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If the parents are paying, a college education is priceless. If they aren’t, it’s an investment—and the return better outweigh the cost.

Not as Advertised

I VISUALIZED a retirement far different from the one I’ve experienced. Before I quit the workforce, I thought my retirement would be a carefree life where I could do what I want, when I want. I could work, travel, sleep all day. There would be few limits. Why? I had no money issues and few responsibilities.
Today, that seems like a dream. Since retiring, I realize my retirement is constantly changing. Unexpected events and expenses can derail the best-laid plans.

Read more »

Where’s the Value?

IT’S INTUITIVE that, the cheaper a stock is when you buy it, the greater the expected risk-adjusted return. Indeed, academic research has shown this to be true. Eugene Fama and Kenneth French demonstrated in a 1992 academic paper how, over the long term, so-called value stocks have delivered significantly higher returns than growth stocks.
Fama and French defined value stocks as those companies with a book value—the accounting difference between corporate assets and liabilities—that was high relative to their stock market value.

Read more »

Package Deals

THE INSURANCE market for long-term-care coverage has had a checkered history—and yet there’s an increasing need for LTC insurance among aging baby boomers. My advice: Forget the original standalone insurance products and instead focus on the new hybrid policies.
What went wrong with the original standalone products? They proved to be underpriced. With policyholders living longer, insurers found themselves paying out more than anticipated. Policyholders also didn’t drop their policies as often as insurers expected—and the low lapse rate meant insurance companies had less chance to book profits while incurring no LTC expenses.

Read more »

Stepping Out

IT’S GRADUATION season. Entering the workforce? Here are five steps to help you jumpstart your financial life:
1. Manage your debt. If you’re like many graduates, you have student loans. Depending on how much you owe, you may be wondering how best to allocate your new paycheck. Should you direct every available dollar toward your loans or does it also make sense to begin saving? While everyone’s situation is unique, I have two suggestions.

Read more »

Get Happy

AS I GROW OLDER, I find I become ever more deliberate in how I spend my time and money. How can I get maximum happiness from the dollars I have? How can I get the most from the years that remain? As I wrestle with these questions, six notions have come into much sharper focus:
1. Fewer hassles mean greater happiness. When I was in my 20s, I owned a series of clunkers that turned every trip into a nail-biter.

Read more »

Bad to Worse

IF YOU’RE in a financial hole, is it prudent to keep digging?
There are 60 million Americans covered by Medicare, including 20 million who have opted for Medicare Advantage. These beneficiaries paid for their coverage through payroll taxes during their working years, and they currently pay with premiums and out-of-pocket cost sharing, as well as through taxes on Social Security benefits.
Still, this covers only a portion of total costs. In 2013, 38% of Medicare’s costs came from payroll taxes and 13% from Medicare premiums,

Read more »

Money Guide

Struggling With Debt

IF YOU ARE WELL above the debt ratio used by lenders, which means you’re devoting more than 36% of your pretax monthly income to servicing your debts, there’s a good chance you have borrowed too much. But you probably don’t need the debt ratio to tell you that because it’s already painfully obvious. What to do? The first step is to put yourself on a cash diet, which means not spending more than you earn and avoiding all new borrowing. Next, start to tackle your debts. Focus on paying down your highest-cost debt first, which will likely be your credit card balances. You might, however, take a slightly different approach if you have, say, student loans or car loans that are almost paid off. If you can get those paid off quickly, it might substantially improve your monthly cash flow, and then you can focus in earnest on paying off those credit cards. This strategy of focusing on paying off the smallest debt first, and then moving on to the next smallest debt and so on, is sometimes called the "snowball method." If you have federal student loans, you might also investigate the federal government's income-based repayment programs, which could lower your monthly payments. Another possibility: If you have built up some home equity, consider setting up a home equity line of credit or refinancing your current mortgage. Either way, you could borrow against your home’s value and use that money to pay off higher-cost debt. If you’ll struggle to cope with the resulting monthly mortgage payments, refinance with a 30-year mortgage rather than anything shorter. Keep two caveats in mind. First, while extending the length of your mortgage should cut your monthly payments, it also means paying more interest over the life of the loan. Second, under the 2017 tax law, interest on home equity loans and lines of credit is no longer tax-deductible. You might also investigate other ways to consolidate debt, such as borrowing from your 401(k) plan or cash-value life insurance, and using that to pay off higher-interest debt. You might even apply for a bank loan, though you may find it difficult to qualify if your finances are in rough shape. In addition, you might investigate refinancing other loans, such as car loans and student loans. As with a mortgage, if you extend the life of these loans, you could reduce the required monthly payments. Finally, steer clear of debt-consolidation companies or other firms promising to help you pay off your debts. All too often, their loans come with exorbitant fees, high interest rates and other drawbacks. What if your debts are so great that you can’t see any way to get yourself back on track? It may be time for more drastic action. Next: Overwhelmed by Debt Previous: Invest vs. Reduce Debt Blog: My $88,000 Nightmare
Read more »

Archive

Telling Tales

WHEN YOU WERE growing up, did you ever hear stories like these?
  • “If you swallow gum, it will stay in your stomach for seven years.”
  • “If you keep making that face, it will freeze that way.”
  • “If you drink coffee, it will stunt your growth.”
  • “If you watch too much TV, your eyes will turn square.”
In hindsight, these stories are funny and harmless. But problems can arise if, as adults, we make important decisions based on misinformation. Within the world of personal finance, the topic that seems most susceptible to tall tales is Social Security. I regularly hear people attack it, arguing that it’s a Ponzi scheme or that it’s going to go broke. While the program isn’t perfect, I believe it’s far better than its reputation suggests. Below are five common myths about Social Security, along with my views. Tall Tale No. 1: Social Security is going broke. Fact: It’s true that there are special trust funds that hold Social Security’s surplus tax revenue. Those funds, however, are not Social Security’s only source of funding. The reality is, Social Security is an obligation of the federal government. Unlike a private company’s pension plan, the government will have to continue making payments, whether or not there’s any surplus remaining in those trust funds. Yes, in the future, Congress could vote to reduce benefits. But the system cannot truly “run out of money.” Tall Tale No. 2: It’s just a retirement plan. Fact: While Social Security is best known for its retirement benefits, it also provides two other important programs: disability insurance and life insurance, in the form of survivor benefits. With a few exceptions, all three programs are available to every American. Tall Tale No. 3: Since Social Security provides disability benefits, there’s no need for private disability insurance. Fact: While Social Security provides a disability program, I still recommend private insurance. That’s because the bar is much higher to receive benefits from Social Security than it is from a private insurer. Tall Tale No. 4: If I haven’t worked, I’m not entitled to any benefits. Fact: Social Security was designed in an earlier era, when households typically had only one breadwinner. For that reason, the system will pay retirement benefits to both a retired worker and to that worker’s spouse, even if the spouse never worked. This is a separate benefit, on top of the worker’s own benefit, and does not reduce the worker’s benefit. Benefits are also available to ex-spouses. Tall Tale No. 5: I should sign up at my earliest possible opportunity. Fact: Most likely not. Again, Social Security was designed in a different era, when life expectancies were shorter. As a result, the benefits get much more generous if you can wait. Your monthly check will permanently increase by eight percentage points per year, plus inflation, for each year that you wait beyond your “full retirement age” of 66 or 67, up until age 70, at which point the benefits don’t increase further. Adam M. Grossman’s previous blogs include Nothing to ChanceIn the Cards and You—But Better. Adam is the founder of Mayport Wealth Management, a fixed-fee financial planning firm in Boston. He’s an advocate of evidence-based investing and is on a mission to lower the cost of investment advice for consumers. Follow Adam on Twitter @AdamMGrossman.
Read more »

Numbers

WHEN ASKED how their financial situation today compares to before the Great Recession, 43% said they were better off, 33% said about the same and 23% said they were worse off, according to a Bankrate survey.

Home Call to Action

Manifesto

NO. 55: THE BEST part of spending is often the anticipation, while the purchase itself usually disappoints. Buying a new car? Plan far ahead, so you enjoy a long period of eager anticipation.

Truths

NO. 78: INVESTORS often boost their annual tax bill—by gleefully selling their taxable account’s winners, while refusing to unload losers. But to trim taxes, you should do the opposite: Sell losers, so you have losses to offset realized capital gains and even ordinary income. Meanwhile, hang onto winners, thus deferring the capital-gains tax bill.

Act

BUY THE BIG THREE. The market portfolio consists of four major sectors, roughly equal in size: U.S. stocks, U.S. bonds, foreign shares and foreign bonds. Arguably, foreign bonds are optional, offering modest yields but wild currency swings. The other three sectors, however, are crucial to a diversified portfolio. Do you have enough exposure to all three?

Think

SHORT-TERMISM. To have a bright financial future, we need to save diligently and invest for the long haul. Yet often we think only of today, leading us to overspend and get caught up in short-term market swings. What to do? Wait a week before acting on major spending and investing decisions, while also visualizing how great it’ll be to achieve your long-term goals.

Not as Advertised

I VISUALIZED a retirement far different from the one I’ve experienced. Before I quit the workforce, I thought my retirement would be a carefree life where I could do what I want, when I want. I could work, travel, sleep all day. There would be few limits. Why? I had no money issues and few responsibilities.
Today, that seems like a dream. Since retiring, I realize my retirement is constantly changing. Unexpected events and expenses can derail the best-laid plans.

Read more »

Where’s the Value?

IT’S INTUITIVE that, the cheaper a stock is when you buy it, the greater the expected risk-adjusted return. Indeed, academic research has shown this to be true. Eugene Fama and Kenneth French demonstrated in a 1992 academic paper how, over the long term, so-called value stocks have delivered significantly higher returns than growth stocks.
Fama and French defined value stocks as those companies with a book value—the accounting difference between corporate assets and liabilities—that was high relative to their stock market value.

Read more »

Package Deals

THE INSURANCE market for long-term-care coverage has had a checkered history—and yet there’s an increasing need for LTC insurance among aging baby boomers. My advice: Forget the original standalone insurance products and instead focus on the new hybrid policies.
What went wrong with the original standalone products? They proved to be underpriced. With policyholders living longer, insurers found themselves paying out more than anticipated. Policyholders also didn’t drop their policies as often as insurers expected—and the low lapse rate meant insurance companies had less chance to book profits while incurring no LTC expenses.

Read more »

Stepping Out

IT’S GRADUATION season. Entering the workforce? Here are five steps to help you jumpstart your financial life:
1. Manage your debt. If you’re like many graduates, you have student loans. Depending on how much you owe, you may be wondering how best to allocate your new paycheck. Should you direct every available dollar toward your loans or does it also make sense to begin saving? While everyone’s situation is unique, I have two suggestions.

Read more »

Get Happy

AS I GROW OLDER, I find I become ever more deliberate in how I spend my time and money. How can I get maximum happiness from the dollars I have? How can I get the most from the years that remain? As I wrestle with these questions, six notions have come into much sharper focus:
1. Fewer hassles mean greater happiness. When I was in my 20s, I owned a series of clunkers that turned every trip into a nail-biter.

Read more »

Bad to Worse

IF YOU’RE in a financial hole, is it prudent to keep digging?
There are 60 million Americans covered by Medicare, including 20 million who have opted for Medicare Advantage. These beneficiaries paid for their coverage through payroll taxes during their working years, and they currently pay with premiums and out-of-pocket cost sharing, as well as through taxes on Social Security benefits.
Still, this covers only a portion of total costs. In 2013, 38% of Medicare’s costs came from payroll taxes and 13% from Medicare premiums,

Read more »

Free Newsletter

Numbers

WHEN ASKED how their financial situation today compares to before the Great Recession, 43% said they were better off, 33% said about the same and 23% said they were worse off, according to a Bankrate survey.

Manifesto

NO. 55: THE BEST part of spending is often the anticipation, while the purchase itself usually disappoints. Buying a new car? Plan far ahead, so you enjoy a long period of eager anticipation.

Home Call to Action

Act

BUY THE BIG THREE. The market portfolio consists of four major sectors, roughly equal in size: U.S. stocks, U.S. bonds, foreign shares and foreign bonds. Arguably, foreign bonds are optional, offering modest yields but wild currency swings. The other three sectors, however, are crucial to a diversified portfolio. Do you have enough exposure to all three?

Truths

NO. 78: INVESTORS often boost their annual tax bill—by gleefully selling their taxable account’s winners, while refusing to unload losers. But to trim taxes, you should do the opposite: Sell losers, so you have losses to offset realized capital gains and even ordinary income. Meanwhile, hang onto winners, thus deferring the capital-gains tax bill.

Think

SHORT-TERMISM. To have a bright financial future, we need to save diligently and invest for the long haul. Yet often we think only of today, leading us to overspend and get caught up in short-term market swings. What to do? Wait a week before acting on major spending and investing decisions, while also visualizing how great it’ll be to achieve your long-term goals.

Money Guide

Start Here

Struggling With Debt

IF YOU ARE WELL above the debt ratio used by lenders, which means you’re devoting more than 36% of your pretax monthly income to servicing your debts, there’s a good chance you have borrowed too much. But you probably don’t need the debt ratio to tell you that because it’s already painfully obvious. What to do? The first step is to put yourself on a cash diet, which means not spending more than you earn and avoiding all new borrowing. Next, start to tackle your debts. Focus on paying down your highest-cost debt first, which will likely be your credit card balances. You might, however, take a slightly different approach if you have, say, student loans or car loans that are almost paid off. If you can get those paid off quickly, it might substantially improve your monthly cash flow, and then you can focus in earnest on paying off those credit cards. This strategy of focusing on paying off the smallest debt first, and then moving on to the next smallest debt and so on, is sometimes called the "snowball method." If you have federal student loans, you might also investigate the federal government's income-based repayment programs, which could lower your monthly payments. Another possibility: If you have built up some home equity, consider setting up a home equity line of credit or refinancing your current mortgage. Either way, you could borrow against your home’s value and use that money to pay off higher-cost debt. If you’ll struggle to cope with the resulting monthly mortgage payments, refinance with a 30-year mortgage rather than anything shorter. Keep two caveats in mind. First, while extending the length of your mortgage should cut your monthly payments, it also means paying more interest over the life of the loan. Second, under the 2017 tax law, interest on home equity loans and lines of credit is no longer tax-deductible. You might also investigate other ways to consolidate debt, such as borrowing from your 401(k) plan or cash-value life insurance, and using that to pay off higher-interest debt. You might even apply for a bank loan, though you may find it difficult to qualify if your finances are in rough shape. In addition, you might investigate refinancing other loans, such as car loans and student loans. As with a mortgage, if you extend the life of these loans, you could reduce the required monthly payments. Finally, steer clear of debt-consolidation companies or other firms promising to help you pay off your debts. All too often, their loans come with exorbitant fees, high interest rates and other drawbacks. What if your debts are so great that you can’t see any way to get yourself back on track? It may be time for more drastic action. Next: Overwhelmed by Debt Previous: Invest vs. Reduce Debt Blog: My $88,000 Nightmare
Read more »

Archive

Telling Tales

WHEN YOU WERE growing up, did you ever hear stories like these?
  • “If you swallow gum, it will stay in your stomach for seven years.”
  • “If you keep making that face, it will freeze that way.”
  • “If you drink coffee, it will stunt your growth.”
  • “If you watch too much TV, your eyes will turn square.”
In hindsight, these stories are funny and harmless. But problems can arise if, as adults, we make important decisions based on misinformation. Within the world of personal finance, the topic that seems most susceptible to tall tales is Social Security. I regularly hear people attack it, arguing that it’s a Ponzi scheme or that it’s going to go broke. While the program isn’t perfect, I believe it’s far better than its reputation suggests. Below are five common myths about Social Security, along with my views. Tall Tale No. 1: Social Security is going broke. Fact: It’s true that there are special trust funds that hold Social Security’s surplus tax revenue. Those funds, however, are not Social Security’s only source of funding. The reality is, Social Security is an obligation of the federal government. Unlike a private company’s pension plan, the government will have to continue making payments, whether or not there’s any surplus remaining in those trust funds. Yes, in the future, Congress could vote to reduce benefits. But the system cannot truly “run out of money.” Tall Tale No. 2: It’s just a retirement plan. Fact: While Social Security is best known for its retirement benefits, it also provides two other important programs: disability insurance and life insurance, in the form of survivor benefits. With a few exceptions, all three programs are available to every American. Tall Tale No. 3: Since Social Security provides disability benefits, there’s no need for private disability insurance. Fact: While Social Security provides a disability program, I still recommend private insurance. That’s because the bar is much higher to receive benefits from Social Security than it is from a private insurer. Tall Tale No. 4: If I haven’t worked, I’m not entitled to any benefits. Fact: Social Security was designed in an earlier era, when households typically had only one breadwinner. For that reason, the system will pay retirement benefits to both a retired worker and to that worker’s spouse, even if the spouse never worked. This is a separate benefit, on top of the worker’s own benefit, and does not reduce the worker’s benefit. Benefits are also available to ex-spouses. Tall Tale No. 5: I should sign up at my earliest possible opportunity. Fact: Most likely not. Again, Social Security was designed in a different era, when life expectancies were shorter. As a result, the benefits get much more generous if you can wait. Your monthly check will permanently increase by eight percentage points per year, plus inflation, for each year that you wait beyond your “full retirement age” of 66 or 67, up until age 70, at which point the benefits don’t increase further. Adam M. Grossman’s previous blogs include Nothing to ChanceIn the Cards and You—But Better. Adam is the founder of Mayport Wealth Management, a fixed-fee financial planning firm in Boston. He’s an advocate of evidence-based investing and is on a mission to lower the cost of investment advice for consumers. Follow Adam on Twitter @AdamMGrossman.
Read more »