Things to consider when sending a child to college

This was originally published on Monday, May 7, 2018, in the Pacific Daily News.  Click here to subscribe to the PDN. 

Q: Next year my daughter will be starting high school. Her goal is to attend college off-island directly after graduating. My husband and I have not started saving for her college and I am worried that we may not be able to afford her educational dreams. I don’t want her to miss out or change her goals because we didn’t plan it financially.

A: It is no secret that the cost of living has increased and continues to increase yearly.  You can see this in the cost of food, housing, and the price of fuel. Unfortunately, the cost of education has risen as well. According to a study done by CollegeBoard.orghere are some staggering facts about college trends in 2017:

  • Averaged published out-of-state tuition and fees at public four-year institutions rose by $800 (3.2%), from $24,820 in 2016-2017 to $25,620 in 2017-2018.
  • Average published tuition and fees at private nonprofit four-year institutions rose by $1,220 (3.6%), from $33,520 in 2016 – 2017 to $34,720 in 2017 – 2018.
  • More than 70% of full-time students receive grant aid to help them pay for college.

Identify aspects in types of colleges

There are significant financial decisions between the types of colleges. There are certain characteristics that should be considered before deciding which college to attend. Identify the goals and consider cost, class size, culture, and environment.

  • 2-year college – these are typically technical or community colleges and provide skills in a specific job in the workforce such as a nurse or mechanic. Costs are usually lower than a 4-year institution and allow students to achieve an associate’s degree. Credits can be transferred to a 4-year institution.
  • 4-year public school – these institutions typically offer a range of majors and student organizations. The student body is typically larger with larger class sizes.  Tuition ranges depending on whether it is in-state or out-of-state tuition. Some out-of-state colleges offer tuition reciprocity (a discount on tuition) to residents of certain states.
  • 4-year private school – tuition at these colleges tend to be higher but students can benefit with smaller class sizes and privately-funded facilities. Many 4-year private schools are religious based.

Know the difference before spending

Though both nonprofit and for-profit colleges can offer an equal level of education, there are some things you need to keep in mind. Their focus of education slightly differs as their goals for success are measured differently as well. This doesn’t necessarily mean that one is better than the other. Know the difference before spending money. Another aspect to look at is if the institution is accredited and if the accreditation is national or regional. Use due diligence when choosing a school and the quality of the education offered.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 24 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at moneymattersguam@yahoo.com and read past columns at the Money Matters blog at www.moneymattersguam.wordpress.com.

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Money matters: Choosing beneficiaries of your life insurance

This was originally published on Monday, April 30, 2018, in the Pacific Daily News.  Click here to subscribe to the PDN. 

No one likes thinking about death, but it is very important to be prepared when it happens. It’s important that you understand your insurance policy and the parameters within that policy.

After you make an informed decision on the type of policy, the next thing you want to consider is who will be your beneficiaries. Selecting a beneficiary is a very personal decision. When choosing a beneficiary, ask yourself a few questions. Who will be bearing the costs of your funeral? Who counts on you financially?

Take time when choosing your beneficiary. When choosing your beneficiaries, there are several points to consider.

Family. For most, this is  top  priority  because they are financially dependent on you. Family members could include your spouse or partner, children, parents or siblings. You can choose multiple family members as your beneficiaries. You can designate branches of a family or lineage and the proceeds are divided equally among the beneficiary and/or their surviving children.

If you named your son and daughter as your beneficiaries, they would receive 50 percent each of the proceeds. If your son passes before you, his children will split his 50 percent equally and your daughter still receives her 50 percent. If your son had two children the proceeds will be divided equally between your son’s children and your daughter.

Legal guardian. If you are appointing a minor or someone who is not mentally or physically able to care for themselves as your beneficiary, you may be required to name a legal guardian.

Estate. You may choose your estate to be your beneficiary instead of a person. You must have your last will and testament drawn and the executor of your will receive the proceeds from your life insurance policy. The executor will have to carry out the terms of your will.

When you name your estate as the beneficiary, it will be the sole beneficiary of your life insurance policy. Talk with your accountant to discuss the taxes associated with your estate becoming your beneficiary. Speak to a lawyer to ensure that your will follows the local laws. If you don’t, your will may end up in probate court and a portion of that estate may go to pay legal and court fees. Also during the probate hearing, creditors have the opportunity to dispute the will to pay off any outstanding debts.

Trust. A trust is a legal agreement that allows a third party, or trustee, to hold assets on behalf of the beneficiary or beneficiaries. You can make the trust your life insurance beneficiary. You can specify the terms of a trust controlling when and to whom distributions may be made. A trust can also protect your estate from your heir’s creditors or from beneficiaries who may not be adept at money management.

Charity. You can name a charity to receive some or all of your proceeds.

Mortgage. You can make your mortgage institution a beneficiary of your life insurance policy. Be very specific about the amount and account number when doing so.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 24 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at moneymattersguam@yahoo.com and read past columns at the Money Matters blog at www.moneymattersguam.wordpress.com.

Different types of life insurance policies: What best suits you?

This was originally published on Monday, April 23, 2018, in the Pacific Daily News.  Click here to subscribe to the PDN. 

Question: My wife and I just had our first child and I want to make sure that she is taken care of in case something happens to me. I know that life insurance will ensure this, but I am not sure what type of life insurance I should purchase.

Answer: Congratulations on your new baby! Once you become a parent your priorities change. You are no longer focused on you but on the well-being of your children and family. Thinking about your future is a must.

Life insurance is a great way to cover any lingering health or burial costs or to make up for the loss of income. Be careful; not all policies are created equally. There are different types of life insurance and you should shop around to find one that best fits your needs.

Term life insurance

Term life insurance is sometimes referred to as “temporary” life insurance. It is typically the most affordable and simplest life insurance because premiums are usually lower.

It offers protection for a specific number of years. Most policies are usually for 30 years. The annual premium remains the same throughout the life of the policy.

Whole life insurance

Whole life insurance is permanent for the entire life of the insured. Your premium payments are divided among the insurance, administrative fees, death benefits and the investment or dividends that your policy incurs.

Withdrawals that you make toward your policy are tax-free up to the amount of premiums you paid, minus the dividends paid out and previous withdrawals. You can use the dividends and cash buildup to pay the premiums of the policy.

These policies have a higher premium payment because they are permanent and provide not just death benefits but cash.

Universal life insurance

Universal life insurance is also known as flexible life insurance. Like a whole life insurance policy, it’s permanent and provides cash value.

The premiums, level of protection, and the cash value can be adjusted as needed. The amount of cash values can be guaranteed to earn a specific minimum. The cash value also is tax-deferred just like the whole life insurance.

Life insurance is a great way to have peace of mind that your loved ones will be protected when you pass. It should be reviewed annually and you should take the time to understand the coverage.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 24 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at moneymattersguam@yahoo.com and read past columns at the Money Matters blog at www.moneymattersguam.wordpress.com.

Tips to help make your retirement less stressful

This was originally published on Monday, April 16, 2018, in the Pacific Daily News.  Click here to subscribe to the PDN. 

When you retire, you may find it difficult to survive on a fixed or limited income. Many people feel they don’t have enough money saved to live comfortably during their golden years.

How much you will need to retire comfortably differs for everyone. There are several strategies you can practice to increase your future income.

Debt. One of the largest expenditures is debt. Paying down debt, whether it’s a mortgage, credit card bills or other money you have borrowed is important. Debt can weigh you down and it certainly eats into your limited income. Retiring with a large amount of debt will restrict you from enjoying life and making other necessary payments.

If you can pay off as much debt as you can before retiring, you can use that money for things you want to do.

Diversify. Many people think Social Security and their 401(k) will be enough for retirement. It is for some, but a little extra income won’t hurt, especially for those who are closer to retirement and are playing catch up.

Add to your portfolio with dividend-paying stocks. Dividends may not be guaranteed, but if you diversify your investments you may have a better chance of additional income.

Postpone retirement. You may want to continue working into retirement age to help generate extra cash. Even a part-time job will bring in some money. Something as simple as a cashier at the local grocery store or an administrative assistant can bring in additional cash.

Many retirees become bored sitting at home. This may be a way to keep a schedule and structure. It’s also an opportunity to turn a hobby into a small business. Baking, woodworking or tutoring can bring in extra income and you get to set your schedule.

Bonds. You can make bonds work for you by buying a variety of bonds that mature at different times.

Cost of living. When you retire, stretch your money. Consider the cost of living where you live. Will a hundred dollars buy you food for a week or for a day? You may want to consider moving to a location where the cost of living is lower.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 24 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at moneymattersguam@yahoo.com and read past columns at the Money Matters blog at www.moneymattersguam.wordpress.com.

How to bolster your 401(k) retirement plan

This was originally published on Monday, April 9, 2018, in the Pacific Daily News.  Click here to subscribe to the PDN. 

No matter if you are 20 years away from retirement or five, having something set aside for your golden years is important.

There’s good news for those who are investing their retirement funds in a 401(k) account. In 2018, your contributions limits are rising. By avoiding certain fees and penalties you can ensure to maximize your 401(k).

Here are a few ideas on how to maximize your plan:

  • Tax breaks. Saving for your retirement can qualify you for several different types of tax breaks. Some will let you defer, or postpone, paying income tax on your retirement savings and others help you avoid taxes on the investment gains.

In 2018, the amount in which an employee can contribute from his or her paycheck increased by $500. The maximum yearly contribution for 2018 is $18,500. A worker who falls in the 25 percent tax bracket who maximizes the contribution could reduce his or her tax bill by $4,625.

Let’s say you are 30 years old in 2018 and earn 7 percent on invested funds. By the time you turn 65, that extra $500 a year will have a value of $5,338. The taxes on the contributed money won’t be taxed until the money is withdrawn from the account.

Workers who earn less than $31,000 ($63,000 for couples) in 2018 may qualify for a saver’s credit. That credit could be between 10 percent and 50 percent of their 401(k) contributions up to $2,000 ($4,000 for couples).

  • Take advantage. If you have been previously contributing the maximum amount into your 401(k), reset your contribution by an additional $41 a month to take advantage of the new increase. For those who want to start maximizing their contributions, it will require contributing about $1,542 a month, $2,041 for those 50 years and older.
  • Catch-up contributions. Catch-up contributions are made in addition to the maximum limit of $18,500. Employees age 50 and older are allowed to make catch-up contributions of an additional $6,000, for total contribution of $24,500. An employee in the 25 percent tax bracket who contributes the maximum catch-up limit could reduce his or her tax bill by $6,125.
  • Max your match. Even if you can’t afford to maximize your contributions, be sure to at least match your employer’s maximum contribution. This will at least double your contributions. Be sure to read the conditions of the plan carefully, in order to receive your employer’s maximum contribution, you may have to be with that company for a required amount of time.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 24 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at moneymattersguam@yahoo.com and read past columns at the Money Matters blog at www.moneymattersguam.wordpress.com.

Tips to increase Social Security benefits

This was originally published on Monday, April 2, 2018, in the Pacific Daily News.  Click here to subscribe to the PDN. 

There are ways to increase your monthly Social Security benefits. The most notable is determining how old you will be when you start receiving benefits. There are other factors you can do to increase that amount as well.

Work for 35 years. Your Social Security is based on the 35 years in which you earn the most. If you do not work for 35 years, those missing years will be calculated as zero and will decrease your benefits.

Keep on working. You can work until your full retirement age. For most that is between 66 to 67 years of age. To calculate your full retirement age go to https://www.ssa.gov/planners/retire/ageincrease.html. If you start your payments before full retirement, you decrease your payout significantly.

Increase your income. The more you make, the more you pay into your Social Security account. Increasing your income with a raise or a second job will increase your retirement pay as well. Be sure that your second job is not “under the table.” Only taxed income will be counted.

Your health. What is your health at the time you are start receiving your Social Security benefits? Does your family have a long life span or a short one? Review your family history. There are online surveys that you can take to give you a projected feasible lifespan. If you are married, do the same for your spouse.

Be patient. Unless you are in dire need of your benefits, try to hold out till the age of 70. You can start receiving your Social Security benefits at 62. Most people who are about ready to retire have a full retirement age of 66 and can put off claiming till 70.

If you start claiming your benefits at 62 you will lose about 25 percent of your full benefits for the rest of your life. If you wait until 66, you will receive 100 percent of your benefits. If you wait, you can add 32 percent to your full benefits. That is because for each year after 66, an additional 8 percent is added to your full benefits.

Your spouse. Spouses can claim benefits based on their income. Spouses can earn their benefits or up to 50 percent of the higher paid spouse, depending on which is greater. You can also claim Social Security benefits on your ex-spouse as long as you were married for at least 10 years.

Family dynamics. How old your children are when you start claiming your Social Security benefits may determine if they are eligible for benefits. Dependent children under 19 years of age may be eligible for up to half of your retirement benefits. If they are 19 and still in high school, a waiver can be made until they graduate or two months after turning 19, whichever comes first. A child could be biological, adopted or a dependent stepchild.

How much you make during retirement. For this year, beneficiaries who are younger than their full retirement age and earn more than $17,040 annually will have $1 held for every $2 they earn. In the year you reach full retirement age, the deduction is $1 in benefits for every $3 you earn above a different limit, which in 2018, is $45,360 annually.

Social Security taxes. If the sum of your annual income, nontaxable interest and 50 percent of your Social Security benefits are more than $32,000 for couples ($25,000 for singles) you could be taxed up to 50 percent of your Social Security benefits. If your total annual income surpasses $44,000 for couples ($34,000 for singles) you can be taxed as much as 85 percent on your Social Security benefits.

Survivor benefits. Although it is not pleasant to think about, a surviving spouse can inherit the deceased spouses Social Security benefits if the deceased spouse’s benefit payment is higher. The amount can be more if the deceased spouse delays claiming their Social Security benefits.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 25 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at moneymattersguam@yahoo.com and read past columns at the Money Matters blog at www.moneymattersguam.wordpress.com.

How to calculate your Social Security benefits

 This was originally published on Monday, March 26, 2018, in the Pacific Daily News.  Click here to subscribe to the PDN. 

Question: I am turning 60 this year. I started working directly after graduating from college and I have been contributing to Social Security since I started working. I am curious to know how exactly my Social Security benefits are calculated.

Answer: Social Security came into law in 1935 and has been around for decades to help the working class save for retirement. The program allows workers paying into the system the opportunity to contribute a small percentage of their income into a cumulative account. Once retired, they can withdraw money out of that account to assist them with monthly living costs.

Throughout the years the federal government has made changes to the program. These changes have included the retirement age, percentages of benefits, cost-of-living and inflation adjustments, and spousal and disabilities benefits. According to finance.yahoo.com, “the average monthly Social Security check in 2018 is $1,375.29.”

The Social Security Administration reports that 62 percent of seniors rely on their monthly stipend to account for at least half of their income. At least 34 percent will lean on Social Security for 90 percent to 100 percent of their monthly income. This is why an additional retirement income such as a 401(k) is so important. Many cannot survive off the average monthly check.

Average Index Monthly Earnings

The first step in calculating your Social Security benefit is figuring out your Average Index Monthly Earnings, or AIME, which is calculated by looking at all the years you worked. Social Security takes the top 35 highest earning years and adds them up. That number is then divided by the number of months within those years. That figure is your AIME. If you have not worked for some of the 35 years, those years you were unemployed will be given a zero dollar value, which will bring your average down.

Primary Insurance Amount

After you have calculated your AIME, you then have to find what your Primary Insurance Amount, or PIA, is. It’s the baseline on which your Social Security benefits are calculated. Your full retirement age is the age you receive 100 percent of your PIA.

Not everyone has the same retirement age. It depends on what year you are born. To find your full retirement age, go to https://www.ssa.gov/planners/retire/ageincrease.html. If you were born in 1958 and you are turning 60 this year, your full retirement ages is 66 years and 8 months.

The earliest a person can start receiving Social Security retirement benefits is age 62. If you start receiving retirement benefits at age 62, you will get 71.7 percent of the monthly benefit. At age 65, you will get 88.9 percent of the monthly benefit.

Making adjustments to the AIME

The second step in determining monthly retirement benefits is calculated by making adjustments to the AIME. The portions depend on the year in which a worker attains age 62, becomes disabled before age 62, or dies before attaining age 62.

You can find out what your benefits are by going to www.ssa.gov and creating an account. Your account will contain your Social Security statement plus your estimated Medicare benefits. The website also has Social Security calculators you can use to help calculate your benefits without doing all the hard math.

 

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 25 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at moneymattersguam@yahoo.com and read past columns at the Money Matters blog at www.moneymattersguam.wordpress.com.