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Life Insurance

4 Recent Innovations in Life Insurance Policies

By Life Insurance

Life insurance is no longer constrained to the inflexible policies our parents held. Here are some of the latest additions and innovations to give you more options than ever.

Today’s life insurance policies are not the policies our parents and grandparents grew up with and purchased. They offer more features and more customization, at a price lower than many consumers expect to pay.

In fact, a recent study showed that more than 50% of people assume that the cost of life insurance is three times higher than it actually is [1]. Furthermore, 44% of millennials, a group whose net worth continues to rise more rapidly than any other generation [2], overestimate the cost of term life insurance by more than six times.

Price, however, isn’t the only barrier holding people back from looking at what life insurance has to offer. Lack of information, explanation and time to research options, combined with the fact that no one enjoys thinking about and planning ahead for their own death, can make life insurance a tough subject.

New life insurance policy features are designed to quell those worries, as insurance companies look for more ways to build client-oriented policies. Here are some of the latest innovations in the life insurance industry:

  1. Cash Value Component and Living Benefits

Life insurance used to be exactly what it might sound like: insurance for your life. In the event of their unexpected death, policyholders wanted to protect their families, usually by purchasing term life insurance. Term life insurance covers policyholders for a predetermined period of time, typically for a low monthly rate.

Now, carriers offer whole and universal life insurance, which are permanent policies with a tax-deferred cash value component that allows retirement planners to create another avenue to build a nest egg, or savers to save for other things, like college or self-funding a business startup venture. Though the cash value component often increases the monthly premium costs, with these types of policies, the cash value can grow at a rate guaranteed by the claims-paying ability of the insurance company.

One advantage of universal life as opposed to whole life is flexible premiums, allowing you to increase or decrease your premium and the amount that goes toward your cash value. Indexed universal life, a type of universal life insurance, can offer principal protection with market upside potential in correlation with a market index or indexes. (It’s important to understand that indexed universal life is a contract between a consumer and an insurance company, and unlike variable life insurance, isn’t actually subject to stock market risk.)

Permanent life insurance policies that can build cash value can be a good option for healthy younger investors with time and low likelihood of death in the near future. Depending on their situation, healthy retirees can also sometimes benefit from single-premium permanent life insurance which can provide tax-advantaged retirement income.

  1. Long-Term Care Hybrid Policies

Just as no one enjoys planning for their own death, no one likes to imagine needing long-term care. Unfortunately, 70% of people currently age 65 or older in America will need long-term care, with 20% needing support for longer than five years [3}. Additionally, Medicare does not cover long-term care, necessitating some sort of plan to pay for long-term care to avoid the accelerated depletion of funds in retirement.

One solution to the problem is a modern life insurance and long-term care hybrid plan. Obviously, the main sticking point and fear when it came to traditional long-term care insurance was the potential for not needing long-term care, and that fear was completely rational and well-founded. Older policies were “use-it-or-lose-it.” If you didn’t end up needing long-term care, all of those premiums you paid through the years were for nothing.

Now, hybrid policies provide flexibility. Policyholders have the ability to use their benefit to fund long-term care if they need it. If they don’t need it, it becomes a death benefit provided to their beneficiaries.

  1. Riders

One of the biggest expansions in life insurance is in the way you can customize a policy to your needs using a wide array of options available as riders that can be added to an insurance policy. A guaranteed insurability rider, for example, allows the policyholder to purchase more coverage without additional medical examination. It can be helpful to have a guaranteed insurability rider if you expect changes in circumstances that would have affected your original premiums.

Accidental death riders are also common, usually doubling the death benefit in the event that the policyholder dies in an accident. Additionally, accelerated death benefit riders can give the policyholder access to the death benefit if diagnosed with a terminal illness [4]. The amount accessed is typically subtracted from the death benefit, meaning that the policyholder’s beneficiaries receive a smaller death benefit, but it’s yet another example of a feature allowing access to funds during life.

  1. Better Support for Policyholders

Whether it be because of life insurance riders or enhanced operations, life insurance does not have to be difficult to obtain. Modern technology, increased access to better medical information and simplified underwriting have helped innovative companies that are always looking for ways to reach broader audiences with better products.

With an independent financial advisor who works with multiple insurance companies, you can find the insurance policy that suits your own unique situation and budget, with the most beneficial features and/or riders for your needs.

If you have any questions about life insurance and the latest advancements, please give us a call! You can reach Drew Capital Management in Tampa, Florida at (813) 820-0069.

 

Sources:

  1. https://lifehappens.org/research/life-insurance-is-on-peoples-minds/
  2. https://www.cerulli.com/press-releases/millennials-want-more-advice-and-are-willing-to-pay-for-it
  3. https://www.annuity.org/retirement/planning/average-retirement-income/
  4. https://www.investopedia.com/articles/pf/07/life_insurance_rider.asp

 

Several factors will affect the cost and availability of life insurance, including age, health, and the type and amount of insurance purchased. Life insurance policies have expenses, including mortality and other charges. If a policy is surrendered prematurely, the policyholder also may pay surrender charges and have income tax implications. You should consider determining whether you are insurable before implementing a strategy involving life insurance. Any guarantees associated with a policy are dependent on the ability of the issuing insurance company to continue making claim payments.

This site may contain links to articles or other information that may be on a third-party website. Advisory Services Network, LLC is not responsible for and does not control, adopt, or endorse any content contained on any third-party website.

Christopher Drew Featured on Yahoo! News

By News

Christopher Drew, the founder of Drew Capital Group, was recently quoted in an article discussing the pandemic’s effect on personal finances.

Among events like the pandemic, the Russian invasion of Ukraine and other world-shaking crises, the American economy has seen dramatic shifts over the past few years. It has many questioning how financial principles have been affected by the new state of reality.

Reporters turn to financial professionals like Chris Drew to answer questions about the state of the economy, personal finance and what you should do now. First and foremost, Drew believes it’s more important than ever to follow timeless money management principles, and to be cautious about spending at the moment. “Be more cautious about your spending habits due to the increase in inflation,” Drew said. Now may be the time to save for long-term goals and reassess priorities.

Other financial professionals and journalists agree, pointing out the importance of saving for the future rather than indulging in goods that only provide instant gratification.

The article also highlighted a change in life philosophy, with more Americans prioritizing family and experiences over possessions. That adjustment appears to have consumers managing their finances with more sentimental goals, focusing on making memories rather than the acquisition of material goods.

Drew outlined the importance of your relationship with your financial advisor. While advisors should always be reaching out and keeping clients in the loop like he does, it’s never a bad idea for clients to pick up the phone and inquire themselves, especially when markets are volatile.

“Because of economic factors affecting the market in today’s environment–such as interest rate hikes, the war between Russia and Ukraine, and a massive spike in inflation–we have had to make adjustments to portfolios along with asset allocation changes to help reduce the [impact of] overall volatility of the markets,” Drew said.

Picked up by multiple media outlets, you can read the entire article on Yahoo!, Yahoo! News, MSN, AOL and GoBankingRates.

 

If you have any questions about ways you can protect your finances from the impact of stock market volatility, please give us a call. You can reach Drew Capital Management in Tampa, Florida at (813) 820-0069.

 

This material is provided as a courtesy and for educational purposes only.  Please consult your investment professional, legal or tax advisor for specific information pertaining to your situation. Advisory services offered through Drew Capital Management, a Member of Advisory Services Network, LLC. Insurance products and services offered through Drew Capital Group. Advisory Services Network, LLC and Drew Capital Group are not affiliated.

As Featured In

What is COLA, and How Does it Affect Retirement?

By Retirement, Social Security

The COLA on Social Security is projected to increase benefits by more than 10%. How does that affect your retirement?

Inflation in the United States is at a 40-year high, and the entire country seems to be feeling the squeeze of rising prices, regardless of income level. Though the debate over the cause of current inflation rates rages on, one thing seems to be certain: the cost of everyday goods, like rent, gas and food, continues to rise [1].

Understandably, that leaves American consumers with questions and concerns. First, as the value of the dollar decreases, which lifestyle adjustments can be made to compensate for the loss in buying power? Second, won’t somebody do something?

This year, the Federal Reserve has taken action by raising interest rates several times in an effort to curb spending and cut demand, ideally forcing the price of goods down, or at the very least, leading them to stagnate [2]. But lately, the Fed has been criticized by experts worried that their actions may not be having the desired effect, but instead may be bringing on a recession [3].

So, what other actions does the government take to protect people from inflation? For retirees and those collecting Social Security benefits, the Social Security Administration began implementing an annual COLA almost five decades ago.

What is a COLA?

No, it’s not the tasty drink you order when you first sit down at a restaurant. COLA stands for “cost-of-living adjustment” and was first introduced by the Social Security Administration in 1975 in an effort to counter inflation for beneficiaries relying on those funds [4]. Beneficiaries of Social Security, which include individuals who have reached the age of 62 or have qualifying disabilities, can receive an increase in their benefit based on the Department of Labor’s Consumer Price Index for Urban Wage Earners and Clerical Workers, or the CPI-W.

For example, at the beginning of this year, Social Security beneficiaries may have noticed their checks increasing by 5.9%. That increase didn’t happen by chance or because of a missed decimal point in the accounting department. It was a carefully constructed adjustment based on 2021’s inflation rate, ideally giving those living on fixed income a chance against rising costs.

And next year’s COLA for 2023 could be the highest we’ve seen since 1981.

How does this affect retirees?

Retiring isn’t easy, and there’s a reason workers open IRAs and employer-sponsored retirement accounts, like 401(k)s, early in their careers to begin building for the future. Retirement comes with a great deal of financial risk, and one of the biggest contributors to that risk is inflation.

Retirees often live on fixed incomes, withdrawing money from savings accounts, retirement accounts, pensions, annuities, investments and Social Security to cover their living expenses. Though a proper financial plan accounts for inflation, it can be difficult to foresee spikes like the one in 2022, potentially upsetting expectations of how long your money will last. Though imperfect, the COLA can offer retirees increases to one of their main sources of income in retirement, hopefully offsetting change that can occur over the course of decades.

What is the next COLA expected to be, and when can I expect it?

A recent COLA projection made headlines with an eye-popping number. The Senior Citizens League estimates that Social Security beneficiaries could see a 10.5% COLA, meaning that the average monthly benefit could increase by about $175[5].

That estimate has steadily climbed over the past few months, though it’s certainly not yet set in stone. The Social Security Administration will announce the next COLA in October, and it will go into effect in January of 2023.

Are there any problems with COLA?

Though an increase in your Social Security check might sound entirely positive, there are drawbacks to COLA and the problems it aims to correct. The COLA is intended to cover the difference between the current cost of living and the previous year’s cost of living, but it is possible that the extra money in your benefit will only partly cover your increased living expenses.

The COLA is not directly aligned with inflation, so it is possible for inflation to rise faster than Social Security’s adjustment. For example, in 2021, inflation climbed 7% [6] while the COLA only increased by 5.9% [7]. Similarly, the Social Security COLA can remain unchanged year over year, just as it did following 2009, 2010 and 2015 when inflation rose 2.7%, 1.5% and 0.7%, respectively [8].

While not completely reflective of each other, the COLA and inflation do correlate, and inflation is currently outpacing wages. In fact, in 2021, wages actually saw a 3.5% drop when living costs are accounted for [9]. Though this doesn’t directly affect Social Security beneficiaries, the Social Security trust funds are built by contributions from income taxes [10]. It stands to reason that inflation’s outpacing of wages would mean that the Social Security trust funds, which currently project to only be able to pay at their current rate until 2035, would deplete even quicker [11].

So, as someone who collects Social Security or hopes to in the future, what can I do?

First and foremost, we would always recommend speaking with your financial professional to assemble a proper plan for your retirement. The right financial plan can be the difference between having adequate funds for your desired lifestyle or running out of money. Social Security is only one income stream, and backup plans with alternative sources of funds are vital.

If you have any questions about your Social Security benefit, please give us a call! You can reach Drew Capital Group Private Wealth Management in Tampa, Florida by calling (813) 820-0069.

 

Sources:

  1. https://www.marketwatch.com/story/coming-up-consumer-price-index-for-may-11654862886
  2. https://www.forbes.com/advisor/investing/another-75-point-fed-rate-increase/
  3. https://www.forbes.com/sites/jonathanponciano/2022/07/27/fed-raises-interest-rates-by-75-basis-points-again-as-investors-brace-for-recession/
  4. https://www.ssa.gov/oact/cola/colasummary.html
  5. https://www.cnbc.com/2022/07/13/social-security-cost-of-living-adjustment-could-be-10point5percent-in-2023.html
  6. https://www.cnbc.com/2022/01/12/cpi-december-2021-.html
  7. https://www.ssa.gov/oact/cola/colaseries.html
  8. https://www.thebalance.com/u-s-inflation-rate-history-by-year-and-forecast-3306093
  9. https://www.cnn.com/2022/07/29/economy/worker-wages-inflation/index.html
  10. https://www.ssa.gov/news/press/factsheets/WhatAreTheTrust.htm
  11. https://www.thestreet.com/investing/social-security-2035

 

This material is provided as a courtesy and for educational purposes only.  Please consult your investment professional, legal or tax advisor for specific information pertaining to your situation.

This blog may contain links to articles or other information that may be on a third-party website. Advisory Services Network, LLC is not responsible for and does not control, adopt, or endorse any content contained on any third-party website.

Inflation as a Risk in Retirement

By Inflation Risk, Retirement Planning

Inflation can be troubling, especially for those living on a fixed income. Here’s what you need to consider.

Exiting the work force and beginning the next chapter of your life can be infinitely exciting. After a long career, free time afforded by retirement offers a great opportunity to check off long-awaited bucket list items or develop those relationships with loved ones. You might also stop setting alarms in the morning, making sure that you get the right amount of sleep to propel you toward your dreams. There is, however, one area in which you might not want to hit the snooze button: your finances.

With improvements in science and medicine have come increases in life expectancy, extending the length of retirement for the modern worker. While it’s great to plan to be around longer to pursue passions and spend time with family, longer life expectancy does present a challenge. Retirees used to plan for 10 to 15 years of retirement, but it’s no longer strange for someone to live to 100, meaning that retirement could potentially last 30 years [1].

Prolonged retirement can bring about longevity risk, which is the risk of running out of money while still alive, and inflation provides zero relief when it comes to making your money last. Inflation decreases the purchasing power of the dollar, which can create a serious problem for retirees living on fixed incomes and retirement accounts they’ve built over the course of their careers. Now inflation is at a 40-year peak [2], which can cause headaches, especially for those entering retirement as they’re forced to deplete savings faster than they might have under lower inflation rates.

Luckily, there are a few ways to alleviate some of the pain points when it comes to inflation in retirement. First, it can be beneficial to contribute to your retirement accounts early in your career. You can begin planning for retirement too late, but you can never begin too early. Some investment vehicles designed to build retirement assets for your future include employer-sponsored 401(k) plans, 403(b) plans, traditional IRAs, Roth IRAs, SIMPLE IRAs and SEP plans.

Traditional 401(k) and IRA accounts grow tax-deferred, meaning that contributions will be made before taxes are taken from your paycheck then are taxed upon distribution. Roth accounts are distributed and grow tax-free if all IRS regulations are followed, but initial contributions are made with post-tax dollars. Both grow with compound interest; which Albert Einstein called the eighth wonder of the world. Compound interest means you will accrue more interest through time based on your growing account balance, so taking the time to feed those accounts when you’re younger can be extremely rewarding.

If you are getting close to retirement and don’t have decades of time on your side, there are a few more things about inflation that you should know.

Social Security considers inflation annually when calculating benefits, and some years it provides a cost-of-living adjustment, or COLA, based on one of the federal government’s consumer price indexes called the CPI-W. In 2021, Social Security beneficiaries received a 5.9% COLA, which was the highest increase since 1982, but it’s important to remember that COLA may not always cover increased costs. For example, beneficiaries received no increase in 2015[3] despite an incremental 0.12% inflation rate [4].

Some annuities are also specifically designed to combat inflation by offering a COLA. Annuities are contracts between buyers and issuing insurance companies which guarantee annuity payments based on the insurance carrier’s claims-paying ability [5] as well as the terms of the contract. With annuities that offer a COLA, the pre-determined payments may be adjusted to account for inflation.

Lastly, it’s always important to consult your financial professional to find solutions to suit your unique, individual situation. The proper guidance can assist you in determining whether or not you’re placing enough money into various retirement accounts for potential future inflation without disrupting your desired lifestyle.

If you have any questions about how inflation may affect your retirement, please give us a call! You can reach Drew Capital Group Private Wealth Management in Tampa, Florida by calling (813) 820-0069.

This material is provided as a courtesy and for educational purposes only.  Please consult your investment professional, legal or tax advisor for specific information pertaining to your situation.

 

Sources

  1. https://money.usnews.com/money/retirement/articles/how-living-longer-will-impact-your-retirement
  2. https://apnews.com/article/key-inflation-report-highest-level-in-four-decades-c0248c5b5705cd1523d3dab3771983b4
  3. https://www.ssa.gov/oact/cola/colaseries.html
  4. https://www.worlddata.info/america/usa/inflation-rates.php
  5. https://www.investopedia.com/terms/l/lifetime-payout-annuity.asp

Christopher Drew Guest Contributes for Benzinga

By Financial Literacy, Retirement Planning

Christopher Drew, the founder of Drew Capital Group recently published an article for Benzinga to discuss 10 things he believes everyone should do to stay on track financially.

When mapping out a financial plan, it can be difficult to know where to begin. Now, with inflation at its highest in decades, only one-third of Americans expect their financial situation to improve in 2022. Nevertheless, Christopher Drew believes that anyone can act to improve, and he laid out a 10-step ongoing to-do list to guide anyone looking for a place to start. Here’s how to stay on top of your affairs.

  1. Do a deep dive into your spending and recast your budget.

Eliminate excess spending and wasteful patterns that detract from your savings and retirement.

  1. Evaluate your debts.

Commit to lowering your debt by paying the most expensive debts first. You can also renegotiate your interest rates or transfer debt to a card with 0% interest.

  1. Increase your retirement contributions.

Eliminate debt and contribute to retirement accounts that potentially provide growth and help build your nest egg. If your company offers a 401(k) plan, contributing pre-tax income to a 401(k) can help build your retirement tax-deferred and with compound interest.

  1. Consider opening an HSA.

A health savings account takes pre-tax contributions and allows you to use them on medical expenses not covered by your insurance plan. An HSA requires you to be enrolled in a high-deductible health plan. A High-Deductible Health Plan, which you are required to have to qualify for an HSA, can put a greater financial burden on you than other types of health insurance. There are advantages and disadvantages to HSA’s, and you should always consult your financial advisor regarding your own personal situation.

  1. Review your estate plan.

A proper estate plan can help your family rather than burdening them with tasks. This can include drawing up wills and living wills, designating power of attorney, and making beneficiary designations.

  1. Review your insurance plans.

Check your insurance plans like life, home and auto to determine if you need more coverage. Another important consideration is for the possibility that you may need long-term care insurance.

  1. Plan for life events.

Everyone knows how important an emergency fund is for events like medical expenses and accidents, but it’s also necessary to plan before marriage, having a baby, purchasing a home or car, or changing jobs.

  1. Consider a home office tax deduction.

Working remotely may have changed your ability to claim part of your home as a business expense. It is always helpful to consult a business or tax professional to see if you qualify.

  1. Build an emergency fund.

We think your emergency fund should hold six months’ worth of expenses and be separate from your personal savings. Adding periodically can be the best way to watch it grow, contributing when you receive bonuses or tax refunds.

  1. Evaluate your investments.

Assess your risk tolerance and rebalance your portfolio accordingly. You can work with a financial professional to set new goals and draw a map to reach them.

If you have any questions about financial health and how you can improve your situation, please give us a call! You can reach Drew Capital Management, in Tampa, Florida at (813) 820-0069.

To read the entire article and learn more about Christopher Drew’s financial to-do list, click here.

This material is provided as a courtesy and for educational purposes only.  Please consult your investment professional, legal or tax advisor for specific information pertaining to your situation. Advisory services offered through Drew Capital Management, a Member of Advisory Services Network, LLC. Insurance products and services offered through Drew Capital Group. Advisory Services Network, LLC and Drew Capital Group are not affiliated.

Annuities

How Annuities Offer Protection and Growth Potential

By Financial Literacy, Retirement Planning

National Annuity Awareness Month is upon us! Let’s go over how annuities can be an important part of a retirement plan.

June is National Annuity Awareness Month, giving us the perfect reason to discuss how they can positively impact your retirement. Annuities have always played a role in retirement planning, but with growing uncertainty and market volatility, their importance has boomed. Certain annuities offer the chance for growth along with the protection of principal during market downturns which is guaranteed by the claims-paying ability of the issuing insurance carrier.

While they can be a vital part of the retirement-planning process, annuities can sometimes be overlooked by advisors who focus strictly on accumulation and stock market investments. For people getting close to retirement and those without the appetite or flexibility for stock market risk, annuities can be an attractive option to guarantee income for life.

In fact, annuities were created for retirement; they were first invented during ancient Roman times to compensate retired soldiers. They’re meant to help you generate income once you stop collecting wages. There are many different types of annuities, but fixed and fixed indexed annuities are different than retirement accounts like 401(k)s and IRAs in that they are not subject to market risk, and they offer guarantees.

In other words, fixed and fixed indexed annuities can offer a guaranteed income stream to eliminate some of the uncertainty that comes with retiring. It’s important to understand fixed and fixed indexed annuities are not investments, they are contracts. Even though they may credit interest based on market gains, they are not actually invested in the market at all. Fixed and fixed indexed annuities are contracts between you and the issuing insurance company, who again, based on their claims-paying ability, guarantee your principal and sometimes offer participation in stock market upside.

One of the main concerns of Americans on their way into their golden years is funding a secure retirement. In fact, a recent study showed that 56% were worried about running out of money in the next stage of their lives [1]. That worry seems to be well-founded, as a 2019 study projected that over 40% of U.S. households will run out of money in retirement [2].

One of the biggest reasons retirees run out of money is sequence of returns risk. This can happen when clients withdraw money from accounts early in retirement in a down market. The withdrawals can then out-pace the growth of the account, making it more likely that a person completely drains their funds while still living.

A fixed indexed annuity can counter sequence of returns risk by providing a guaranteed lifetime income option. Under a properly-structured fixed indexed annuity, the principal and the lifetime income benefit are both protected, which can be beneficial in a market crash. They also offer flexibility in diversifying your portfolio, as retirees with a guaranteed lifetime income benefit can keep other assets invested in the market, conceivably giving them a chance to wait out valleys and plateaus.

Some annuities are even designed to help combat inflation by offering a COLA, or cost of living adjustment. Considering the 2021 inflation rate was the highest America has seen since 1981[3], it’s no wonder experts are expecting an increase in inflation-protected annuities [4].

While annuities are popular among those looking for protection as well as growth potential, purchasing one can be treacherous without proper help. There are many different types of annuities, and they won’t all offer identical benefits or protections. For example, variable annuities are directly invested in the market and carry the same risk that any market investment would. There are pros and cons to each type, and innovative insurance companies are working to design new annuity products with enhanced benefits every single day.

If you have any questions about annuities or how to protect your retirement funds, please give us a call! You can reach Drew Capital Group Private Wealth Management in Tampa, Florida by calling (813) 820-0069.

Sources

  1. https://www.nirsonline.org/wp-content/uploads/2021/02/FINAL-Retirement-Insecurity-2021-.pdf
  2. https://www.ebri.org/content/retirement-savings-shortfalls-evidence-from-ebri-s-2019-retirement-security-projection-model
  3. https://www.thebalance.com/u-s-inflation-rate-history-by-year-and-forecast-3306093
  4. https://ifamagazine.com/article/inflation-could-lead-to-a-resurgence-in-popularity-of-annuities-says-continuum/

This material is provided as a courtesy and for educational purposes only.  Please consult your investment professional, legal or tax advisor for specific information pertaining to your situation.

Variable annuities are offered only by prospectus.  Carefully consider the investment objectives, risks, charges and expenses of variable annuities before investing.  This and other information is contained in each fund’s prospectus, which can be obtained from your investment professional and should be read carefully before investing.  Guarantees are based upon the claims paying ability of the issuer.

An indexed annuity is for retirement or other long-term financial needs.  It is intended for a person who has sufficient cash or other liquid assets for living expenses and other unexpected emergencies, such as medical expenses. Guarantees provided by annuities are subject to the financial strength of the issuing company and not guaranteed by any bank or the FDIC.

Indexed annuities do not directly participate in any stock or equity investment.  Clients who purchase indexed annuities are not directly investing in the financial market. Market indices may not include dividends paid on the underlying stocks and therefore may not reflect the total return of the underlying stocks; neither a market index nor any indexed annuity is comparable to a direct investment in the financial markets.

 

4 Tips to Save For and Fund Your Child’s College Tuition

By Financial Planning

College is an investment in your child and your family, but it can come at a hefty price. Here are some tips to save!

 

College and other forms of higher education have always been a vital part of planning a career. The foundation of any resume, a recent study interviewing 500 professional recruiters showed that all 500 look for candidates with a college degree [1]. Some common rebuttals to the argument for college might start with names like Zuckerberg, Jobs, Gates and Oprah Winfrey, all who dropped out school. Those four have incredible stories, but they’re the exception, not the rule.

The average college graduate with a bachelor’s degree has a lifetime earnings of $2.8 million while a person who achieved a high school diploma earns an average of $1.6 million over their career[2]. At the same time, that average increase in lifetime earnings can come at a steep price, and that price is only rising. Tuition has climbed 211% for in-state universities over the last 20 years [3], escalating panic in students and their families who are forced to shoulder the burden. Without a plan to tackle them, loans can hang over a student’s head for decades. To alleviate some of that stress, here are a few tips for saving for and funding your child’s college education:

  1. Assess early options

Many high schools around the United States offer Advanced Placement (AP) and dual-enrollment classes. By taking these higher-level courses while still in high school, students can be awarded college credits early, potentially at an even lower cost. AP classes are generally more difficult classes targeting more specific areas of study within a subject. They’re widely accepted and acknowledged throughout U.S. colleges, and they are free to students who elect to take the challenge. End-of-year tests for AP classes do cost $96 per exam [4] in the U.S., but colleges may award credits based on scores that would be evident of the student mastering the material.

Dual-enrollment classes, on the other hand, function as a partnership between high schools and colleges. A dual-enrollment class holds high school students to the college-level standard and curriculum. The students then pay per credit at the partnered college’s rate and receive those credits upon class completion as if they were taking those courses on the college campus. Both types of classes can save students and parents valuable time and money in their pursuit of higher education.

  1. Familiarize yourself with the aid process

There are many types of student aid, and amounts can vary based on a plethora of factors. The most obvious form of assistance provided to students is scholarship money. It can be awarded based on test scores, academic results, athletics or extracurricular activities, and amounts can fluctuate based on a student’s choice of school. There are also opportunities for privately-funded scholarships that can be awarded by foundations, religious groups or other organizations on a need or merit-based basis. Students can typically find these opportunities online and apply if they meet predetermined criteria.

Students should also fill out the Free Application for Federal Student Aid, otherwise known as the FAFSA [5]. The FAFSA uses a student’s information to determine how much aid they might qualify for, including money from grants or state-funded assistance. It can also determine how much a student could qualify for in loans if those become necessary.

  1. Familiarize yourself with current legislation

Legislation is always changing for parents looking to get a jump-start in funding their child’s education. For example, the FAFSA Simplification Act of 2020 opened new doors for students trying to qualify for need-based assistance. Prior to the FAFSA Simplification Act of 2020, the FAFSA calculated the expected family contribution, or the EFC. The EFC estimated the amount family members would be able to contribute to a student’s education based on income, assets and other benefits. EFC has now been replaced by student aid index, or SAI. Where EFC bottomed out at $0, SAI can go as low as -$1,500, meaning students can qualify for more need-based aid [6]. SAI also simplifies the form itself, cutting down the number of questions and the factors that figure into assistance a student might receive from family.

Where this could truly be a boon to students who need more aid is through family members whose contributions were accounted for in the EFC but are not accounted for in the SAI. The popular 529 plan, which provides tax-advantaged savings for designated beneficiaries, is often used by grandparents to help their grandchildren pay for college. Funds from a 529 plan no longer factor into the expected contributions from family members meaning that they will not have negative implications for the FAFSA’s estimation of how much aid a student requires [7].

  1. Research schools prior to selection

Cost can differ by school selection, and though some students have their hearts set on a specific university, financials could play a large role in deciding on the best fit for your child. For example, students who do not expect to receive much aid from family or scholarship opportunities can opt for community college. Community colleges generally offer favorable per-credit prices for in-state students. The average cost per credit hour at a two-year community college is $141 while a public, four-year university costs $390 per credit hour on average [8].

After two years at a community college, students can usually transfer their credits to a university to finish a four-year degree. Wide-ranging opinions also exist about college selection [9]. Some researchers and surveys suggest that attending a prestigious college could be nothing more than a status symbol. Employers can look for many qualifications such as experience, extracurriculars, ability or the simple fact that a candidate attended any college. At the end of the day, the right choice of school will be different for each student.

If you have any questions about saving or planning to help your family, please give us a call! You can reach Drew Capital Group Private Wealth Management in Tampa, Florida by calling (813) 820-0069.

 

This material is provided as a courtesy and for educational purposes only. Please consult your investment professional, legal or tax advisor for specific information pertaining to your situation.

 

Sources:

  1. https://www.ellucian.com/assets/en/white-paper/credential-clout-survey.pdf
  2. https://www.forbes.com/sites/michaeltnietzel/2021/10/11/new-study-college-degree-carries-big-earnings-premium-but-other-factors-matter-too/?sh=6fd5ad4035cd
  3. https://www.usnews.com/education/best-colleges/paying-for-college/articles/2017-09-20/see-20-years-of-tuition-growth-at-national-universities
  4. https://apcentral.collegeboard.org/exam-administration-ordering-scores/ordering-fees/ordering-exam-materials/help/cost-of-exam
  5. https://studentaid.gov/
  6. https://unicreds.com/blog/student-aid-index
  7. https://www.usnews.com/education/best-colleges/paying-for-college/articles/tips-for-grandparents-using-a-529-plan-to-save-for-college
  8. https://educationdata.org/cost-of-a-college-class-or-credit-hour
  9. https://www.nbcnews.com/business/business-news/does-it-even-matter-where-you-go-college-here-s-n982851

7 Tips for Saving Money at the Pump

By Financial Planning

Gas prices are on the rise. Here are some ways to save a little bit of money.

The surge in gas prices swooped in just in time to dampen the mood in 2022. With the Russian invasion of Ukraine continuing to impact oil prices all around the world, the best solution might be to embrace the climb and start brainstorming some small life changes we can make to compensate.

According to AAA, the United States hit its highest average price per gallon Mar. 11 at $4.33 [1]. By adjusting, it’s possible to save hundreds, or even thousands, each month [2], and that money could go right back into your pocket. Fewer trips to the pump mean more money in your wallet, which means more money that you can spend, save or invest in your future. Here are seven tips to save money on gas as the prices rise:

  1. Use public transportation

This option might depend upon your geographic location and living situation, but you may be able to save on gas by taking public transportation. It may not be an option in widely-sprawling metro areas or cities without public transportation systems, but in major cities like New York, San Francisco, Boston, Philadelphia or Seattle, one household could save $10,000 or more each year by opting to use public transit [2]. That total could depend upon other factors, like the type of car you drive, insurance and parking, but gas and rising prices certainly figure into your possible savings.

  1. Start carpooling

For those who have longer work commutes or don’t live in cities with public transit systems, carpooling can be a great option. By finding a work friend who lives nearby and makes a similar commute, you might be able to cut your gas expenditure in half. Those savings can multiply if you decide to invite more people into your car pool, and it might even be a great option for those looking for more social outlets. Carpooling can also help the environment by reducing emissions, and it saves you time by cutting traffic and giving you access to the glorious high occupancy vehicle lane.

  1. Download price-viewing apps

Gas prices fluctuate based on location and company. Don’t you hate it when you get gas, then drive one mile down the road and see prices 30 cents cheaper than the price you just paid? Luckily, there is an easy fix for that problem. Phone apps, like GasBuddy [3], list prices for nearly every filling station in your immediate area. Users update the information to ensure that the prices you see are accurate, and you can pinpoint the cheapest gas with just a few taps. Simply checking nearby gas prices or rates in a specific city or zip code is free, but GasBuddy also offers premium, fee-based options that can help users rack up even more savings.

  1. Become a member of wholesale stores

Wholesale stores, like Costco, may feature lower gas prices depending on your area. Granted, a membership to Costco might cost you $60 annually [4], but we can do some quick math to see just how that membership fee has the potential to pay for itself. Prior to the pandemic, the average American filled their gas tank roughly once per week [5]. According to GasBuddy searches, in large metro areas like Los Angeles, Costco’s average price per gallon might be somewhere between 25 cents and 50 cents per gallon less than the average price in the area [6]. If you fill up your 12-gallon tank once per week, the lower end of the scale results in a savings of $3 per full tank. That may not sound like much, but for one person, the $60 annual membership fee is covered in 20 weeks, or less than half a year. Furthermore, Costco’s most basic package, the Gold Star membership, includes a second membership at no additional cost for someone over the age of 18 living in your household. Let’s say, for example, your spouse also fills their 12-gallon tank once per week. The membership would be paid for in just 10 weeks, and you could still get cheaper gas for the rest of the year.

  1. Work from home

This isn’t an option for everyone, but it’s no secret that the best way to save gas is by simply not using it. According to the Pew Research Center, 59% of workers in the United States who are able to work from home are taking advantage of that opportunity [7]. The reevaluation of work circumstances truly kicked into gear during the pandemic, but even as the spread of the virus wanes, it can be a great option for those still looking to cut down costs at the gas station.

  1. Pay cash

Not all gas stations offer savings for paying with cash, but some do. In our transition to a cashless world, you might not carry cash as often as you used to, but a quick stop at your local ATM on your way to fill up might prove to be beneficial. Apps like GasBuddy may be able to show whether or not a gas station provides a discounted rate for customers who pay with cash [8]. Another easy way to tell if a station takes cash is if a sign clearly states that the rate per gallon is for cash payments. Some stations even have signs that flash between two prices, showing the price per gallon for payments with card versus the price per gallon for payments with cash.

  1. Find alternatives to long-distance hobbies

We would never advise that you give up your hobbies, but if you’re concerned about surging gas prices, staying home can be a good option. Weekend vacations or one-day getaways can easily be turned into staycations, and in 2022, there are so many great options for at-home activities. You can rent a recent movie, listen to music, play board games, grill out, invite friends over for a gathering, work out or play with your pets. The pandemic also opened the door for events like virtual happy hours and video hangouts, so if you just can’t reach your friends and family because of distance, you can still see them and interact with them extremely easily, all without spending a nickel on fuel.

If you have any questions about this article or how to protect your retirement plan during times of high inflation, please give us a call! You can reach Drew Capital Group Private Wealth Management in Tampa, Florida by calling (813) 820-0069.

 

These are the views of the author, not the named Representative or Advisory Services Network, LLC, and should not be construed as investment advice. Neither the named Representative nor Advisory Services Network, LLC gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your Financial Advisor for further information.

This site may contain links to articles or other information that may be contained on a third-party website. Advisory Services Network, LLC is not responsible for and does not control, adopt, or endorse any content contained on any third party website.

 

Sources

  1. https://gasprices.aaa.com/
  2. https://www.moneycrashers.com/benefits-public-transportation-travel-for-less/
  3. https://www.gasbuddy.com/home
  4. https://www.costco.com/join-costco.html
  5. https://www.reviews.com/insurance/car/drivers-fueling-behavior-after-covid/#:~:text=Over%2082%25%20of%20US%20drivers,decrease%20in%20consumer%20gas%20purchases
  6. https://www.gasbuddy.com/home?search=los%20angeles&fuel=1&brandId=38&maxAge=0&method=all
  7. https://www.pewresearch.org/social-trends/2022/02/16/covid-19-pandemic-continues-to-reshape-work-in-america/
  8. https://www.tmj4.com/news/local-news/if-discount-is-offered-using-cash-and-not-plastic-can-help-you-save-at-the-pump

How Big Events Like Ukraine Can Impact Your Retirement

By Economic Impacts, Retirement Planning

 

World events can impact your retirement, but you can be prepared!

 

The past few years have shown us that big world events can impact our lives at any moment. Sometimes we see them coming. Other times, we don’t have the ability to prepare and buckle in for the turmoil ahead.

The COVID-19 virus is one of the best recent examples of major world events impacting the economy. Now, the Russian invasion of Ukraine appears to be taking an immediate toll on Americans financially. It begs the question, can we prepare for these types of events so that we can, at least, soften the blow to our futures?

Well, the first step toward answering that question is knowing what to look out for when these major moments strike. Here are five ways big world events can impact your retirement:

  1. Market Shifts

Reactions to global events often shift the market, and in times of crisis, that shift is typically negative. An article from ThinkAdvisor said a global recession because of a negative supply shock is now “highly likely,” especially when you tack on the fact that the world is still recovering from the spread of the COVID-19 virus.

Market downturns often hurt retirees, especially if they have to withdraw money from accounts like mutual funds, stocks or bond funds for retirement income while account values are down. For those in or approaching retirement, the situation can be dire if they have no other sources of income and have to keep taking money out of dropping accounts, especially at the beginning of their retirement (known as “sequence of returns risk”). Many people in retirement during the 2008 Great Recession were forced back to work when they lost everything.

It’s also worth noting that market crashes can actually help younger investors because they have a long time-horizon to retirement and can “buy and hold” bargains. In other words, if younger people are able to invest when the market bottoms out, it might be an opportunity to buy low in order to accrue higher long-term gains.

  1. Inflation

Inflation can have a profound impact on finances, and those taking the brunt of the blow might be the ones who are no longer stockpiling resources. Inflation isn’t a new concept, but when your retirement money doesn’t go as far as you hoped, it can put your plans for your golden years in jeopardy. Over the course of the pandemic, the United States sent stimulus checks to qualifying Americans three different times. With more money in the pockets of consumers, prices rose, and they didn’t fall after people spent their stimulus checks. In fact, they continued to rocket upward. The Washington Post reported that inflation reached 40-year highs at the time of Russia’s invasion, posing major questions for the U.S., the Federal Reserve and retirees stretching their financial resources to their limits.

  1. Gas Prices

This one is no secret. In fact, if you drive past a gas pump when supply is short, your jaw might drop. As the Russian invasion of Ukraine wages on, CNN reports the biggest jump in gas prices since Hurricane Katrina. Russia is not the only supplier of oil, but it is Europe’s largest, producing 10% of the global demand. The U.S. imports just 8% of its oil from Russia, but energy is a global commodity, meaning that a rise in one part of the world causes a rise in another part of the world. Bob Doll, the chief investment officer of Crossmark Global Investments, spoke to ThinkAdvisor to discuss the effects of the Russia-Ukraine war. He noted, several times, that oil prices can devastate the economy. He said the price surge is why the war should be investors’ chief concern in 2022. Doll went on to say that inflation is likely still yet to peak because of rising oil prices.

You might be wondering what that has to do with your retirement. The spike in oil costs and inflation drastically affect the purchasing power of a dollar, which could be most detrimental to those living on fixed incomes. If you’re in retirement, it could force you to spend more at the pump, taking away from valuable dollars you may need for other expenses.

  1. Shifting of Retirement Ages and Plans

Uncertainty in markets, inflation and other results of a global crisis can also upset retirement plans decades in the making. In 2021, CNBC reported that 35% of Americans changed their retirement plans because of the pandemic. 68.5% of those who changed their plans said they moved their retirement expectations back by up to 10 years. Some did report that they planned to move retirement up, but the uncertainty forced others on the brink of finishing their careers to table their hopes and remain in the workforce to continue collecting paychecks.

  1. General Panic

Major events, especially ones that have negative impacts on people, markets and finances, can cause panic. Common wisdom says to never make decisions in a panicked state, but it is easy to see how you might want to unload certain investments or liquidate assets out of fear that things might get worse. In his ThinkAdvisor feature, Bob Doll said advisors shouldn’t be recommending any major risks right now, arguing that investors have seen the market during wartime, and it typically bounces back. Oftentimes, approaching the situation from a more measured perspective could actually provide an opportunity. A Kiplinger article used The Great Recession as a teacher for retirees in a crisis, citing one investor who remained patient, even adding to his investments as stock prices hit the basement. He later said he was headed toward an early retirement and squashed his fear of volatility. With a calm, steady approach, retirees can take steps to fight market downturns.

If you have questions about how you can protect your retirement plan and weather global economic storms, please give us a call. You can reach Drew Financial Private Capital in Tampa, Florida by calling (813) 820-0069.

This material is provided as a courtesy and for educational purposes only. Please consult your investment professional, legal or tax advisor for specific information pertaining to your situation.

 

Sources:

https://www.thinkadvisor.com/2022/02/25/roubini-6-financial-economic-risks-of-russia-ukraine-war/

https://www.thinkadvisor.com/2022/03/07/bob-doll-10-talking-points-for-advisors-investors-amid-russia-ukraine-war/

https://www.nytimes.com/2022/02/23/business/economy/russia-ukraine-global-us-economy.html

https://www.washingtonpost.com/us-policy/2022/03/02/powell-testimony-inflation-fed/

https://finance.yahoo.com/news/russia-ukraine-crisis-what-can-prevent-150-oil-prices-112747924.html

https://www.cnbc.com/2021/10/12/pandemic-has-disrupted-retirement-plans-for-35percent-of-americans-study-says.html

https://www.aljazeera.com/news/2022/3/3/how-much-oil-does-the-us-import-from-russia

https://www.cnn.com/2022/03/04/energy/gas-prices/index.html

https://www.kiplinger.com/slideshow/retirement/t047-s004-5-retirement-lessons-learned-from-great-recession/index.html

https://www.eia.gov/dnav/pet/pet_move_impcus_a2_nus_ep00_im0_mbbl_a.htm

6 Facts About Taxes

By Financial Planning, Tax Planning

Individual income tax returns for 2021 will be due April 18th, 2022. In preparation as we head into the tax season, here are some facts to consider. 

  1. Where your tax dollars go.

In 2021, the federal government spent $6.82 trillion, which equals 30% of the nation’s gross domestic product. Three significant areas of spending make up the majority of the budget. Medicare accounted for $696.5 billion, or 10%. Defense spending made up $754.8 billion, or 11% of the budget, was paid for defense and security-related international activities. Seventeen percent of the budget, or $1.1 trillion, was paid for Social Security, which provided monthly retirement benefits averaging $1,497 to 46 million retired workers.

  1. How long you should keep tax documents.

The IRS provides the following recommended timelines for retaining financial documents:

  1. You should keep your tax records for three years if #4 and #5 below do not apply to you.
  2. You should keep records for three years from the original filing date of your return or two years from the date you paid your taxes. Select whichever is the later date. This is if you claimed a credit or refund after you filed your return.
  3. You should keep your records for seven years if you claimed a loss from worthless securities or a bad debt deduction.
  4. You should keep your records for six years if you failed to report income that you should have, and the income was more than 25% of the gross income listed on your return.
  5. Keep records indefinitely if you do not file a return.
  6. You should keep employment tax records for at least four years after the due date on the taxes or after you paid the taxes. Select whichever is later.
  1. Tax brackets for 2021 individual income tax returns.

NOTE: These tax rates are scheduled to expire in 2025 unless Congress acts to make them permanent.

  1. Tax brackets for 2022.

When it comes to taxes, it’s always a good idea to plan ahead. In November 2021, The Internal Revenue Service announced that it is boosting federal tax brackets for 2022 due to faster inflation. Below is a breakdown of the new thresholds for the seven tax brackets in 2022:

10%: Single individuals earning up to $10,275 and married couples filing jointly earning up to $20,550.

12%: Single filers earning more than $10,275 and married couples filing jointly earning over $20,550.

22%: Single filers earning more than $41,775 and married couples filing jointly earning over $83,550.

24%: Single filers earning more than $89,075 and married couples filing jointly earning over $178,150.

32%: Single filers earning more than $170,050 and married couples filing jointly earning over $340,100.

35%: Single filers earning more than $215,950 and married couples filing jointly earning over $431,900.

37%: Single filers earning more than $539,900 and married couples filing jointly earning over $647,850.

  1. Standard deductions.

Here is an overview of the standard deductions since 2019, including the standard deduction for the 2021 tax season:

For 2022, the IRS is increasing standard deductions due to faster inflation:

The standard deduction for married couples filing jointly will rise 3.2 percent to $25,900 next year for the 2022 tax year, an increase of $800 from the prior year. The standard deduction for single taxpayers and married individuals filing separately rises to $12,950 for tax year 2022, up $400 from tax year 2021. For heads of households, the standard deduction will be $19,400, up $600.

  1. You can still contribute for the 2021 tax year.

If you have not already contributed fully to your individual retirement account for 2021, April 15 is your last chance to fund a traditional IRA or a Roth IRA. Please call us if you have any questions about setting up or contributing to a traditional or Roth IRA.

Sources: IRS.gov, SSA.gov

This information is for general purposes only and is not to be relied upon or considered as financial or tax advice. It is recommended that you work with your tax professional to complete your tax returns based on your unique situation.

Call us if you’d like to speak with us about your financial plan. You can reach Drew Financial Private Capital in Florida by calling (813) 820-0069.


References to J.W. Cole Advisors, Inc. (JWCA) are from prior registrations with that company. J.W. JWCA and Advisory Services Network, LLC are not affiliated entities.