Why Financial Planning Needs More Specialists
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Ed Slott, CPA, America’s IRA Expert, Named Professor of Practice at The American College of Financial Services
In the position, Slott, America’s IRA Expert, will contribute to the Retirement Income Certified Professional® (RICP®) program and support The College’s current faculty focused on retirement distribution planning.
“Ed Slott has educated millions on the second half of retirement planning – how to best help clients distribute their hard-earned retirement savings and navigate potential tax pitfalls. He will bring decades of expertise to our faculty,” said Nichols. “Ed has the unique ability to communicate IRA complexities in common-sense language. His passion and wealth of knowledge will provide tremendous value to our students because he thinks with the end in mind – the application of knowledge to help financial professionals help their clients.”
As president and founder of Ed Slott and Company, LLC, a leading source of timely IRA expertise and analysis to financial advisors, institutions, and consumers, Slott brings to the RICP® program practical, easy-to-understand information on IRA and retirement distribution planning. The RICP® designation is the profession’s leading retirement income credential developed by more than 45 of the nation’s top financial retirement professionals, focusing on understanding, choosing, and executing sustainable retirement income strategies for a clients’ available resources, including best practices in Social Security claiming, evaluating and addressing risks faced in retirement, planning for long-term care needs, and more.
“I am honored to join The American College of Financial Services faculty, and I look forward to sharing my knowledge on the latest tax and retirement planning laws and strategies with even more financial professionals,” said Slott. “I have dedicated my career to educating financial professionals across the country so that they can help their clients properly and proactively prepare for the distribution phase of retirement. Through the RICP® program, I will be able to provide these highly-qualified financial professionals with the knowledge they need to confidently guide their clients through some of the most complicated retirement planning strategies.”
As a nationally recognized IRA distribution expert, professional speaker, and best-selling author, Slott has an unmatched ability to turn advanced tax strategies into understandable, actionable and entertaining advice. He was named “The Best Source for IRA Advice” by The Wall Street Journal, and USA Today wrote, “It would be tough to find anyone who knows more about IRAs than CPA Slott.”
Slott regularly presents on IRA and estate planning strategies at both consumer events and conferences for financial advisors, insurance professionals, CPAs and attorneys, including virtual events drawing thousands of attendees nationwide. He has provided topical keynote presentations for leading financial membership organizations, including the Financial Planning Association, National Association of Personal Financial Advisors, Estate Planning Councils and the American Institute of Certified Public Accountants, as well as leading corporate financial firms coast-to-coast. He is the creator of Ed Slott’s Elite IRA Advisor GroupSM, an organization of more than 450 of the nation’s top financial professionals who attend his ongoing continuing-education programs to maintain a mastery of advanced retirement account and tax planning laws.
He is an accomplished author of many financial and retirement-focused books, including most recently “Ed Slott’s Retirement Decisions Guide: 2021 Edition” (IRAHelp, 2021), “Fund Your Future: A Tax-Smart Savings Plan in Your 20s and 30s” (IRAHelp, 2021), and “The New Retirement Savings Time Bomb” (Penguin Random House, 2021), all scheduled for release in early 2021.
As the go-to resource for media on timely insight on breaking news as it relates to retirement and tax planning laws and strategies, Slott is often quoted in The New York Times, The Wall Street Journal, Forbes, USA Today, Kiplinger, Investor’s Business Daily and numerous additional national magazines and financial publications. He provides a monthly Q&A column to AARP and is a contributing columnist and media resource to Financial Planning, Financial Advisor and InvestmentNews magazines. He has appeared on many national television and radio programs, including NBC, ABC, CBS, CNBC, CNN, FOX, FOX Business, NPR, Bloomberg and Morningstar. He is also the host of several public television specials, including his most recent, Retire Safe & Secure! with Ed Slott (2021).
Slott is a past Chairman of the New York State Society of CPAs Estate Planning Committee and editor of the IRA planning section of the CPA Journal. He was named a 2020 InvestmentNews Innovator for his significant contribution to helping advisors improve client outcomes and tackle industry challenges as well as the 2020 Sidney Kess Award Winner for excellence in continuing education by the AICPA®. He is the recipient of the prestigious “Excellence in Estate Planning” and “Outstanding Service” awards presented by The Foundation for Accounting Education. He is a former board member of The Estate Planning Council of New York City and is Accredited Estate Planner (AEP) distinguished.
ABOUT THE AMERICAN COLLEGE OF FINANCIAL SERVICES
Founded in 1927, The American College of Financial Services is the nation’s largest nonprofit educational institution devoted to financial services professionals. Holding the highest level of academic accreditation, The College has educated over 200,000 professionals across the United States through certificate, designation, and graduate degree programs. Its portfolio of applied knowledge also includes just-in-time learning and consumer financial education programs. The College’s faculty represents some of the foremost thought leaders in the financial services industry. Visit TheAmericanCollege.edu and connect with us on LinkedIn, Twitter, Instagram, Facebook, and YouTube. Discover all the ways you can expand your opportunities with us.
ABOUT ED SLOTT
Ed Slott, CPA, is the nationally recognized IRA and retirement planning distribution expert, best-selling author and professional speaker. His upcoming books include Ed Slott’s Retirement Decisions Guide: 2021 Edition (IRAHelp, 2021), Fund Your Future: A Tax-Smart Savings Plan in Your 20s and 30s (IRAHelp, 2021), and “The New Retirement Savings Time Bomb” (Penguin Random House, 2021), all scheduled for release in early 2021. He has also hosted several public television programs, including his latest, Retire Safe & Secure! with Ed Slott (2021). As an AARP columnist, Slott also writes a monthly Q&A column where he answers consumers' retirement planning questions. His company, Ed Slott and Company, LLC, is the nation's leading provider of technical IRA education for financial advisors, CPAs and attorneys. Ed Slott's Elite IRA Advisor GroupSM is comprised of nearly 450 of the nation's top financial professionals who are dedicated to the mastery of advanced retirement account and tax planning laws and strategies. Visit irahelp.com for more information and connect with Ed Slott and Company on LinkedIn, Facebook and Twitter.
An Industry First: The American College of Financial Services Launches New Education Program—Ed Slott and Company’s IRA Success
IRA Success is an innovative, continuing education eligible, self-study program covering the latest retirement distribution and tax planning laws and strategies under the SECURE Act and CARES Act. It combines the expertise and clear-cut language of America’s IRA Expert Ed Slott, CPA, founder of irahelp.com and Professor of Practice at The American College of Financial Services, and his team of IRA Experts with The College’s proven results in e-learning design and delivery.
“The College is proud to partner with industry leader Ed Slott and his team, who have educated millions on the second half of retirement planning, to offer a one-of-a-kind educational program in the financial services industry,” said Nichols. “The IRA is a valuable retirement planning vehicle full of opportunities and obstacles currently owned by one-in-three U.S. households. IRA Success offers our students massive real-world applicability and potential business-building outcomes in a growing marketplace.”
With an emphasis on the SECURE Act and CARES Act, the 12-course program covers everything from recognizing new backdoor Roth opportunities to identifying key beneficiary categories still eligible for stretch IRA provisions. Each course comes with a video presentation, resources to use with clients and a digital course manual as an extensive reference tool.
“The financial industry has seen sweeping legislation and policy changes in recent years that have completely changed the retirement planning landscape. Now, more than ever before, financial professionals need access to the latest information available so they can serve clients in their best interest,” said Slott. “I am proud to partner with The College to provide the training advisors need on a robust e-learning platform.”
As a leading source of timely IRA expertise and analysis to financial advisors, institutions, and consumers, Slott and his team greatly expand The College’s knowledge offerings by providing practical, easy-to-understand information on IRA and retirement distribution planning. This program will help financial professionals prepare their clients to secure hard-earned retirement savings and navigate potential tax pitfalls. IRA Success costs $195 per course or $2,100 for the entire program. Those that enroll by April 30, 2021, will receive a signed copy of Slott’s new best-selling book, “The New Retirement Savings Time Bomb” (Penguin Random House, 2021).
ABOUT THE AMERICAN COLLEGE OF FINANCIAL SERVICES
Founded in 1927, The American College of Financial Services is the nation’s largest nonprofit educational institution devoted to financial services professionals. Holding the highest level of academic accreditation, The College has educated over 200,000 professionals across the United States through certificate, designation, and graduate degree programs. Its portfolio of applied knowledge also includes just-in-time learning and consumer financial education programs. The College’s faculty represents some of the foremost thought leaders in the financial services industry. Visit TheAmericanCollege.edu and connect with us on LinkedIn, Twitter, Instagram, Facebook, and YouTube. Discover all the ways you can expand your opportunities with us.
ABOUT ED SLOTT
Ed Slott, CPA, is the nationally recognized IRA and retirement planning distribution expert, best-selling author and professional speaker. His latest books include “Ed Slott’s Retirement Decisions Guide: 2021 Edition” (IRAHelp, 2021), “Fund Your Future: A Tax-Smart Savings Plan in Your 20s and 30s” (IRAHelp, 2021), and “The New Retirement Savings Time Bomb” (Penguin Random House, 2021). He has also hosted several public television programs, including his latest, “Retire Safe & Secure! with Ed Slott” (2021). As an AARP columnist, Slott also writes a Q&A column where he answers consumers' retirement planning questions. His company, Ed Slott and Company, LLC, is the nation's leading provider of technical IRA education for financial advisors, CPAs and attorneys. Ed Slott's Elite IRA Advisor GroupSM is comprised of nearly 450 of the nation's top financial professionals who are dedicated to the mastery of advanced retirement account and tax planning laws and strategies. Visit irahelp.com for more information and connect with Ed Slott and Company on LinkedIn, Facebook and Twitter.
Survey Says: Independent Advisors and Consumers Agree on Need for Specialized Services
According to consumers, it is the most popular service they seek from a financial advisor, and seven in 10 (71.2%) independent advisors desire to advance their specialized knowledge in the many complexities facing the growing retiree market. This alignment speaks to a need not yet met, which is not altogether surprising given the limited coverage of retirement income planning in comprehensive financial planning education.
The demand among independent advisors for advanced education through a professional designation aligns with the strong consumer preference for “evidence of knowledge or certifications” when seeking the services of a professional advisor. The research substantiates consumers are overwhelmingly seeking guidance with retirement planning more than any other area. These findings come from two studies – The College’s 2022 RIA Growth and Specialized Knowledge Survey comprised of nearly 400 independent or hybrid advisors at Registered Investment Advisor (RIA) firms and the Granum Center for Financial Security’s 2022 Consumer Survey made up of over 1,150 consumers.
“Continuous learning is critical to the growth and success of investment advisors whose value is more linked to integrated planning services than active security selection.” said Michael Finke, PhD, CFP®, professor of Wealth Management and director for the O. Alfred Granum Center for Financial Security at The American College of Financial Services. “Looking at the data, we see a clear need for further education and specialized knowledge in retirement income planning – it is what consumers want, and it is what advisors in the RIA community think is valuable.”
A significant advantage of specialized planning education is that it helps independent advisors position themselves to cater to the unique needs of their clients and deal with more complex cases one is likely to encounter with high-net-worth clients. Designations such as the Retirement Income Certified Professional (RICP®) from The College help foster the unique skillsets needed to guide clients through the financial challenges of preparing for and living in retirement.
Key takeaways from the 2022 RIA Growth and Specialized Knowledge Survey show:
- Nearly three in five (58.5%) independent advisors at RIAs strongly agree that increased knowledge obtained by pursuing a financial services designation has helped advance their career
- Professional designations programs (66.6%) are among the most-preferred education formats for applied specialized knowledge
- Retirement income planning is the area independent advisors most want to grow in advanced expertise, followed closely by issues facing a similar clientele like estate planning and advanced tax planning, and topics such as investment and wealth management
- Nearly eight in 10 (79.4%) independent advisors surveyed agree they would not have been prepared to provide integrated services without the increased knowledge obtained through pursuing a financial services designation
Among the findings from the Granum Center for Financial Security’s 2022 Consumer Survey:
- 27.1% of consumers listed knowledge as the most important attribute when looking for a financial advisor, and half (49.2%) cited knowledge as a top-three desired characteristics in an advisor
- Three out of 10 consumers (31.3%) chose “understanding how much I can safely spend in retirement” as the number one service they seek from a financial advisor
- Retirement income planning was the most popular desired service among older and younger consumers alike, and was equally popular among men and women
“Compared to short-form training such as micro-credentialling and premium continuing education modules, more than twice as many independent advisors listed professional designations as a preferred education format,” Finke added. “The demand for advanced education through a professional designation among advisors aligns with the strong consumer preference for ‘evidence of knowledge or certifications’ when seeking the services of a professional advisor.”
Specialized planning creates better results for clients by helping to ensure all components of their financial lives work together. Additional comprehensive benefits of specialized knowledge for emerging RIAs include easier recruiting, faster growth, greater sustainability, diverse fee structure options, and the ability to take on more lucrative clients. It also allows for businesses to be less susceptible to challenging market conditions because clients will always need specialized fee-for-service guidance.
The American College of Financial Services is committed to offering quality applied knowledge and education in all planning areas across the industry through our education programs and Centers of Excellence to better serve consumers and the advisors who guide them towards financial success.
2022 RIA Growth and Specialized Knowledge Survey Methodology
The American College of Financial Services conducted a national online flash survey of nearly 400 independent advisors conducted between May 11 – May 18, 2022. Results from the survey provide insight into what growing RIAs need to build momentum and grow their assets under management (AUM), maximize profitability in an environment dominated by large firms and accelerate their long-term profitability and sustainability.
Granum Center for Financial Security’s 2022 Consumer Survey Methodology
The American College O. Alfred Granum Center for Financial Security in collaboration with faculty from the American College Cary M. Maguire Center for Ethics in Financial Services and the American College Center for Women in Financial Services conducted a national online survey of 1,157 individuals with investible financial assets of at least $25,000. Results from the survey provide insight into the changing landscape of consumer demand for financial advice.
ABOUT THE AMERICAN COLLEGE OF FINANCIAL SERVICES
Founded in 1927, The American College of Financial Services is the nation’s largest nonprofit educational institution devoted to financial services professionals. Holding the highest level of academic accreditation, The College has educated over 200,000 professionals across the United States through certificate, designation, and graduate degree programs. Its portfolio of applied knowledge also includes just-in-time learning and consumer financial education programs. The College’s faculty represents some of the foremost thought leaders in the financial services industry. Visit TheAmericanCollege.edu and connect with us on LinkedIn, Twitter, Instagram, Facebook, and YouTube. Discover all the ways you can expand your opportunities with us.
Good v. Bad Debt: What's the Difference?
Except when it’s not.
Sometimes, it’s smart to take on debt. In fact, there are times when we don’t have any choice. Let’s take a closer look at debt — the good, the bad, and how to tell the difference.
Student loans
Borrowing money to finance a college education is a prime example of good debt. It’s not about buying a product that will depreciate, it’s about making an investment, one that will pay itself off, hopefully, many times over.
And there are numbers to back it up.
The difference in lifetime earnings between college and high school graduates is estimated to be $1 million. Other forms of educational debt, like the debt you take on for occupational training or to gain additional skills that advance your career, can also be considered good debt.
Even though student debt may be “good,” you should still weigh your options before you take it on, whether for yourself or your children. To begin with, there's a big difference between tuition at a public university versus an elite private school. Is it worth it? Maybe yes, maybe no. That’s for you to decide, based on factors such as:
- How much you’ll need to borrow.
- The field that you (or your child) will enter.
- Your existing financial obligations.
There are also signs that help may be on the way. With U.S. student debt at a record $2.6 trillion — second only to mortgages and more than credit cards and car loans — policymakers are debating how to make higher education more affordable. Plans range from free public college for all to generous loan repayment programs tied to income.
If any of those ideas become a reality, good student debt will get even better.
Home mortgages
While a mortgage doesn’t increase your earnings potential, being a homeowner can provide some financial benefits. Your monthly mortgage payments go towards building an asset — home equity — and not to a landlord.
Taking out a mortgage is often the only route to homeownership. Although the average age of first-time homebuyers is on the rise (the median age was 33 in 2019), few of us can buy our first home with cash.
Even if you could purchase a house with cash, there are compelling reasons not to. Currently, the interest on a 30-year fixed rate mortgage is at or around 4%. Compare that with the S&P’s annual return, which averages around 10% for every 30-year period since 1926. Instead of having your cash tied up in an illiquid asset — your house — you come out ahead by investing that money in the market.
But, as with student debt, potential homeowners have choices to make.
While it’s true that you have to live somewhere, does it have to be in a $1 million home, or would a house at half that price do the trick? Even with the housing crisis in our collective rearview mirror, an estimated 40 million Americans are “house poor” — living in a home they can’t afford.
The takeaway? You have to consider multiple factors before you determine if a particular debt is good for you.
Small business loans
Small business loans may represent more of a risk than other types of good debt— given historical success rates of start-up ventures — but they’re considered “good” based on the same assumption as student loans: You’re investing in yourself.
The risk of these loans is balanced somewhat by the process you need to go through to get them. Whether you’re looking to borrow from the U.S. Small Business Administration or a bank, you’ll need to meet certain requirements, including personal and business credit scores. The SBA requires you to submit a detailed business plan with your application, so you’ll need to research your industry, identify risks, and set realistic goals.
One thing is becoming clear: As much as we would like to define good or bad debt in absolute terms, the truth is more gray than black and white.
New car loans
We’re definitely in a gray area when it comes to new car loans.
Having reliable transportation can increase your access to employment, so you could argue that car loans enhance your future earning potential. And for most of us (for better or worse), having a car is a necessity for daily life.
On the other hand, your first drive out of the dealership in your new wheels is the most expensive trip you’ll take: Cars depreciate at an average rate of 20% in the first year, and 15% a year after that. If you take out a 5-year loan on a new car, you could be “underwater” before the end of the term, meaning you owe more than the car is worth.
The good news? You have options. You can choose a $35,000 workhorse or an $85,000 show horse. If you buy a late-model used car with low mileage, the original owner takes the biggest depreciation hit. If you must have that new-car smell, try keeping your car after you’ve paid off the loan and putting that monthly payment into a savings account. That way, you can buy your next car in cash or put down a larger deposit and reduce your payments.
Either way, you’re in the driver’s seat.
Credit cards
Regularly putting major expenses on credit cards is seldom a good idea, especially cards that lure consumers with interest-free initial offers and high credit limits.
Although the average U.S. credit holder’s 2019 balance of $4,293 represents a lower percentage of disposable income than it did during the Great Recession, credit card interest rates have never been higher — 17.41% and counting.
One problem with credit cards is their ease of use. The ability to pay with smartphones and other devices makes things even worse. And there’s online shopping, which elevates instant gratification and retail therapy to an art form. Try limiting yourself to a debit card that’s connected to your checking account, so you can only spend what you actually have.
If you don’t need it, and can’t afford it, don’t buy it.
Payday loans
While credit card debt is not good, payday loans are even worse. Many workers turn to these lenders out of desperation — for example, to cover a car or home repair —which is never a good time to take on debt.
Although the interest rates these “cash advance” lenders charge may seem manageable, they’re for shorter terms, usually until the next paycheck in two or four weeks. But on an annual basis, payday loan rates translate to an APR of 391%.
The advice here is simple: Avoid at all costs.
In the end, it’s about smart choices
Like all major life choices, the decision of when and how much debt to take on — and for what — is complicated. Where are you in your career? How secure is your income? What are your financial obligations? Do you have a rainy day fund in place? Are you saving enough for retirement?
One way to make it simpler is to ask yourself one question: What will this particular purchase mean to me in 15 years?
How you respond may give you the answer you need, if not the answer you want.
This content and information was created by a third party and not The College. The College assumes no legal liability for the accuracy, completeness, or usefulness of any such content and information and the views expressed therein do not necessarily represent the views of The College.
Is It Better to Give to One Charity or Many?
You should:
- Give $10 each to 10 different charities.
- Give $25 each to 4 different charities.
- Give $100 to one charity.
If you want to maximize the social impact of your charitable giving, what’s the best approach?
Let’s start by understanding what motivates you to give. As reported in Psychology Today, a recent study revealed five major reasons why people donate to charities:
- Trust. You are more likely to donate to organizations you trust.
- Altruism. We believe it’s our responsibility to care for others in need.
- Social. You have a direct connection to the organization you support. E.g., you support research to cure a disease that afflicts a family member, or you buy Girl Scout cookies from a neighbor’s child.
- Taxes. You can do well and good at the same time.
- Egoism. Giving makes us feel good about ourselves.
When choosing your giving strategy, take your motivations into account. With that in mind, here are the pros and cons of each strategy.
If you give $10 each to 10 charities
The pros. You can support the many organizations whose mission you believe in. You limit the times you decline a request from a family member or close friend to support a cause that’s important to them. You can take comfort in the fact that many deserving charities need support, and that no amount is too small to make a difference.
The cons. Every donation you make is subject to some kind of transactional fee — unavoidable administrative costs from your charity’s financial institution. The fee is the same regardless of donation size, so your 10 gifts will incur 10 times the fees of one gift.
The “head and heart” takeaway:
The rationale for spreading your money across multiple organizations is understandable. The world’s problems are complex, no single issue is clearly more pressing than any other, and every little bit helps. You also expand your social network in positive ways.
But from a pure numbers perspective, giving to more charities dilutes the amount of your gift that goes to the organization’s actual work. From a business sense, the more organizations you support, the higher your charitable overhead.
If you give $25 each to 4 charities
The pros. You can balance your support of multiple organizations with the knowledge that you’re giving more to each one. Hopefully, that translates to your gift having a more significant impact on the causes you believe in.
The cons. Although your overhead costs are less than the example above, they’re still higher than if your giving was even more focused. And you’ve sacrificed the ability to support more organizations that you view as worthy, increasing the likelihood that you’ll have to decline some requests.
The “head and heart” takeaway:
This is a “compromise” choice. It makes sense to weigh your interest in many causes with a desire to increase the potential impact each gift can make with the costs associated with each donation you make.
If you give $100 to one charity
The pros. By focusing on a single cause and organization, you’re maximizing the impact your giving can have. By giving more, you may be considered a “major donor” and have opportunities for increased involvement with the organization. You also reduce the amount of your philanthropy that is consumed by administrative fees.
The cons. Following the “all-your-eggs-in-one-basket” approach means that you’ve limited the causes you can support. You will likely need to say no to organizations who need your support and whose mission you believe in.
The “head and heart” takeaway:
Giving to a single charity appears to make the most sense from a strict dollars-and-cents perspective. It provides an organization with the most financial support and minimizes the amount of your giving that covers banking fees. At the same time, if the organization you support is not as effective as you think it is, the impact of your giving won’t be as significant as you had hoped.
Tips for whichever approach you take
It’s tempting to think of charitable giving the way we think of a stock portfolio, and try to spread risk and reward across a range of “holdings.” But charitable giving isn’t about maximizing wealth, it’s about making a difference (and, yes, feeling good about ourselves in the process).
Here are some things to keep in mind, regardless of your preferred approach to giving:
- Develop a plan. Many people give to charity throughout the year and only understand the sum total of their contributions when it’s tax time. A more intentional approach to giving can help you focus your efforts and maximize the impact of your contributions.
- Consider giving circles. If you’re committed to supporting multiple causes with maximum impact, consider joining a giving circle, a group of like-minded people who pool their resources and collectively decide what organizations to support. Giving circles can also provide volunteer opportunities, which enhances the involvement you’ll have with the causes you support.
- Check on the organization’s effectiveness. Just because an organization is doing work you think is important doesn’t mean they’re doing it well. Ask for performance reports and check online ratings. At the same time, heed this warning from Freakonomics: the percentage of money an organization spends on administrative costs is not the single, most important indicator of effectiveness. Instead, focus on outcomes: are they moving the needle on the issue they’re tackling?
- Engage a professional. As your commitment to philanthropy grows, consider working with a financial advisor who specializes in the field. They can help you develop a long-term plan that best matches your financial means with your charitable goals. But the single most important takeaway? Keep giving and know that you are doing good.
This content and information was created by a third party and not The College. The College assumes no legal liability for the accuracy, completeness, or usefulness of any such content and information and the views expressed therein do not necessarily represent the views of The College.
Is Buying a Second Home Right for You? It Depends
However, homeownership is a big decision, and owning two properties is (at least) twice as complicated as owning one. That’s why you need to understand what’s involved, the resources you’ll need, and how the decision may impact your financial future.
There are three main types of second homes:
- Vacation and weekend getaways
- Rental properties
- A house where you plan to retire
These categories can overlap: You may vacation in the house where you’ll retire or rent out your vacation home. Whatever your plan is, your intended use should play a significant role in your decision-making.
There are unique considerations for each type of second home, as well as questions you will need to answer that are common to all three.
The vacation getaway
If your dream is to own a vacation home, you may already have a location in mind. Chances are it’s in an area where people vacation! It’s not surprising that half of all second homes are in eight states, and that the top state — Florida — accounts for 15% of the total.
From a financial perspective, this is good and bad. Real estate in highly desirable areas is expensive, which could price you out of the market. On the flip side, if you can afford it, owning property in a vacation hot-spot increases the likelihood that your house will hold its value, if not appreciate.
Be honest about how many weeks you’ll be in the house in any given year. Does the time justify the expense, or would you be better off renting? If you plan to rent it out when you’re not there, is there a market in the off-season? Will you maintain the property yourself? How far away is it from your permanent residence?
If you’re not familiar with the area, spend a few vacations renting before you even consider buying, including in the off-season. You may discover this is more of a fling than a long-term relationship.
And remember that owning this home may cut down on your ability to vacation elsewhere — an important consideration if you’re someone who likes to travel.
The investment property
If you’ve seen TV shows about flipping houses or investing in real estate, you know that it’s easy money, right?
The truth is, while it’s possible to make money in real estate, it’s anything but easy.
First, you’ll need to assess the rental market in the location you’re considering. What is the demand for the type of property you can afford? Are the rental rates sufficient to cover your costs, which include not only your mortgage but also taxes, association fees, utilities, and homeowner’s insurance? Factor in these costs before you buy.
Understand what it means to be a landlord. Not only are you on call 24/7 when the roof leaks or the furnace breaks down, but it’s also your responsibility to find reliable tenants, hopefully with little downtime between rentals. Learn about landlord/tenant rights, which differ by state. You could choose to hand those duties over to a management company, but that will cut into what may be a slim profit margin.
On the positive side, there are tax advantages for real estate investors that can play into your favor. Remember that tax laws change and are complicated and getting professional guidance may pay off in maximizing your benefits and avoiding problems.
Finally, decide what kind of “investment” you are after: Will your profit come from buying and selling often, or will you hold on to a property long-term for a regular, monthly income stream?
The retirement property
Maybe you’re starting to think about retirement and you’d like to spend those years in a new place. Are there advantages to buying a retirement home while you’re still working?
The short answer: yes. You’ll have an easier time getting approved — and securing the best rate — while you’re still drawing an income. The Equal Credit Opportunity Act makes it illegal for lenders to discriminate against retirees, but they can consider your income.
Purchasing your retirement home while you’re still working also gives you the chance to get to know the area better. And you won’t have to dip into your retirement funds for upgrades and maintenance. Depending on when you buy it, you’ll build equity in your second home that could come in handy later or turn into an asset for your children.
Some advisors recommend buying your retirement home only when you’ve paid off your existing mortgage. That’s undoubtedly the best scenario. If the option is to carry two mortgages, be sure that’s a cost you can absorb. You don’t want to impact your financial plan negatively, especially your retirement savings. What good is a great retirement home if you don’t have the money to enjoy it?
As with vacation homes, know the location. After all, this is where you’ll spend many years, with a lot of free time. If it’s a place you regularly visit in summer, experience it in winter. You don’t want to be surprised when it’s too late to do anything about it.
And common to all three
Here are some things you need to consider, regardless of how you’ll use your second home:
- It may be more difficult to qualify. Lenders will look at your debt-to-income ratio: the ratio of your debts compared to your income. Most lenders require a DTI of 36% or lower, so determine if your mortgage payments put you over that threshold.
- Lending rates will be higher. This is especially true for investment properties, with the assumption that the transaction includes higher risk: It’s easier for borrowers to walk away from a failed business venture than it is from their own homes.
- You’ll need furniture and housewares. Enough said, but a cost that many people don’t factor in.
- Houses need regular maintenance. As an existing homeowner, you already know this. But you may not know what it’s like to care for a property that you don’t live in, that may be hours away, and that other people are living in.
As you dig deeper into the details of second homeownership, don’t lose sight of your original dream. If the numbers add up, a second home can provide decades of family gathering memories, additional income, or a place to enjoy your well-deserved retirement. The more you know now, the better the chances that your dream will become a reality.
This content and information was created by a third party and not The College. The College assumes no legal liability for the accuracy, completeness, or usefulness of any such content and information and the views expressed therein do not necessarily represent the views of The College.
What Should You Do With an Old 401(k)?
However, with the average American holding more than 12 jobs before the age of 52, you’re unlikely to have just one 401(k) during your career — and that can leave you unsure of what to do.
In order to make good choices with older 401(k)s, you first need to understand that every dollar you put into a 401(k) is your money. The plan may be attached to an employer, but they cannot remove or interfere with any money you’ve contributed. Some employers make matching contributions that they are allowed to take back if you leave your job before being fully vested (i.e., you weren’t at the company long enough), but your contributions belong solely to you.
So, what should you do with the money that’s sitting in an old 401(k)? There are several options:
Roll it Over
For many people, moving the money from an old 401(k) to a new investment account is the best choice because it gives you more control over your money and limits the number of accounts you have to manage. If you want to roll over a 401(k), there are two options that allow you to avoid any taxes or penalties.
First, you can simply roll an old 401(k) into the one attached to your current employer. Not all employers permit this but, if yours does, the process is fairly simple and your employer may even help you out. Just make sure you opt for a direct rollover. The money should move from one 401(k) to the other without passing through you.
Your second option is to roll the money into an IRA. This is also a simple process. You’ll choose a financial provider, open a rollover IRA, and ask your old 401(k) for a direct rollover.
So, which choice is right for you? That depends. If you really like the investment options provided by your new employer and want to manage as few accounts as possible, rolling an old 401(k) into a new one makes a lot of sense. However, if you prefer the wider range of investment options offered by most IRAs and don’t want to end up with yet another old 401(k) should you leave your current job, you’ll likely be happier moving your money into an IRA.
One thing to remember is that, while you can take a loan out of a 401(k), you can’t take a loan from most IRAs. So, if you think you may need to borrow from your retirement savings, keeping your money in a 401(k) will offer more options.
Do Nothing
You don’t have to do anything with an old 401(k) if you don’t want to. You can let the money sit there until you reach 70½, at which point you must start taking annual required minimum distributions.
The problem with not doing anything is that you’ll have little to no control. You won’t be able to add money to the plan and, if you need to withdraw from it, your options could be limited. It’s also difficult to manage the investment strategies of multiple 401(k)s, particularly when you no longer have regular, employer-granted opportunities to adjust your plan.
That said, keeping the money in an old 401(k) is far preferable to cashing out. By doing nothing, your money can still grow tax-deferred and will be available for your retirement.
Donate to Charity
If you don’t think you’ll need the money in a 401(k), you can withdraw it, pay the taxes and penalties, and give the money to charity. However, if you want to maximize the gift, you should include the donation in an estate plan. By donating your 401(k) upon your death, the money will transfer tax-free, providing the charity with more funds overall.
Try Not to Cash Out
You always retain the right to convert money that’s in a 401(k) into cash. However, it’s a poor strategy unless you’re of retirement age or need the money for an emergency and have no other options.
The problem with withdrawing early from a 401(k) is that you’ll have to pay income taxes on the entire amount you withdraw and you’ll likely face an early withdrawal penalty of as much as 10%. If you’re 59½ years old, you can avoid the penalty, but you’ll still owe the taxes immediately. Of all the ways to handle a 401(k), cashing out is the worst financial option.
How you handle an old 401(k) is up to you and your personal needs and preferences. The important thing is that you make your decision based on good information. Your retirement is too important to ignore.
This content and information was created by a third party and not The College. The College assumes no legal liability for the accuracy, completeness, or usefulness of any such content and information and the views expressed therein do not necessarily represent the views of The College.
How to Help Aging Parents With Their Financial Planning
While a lot has been studied and written about raising a child, we know less about the dynamic between adult children and their aging parents. At what point does the traditional caregiver role switch from parent to child? That question becomes even more critical when one parent dies.
The major issues that adult children and aging parents need to confront have one thing in common: finances. From physical health to aging in place to declining cognition, how to help parents live out their final years with dignity is tied to their financial resources.
How can you ensure that your parents’ financial health is sound? What protections and support can you put in place without overstepping boundaries? What resources are available to you and them to have productive discussions about issues of aging in place, wills, and related topics?
Here are five steps that can help you navigate this challenging, but ultimately rewarding, responsibility.
1. First, talk with other family members
Start by talking with siblings and close relatives. If you don’t have those connections, there may be someone who knows you and your parents, maybe a neighbor or family friend, who can fill the role.
Figure out the best way to begin the parental discussion, including who the best spokesperson is. It doesn’t have to be all of the children. It may be best to limit the initial dialogue to one person to avoid a sense of “ganging up.”
And have the talk early—earlier than you think you need to.
Studies indicate that the ability to make complex decisions like those involved in financial planning starts to diminish after age 60. Michael Finke, professor of Wealth Management and program director of the Wealth Management Certified Professional® (WMCP®) program at The American College of Financial Services, studies the relationship between cognitive decline and financial decision-making.
As Finke told Kiplinger, “Often, by the time parents have lost their ability to make sound financial choices, they’ve also lost the ability to evaluate who they can and can’t trust.” That can open the door for ill-intentioned family members or outsiders posing as financial advisors.
2. Provide help, not control
It’s possible, and perhaps likely, that your parent or parents won’t see any need for your advice, at least not initially. So don’t give advice or try and take control — offer help instead.
If your parents are still doing in-person banking, offer to drive them and take them out to lunch — an unforced way to meet their banker and transition to money talk afterward. If paying bills is becoming a chore, either because of vision challenges or forgetfulness, volunteer to step in. (And if you have a child who is old enough to take this on, even better).
Another tactic: give the gift of technology, a tablet or laptop that they’ll need help to set up and learn. What begins as a great way to create and share photos of the grandchildren can transition to viewing their portfolio online and managing their bills.
Gradually, you’ll become a natural part of the financial management “team.”
3. Set up efficient systems
With your foot in the door, you’ll get a better sense of what you’ll need to do next and how much responsibility you’ll need to take on. Simple observation can help: if you notice unpaid bills and collection notices on the kitchen counter, it’s time to become more involved.
Set up automatic payments for essential ongoing services; credit card and bank statements can give you an idea of what these are and which may be redundant and/or unnecessary. Consolidate multiple accounts. As part of a volunteer spring cleaning, make sure you know where documents like wills and life insurance policies are located (and don’t forget the lockbox key).
Finally, make sure that your parents are receiving every benefit they’re entitled to, from employer benefits to Medicare.
4. Anticipate what’s next
At some point, and depending on your parents’ health, you’ll need to assess the potential for long-term care. Check out options when there’s no immediate medical emergency to deal with, and include your parents in the process if they’re open to the possibility.
You will also want to obtain a durable power of attorney, which gives you a broad range of responsibilities such as paying bills, managing assets, and filing taxes. A durable power of attorney remains in place even if your parents become incapacitated, and avoids the delay of going to court to be appointed the legal guardian.
5. Enlist the help of a financial advisor
If involvement in your parents’ financial affairs is problematic, enlisting the help of a neutral, outside expert may be best for you. Given the complexity of financial management, the amount of time it takes, and the emotional toll involved, it may be the preferred course of action, regardless. A credentialed advisor can provide your parents and you with the financial peace of mind that only comes with professional experience.
While you’re at it, start thinking about your retirement years so your children won’t go through the same experience you have. If you’ve found a good financial advisor for your parents, they might be a good fit for you too.
This content and information was created by a third party and not The College. The College assumes no legal liability for the accuracy, completeness, or usefulness of any such content and information and the views expressed therein do not necessarily represent the views of The College.