Saving for College
Is college tuition worth the expense?
A college degree makes financial sense. Over a 40-year career, the average college graduate can expect to earn approximately 73% more than the typical high school graduate.* On top of this, data shows that the earnings differentials by education level have increased for both men and women over time.
A college degree is a good investment for the future of your children’, and your Hilliard Lyons Financial Consultant can help you craft a plan for financing their education.
It can be hard to focus on putting away money for college when you have other, competing financial obligations. You may be saving for retirement, paying off your mortgage and funding everyday expenses such as your utility bill or family vacations.
Yet, it is important to start saving as much as you can, as soon as you can. This way, you can benefit from the magic of compounding interest. In addition, the sooner you begin to save, the more you will accumulate by the time your child enters college, and the less you have to put away each month to meet your total savings goals.
Compare the savings of families who each put away $200 per month toward college tuition, but start saving at different points in time. In this example, the family who starts saving when their child is born will have accumulated $84,184, compared with $10,994 accumulated by the family who waited until their child entered high school to begin saving.
In order to catch up, that family would have to put away $1,532 each month to reach a savings level of $84,184 when their child enters college.
Assuming a rate of return of 7% for $200 per month for:
18 years (starting when your child is born) $84,184
13 years (starting when your child enters kindergarten) $49,869
4 years (start when your child enters high school) $10,994
While it is certainly better to start saving as soon as possible, it is never too late. Hilliard Lyons can help you create a strategy for paying for the cost of higher education. We’ll help you determine which types of investments, such as a Coverdell ESA, a 529 Plan or traditional investment options like stocks, bonds or mutual funds, are right for you.
Sandy Baum and Kathleen Payea, “Education Pays 2004,” CollegeBoard, 2005.
** “Trends in College Pricing” CollegeBoard, 2006.
** “Trends in College Pricing” CollegeBoard, 2006.
Planning for Retirement
Get the most mileage from your retirement savings
The road to retirement can seem long, winding and filled with roadblocks. You know you have to put money away each month, but may find yourself spending your money on college tuition, a new car or a family vacation.
Hilliard Lyons can help you create a plan to prioritize your long-term goals and develop an investment strategy designed to achieve them.
Think about the plans you would like to make. Would you like to travel to an exotic destination, or pack up an RV and head across the country? Maybe you would like to take one day at a time, or simply kick back and delve into your book group’s latest selection.
Today, the average retiree, age 65 and older, gets a large portion of their retirement income— close to 40%—from Social Security. However, the bulk of a retiree’s income typically comes from earnings, pensions and asset income.*
And for wealthier retirees, the percent contributed by Social Security is less – much less.
Getting ready for retirement
Take steps to make sure that when it is finally time to bid farewell to the workforce, your savings will support your retirement dreams and last your lifetime – regardless of whether retirement was your decision, your spouse’s decision or your employer’s decision.
However and whenever you retire, you need to make sure you are financially secure. Since people are living longer, the average 65 year old should plan to have retirement savings which can last 20 years or longer.** As you get older, you are likely to face rising and significant health care expenses.
You also need to think about how much you can comfortably withdraw from your nest egg each month. As you deplete your nest egg, you lower your potential for returns. If you have $1,000,000 in savings, and you earn an average annual return equal to 5%, you would earn $50,000. If you have half that amount, or $500,000, your 5% return would generate half the income, or $25,000 for the year. Keeping your withdrawals to a minimum preserves your investment base and increases the potential income you can generate.
Your Hilliard Lyons Financial Consultant can help you create an asset allocation strategy designed to keep up with inflation, create income and keep in line with your risk level. He or she will help you structure your retirement income, recommending accounts to draw from and advising you on how much you can comfortably withdraw.
“Income of the Aged Chartbook, 2004,” Shares of aggregate income, by source, 2004, Social Security Administration Office of Policy, September 2006.
** National Center for Health Statistics, United States Life Tables, 2003.
Changing Jobs or Retiring?
When a new job or retirement takes life in a different direction, it is a good time to re-examine your retirement accounts.
When you leave a job, one option is to “cash out” your savings from your qualified retirement savings account. The benefit is that you get the immediate use of your funds. However, you will be subject to a 10% early withdrawal penalty if you are younger than 55 and you will lose the benefit of tax-deferred growth and sacrifice your retirement savings.
Another option is to leave your money in your former employer’s plan or roll assets into a new employer's plan. This would preserve your retirement savings by allowing your money to continue to grow tax-deferred. However, your investment options may be limited.
With an indirect rollover into an IRA, your employer sends you a check and you have 60 days to transfer the money into an IRA. The downside with this option is that your employer will be required to withhold 20% as prepayment of federal income taxes, and you have to make up the difference out-of-pocket when you open new accounts. You’ll get the 20% back after you file your income taxes that year.
With a direct rollover, you preserve your retirement savings, continue to grow your money tax-deferred, avoid current taxation and IRA early withdrawal penalties, and open up your menu of investment options to gain investment flexibility. You should, however, carefully consider relative expenses as well, and compare the cost of an IRA vs. Retirement Plan.
Your Hilliard Lyons Financial Consultant can help you create an asset allocation strategy for your retirement savings based on your goals and help you choose the products that best support your strategy.
While there is a limit to how much you can contribute to a traditional or Roth IRA each year, there is no limit as to how much you can roll over into a Rollover IRA.
The Loss of a Spouse
When the loss of a spouse takes your life off course, Hilliard Lyons can help you keep your finances on track.
Creating a new life without your spouse is one of life’s greatest challenges. In addition to the range of emotions you are feeling, you must contend with the minutiae of everyday life…such as paying your bills and your taxes. On a grander scale, the long-range plans you had made – the direction you were heading in life – may have changed. Because of this, it becomes necessary to reassess and recreate your life plan.
A Hilliard Lyons Financial Consultant can help you sort through the complex financial issues you may face and help you re-examine and re-structure your investment strategy to meet your new life circumstances
With the loss of your spouse you are likely to be confronted with important financial decisions.
There are also important financial decisions to make if you are widowed. For example, you may need to decide whether to take your insurance settlement as a lump sum or convert it into an annuity. You may also have to decide how to treat your spouse’s IRAs – leave the funds in your spouse’s accounts or treat the IRAs as your own.
The assets you receive should be invested to meet your new financial needs. Your portfolio may need to be structured to generate income to pay your bills as well as to last many years and keep up with inflation.
A Hilliard Lyons Financial Consultant can help advise and guide you through the complex maze of issues and help you take control of your finances.
He or she can help you determine the value of your assets, create an investment strategy that aligns with your new life circumstance and help you develop a strategy for covering your expenses.