Are You Making the Right Assumptions About Your Money?


Kelvin and Kesha are working with an architect to design their own home, and to do so, they must make certain assumptions. They plan to have children, so their floorplan includes two extra bedrooms. A two-car garage is also a priority, although they have only one car now. And a finished apartment above that garage is part of the plan, too, to accommodate the possibility that at least one set of parents will move in with them as they advance in age.

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Making educated, well-informed assumptions — about having children, adding another car and having parents eventually moving into the household — is critical to designing a home, whether or not those assumptions ultimately prove to be accurate.


The same holds true when designing a financial “house.” As much we’ve heard the old bromide about the pitfalls of assuming things in life, any well-thought-out financial plan must necessarily incorporate certain assumptions, even if those assumptions may need to be revisited and revised as circumstances change.


In the context of financial planning, making assumptions “is the nature of the beast,” says Richard Colarossi, CFP®, of Colarossi & Williams Financial Advisory Group in Islandia, NY. “You can’t move forward without them. You just have to be sure you understand the basis of the assumption you’re making, that you have a rationale for making a particular assumption, and that you get as close to reality as possible with that assumption.”


Also be ready to adjust on the fly “because there are so many variables that can change the assumptions you make,” he says. “I recommend reviewing [financial plan] assumptions at least annually, so if things have changed, you can adjust accordingly.”


Here’s a look at five key assumptions that factor into the financial planning process and how each fits in the context of a broader financial blueprint.


  1. Life expectancy. Outliving one’s assets — running out of money, in other words — is perhaps the biggest fear people harbor about retirement, particularly with lifespans in the U.S. generally trending higher over recent decades (the slight declines of the past two years notwithstanding). This is what’s called longevity risk, and to account for it in in the context of a financial plan, an assumption about life expectancy is required, “so you know roughly what you’ll have [in terms of assets], at what age.” Today financial professionals recommend building a life expectancy of at least 90, and perhaps 95 or 100, into a financial plan, then modifying that number if necessary based on family history and other factors. Such an assumption merely recognizes the latest U.S. government data indicating that one out of every four 65-year-olds today will live past age 90, and one out of 10 will live past age 95.


  1. Rate of return on investments. This assumption essentially projects how much the value of your assets will grow (or not grow) annually, on average, over time. It’s necessary to project with some level of accuracy how much your assets, including retirement account(s), investment portfolio, etc., will be worth at a certain point of time, such as at retirement. Like most assumptions used in financial planning, it’s important to project conservatively, because an overly aggressive assumption can undermine the integrity of a financial plan. So while a recent analysis by T. Rowe Price found that from 1928 to 2016, stocks grew annually by an average of 8.6 percent after inflation, financial professionals tend to prefer a lower growth rate assumption, such as 2% above inflation, for a balanced portfolio of stocks and bonds.
  2. Inflation. This is the rate at which the price of goods and services rises. The inflation rate directly impacts how far a person’s dollars will go, which is why it’s important to build an assumption about inflation into a financial plan. The higher the inflation rate, the lower a person’s purchasing power. That’s a particularly important consideration for people on a static income, such as retirees. Many financial professionals use a baseline inflation assumption of 3 to 4 percent (inflation in the U.S. has averaged slightly more than 3 percent over the past century), then adjust to fluctuations in the inflation rate as needed.
  3. Expenses/cost of living. If income and assets are the supply side of the financial planning equation, expenses are the demand side. That equation becomes especially important in the context of retirement planning, when it’s important to make an accurate assumption about expenses, including hard expenses (food, shelter, clothing, heath care, utilities, transportation, etc.), discretionary spending for travel and other leisure pursuits, and contingencies such as taking care of a parent, losing a job earlier than expected, etc. This projection of expenses informs (and dictates) other areas of a financial plan, such as how much to set aside toward goals like retirement or a child’s college education.


  1. Health care expenses. The tab for health and medical care can be steep for individuals and families of all ages. But the financial burden can be particularly heavy for retirees. Total projected lifetime health care premiums (including Medicare, supplemental insurance and dental insurance) for a healthy 65-year-old couple retiring in 2017 are expected to be about $322,000 in today’s dollars, according to a report from HealthView Services. With deductibles, copays, hearing, vision and dental cost sharing, that figure rises to $404,000. What’s more, the U.S. government projects health care costs will grow at a lofty rate of 6 percent annually for the next decade. Given those numbers, financial professionals recommend building a health care cost assumption into a retirement plan, along with measures (such as investing in some form of insurance that offers long-term care coverage) to protect assets from a potentially financially draining need for long-term care.


As much as people may hesitate to make assumptions because of the risk they’ll turn out to be off the mark, it’s next to impossible to build a solid financial plan — or a home, for that matter — without making these and other important assumptions. For a financial plan to remain viable over the long term, the assumptions built into it must be relevant, well-supported and appropriately applied. They also must be revisited regularly and adjusted as needed. That’s where a financial professional can help. To find a CFP® professional in your area, visit the Financial Planning Association’s searchable database at

This column is provided by the Financial Planning Association® (FPA®) of Northeastern New York, the principal professional organization for Certified Financial PlannerTM (CFP®) professionals. FPA is the community that fosters the value of financial planning and advances the financial planning profession and its members demonstrate and support a professional commitment to education and a client-centered financial planning process. Please credit FPA of Northeastern New York if you use this column in whole or in part.

The Financial Planning Association is the owner of trademark, service mark and collective membership mark rights in: FPA, FPA/Logo and FINANCIAL PLANNING ASSOCIATION. The marks may not be used without written permission from the Financial Planning Association.

A Baker’s Dozen for the Bottom Line: 13 Financial Hacks to Save Time, Money and Hassle


People are constantly looking for “hacks”: ways to improve their lives, to do more with less, to find new ways to gain and maintain an edge. It’s called progress, and it’s something human beings seemingly are wired to want and to seek.

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That’s especially true in the context of our financial lives. People are always seeking ways to improve their financial standing, now and in the future. The 13 financial hacks listed below include bypasses, shortcuts and other straightforward money-related maneuvers that can make a lasting positive impact on the financial bottom line, while saving time and hassle in the process.

HACK #1: Use a tax-favored 529 plan to pay for private high school, or even private elementary or middle school. As a result of newly instituted federal tax policy, tax-favored 529 educational savings plans aren’t just for college anymore. In addition to covering college expenses, beginning in 2018, money from 529 plans can be used to pay for up to $10,000 of tuition expenses per year, per student, for enrollment at an elementary or high school, notes Marguerita M. Cheng, CFP® of Blue Ocean Global Wealth in Gaithersburg, MD.


HACK #2: Use a tuition payment plan to help pay for a college education. As fast as the cost of a college education is escalating — four years at an out-of-state public college now cost an average of about $102,000 — many institutions offer students and their families interest-free payment plans to relieve some of the financial pressure. To find out if an institution offers such a plan, and if so, what the terms and enrollment cost are, contact the school’s financial aid office.


HACK #3: If you like to travel, get creative to manage your travel costs. Here’s a four-in-one financial hack to make travelling less expensive.


  • Find ways to accumulate travel points or airline miles. There are ways to strategically and responsibly use a credit card to gain miles or points that defray the cost of air travel, lodging, rental cars and more. The important point here is to be sure to pay down card balances promptly. Otherwise the perks you stand to gain from using miles/points will be offset by higher interest charges on the credit card balances you’re carrying. Websites such as and offer comparisons and ratings of credit card rewards programs. They can also help you evaluate cards based not only on rewards but on the interest rate charged on purchases.
  • When you rent a car, instead of paying the extra cost for insurance once you reach the counter, take advantage of the insurance protection that’s built into many credit cards. Before renting a car, first confirm that your credit card offers insurance on car rentals, then find out details on the extent of that coverage. If the card you use to rent a car does come with adequate coverage, then consider declining the extra coverage offered by the rental car company.
  • Clear the cache of your Internet browser — Google Chrome, Firefox, Safari, etc. — when you’re shopping travel websites for a hotel, rental car or airfare. These sites have the ability to sift through the Internet search history stored in your browser’s cache, then adjust their prices higher, knowing you’re looking to make reservations for a certain destination on certain dates. They can’t do that, however, if your cache is empty. If you don’t know how to empty the cache associated with your browser, ask someone who’s tech savvy to show you how.
  • If you have a specific place you want to visit, or you just want to travel someplace interesting and you’re willing to offer your home in trade to someone who’s interested in traveling to where you live, then consider arranging a home swap through a house-exchange website. Instead of paying for a hotel or a rental property, you stay in someone else’s home while they’re not there. In exchange, they get to use your home while you’re not there. Sometimes, the exchange involves a car, too. The only cost the participants pay is the fee charged by the website brokering the exchange, typically $100 to $150 annually. If you’re intrigued by the concept, check out sites such as and


HACK #4: Take video of the contents of your home for insurance purposes. Leon C. LaBrecque, CFP® head of LJPR Financial Advisors in Troy, MI, urges homeowners to keep an up-to-date photo or video inventory depicting the contents of their home as a way to accurately document and value the things they own, a necessity for homeowner’s (or renter’s) insurance. Keep images of every room in your home, plus the contents of closets, drawers, etc., along with details on when you bought specific items and how much you paid for them. Also keep images of electronic equipment (computers, televisions, stereo equipment, etc.) and their serial numbers. And be sure to time-date all the images by putting a dated item in the picture — a magazine cover with the issue date clearly visible, for example. Don’t rely only on the date stamp that the photo/video app embeds on the pictures.


HACK #5: Pay bills automatically via your bank’s online bill-pay service. This saves time, money (postage) and potential aggravation from a missed payment. “As a student of behavioral economics, I like anything that reduces our reliance on, or eliminates, our biases,” says LaBrecque.

HACK #6: Use the automatic rebalance feature in your 401(k). This is a mechanism that periodically checks how assets in a 401(k) account are allocated, then adjusts that allocation if necessary, based on allocation parameters established by the account owner. Maintaining an appropriate allocation of assets is key to positioning assets for long-term growth.

HACK #7: Use the automatic increase feature in your workplace retirement plan and college savings plan. Most plans allow you to activate a mechanism that increases contributions by a specified percentage each year, on a specified date. “This will automatically help you save more for retirement in a way that is not at all painful,” says Kristin C. Sullivan, CFP® of Sullivan Financial Planning in Denver, CO.

HACK #8: Take advantage of the tax-favored catch-up provisions that Uncle Sam offers retirement savers. The IRS allows people age 50 and over to contribute an additional amount each year — as much as an extra $6,000 in some cases — to a qualified retirement plan [401(k), IRA, etc.] as a way to accelerate their retirement savings.

HACK #9: If possible, delay taking Social Security benefits. A person can opt to start drawing Social Security income as early as age 62. Another option is to wait until what the Social Security program calls “full retirement age” (the age at which a person becomes entitled to full or unreduced retirement benefits, usually 66 or 67), or even until age 70. Delaying allows a person to earn valuable “delayed retirement credits” that increase their monthly benefit when they do start taking payments. Those credits are equal to an annual 8% raise in benefits. All it takes is a glance at the numbers to understand the rationale for waiting. For example, a person who would get a benefit of $1,000 a month at age 62 would get at least $1,333 at age 66 and $1,760 at age 70, according to calculations by the Center for Retirement Research at Boston College.


HACK #10: Turn money in your 401(k) into a guaranteed retirement income stream. An increasing number of 401(k) retirement plan providers offer participants the option to convert a chunk of in-plan assets into a steady, annuity-like stream of income for retirement. This can be a viable option for people seeking an additional source of guaranteed income for a period of time, or for a lifetime, to supplement Social Security and other income streams.


HACK #11: Consider purchasing a life insurance policy that also covers the cost of long-term care or a critical/chronic illness. There are lots of reasons to like life insurance, for its ability to protect people financially and to transfer wealth tax-efficiently. Another potentially appealing aspect of certain types of permanent life insurance (whole life, universal life) are so-called “living benefits,” an optional feature that, for an extra cost, provides the policy owner with funds to help cover the cost of a long-term care need or the costs associated with a critical or chronic illness.


HACK #12: Use lower-cost investments. Led by the King of Investors himself, Warren Buffett, more investors are shifting money into index funds and exchange-traded funds (ETFs) because they generally charge lower fees to investors than do actively managed mutual funds, without sacrificing performance. Actively managed funds incur costs for research and trading in the name of outperforming the market, costs they pass on to investors. Passively managed funds like index funds don’t have these costs, mostly because they’re designed to track the market, not outperform it. Lower fees and costs allow a person to hold onto a larger share of the gains from their investments — gains that may compound upon themselves over time. And research by the fund company Vanguard suggests that passive investments may actually perform better than actively managed funds over time. Vanguard compared the 10-year records of the 25% of funds with the lowest expense ratios and the 25% with the highest expense ratios. The low-cost funds outperformed the high-cost funds in every single category.


For every actively managed mutual fund you own, there’s likely an index fund or ETF with a similar investment profile that you could use instead, whether as a stand-alone investment or inside a retirement account [401(k), IRA, etc.).


HACK #13: Contribute to a health savings account (HSA). People who have a high-deductible health plan likely also have access to an HSA. Not only can an HSA provide a convenient way to pay for health care expenses, it also can serve as a powerful savings and investment tool. From a tax perspective, HSAs are a win-win-win: HSA contributions are tax-deductible; money saved in an HSA can grow tax-deferred; and, account holders are able to withdraw HSA funds tax-free to cover qualified medical/healthcare costs.


What’s more, many HSA providers now allow account owners to keep some of their HSA money in mutual funds, so instead of earning nothing or next to nothing in interest, that money has greater upside to grow (and greater downside risk, since it is invested in the stock market rather than in a fixed-interest account). The fact that money in an HSA can remain in the account from one year to the next makes that investment option extra appealing to some people. The HSA ultimately functions like an IRA for healthcare and medical costs.


This column is provided by the Financial Planning Association® (FPA®) of Northeastern New York, the principal professional organization for Certified Financial PlannerTM (CFP®) professionals. FPA is the community that fosters the value of financial planning and advances the financial planning profession and its members demonstrate and support a professional commitment to education and a client-centered financial planning process. Please credit FPA of Northeastern New York if you use this column in whole or in part.

The Financial Planning Association is the owner of trademark, service mark and collective membership mark rights in: FPA, FPA/Logo and FINANCIAL PLANNING ASSOCIATION. The marks may not be used without written permission from the Financial Planning Association.

What the New Tax Law Means for Your Wallet, Your Financial Future


It’s not a question of whether the most far-reaching federal tax overhaul in decades will impact you, but how much it will impact you, according to personal finance experts. Here are some notes on the new tax law.

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If you earn an income, if you have money invested in the stock market, if you have dependent children, if you’re saving toward retirement or toward a child’s education, if you own a home or a business, chances are your 2018 federal tax returns will look considerably different than the returns you file for the 2017 tax year.


What’s inside the 1,000-plus pages of the Tax Cuts and Jobs Act of 2017 that President Donald Trump signed into law late last year? Which taxpayers are likely to be impacted most by the sweeping new tax policy? And how to take advantage of some of the positives in the policy, while minimizing the impact of the negatives? Read on to find out, then be sure to consult a tax expert to discuss how to handle your specific tax situation in light of the new law, because as CERTIFIED FINANCIAL PLANNER™ professional Evan Beach of Campbell Wealth Management in Alexandria, VA, points out, “With all these new rules, new tax-mitigation strategies will definitely emerge.”


  1. Impact on EARNERS

The income tax rate on people in five of the seven tax brackets drops by anywhere from 1 to 4 percent starting in the 2018 tax year. Say you and your spouse were in the 28 percent tax bracket and filed your taxes jointly. The new rate for people in that bracket is 24 percent and breaks at $315,000 instead of $233,000, so you would pay less tax on more income within that bracket.


As with many provisions of the new law, the individual income tax cuts are due to expire at the end of 2025, unless they’re renewed by lawmakers before then. They also could be repealed and replaced well before 2025, if another President comes into office, for example, or if Democrats gain a majority in the U.S. Congress and decide to overhaul tax policy.

  1. Impact on INVESTORS

The new tax law lowers the tax rate on corporations from 35 to 21 percent, which observers expect will bolster corporate earnings. That in turn could lead stock prices to trend higher, Beach suggests. Thus people who hold investments in the stock market, either in the form of shares of individual company stock, mutual funds, etc., either inside or outside their retirement accounts, are likely to benefit. Corporations that tend to pay the full corporate tax rate — mostly small and mid-sized companies — are likely to benefit most from the lower rate, so investors might be wise to prioritize investing in those types of companies, he says.


One thing that didn’t change in the new tax law is the relatively low rate at which long-term capital gains are taxed. That’s generally a positive for investors.


The new tax law leaves rules governing contributions to, and deductibility of, qualified deferred retirement plans such as 401ks and IRAs largely intact. That, coupled with lower income tax rates, suggests it could be wise in the near term for certain people to prioritize contributing to a Roth IRA, where money is taxed on the way in, unlike with a 401(k) or traditional IRA, where money is taxed on the way out. This strategy may make sense for people who believe the prevailing tax rate that applies to Roth contributions made today will be lower than the rate they’re likely to pay on the distributions they will take later from tax-deferred retirement accounts.


Of course, trying to predict future tax policy is pure speculation. The most effective hedge against uncertainty surrounding future tax policy, says Beach, is to appropriately diversify the tax treatment of investments, spreading them across tax-deferred accounts such as a 401k, after-tax accounts like a Roth, and a taxable investment portfolio.


The new tax law likely changes the entire decision-making dynamic around whether to itemize deductions on your federal tax return. That’s due to several key changes:


  • An increase in the standard deduction. Under the new tax law, the standard deduction increases starting in 2018 to $12,000 for individuals and $24,000 for married couples filing jointly, up from $6,500 and $13,000, respectively.


  • Elimination of the $4,050 personal exemption for each person claimed on a federal tax return, effective beginning with the 2018 tax year.


  • Doubling of the child tax credit, from $1,000 to $2,000 per child, effective in 2018.


  • Key changes in the tax-deductibility of widely used personal deductions, including charitable donations, state and local taxes, mortgage interest, medical expenses and more.


A significantly higher standard deduction beginning in the 2018 tax years means many people who formerly itemized their deductions (using Schedule A on their federal tax form) likely will begin taking the standard deduction. Indeed, Beach cites a projection that the share of taxpayers who itemize deductions will drop from around 30 to less than 10 percent. Overall, people who live in places with high state and local income and property taxes will be hit hardest by this shift, according to Beach.


In response to the new deduction dynamics, Beach says he expects more taxpayers to start “lumping” deductions. That is, that people who formerly itemized will lump items such as charitable contributions and expensive medical procedures into one tax year instead of spreading them across multiple years, in order to accumulate enough deductions above the standard deduction threshold to justify itemizing their deductions. People in that scenario would end up itemizing deductions every few years instead of every year.



Previous tax policy allowed people to deduct the mortgage interest paid on first and second homes for mortgages of up to $1 million. Under the new law, that deduction is still available, but it’s capped for new mortgages up to $750,000. This won’t affect home purchases made before Dec. 16, 2017, so long as the home closed before April 1, 2018.

The new tax law also eliminates the deduction for home equity lines of credit on a primary residence, beginning with the 2018 tax year. Also effective in 2018, there’s now a $10,000 cap on the amount of state and local property taxes that are deductible. There was no cap previously. Another change that could impact homeowners and property owners is the elimination of a deduction for unreimbursed losses from flood, fire, burglary, etc. Now that deduction only applies if the loss occurred in a federal disaster area. This change could make it more important to have certain types of property-casualty insurance, such as flood insurance.



As mentioned above, the new law doubles the child tax credit. It also raises the phase-out level for the tax credit to $400,000 of adjusted gross income for couples filing jointly, from $110,000, meaning significantly more families will qualify for the credit. The new law also established a $500 tax credit for dependents who aren’t your children.



The new tax law expands how funds in tax-favored 529 college savings plans can be used. In addition to covering college expenses, beginning in 2018, money from those plans can be used to pay for up to $10,000 of tuition expenses per year, per student, for enrollment at an elementary or high school. So 529 plans aren’t just for higher education anymore.

  1. Impact on BUSINESS OWNERS

Besides lowering the corporate tax rate from 35 to 21 percent, the new tax policy could bode well for people who own so-called “pass-through businesses” — LLCs, partnerships, S Corps and sole proprietorships. Effective in 2018, owners of these entities gain the ability to deduct 20 percent of their qualified business income, meaning they essentially will be paying taxes on only 80 percent of their revenue. The benefit of the deduction is phased out for specified pass-through service businesses with taxable income exceeding $157,500 ($315,000 for married filing jointly).



The new tax law is a good news/bad news proposition for the charitably inclined. The good news is that the new tax bill expands the deductible amount for charitable contributions from 50 up to 60 percent of adjusted gross income. However, fewer people are likely to take advantage of this provision, since fewer will have enough deductions to justify itemizing, explains Beach. As a result, people could end up stacking their charitable donations, as discussed in #4.


Under the old tax regime, people who itemized their deductions could deduct medical expenses above 10 percent of adjusted gross income. The new law lowers that threshold to 7.5 percent. However, that change applies only in the 2017 and 2018 tax years; the 10 percent threshold returns beginning in the 2019 tax year.


On the health insurance front, meanwhile, the new tax law eliminates the Affordable Care Act penalty on individuals who lack minimum essential coverage. Repeal of the penalty is effective for the 2019 tax year.


  1. Impact on THE VERY WEALTHY

Lawmakers doubled the threshold at which the federal estate tax kicks in, so beginning with the 2018 tax year, it applies only to estates of at least $11.2 million in asset value for an individual, and $22.4 million for a couple. Keep in mind, though, that close to 20 states and the District of Columbia maintain their own estate or inheritance taxes.


This column is provided by the Financial Planning Association® (FPA®) of Northeastern New York, the principal professional organization for Certified Financial PlannerTM (CFP®) professionals. FPA is the community that fosters the value of financial planning and advances the financial planning profession and its members demonstrate and support a professional commitment to education and a client-centered financial planning process. Please credit FPA of Northeastern New York if you use this column in whole or in part.

The Financial Planning Association is the owner of trademark, service mark and collective membership mark rights in: FPA, FPA/Logo and FINANCIAL PLANNING ASSOCIATION. The marks may not be used without written permission from the Financial Planning Association.

Kids, Parents and Paying for College: Seven Steps to Striking the Right Balance


If you’re a student who wants to go to college, or you’re the parent of a student with college aspirations, the dollar figures can be daunting. As of 2017, according to the College Board, the average all-in price (including tuition and fees) for four years at an in-state public college approaches $40,000. For four years at an out-of-state public college, the number exceeds $102,000. And for four years at a private nonprofit college, the tab runs about $139,000. Paying for college can be daunting.

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However you slice it, going to college entails a major financial commitment. And it’s not getting any cheaper. In fact, between 2007-2008 and 2017-2018, overall tuition and fees at public four-year institutions have increased annually at an average rate of 3.2% above inflation, according to the latest figures from the College Board. So if college is still years away, simple math suggests that the aforementioned dollar figures will be significantly higher.


As daunting as it can be for parents and students to try to figure out how to fulfill the financial obligations that come with a college education, avoiding that stress and finding creative ways to cover an expense that by all indications will continue to increase “is all about budgeting and planning in advance,” says David J. Haas, a CERTIFIED FINANCIAL PLANNER(CFP®) professional with Cereus Financial Advisors in Franklin Lakes, NJ.


Give yourself plenty of time to work through the process, adds New York City-based CFP® professional, Sallie Mullins Thompson. “Be sure to start the planning at least two years in advance of the [student’s college] entry date.”


Step One in the planning process: Open the lines of communication.

“Communication between student and parent is key,” asserts Haas. With large sums of money in play, college funding discussions can invite divisiveness and unnecessary strife unless the involved parties commit to open communications. In laying the groundwork for those communications, it’s important that everyone agree to be frank, honest and transparent, to minimize unpleasant surprises and give one another the best chance of staying on the same page.


Step Two: Get clear about expectations.

How much are parents willing and able to contribute, if any? How much will the student be expected to kick in, if any? “Students and parents need to talk about the financial aspects of the college decision and be upfront about how much money parents are providing,” says Haas. “When a student sees that dollar figure of how much they’re going to be expected to cover, that student is going to be more diligent in finding ways to meet their obligation.”


As much as parents may want to cover a student’s entire college tab because they have the financial wherewithal to do so, they should still consider asking the child to cover a portion of the cost, because having “skin in the game” can motivate them to focus on making the most of their education, says Leon C. LaBrecque, CFP® who heads LJPR Financial Advisors in Troy, MI. “I made my kids pay 25% of their college cost. If they got a scholarship, that was their 25%. If the scholarship exceeded 25%, I agreed to hold [the equivalent amount of money] for them for later…The concept created an ownership bias in them such that they took ownership in their education.”


Step Three: Get clear about priorities.

Oftentimes families find themselves struggling to balance competing, concurrent financial priorities, such as saving for retirement while also funding a college education. “Remember, you can always borrow for college, but you can’t borrow for retirement,” says Melissa Sotudeh, CFP® at Halpern Financial in Rockville, MD.


“Look at [funding] your retirement as the number one priority, and funding college as the second priority,” Haas adds. “It’s important to look at all the family’s goals to understand where education fits.”


Step Four: Commit NOT to pay list price.

Every college has a list price and a net price for a student. And as Haas notes, “Many people don’t pay list price.”


In fact, tuition discounting by private colleges and universities is at an all-time high, according to the National Association of College and University Business Officers (NACUBO). Through grants, scholarships, and fellowships, the average tuition discount rate for first-time, full-time students at this category of schools was 49.1 percent in 2016-17. Among all undergraduates, the estimated institutional tuition discount rate was a record 44.2 percent. An estimated 87.9 percent of freshmen and 78.5 percent of all undergraduates received grant aid in 2016-17, according to the NACUBO.


There are ways to find out what the net price is for individual institutions, such as via the net price calculators on a school’s website. Net price info for many schools is also available at, and through the high school guidance office.

While net prices for four-year colleges have risen across the board, grant aid has not kept up with those increases in tuition and fees. Still, there’s plenty of needs-based and merit-based aid money available. In 2016-17, undergraduates received an average of $14,400 in financial aid, according to NACUBO. The first step to accessing that aid is to fill out and submit the FAFSA (Free Application for Student Aid). If you don’t qualify for need-based aid, private schools may be able to offer better award packages than state schools, notes Robin Giles of Apex Wealth Management in Katy, TX.


One way to avoid paying “sticker price,” adds Sotudeh, is to consider smaller and/or lesser-known institutions, which often provide more generous merit aid to attract students. She points to recent research by Alan Krueger at Princeton University and Stacy Dale at Mathematica Policy Research showing that students who were accepted to elite colleges but ended up attending less-exclusive ones ended up earning the same amount of money coming out of college as they would have had gone to the elite colleges. “As common-sense as it sounds, the students’ financial success had more to do with their individual aptitude than the school they attended.”


Also keep in mind that the aid terms offered by a specific school are negotiable — that a school may match or beat an offer from another institution if it wants a student.


Step five: Discuss the ramifications of debt.

Beware leaving college for the working world with a large debt burden, Haas cautions. “Students need to be careful to not take on too much debt when paying for their college education. They should understand the debt overhang and what it might mean once they graduate.” Carrying a lot of student debt out of college can limit a person’s ability to get a mortgage to buy a home, or a loan to buy a car, or even to rent or lease an apartment, he says.


In evaluating student loan options, look for flexibility, he recommends. “Federal student loans are the best loans to take for undergraduate education, because they have the best repayment plans and forgiveness is possible. They also can be forgiven in case of death or disability, and parents are not on the hook for the loan balances.”


Step six: Divide and conquer.

Gathering information about individual schools and about financial aid, then comparing and evaluating them, can be a time-consuming process. As you wade into the process, try to allocate responsibilities among student and parents.


Step seven: Cast a wide net.

Financial aid can come from a wide range of sources, some obvious and others less so. Sites like, (3.7 million scholarships and grants worth some $19 million), (which allows users to apply for multiple scholarships via a single form) and (particularly useful for highly targeted scholarships) serve as clearinghouses for up-to-date information on funding sources. The federal government’s Pell Grant program ( for low- and moderate-income students is also worth investigating.


But don’t stop there. Search the Internet using the word “scholarship” or “grant” plus keywords that relate to your areas of interest, or are specific to you and your background. Talk with the high school guidance counselor and the financial aid offices at the schools you’re targeting, as they can be valuable sources of information. And set your sights locally, regionally and nationally, because a variety of public and private sources offer scholarships and grants, including local businesses and philanthropic organizations, professional/business groups, community and civic organizations such as the Chamber of Commerce, Rotary, Lion’s and Elks, government entities, religious groups, even private citizens.


This column is provided by the Financial Planning Association® (FPA®) of Northeastern New York, the principal professional organization for Certified Financial PlannerTM (CFP®) professionals. FPA is the community that fosters the value of financial planning and advances the financial planning profession and its members demonstrate and support a professional commitment to education and a client-centered financial planning process. Please credit FPA of Northeastern New York if you use this column in whole or in part.

The Financial Planning Association is the owner of trademark, service mark and collective membership mark rights in: FPA, FPA/Logo and FINANCIAL PLANNING ASSOCIATION. The marks may not be used without written permission from the Financial Planning Association.

An Investor’s Guide to Transitioning Your Money — and Your Mindset — to Retirement


The transition to retirement after years in the workplace, as welcome as it may be, can also be jolting and even downright daunting, for all the changes it brings to a person’s day-to-day lifestyle, to their state-of-mind and to the handling of their finances.


A key part of the shift into retirement mode, explains Michael Palazzolo, a Certified Financial Planner™ who heads Birmingham, MI-based Fintentional, is adjusting from a growth-focused approach to asset-management and investing, to an approach which recognizes that protecting assets from downside risk and volatility is as important as growing them. Successfully transitioning to retirement entails not only a shift in investing mindset, but also an actual shift in how assets are invested.

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And that may raise some potentially unsettling questions: Will the assets I’ve worked so hard to build last as long as I need them to, and are they adequately protected from potentially damaging swings in the financial markets? Will the sources I’m relying on for income provide enough to live the lifestyle I desire?


Questions like these can make the move into retirement “quite intimidating,” Palazzolo acknowledges. “It brings up a lot of emotions and for some people, a lot of fear.”


One way to find answers to these questions and defuse some of the anxiety that often accompanies retirement is by planning in advance for how to execute the shift from accumulation mode, where growing assets usually is top priority, to distribution or decumulation mode, where the focus is balancing growth with protection to ensure those assets are distributed efficiently to supply an adequate amount of income throughout retirement.


Here’s a look at some of the key steps involved in the accumulation-to-distribution transition and planning process:


Figure out the “when.” Financial professionals such as Palazzolo suggest starting the transition process five years before your projected retirement date. So an important first step for a person considering retirement is to pick a target retirement date.


Adjust how assets are allocated to reflect changing risk tolerance. A person for whom retirement is looming close has less time to recover from a sharp downturn in the value of their assets. For them, a sharp dip in asset value just prior to retirement can be particularly devastating, since they’ll be drawing from these assets for income during retirement. The less valuable their assets, the less the income-producing capability of these assets. So, to address this risk — sequence of returns risk, it’s known as in financial circles — it often makes sense for people whose assets are heavily weighted toward stocks to shift a portion of their money out of the stock market, into bonds and other more conservative fixed investments.


It also may make sense to shift the composition of the portfolio, including both stocks and bonds, to lower-risk investments, such as with more value-driven stocks and/or shorter-term bonds, adds Certified Financial Planner™ Leon C. LaBrecque, who heads LJPR Financial Advisors in Troy, MI.


Take steps to manage tax exposure. Because taxes can have a particularly negative impact on retirees living on a fixed income, financial experts recommend taking steps before and during retirement to manage and mitigate potential tax exposure. That can mean phasing in the aforementioned reallocation of assets over a period of years to spread out potential capital gains tax liabilities, says Palazzolo.


It also can mean taking steps to diversify assets in terms of their tax treatment. Distributions from pre-tax accounts such as a 401(k) or traditional IRA are taxed as ordinary income when they come out, unlike distributions from a Roth 401(k) and Roth IRA, which aren’t taxed when they come out. Converting a traditional IRA to a Roth IRA prior to retirement gives people access to a tax-free source of income. While they likely will incur taxes on the conversion, gaining access to that tax-free income source later can make the move worthwhile, explains Palazzolo.

Build a cash reserve. Having access to a pool of readily available cash, stowed someplace like in a money market account or CD, is vital for retirees, says Palazzolo. Say a person is planning to sell investments from their stock portfolio to provide income during the early years of retirement, only to see the stock market — and the value of their portfolio — drop precipitously. Instead of being forced to sell stocks when their value is down in order to generate income, people with a substantial cash reserve can start drawing from that reserve for income while holding onto their stock investments, hopefully until they regain their value. They also can use money from that reserve to purchase stock-based investments when their price is relatively low. All this leads back to the fundamental “buy low, sell high” investing credo.


How much cash to keep in reserve? Some financial professionals recommend stashing enough to cover one or two years’ worth of retirement income. Others suggest more, in case the stock market downturn lasts longer.

Keep assets in the stock market. Equity investments such as stocks and stock-based funds can serve as the main growth engine of a portfolio, even in retirement. Indeed, with people living longer these days, they need their assets to keep growing so they last as long as they’re needed. Equities also are proven to help investors keep up with inflation, should that become more of a factor. So while it may make sense for a person heading toward retirement to move some of their assets out of the stock market, keeping a substantial chunk of their assets in equities can be a good idea for many.


Review retirement accounts, including 401(k), 403(b) and IRAs, with an eye toward potentially consolidating them to make eventual distributions (withdrawals) from these accounts easier to manage, and, perhaps, to reduce investment fees and costs, which can free up additional money to use constructively. “By keeping [investment] costs down, you’re basically giving yourself more money to reinvest,” Palazzolo explains.


Take stock of income sources. It’s important to gain a clear picture of your retirement income well before retirement hits. That means looking at both the supply and demand sides of the equation: on the supply side, the sources you expect to provide income during retirement, how much they will supply, when they’ll supply it, for how long and in what form (lump sum or in a series of payments); and on the demand side, projecting how much income you expect to need to cover your expenses and support your retirement lifestyle. This way, if there’s an apparent income shortfall, you can start addressing it now, before it becomes a pressing problem.


In the context of income planning, it’s also important to consider when to start taking Social Security benefits. People have options as to when they can begin drawing benefits — early, at age 62, at retirement age (65 to 67), or later, up until age 70. Waiting can make a substantial difference in the monthly benefit a person receives.


Revisit your asset mix and recalibrate if necessary, to maintain an optimal allocation. As financial markets move, the percentages of stocks and bonds in your portfolio likely will fluctuate, sometimes substantially enough to warrant a process called rebalancing, which entails moving money out of one class of assets inside the portfolio, to another class. Financial professionals recommend revisiting asset allocation at least annually — and as circumstances dictate.


Turn to a financial professional for guidance. The transition from the working world to retirement, and from accumulation mode to distribution mode, involves a variety of moving parts and a series of critical decisions. One misstep can prove costly. So consider enlisting the services of a financial planner for help making the transition as smooth as possible. To find one in your area, check out the Financial Planning Association’s searchable national database of personal finance experts at

This column is provided by the Financial Planning Association® (FPA®) of Northeastern New York, the principal professional organization for Certified Financial PlannerTM (CFP®) professionals. FPA is the community that fosters the value of financial planning and advances the financial planning profession and its members demonstrate and support a professional commitment to education and a client-centered financial planning process. Please credit FPA of Northeastern New York if you use this column in whole or in part.

The Financial Planning Association is the owner of trademark, service mark and collective membership mark rights in: FPA, FPA/Logo and FINANCIAL PLANNING ASSOCIATION. The marks may not be used without written permission from the Financial Planning Association.