the Department of Education (when in doubt, check with the school or institution regarding their eligibility).


As the custodian, you have control over the account. The beneficiary of the plan can be updated at any time, and the funds from one 529 plan may be rolled over to another 529 plan without penalty.


In terms of asset allocation, you have the ability to choose from a range of mutual fund and exchange-traded fund (ETF) portfolios based on your risk tolerance and savings target. Consult with your advisor for more details on which 529 investment strategy is best suited for your needs.


Every state in the U.S. sponsors some form of a 529 savings plan. More than 30 states provide you with tax benefits when you contribute funds to the account (typically in the form of claiming a deduction on your state income taxes).


Most states also exempt you from paying state taxes on the earnings of the 529 plan when you make withdrawals for qualified education expenses. The specifics of these plans can vary significantly state-by-state (see figure 3).


For all 529 plans, you do not pay any federal income taxes on earnings within your account as long as the withdrawals go towards qualified education expenses (see figure 4).


TIP: When making withdrawals from the 529 plan, you should maintain records of all qualified education expenses you have incurred. In the unlikely event that you are audited, the IRS may request documentation.


Figure 3. 529 plans are sponsored at the state level and are subject to different tax benefits. Some states offer a generous deduction on state income taxes, while others offer tax benefits upon withdrawal of funds for qualified education expenses.



Figure 4. If withdrawals from your 529 plan are spent on qualified higher education expenses, the earnings in the account are not subject to federal income tax (and are typically exempt from state income tax as well).


TIP: Under the new tax law, states have been granted the ability to classify tuition and fees for private K-12 schools – up to $10,000 – as qualified education expenses (check your home state’s 529 rules).



529 Plan Rules

As with most tax-advantaged investment accounts, 529 college savings plans are subject to legal restrictions:


Annual gift tax exclusion – Another advantage of 529 plans is the potential to apply contributions towards your gift tax exemption for the year. While leveraging this tax benefit is a great perk, there may be significant gift tax consequences if you contribute more than $15,000 per year individual limit ($30,000 for married couples) to a particular beneficiary.


We encourage you to be mindful of any other expenses you have applied to the gift tax exemption and to adjust your 529 contributions each year so that you fall below the $15,000 GST threshold ($30,000 for married couples).


Exception: Most 529 plans allow you to make a one-time, lump-sum contribution of up to $75,000 ($150,000 for married couples) to the account – as long as you do not gift any additional money to the account beneficiary over the course of the next five years. In essence, you can deposit five years’ worth of contributions at one time instead of contributing $15,000 annually.


Note: Additional contribution limits may apply to your account based on the regulations in place for your state’s plan.


Non-qualified withdrawals – Although you are technically allowed to take withdrawals from the 529 plan for expenses other than the qualified items listed in Figure 4, the earnings portion of these distributions are subject to 10% withdrawal penalty. In short, taking non-qualified withdrawals negate the tax benefits of the account.


Some examples of expenses that are classified as non-qualified include transportation costs, health insurance (even university-sponsored coverage) and student loan repayments.



Changes under the New Tax Law

The Tax Cuts and Jobs Act of 2017 had a direct impact on two key areas of consideration for 529 plans.


First, states have been granted the ability to classify tuition and fees for private and religious K-12 schools – up to $10,000 – as qualified education expenses. Most states have not yet codified this new rule into their respective 529 plans, but the notion of tax-efficient savings for primary education is certainly encouraging for those who have children and grandchildren enrolled in private schools.


Secondly, you now have the ability to roll over funds from a traditional 529 account to a 529 ABLE account. ABLE accounts are specifically designed to enhance quality of life for Americans with disabilities. This new law does not impact your ability to roll over funds from one 529 plan to another 529 plan.


In contrast, the following areas have not been impacted by the tax reform legislation:

  • Coverdell Education Savings Accounts
  • American Opportunity Tax Credit (AOTC)
  • Student Loan Deductions
  • Exemption of Tuition Fee Waivers from Taxable Income



Investing in the Next Generation

A 529 plan is an outstanding vehicle for preparing your children and grandchildren to pursue successful careers, as well as mitigating the massive debt burden they could accrue during their collegiate experience.


To further sweeten the pot, 529 plans also carry significant tax advantages for you – serving as an excellent tool for gifting funds to future generations.


Figure 5. The upsides to leveraging 529 plans as an education savings tool are wide-reaching.


Time and time again, our CAS team has witnessed the success of 529 plans in unleashing the power of education for future generations. Contact your advisor to discover more about how we can work together to provide a bright future for posterity while capitalizing on opportunities for tax efficiencies within your investment portfolio.




Figure 1 – Bureau of Labor Statistics, 2013 Consumer Price Index (CPI)
Figure 2 – College Board, 2017 Annual Survey of Colleges
Figure 3 – Saving for College, 2017: How much is your state’s 529 plan tax deduction really worth?

Opportunities Abroad

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By Jasen Gilbert, CFP®


The strong performance of the S&P 500 and the Dow Jones Industrial Average in 2017 was an encouraging sign for investors. While the above-average returns of U.S.-based investments receive a lot of attention in financial news outlets, international equity markets often fly under the radar.


As our team evaluated performance benchmarks both at home and abroad, we observed that the surge in U.S. equity markets mirrored a bullish trend that is happening across the globe. The scorecard is in: International markets – and especially emerging markets – actually outpaced the S&P 500 in 2017 (see figure 1).


The big question: Is the recent boom in international equity markets a fluke, or is it a sign of a greater long-term trend?


Figure 1. A comparison of 2017 market performance for three indices indicates that international markets outperformed U.S. benchmarks. Emerging markets led the way with a 33% return.



The Global Economic Reset

As with U.S. markets, international equity markets are cyclical by nature. After several years of lackluster performance, earnings in foreign markets are beginning to show the promise of recovery and growth (see figure 2a – the red line provides context for average annual returns).


We also observed that – despite modest growth in the U.S. – much of the global economy had been experiencing a recession since 2015, with a marked decline in global GDP growth and annual returns that were far below average (see figure 2b).


Figure 2a. Similar to U.S. markets, international equity valuation is subject to cyclical fluctuations over time.


Figure 2b. The drop in global GDP in 2015-2016 was almost as severe as the Great Recession of 2008-2009.


In addition to the cyclical ebb and flow of equity value, various additional economic and geopolitical factors suggest that a sustained upward trend in international markets could be on the horizon. The underlying fundamentals that drive market growth are strong, which could give way to a phenomenon known as the Global Economic Reset. We see the potential opportunity for pent-up consumer demand – coupled with significant improvements to the balance sheets of global corporations – to be translated into growth.


First, we have monitored the earnings per share growth of the All Countries World Index (excluding U.S. markets) over the past five years. Earnings have finally begun to recover after several years of negative growth, and the projections for 2018 are quite optimistic by comparison (see Figure 3). When coupled with the corresponding trends in GDP growth shown in Figure 2b, the outlook for international investing appears to be promising.


Figure 3.


By expanding our vantage point to examine the past 35 years, we observe that annual GDP growth from 1981-2008 (the “pre-crisis” time period) averaged 7%. In comparison, annual GDP growth from 2008-2016 has been about 5% on average. We anticipate that this metric may move closer to the 7% equilibrium over the long term – indicating that several years of above-average returns may arise within the near future.


Figure 4. The post-recession GDP growth of nations outside the U.S. has lagged behind the average annual growth rate of 7% from 1981-2008.


In addition to the economic indicators shown thus far, geopolitical factors have also created a scenario that could be ripe for strong international investment performance. When citizens are dissatisfied with the state of their nation’s economy – particularly in the case of a prolonged recession – democratic elections tend to favor candidates that propose pro-growth policies.


Alternatively, the current government leadership that is seeking re-election will make an effort to respond to the pleas of their business owners and workers so they can retain power. The results of upcoming elections and other political developments across the EU and Asia could have a profound impact on the growth outlook of the global economy.


Last by not least: Global corporations have made significant strides in improving their balance sheets. Whereas the ACWI debt-to-equity ratio for corporations ballooned to more than 32% in the early 2000s, a massive amount of debt has been paid off in the lead-up to the Global Economic Reset. The current debt-to-equity ratio is now about 23% – meaning that global corporations have much more capital to invest in the production of goods, delivery of services and labor (see figure 5).


Figure 5. Global corporations have made significant progress in reducing the amount of debt on their balance sheets, opening the door to more capital investment.


The synergy of these economic and political factors have created a “perfect storm” with the potential for strong international investment performance over the next few years. As a result of this trend, you could be well-served to include non-U.S. investments as a component of your diversified portfolio.



Balance in All Things

In addition to building a diversified investment portfolio for you, our CAS team works with our custodian partners to ensure that your international holdings are being rebalanced based on market trends and outlook in the global sector. Rebalancing involves a regular evaluation of how to best represent different equity classes in your portfolio.


In our evaluation, we consider a wide range of factors – two of which are national/regional performance trends and performance by industry. To illustrate this, let’s take a closer look at emerging markets in particular.


In figure 6, we observe that the international investing landscape has changed drastically since the late 1980s. As an example, Malaysia represented a large cross-section of the emerging markets universe in 1988; today, Malaysia is no longer a major player. China, Korea and Taiwan have emerged as the leading emerging markets, whereas many of the Latin American economies have fallen from prevalence.


Clearly, international markets are subject to the same steady, constant changes as U.S. markets, and the long-term effect of these fluctuations can lead to dramatic changes over the course of 30 years.


Figure 6. The emerging markets landscape has shifted dramatically over the past three decades, with Southeast Asia gaining prominence and Latin America/Malaysia receding.


The microcosm of emerging markets provides us with insights that can be applied broadly to the big picture of your financial plan. The need for diversification and regular rebalancing cannot be understated. By recognizing change and emerging opportunities over time and incorporating an appropriate balance of international markets within your portfolio, our team will work with you to capitalize on promising investing opportunities at home and abroad.

Contact your advisor to learn more about how CAS leverages international investments as part of your comprehensive financial plan.


Planning For Market Uncertainty in Retirement

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For investors, 2017 proved to be a rewarding year. The S&P 500 index rose by more than 20 percent, and the Dow Jones Industrial Average surged past both the 20,000 and 25,000 thresholds in a single year.


The trend of strong market returns has continued throughout January. The bull market that began in March 2009 continues to push forward, despite ongoing speculation from financial professionals that equity markets could be overvalued.


The real question is: How long will the market continue to rise and when will equity markets reach their peak? No one can provide a definitive answer, as market forces and fluctuations in value are largely beyond our control.



Cycling through History

Although historical performance is limited in its predictive ability, past performance does provide us with significant context for understanding big-picture trends. Recent history illustrates that a strong, sustained bull market often precedes a correction bear market, as inflated equity markets return to a more stable valuation and investor confidence begins to wane.


The decade-long bull market of the 1990s began to reverse course in 2000 in the wake of the “dot-com” bubble burst and the emergence of several major accounting scandals (in particular, Enron and Arthur Andersen). The once-burgeoning technology industry was especially hard-hit, with the NASDAQ losing 39% of value in 2000 (followed by losses of 21% and 31% in 2001 and 2002, respectively). The Dow also decreased by more than 27 percent during this three-year window.


Equity markets began to bounce back in late 2002, ushering in a new bull market that was sustained through late 2007. At this point, the sub-prime mortgage crisis (among other factors) led to the most drastic correction market since the Great Depression. All three major indices lost more than 50% of their value in 17 months (between October 2007 and March 2009).


Although we have knowledge of market cycles, we cannot say with certainty what the future holds. For this reason, it is critical for you to be prepared for the possibility of a bear market – especially if you are approaching retirement or are currently living on retirement investment assets today.


Figure 1. Performance of the S&P 500 index, Jan 1998 through Jan 2018.



Navigate Uncertainty with Preparation and Prudence

Above all, the most effective way to prepare for uncertainty in equity markets is to plan well in advance for your needs and priorities during retirement. To develop the “stepping stones” for future retirement success, we recommend that clients and their family members begin to work through the planning process with an advisor at least 8-10 years prior to their desired retirement date.


In our experience, the most effective retirement plans share two main characteristics: (1) a conservative draw rate and (2) a realistic, long-term approach to budgeting. With these provisions in place, you can build a strong, sustainable foundation for your financial success throughout retirement.


1. Be conservative when selecting your withdrawal rate. After working hard and accumulating assets throughout your lifetime, you will finally enter the asset distribution phase of life during retirement. As you begin to take distributions from your IRAs, 401(k)s and other investment accounts, you should exercise prudence when selecting your rate of withdrawal.


Your ideal withdrawal rate will vary based on your desired lifestyle (expenses) and your available asset base (income). That being said, we have generally seen great long-term success with a conservative draw rate of 4-5 percent.


When you begin to exceed 5 percent – especially once you enter the 7-9 percent range – it is likely that your withdrawal rate is not sustainable for the duration of your retirement. A high withdrawal rate – especially early in retirement – could cause your asset base to deteriorate at an alarming pace. As a result, you may find it difficult to meet expenses in your later years (especially with rising health care costs and uncertain market conditions).



Figure 2. Conservative draw rates can extend the lifespan of your retirement savings, regardless of fluctuations in the market.


2. Be realistic when developing your retirement budget. A detailed and well-thought-out budget for your retirement lifestyle is the key to determining your ideal withdrawal rate. Once you appreciate the full extent of your short-term spending priorities and long-term expenses throughout retirement, you can compare that figure to your asset base to determine the best withdrawal rate for your situation.


Apart from selecting a withdrawal rate that is too high, the biggest mistake you can make in retirement is to underestimate your expenses up front. When a retiree fails to plan for the inevitable costs that loom in their future, he or she will often take additional withdrawals beyond their predetermined distribution – which, in turn, threatens the long-term viability of their retirement savings.


Because budgeting is so crucial for promoting a sustainable retirement lifestyle, it is in your best interest to regularly consult with a financial expert to prevent overlooking key considerations and making costly mistakes.



As the current bull market enters its ninth year, we must not be lulled into a sense of false optimism or complacency. Our knowledge of market trends suggests that a bear market looms on the horizon; it is a matter of when, not if. Although the constant flux of market forces is beyond our control, you do have control over your expense budgeting and retirement income distributions.


While the specifics of your plan are dependent on your personal circumstances, the correct course of action when planning for your retirement lifestyle is preparation and prudence. With adequate foresight and consistent guidance from your advisory team, you can feel confident that your draw rates and spending habits will be sustainable throughout your golden years – regardless of the uncertainty that exists in the market.

Don’t Take the Bait!

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Online commerce and communications have become ubiquitous in the lives of millions of Americans. Whether it’s online banking, shopping or social media, the Internet plays an integral role of our society.


Unfortunately, opportunistic hackers and scam artists are often quite tech-savvy, and they are actively attempting to swindle people and sow chaos on your computer or mobile device. Every year, especially during the peak of the holiday shopping season, we observe an uptick in a particular type of online fraud: phishing.


Most phishing emails or text messages share one primary goal: getting you to click on a link or open an attachment. If you receive a suspicious email, the most important thing to remember is DO NOT CLICK on anything in the email! By clicking on the content, you are potentially unleashing a barrage of malware and viruses that could harm your computer or mobile device.


Releasing the malware may be the end goal of some phishing scams, but others go a step further to hijack your personal information for financial exploitation. For example, you may be directed to a fake website prompting you to enter your log-in credentials for a financial institution or to input other confidential information.


Although it is almost inevitable that you will receive a fraudulent email or text message, many of these scams possess several recognizable characteristics. By understanding the signs of a phishing message and remaining vigilant when opening your emails, you can significantly decrease the likelihood of “taking the bait” from a phishing scam.



Telltale Signs of Phishing

♦  The email starts with “Dear Customer” or another generic greeting.

♦  The email is written in broken English or contains an excessive amount of grammatical errors.

♦  Hover your curser over the sender’s name to reveal the sender’s real email address. If the real email address does not match the email address displayed, it is likely a scam.

♦  Do a Google search for the sender’s email address/phone number or the email subject line, followed by the phrase “phishing” or “scam”. Take a look at the first few results to see if the email has been previously identified as malicious.


If the email possesses any of these characteristics, delete it immediately.



Confirm Your Order?

The fake “order confirmation” email is especially prevalent during the holidays. You may receive an email that appears to be from an online retailer, asking you to confirm your purchase. The hacker’s goal when sending an order confirmation phishing email is for you to “review your order” by either clicking on a link or opening the email’s attachment.


Of all the various scams, these emails are perhaps the most enticing. If you did not order anything from the retailer in question, you may be tempted to click or open to see what was ordered. On the other hand, if you had recently purchased from the online retailer, you may assume it was for your legitimate purchase and click on the link or attachment.


If you have an account with the supposed sender, log in to your account and check your order history. If no purchases are listed, the email is a scam. If you do not have an account with the supposed sender, it is almost certainly a scam.


While it is likely that an unexpected order confirmation email is the work of a phishing scam artist, it is also possible that someone has hacked into one of your online retail accounts and made fraudulent purchases. Just in case, monitor your credit card and bank transactions for fraudulent transactions. If detected, report it to the financial institution as soon as possible.



This holiday season, be vigilant when handling suspicious emails or text messages. By following the guidelines in this article and remaining aware of the signs of phishing emails, you can protect yourself and your devices from falling prey to the malicious attempts of online scam artists.

Tax Breaks for Continuing-Care Retirement Communities

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Paul F. Ciccarelli, CFP®, ChFC®, CLU®


For affluent seniors, a continuing-care retirement community (CCRC) can be an attractive alternative. These centers offer a full range of services, from independent living to skilled nursing. If you strolled through some of these CCRC campuses, you might think you were at a country club.


For those who could conceivably afford to live in a continuing-care retirement community, here’s a bit of good news: A little-known tax break could significantly lower your costs. Proper investment and tax planning can provide tremendous opportunities to enhance your future cash flow and financial positioning for the remainder of your lifetime.



The tax-saving idea here is that you may be able to deduct part of the CCRC’s one-time entrance fee and ongoing monthly fees as medical expenses. This is the case even if you currently live independently at the CCRC and require little to no care. In other words, you are allowed to claim a deduction for prepaid medical expenses, regardless of your current health status. Since the CCRC fees can be quite steep, significant write-offs may be allowed despite the 7.5% of adjusted gross income floor for deductible medical expenses.


The concept of prepaid medical deductions might sound too good to be true, but it is legitimate. For skeptical readers, consider the 2004 Tax Court decision, D.L. Baker v. Comm’r [122 TC 143, Dec. 55, 548 (2004)]. The Bakers decided to take their case to the Tax Court, which turned out to be a wise move – because they won big.


The Tax Court’s 2004 decision is good news for seniors because it confirms that you can treat a significant percentage of the one-time entry fees and recurring monthly charges as prepaid medical expenses. Even better, the amount that can be treated as medical expenses doesn’t in any way depend on the level of healthcare services you actually received during the year in question. They depend only on the CCRC’s aggregate medical expenditures in relation to overall expenses or revenue from fees paid by the residents. Any CCRC worth considering should have estimates of these percentages available for you to evaluate.


Because of the significant planning opportunities available to individuals moving into a CCRC, I strongly recommend that you seek advice from a qualified financial planner, a CPA or an attorney before making your final decision. Keep in mind that the deduction for the initial entrance fee and the ongoing monthly fees is a “use it or lose it” deduction. In other words, you will need to plan out your taxable income to ensure maximum benefit from these significant tax deductions.

How Secure Is Social Security?

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If you’re retired or close to retiring, then you’ve probably got nothing to worry about – your Social Security benefits will likely be paid to you in the amount you’ve planned on (at least that’s what most of the politicians say). But what about the rest of us?



Media Onslaught

Watching the news, listening to the radio, or reading the newspaper, you’ve probably come across story after story on the health of Social Security. And, depending on the actuarial assumptions used and the political slant, Social Security has been described as everything from a program in need of some adjustments to one in crisis requiring immediate, drastic reform.


Obviously, the underlying assumptions used can affect one’s perception of the solvency of Social Security, but it’s clear some action needs to be taken. However, even experts disagree on the best remedy. So let’s take a look at what we do know.



Just the Facts

According to the Social Security Administration (SSA), over 60 million Americans currently collect some sort of Social Security retirement, disability or death benefit. Social Security is a pay-as-you-go system, with today’s workers paying the benefits for today’s retirees. (Source: Fast Facts & Figures about Social Security, 2016)


How much do today’s workers pay? Well, the first $127,200 (in 2017) of an individual’s annual wages is subject to a Social Security payroll tax, with half being paid by the employee and half by the employer (self-employed individuals pay all of it). Payroll taxes collected are put into the Social Security trust funds and invested in securities guaranteed by the federal government. The funds are then used to pay out current benefits.


The amount of your retirement benefit is based on your average earnings over your working career. Higher lifetime earnings result in higher benefits, so if you have some years of no earnings or low earnings, your benefit amount may be lower than if you had worked steadily.


Your age at the time you start receiving benefits also affects your benefit amount. Currently, the full retirement age is in the process of rising to 67 in two-month increments, as shown in the chart:


You can begin receiving Social Security benefits before your full retirement age, as early as age 62. However, if you retire early, your Social Security benefit will be less than if you had waited until your full retirement age to begin receiving benefits.


Specifically, your retirement benefit will be reduced by 5/9ths of 1 percent for every month between your retirement date and your full retirement age, up to 36 months, then by 5/12ths of 1 percent thereafter.


Example: If your full retirement age is 67, you’ll receive about 30 percent less if you retire at age 62 than if you wait until age 67 to retire. This reduction is permanent – you won’t be eligible for a benefit increase once you reach full retirement age.



Demographic Trends

Even those on opposite sides of the political spectrum can agree that demographic factors are exacerbating Social Security’s problems–namely, life expectancy is increasing and the birth rate is decreasing. This means that over time, fewer workers will have to support more retirees.


According to the SSA, Social Security is already paying out more money than it takes in.  However, by drawing on the Social Security trust fund (OASI), the SSA estimates that Social Security should be able to pay 100% of scheduled benefits until fund reserves are depleted in 2035. Once the trust fund reserves are depleted, payroll tax revenue alone should still be sufficient to pay about 75% of scheduled benefits.


This means that in 2035, if no changes are made, beneficiaries may receive a benefit that is about 25% less than expected. (Source: 2017 OASDI Trustees Report)



Possible Fixes

While no one can say for sure what will happen (and the political process is sure to be contentious), here are some solutions that have been proposed to help keep Social Security solvent for many years to come:

♦ Allow individuals to invest their current Social Security taxes in “personal retirement accounts”

♦ Raise the current payroll tax

♦ Raise the current ceiling on wages currently subject to the payroll tax

♦ Raise the retirement age beyond age 67

♦ Reduce future benefits

♦ Change the benefit formula that is used to calculate benefits

♦ Change how the annual cost-of-living adjustment for benefits is calculated



Uncertain Outcome

Members of Congress and the President still support efforts to reform Social Security, but progress on the issue has been slow. However, the SSA continues to urge all parties to address the issue sooner rather than later, to allow for a gradual phasing in of any necessary changes.


Although debate will continue on this polarizing topic, there are no easy answers, and the final outcome for this decades-old program is still uncertain.



What Can You Do?

The financial outlook for Social Security depends on a number of demographic and economic assumptions that can change over time, so any action that might be taken and who might be affected are still unclear.


But no matter what the future holds for Social Security, your financial future is still in your hands. Focus on saving as much for retirement as possible, and consider various income scenarios when planning for retirement.


It’s also important to understand your benefits, and what you can expect to receive from Social Security based on current law. You can find this information on your Social Security Statement, which you can access online at the Social Security website, www.socialsecurity.gov by signing up for a my Social Security account. Your statement contains a detailed record of your earnings, as well as estimates of retirement, survivor, and disability benefits. If you’re not registered for an online account and are not yet receiving benefits, you’ll receive a statement in the mail every year, starting at age 60.




Broadridge Investor Communication Solutions, Inc. does not provide investment, tax, or legal advice. The information presented here is not specific to any individual’s personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances. These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable—we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.

Hale & Hearty: The Aging Dilemma

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Should a 70-year-old American be considered “old”? Statistically, your average 70-year-old has just a 2% chance of passing away within a year. The estimated upper limit of today’s average life expectancy is 97 years old, and a rapidly growing number of 70-year-olds will live past age 100.


Perhaps more importantly, many 70-year-olds today are in much better shape than their grandparents were at the same age. So how do you define the term “old” in today’s environment of increasing longevity? In most developed countries, healthy life expectancy after age 50 is growing faster than life expectancy itself, suggesting that the “old age” period of diminished vigor and ill health is often deferred until a person has reached their early to mid-80s.



A recent series of articles in The Economist suggests that we need to devise a new term for people between the ages 65 to 80, who are generally “hale and hearty”; a group of individuals who are capable of performing knowledge-based work on an equal footing with 25-year-olds, but are increasingly being shunted out of the workforce by their younger counterparts. The article suggests that if this 65-to-80 cohort does not start participating in the workplace at a higher rate, the impact on our economy and society could be catastrophic.


Globally, a combination of falling birth rates and increasing lifespans threatens to increase the old-age dependency ratio – the ratio of retired people to active workers – from 13% in 2015 to 38% by 2100. This lopsided ratio could lead to major fiscal strains on our pension and Social Security systems, because fewer workers will be paying into the retirement benefits for an ever-increasing pool of retirees.


How can this dilemma be addressed? The articles note that whenever a new stage of life is defined and popularized, a wave of profound societal and economic changes have followed.


For instance, the conception of childhood in the mid-19th century paved the way for child labor and protection laws, compulsory schooling and the emergence of new businesses that focus on children (from toy making to children’s books). Another example: when teenagers were first identified as a distinct demographic in the 1940s, the value of the U.S. economy increased substantially as a result of their willingness to work part-time and to freely spend their income on new goods and services.


Instead of classifying people between the ages of 65-80 as “old” or “retired”, we should consider defining a new stage of life that recognizes the contributions of senior citizens and encourages capable people to continue participating in the workforce.


Fortunately, an increasingly large constituency of people ages 65-80 has transitioned into the “gig economy”, taking on part-time roles that emphasize knowledge and relationships. They are often content to work part-time, are not actively looking for career progression, and are better able to deal with the precariousness of such jobs. Businesses that seek on-demand lawyers, accountants, teachers, personal assistants and drivers are finding plenty of recruits among older people.


Still others are preparing for life beyond retirement by becoming entrepreneurs. In America, people between ages 55 and 65 are 65% more likely to start a new business than people who are 20-34 years old.  In Britain, 40% of new business founders are over age 50, and 60% of employed people over age 70 are self-employed.



One of the largest economic contributions made by older people is often overlooked: volunteerism and child care support. More than 40% of Americans ages 65+ regularly volunteer their time and talent to serve their communities.  In Italy and Portugal, about 20% of grandmothers provide daily care for a grandchild. That frees the parents to work longer hours and save a huge bundle on child care services.


All of these changes are indicative of a reality that is not well-publicized: that the traditional retirement age increasingly makes no sense in terms of our senior citizens’ health, longevity and ability to contribute to our society. The sooner we find an appropriate classification for healthy people between the ages of 65-80, the faster we can begin to fully appreciate their potential to contribute.




Special thanks to Bob Veres for his commentary

The Secret to Productivity – Give Me a Break!

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For generations, the tried-and-true eight-hour workday was widely considered to be the gold standard of workplace productivity.


However, the eight-hour workday is gradually becoming a relic of the past. Before the advent of modern technology, workers were dependent on sunlight in order to complete tasks, whether it was harvesting citrus, hand-weaving cloth on a loom, or welding doors to a Model T. That being said, the concept of working 9-to-5 does not jive with how the human brain functions.


A 2014 study conducted by the Draugiem Group – a productivity consulting firm based in Latvia that works with Proctor & Gamble, Nokia, Samsung, Nestle, L’Oréal and Siemens – measured how much time workers spent on various tasks and compared this to their productivity levels. A computer application tracked both their work habits and outcomes.


The researchers discovered that the length of the workday was fairly inconsequential; rather, the main driver of productivity was how people structured their day.


People who worked longer hours were typically less productive than those who made a habit of taking short, regular breaks.


The most productive workers would spend an average of 52 minutes of concentrated work, followed by 17 minutes of rest. That formula allowed them to be 100% dedicated to the task they needed to accomplish without being distracted. When productive workers felt fatigued, they completely separated themselves from their work for a brief period of time. Then, they would dive back into their work – refreshed and ready for another hour of focused productivity.


The findings of the study indicate that the brain naturally functions in spurts of high energy followed by low-energy phases. In order to maximize your productivity, take a quick lap around the office, grab a snack or give yourself a brief reprieve from the daily grind!



 Special thanks to Bob Veres for his commentary.


Helping Your Grandchildren Pay for College

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As the cost of a college education continues to climb exponentially, many grandparents are stepping in to assist their grandchildren in the pursuit of higher education.


Funding your grandchild’s college education not only brings you great personal satisfaction; doing so also provides you with a smart, tax-efficient approach for passing your wealth and legacy to the next generation. We have outlined some of the methods you can use to invest in your grandchild’s educational advancement.



Outright Cash Gifts

A common way for grandparents to help grandchildren with college costs is to make an outright gift of cash or securities. However, this method has a couple of drawbacks. A gift that exceeds annual federal gift exclusion amount – $14,000 for individual gifts and $28,000 for gifts made by a married couple – might be subject to the gift tax or the generation-skipping transfer (GST) tax.


Another drawback is that a cash gift to a student will be considered untaxed income by the federal government’s aid application (FAFSA). Student income is assessed at a rate of 50%, so a large gift of cash or securities may impact your grandchild’s financial aid eligibility.


One workaround is for you to give the cash gift to your child instead of your grandchild, because gifts to parents do not need to be reported as income on the FAFSA. Another solution is to wait until your grandchild graduates college and then give them a cash gift that can be used to pay off student loans.



Pay Tuition Directly

Another option is to pay the college directly. Under federal law, any tuition payments that are made directly to a college will not be considered taxable gifts – regardless of the size of your payment – so you won’t need to worry about the annual federal gift tax exclusion.


Aside from the obvious tax advantage, paying tuition directly to the college ensures that your money will be used for the education purpose you intended. In addition, you would still have the option of giving your grandchild a separate, tax-free gift each year.


However, federal law exempts tuition payments only; room and board, books, fees, equipment, and other similar expenses do not qualify. Also, in some situations, the college or university may reduce your grandchild’s institutional financial aid by the amount of your payment.


Before sending a check to the school, ask the college how it will affect your grandchild’s eligibility for financial aid. If your contribution will adversely affect their aid package – in particular, the scholarship or grant portion – consider gifting the money to your grandchild after graduation to help him or her pay off student loans.



529 Plans

A 529 plan can be an excellent way for you to contribute to your grandchild’s college education, while simultaneously paring down your own estate. Contributions to a 529 plan grow on a tax-deferred basis, and withdrawals used for the beneficiary’s qualified education expenses are completely tax-free at the federal level.


There are two types of 529 plans: college savings plans and prepaid tuition plans. College savings plans are individual investment-type accounts; the funds can be used at any accredited college in the United States or abroad. Prepaid tuition plans allow prepayment of tuition at today’s prices for the limited group of colleges – typically in-state public colleges – that participate in the plan.


You may open a 529 account and name a grandchild as the beneficiary, or you can contribute to an already existing 529 account. In terms of contributions to the 529 account, you may elect to contribute a lump sum or contribute smaller amounts over time.


A major advantage of 529 plans is that individuals can make a single lump-sum gift to a 529 plan of up to $70,000 ($140,000 for joint gifts by married couples) and avoid federal gift tax. To do so, a special election must be made to treat the gift as if it were made in equal installments over a five-year period. No additional gifts can be made to the beneficiary during this timeframe.


Example: Mr. and Mrs. Ciccarelli make a lump-sum contribution of $140,000 to their grandchild’s 529 plan in Year 1, electing to treat the gift as if it were made over five years – annual gifts of $28,000 ($14,000 each) in Years 1 through 5 ($140,000 / 5 years). Because the amount gifted by each grandparent is within the annual gift tax exclusion, the Ciccarellis won’t owe any gift tax (assuming they don’t make any other gifts to this grandchild during the 5-year period). In Year 6, they can make another lump-sum contribution and repeat the process. In Year 11, they can do so again.


Significantly, this money is considered to be removed from your estate, even though the grandparent would still retain control over the funds. There is a caveat, however. If you or your spouse were to pass away during the five-year period, then a prorated portion of the contribution would be “recaptured” into the estate for taxation purposes.

Example: In the previous example, if Mr. Ciccarelli were to die in Year 2, his total Year 1 and 2 contributions ($28,000) would be excluded from his estate. But the remaining portion attributed to him in Years 3, 4, and 5 ($42,000) would be included in his estate. The contributions attributed to Mrs. Ciccarelli ($14,000 per year) would not be recaptured into the estate.


If you have determined that you want to open a 529 account for their grandchild, keep in mind that there is a double consequence for early withdrawal. If you need to withdraw money for something other than your grandchild’s college expenses, the earnings portion of the withdrawal is subject to a 10% penalty and will be taxed at your ordinary income tax rate.


Did you know…

  • If your grandchild doesn’t go to college or gets a scholarship, you can name another grandchild as 529 account beneficiary with no penalty.
  • Many states offer income tax deductions for contributions to their 529 plan.
  • A recent survey of grandparents revealed that over half were—or planned on—contributing to their grandchildren’s college education. (Source: Financial Research Corporation)
  • Each 529 plan has its own rules and restrictions, which can change at any time.


Regarding financial aid, grandparent-owned 529 accounts do not need to be listed as an asset on the federal government’s financial aid application. However, distributions (withdrawals) from that 529 plan are reported as untaxed income to your grandchild, and this income is assessed at 50% by the FAFSA. By contrast, parent-owned 529 accounts are reported as a parent asset on the FAFSA (and are assessed at 5.6%). Distributions from parent-owned plans aren’t counted as student income.


To avoid having the distribution from a grandparent-owned 529 account count as student income, one option is for you to delay taking a distribution from the 529 plan until after January 1 of your grandchild’s junior year of college (because there will be no more FAFSAs to fill out).


Another option is for the grandparent to change the owner of the 529 account to the parent. Colleges treat 529 plans differently for purposes of distributing their own financial aid. Generally, parent-owned and grandparent-owned 529 accounts are treated equally because colleges simply require a student to list all 529 plans for which he or she is the named beneficiary.




Investors should consider the investment objectives, risks, charges, and expenses associated with 529 plans before investing. More information about specific 529 plans is available in each issuer’s official statement, which should be read carefully before investing. Also, before investing, consider whether your state offers a 529 plan that provides residents with favorable state tax benefits. As with other investments, there are generally fees and expenses associated with participation in a 529 savings plan. There is also the risk that the investments may lose money or not perform well enough to cover college costs as anticipated.
Broadridge Investor Communication Solutions, Inc. does not provide investment, tax, or legal advice. The information presented here is not specific to any individual’s personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.
These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable—we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.

A Senior’s Guide to Housing

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As you grow older, your housing needs will likely change. Maybe you’ll get tired of doing yardwork. You might want to retire in Florida or live close to your grandchildren in New York. Perhaps you’ll need to live in a nursing home or an assisted-living facility. Or, after considering your options, you may even decide to stay where you are. When the time comes to evaluate your housing situation, you’ll have numerous options available to you.


Every housing arrangement has its pros and cons, and there are no “one-size-fits-all” housing solutions. By pondering and addressing the questions presented in this article, you will get a better feel for your ideal living situation during your golden years.




Independent Living

Are you able to take care of your home by yourself? Even if your answer is no, that doesn’t necessarily mean it’s time to move. Maybe a family member can help you with chores and shopping. Or perhaps you can hire someone to clean your house, mow your lawn, and help you with personal care. You may want to stay in your home because you have memories of raising your family there. On the other hand, change may be just what you need to get a new perspective on life.


To evaluate whether you can continue living in your home or if it’s time for you to move, consider the following questions:


  • How willing are you to let someone else help you?
  • Can you afford to hire help, or will you need to rely on friends, relatives, or volunteers?
  • How far do you live from family and/or friends?
  • How close do you live to public transportation?
  • How easily can you renovate your home to address your physical needs?
  • How easily do you adjust to change?
  • How easily do you make friends?
  • How does your family feel about you moving or about you staying in your own home?
  • How does your spouse feel about moving?



Moving in with Children

If you are moving in with your child, will you have adequate privacy? Will you be able to move around in your child’s home easily?


If not, you might ask him or her to install devices that will make your life easier, such as tub or shower grab bars and easy-to-open handles on doors.


You’ll also want to consider the emotional consequences of moving in with your child. If you move closer to your child, will you expect him or her to take you shopping or to include you in every social event? Will you feel as though you’re in their way? Will your child expect you to help with cooking, cleaning, and babysitting? Or, will he or she expect you to do little or nothing? How will other members of the family feel? Get these questions out in the open before you consider moving in.


Talk about important financial issues with your child before you agree to move in. This may help avoid conflicts or hurt feelings later. Here are some suggestions to get the conversation flowing:


  • Will he or she expect you to contribute money toward household expenses?
  • Will you feel guilty if you don’t contribute money toward household expenses?
  • Will you feel the need to critique his or her spending habits, or are you afraid that he or she will critique yours?
  • Can your child afford to remodel his or her home to fit your needs?
  • Do you have enough money to support yourself during retirement?
  • How do you feel about your child supporting you financially?



Assisted Living

Assisted-living facilities typically offer rental rooms or apartments, housekeeping services, meals, social activities, and transportation. The primary focus of an assisted-living facility is social, not medical, but some facilities do provide limited medical care. Assisted-living facilities can be state-licensed or unlicensed, and they primarily serve senior citizens who need more help than those who live in independent living communities.


Before entering an assisted-living facility, you should carefully read the contract and tour the facility. Some facilities are large, caring for over a thousand people. Others are small, caring for fewer than five people. Consider whether the facility meets your needs:


  • Do you have enough privacy?
  • How much personal care is provided?
  • What happens if you get sick?
  • Can you be asked to leave the facility if your physical or mental health deteriorates?
  • Is the facility licensed or unlicensed?
  • Who is in charge of health and safety?


Reading the fine print on the contract may save you a lot of time and money later if any conflict over services or care arises. If you find the terms of the contract confusing, ask a family member for help or consult an attorney. Check the financial strength of the company, especially if you’re making a long-term commitment.


As for the cost, a wide range of care is available at a wide range of prices. For example, continuing care retirement communities are significantly more expensive than other assisted-living options and usually require an entrance fee above $50,000, in addition to a monthly rental fee. Keep in mind that Medicare probably will not cover your expenses at these facilities, unless those expenses are health-care related and the facility is licensed to provide medical care.



Nursing Homes

Nursing homes are licensed facilities that offer 24-hour access to medical care. They provide care at three levels: skilled nursing care, intermediate care, and custodial care. Individuals in nursing homes generally cannot live by themselves or without a great deal of assistance.


It is important to note that privacy in a nursing home may be very limited. Although private rooms may be available, rooms more commonly are shared. Depending on the facility selected, a nursing home may be similar to a hospital environment or may have a more residential feel. Some on-site services may include:


  • Physical therapy
  • Occupational therapy
  • Orthopedic rehabilitation
  • Speech therapy
  • Dialysis treatment
  • Respiratory therapy


When you choose a nursing home, pay close attention to the quality of the facility. Visit several facilities in your area, and talk to your family about your needs and wishes regarding nursing home care. In addition, remember that most people don’t remain in a nursing home indefinitely. If your physical or mental condition improves, you may be able to return home or move to a different type of facility. Contact your state department of elder services for guidelines on how to evaluate nursing homes.


Nursing homes are expensive. If you need nursing home care in the future, do you know how you will pay for it? Will you use private savings, or will you rely on Medicaid to pay for your care? If you have time to plan, consider purchasing long-term care insurance to pay for your nursing home care.



There’s No Place Like Home

Before jumping into a new housing situation, it is imperative to be open about communicating your needs and desires. While open communication within your family unit should be your top priority, you may also benefit from the insight of various experts in the field of senior living.


Our CAS team has a wealth of experience in this arena, and can also connect you with professionals from a wide range of senior living communities in your area.


Broadridge Investor Communication Solutions, Inc. does not provide investment, tax, or legal advice. The information presented here is not specific to any individual’s personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.
These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable—we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.
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