Financial Literacy Archives - Seacure Advisors

Your Questions Answered

August 14, 2018 By SeaCure Advisors Leave a Comment

Carolyn Howard, CFP® shares her insights in response to reader questions on Investopedia Advisor Insights:

Q: I have a 401(k) with my new employer; should I roll my traditional IRA into my new 401(k) account?

I was advised to roll my 401(k) plan from a previous employer into a traditional IRA, which I did. I haven’t made any contributions to it since rolling it over, and it has grown very little. I have a 401(k) with my new employer; should I roll my traditional IRA into my new 401(k) account? I feel that if I combine them, my money and 401(k) will grow the most. I was advised to leave my traditional IRA at the company that it is at, so I am not sure what my best option is.

A: You can choose to leave your rollover IRA as is. You have more flexibility in your investment options with the IRA. You can also choose to put it into your new 401k if you like the choices available for investing. Having only one account can provide simplicity when making investment decisions. Your choices are dependent on what you want to do. The growth on your IRA and 401k are dependent on your investment choices and asset allocation. If both the IRA and 401k have the same asset allocation and similar funds, they should grow at the same rate. Your decision is more of a personal decision than an investment decision.

Q: Does the IRS call you and accuse you of fraud and ask you for money?

I received a call from a woman who gave me her name and an ID number informing us that the IRS is charging us with fraud and that we owe them $8,140. We are retired on Social Security and have not owed any taxes for more than fifteen years. Is this a scam?

A: It is excellent that you are asking this question. The IRS does not call you and inform you of anything. This is a SCAM. You can contact the IRS directly and inquire of this information. This person that called is just trying to steal money from you. You should be very proud of yourselves for being aware of these kinds of calls. Keep up your good work.

Update: Police in India have recently arrested several people in connection with this scam.

Q: Should I use annuities as a temporary investment?

I invested in a four-year fixed annuity several years ago to allocate a percentage of my portfolio into a vehicle that was conservative. At the time, it was the safest, risk-free investment recommended by my investment adviser. The annuity is set at 4 percent annually. I am a long-term aggressive investor who makes about 12-15 trades a year. My retirement horizon is between 2-5 years away from now. Is this a safe strategy going forward?

A: Annuities can be useful as a bond alternative especially as interest rates are rising. If you have bonds as part of your portfolio, the bonds or bond funds could be losing value since bond prices decline as rates rise. You state the annuity is earning 4%/year. As you approach retirement, the 4%/year with downside protection during market corrections could be a valuable part of your retirement strategy. You may consider your retirement goals as you near that target in 2-5 years. One of the things to consider are your income needs during retirement and the risk tolerance during withdrawal years. With your “long term aggressive strategy”, you may experience a market downturn during the withdrawal period that could ultimately impact your lifestyle. You would not have that risk with the annuity. Consult your investment advisor to review your retirement goals, income needs, and the amount of risk your income needs can tolerate.

Q: What does “period certain” mean on an annuity contract?

Period Certain on an annuity contract can mean a couple of different things. It could mean that you have a guaranteed amount of time to receive the income from the annuity when you begin taking the income. You make this decision when you purchase the annuity. If you should predecease that time frame, your beneficiaries would be eligible for the remainder of the income. Another common use of period certain is when you buy an annuity and choose at application time that you want a lifetime income with a period certain, for example, of 20 years. You will be given a lifetime income by the annuity company but if you should predecease the 20 year period certain, your beneficiaries would be eligible for the remainder of the income. You can also choose to receive a lifetime income without a period certain. You will receive the maximum income payout with a lifetime income without the period certain. There are options that insurance companies have for the various types of annuities. Please review them carefully.

To read all of Carolyn’s answers to reader questions on Investopedia, click here.

If you have questions regarding your financial situation that you would like to discuss in person or on a video conference with a SeaCure representative, please contact us and request a free consultation.

What Are Your Options For Refinancing Parent PLUS Loans?

August 7, 2018 By SeaCure Advisors Leave a Comment

The following article by Dave Rathmanner goes into detail regarding Parent PLUS Loans, their interest rates, and refinancing information. It is provided with the permission of LendEdu.com, with thanks to Andy Kearns. The article was originally published on January 13, 2016. SeaCure Advisors has updated some information to reflect current information, such as loan interest rates. SeaCure strongly recommends consulting a licensed fiduciary financial advisor with experience in college planning before taking out a PLUS loan, and if you have such a loan, before selecting a repayment strategy.

LendEdu’s research, news, ratings, and assessments are scrutinized using strict editorial integrity. In full transparency, our company may receive compensation from partners listed on our website. Learn more about how we make money by visiting our advertiser disclosure.

While you might believe taking out the loan was worthwhile since it meant ensuring your children were able to go to the school of their dreams, you might currently find yourself struggling under the high interest rate associated with the loans. Unlike other federal loans, PLUS loans have relatively high interest rates.

In fact, for the 2018-2019 enrollment year, the interest rate on Parent PLUS loans is pegged at 7.6% which is substantially higher than the 5.05% that undergrads will be charged on Federal Direct Loans. For those who have Parent Plus loans still outstanding from 2006 to 2013, the interest rate being charged on those loans is even more at 7.9%.

In the past, there weren’t a lot of options when it came to refinancing Parent Plus loans. But recently a number of private loan providers started offering new products to address parents who are looking to refinance Parent PLUS loans.

Here are four of your options for refinancing your loans:

1) Use a Traditional Student Loan Refinancing Lender

Refinancing a Parent PLUS loans with private student loans so that you’re paying a lower interest rate can save you a significant amount of money over the life of the loan. If you have a good job and a high credit score, you should be able to receive better student loan refinance rates to choose from.

This is the most popular option among Parent PLUS Loan borrowers, and rightfully so.

It can save you a lot of money. For example, if you owe $10,000 in Parent PLUS loans at an interest rate of 7.9% and are able to refinance at 5.9%, then you will save almost $1,400 over a ten year repayment period. Depending on your credit, you could get an even lower rate than that and save even more.

Another benefit of refinancing your Parent PLUS loan is that you can potentially transfer your loan to your child. Recently, lenders who specialize in student loan refinancing such as SoFi, Darien Rowayton Bank, and Citizen’s Bank have been extending their offerings to include the option of transferring ownership of Parent PLUS loans.

So as long as the child qualifies for student loan refinancing with that lender, Parent PLUS loans can be included when the child refinances their student loans. While this can potentially free the parent from all obligation for the loan, some families decide to have the parents co-sign this new loan since it might qualify the child for a lower interest rate.

But that doesn’t mean that parents have to be on the hook forever. Most of these companies offer something called co-signer release. This means that once a borrower has made a certain number of on time payments, they can apply to have the co-signer removed from the account. This generally ranges from 12-30 payments depending on the provider.

When it comes to refinancing Parent PLUS loans, be sure to read the fine print. Whenever you refinance federal loans into private loans you lose certain protections. However, with PLUS loans, you don’t qualify for income-driven repayment plans so you only lose the forbearance and deferral options you would have with your federal loans.

While many private lenders now offer similar options they are sometimes for shorter periods of time and might have additional conditions. Be sure that you understand what you might be giving up before you refinance.

If you’d like to compare the best student loan refinancing options, you can use our free app to see prequalified quotes from multiple lenders without hurting your credit. Click here to get started!

2) Refinance Using a Home Equity Line of Credit

Another option for refinancing Parent PLUS loans is to take out a HELOC. A HELOC is a secured loan, which means that it is taken out against the value of your home. The equity you currently have in your home is used as collateral which reduces the risk to banks and allows them to potentially give you a lower interest rate.

Refinancing using a secured form of credit is likely to get you the lowest interest rate but it could put your home at risk. That means that if you have a problem paying back the loan for whatever reason, the bank can come after your home.

It also doesn’t give you forebearance or deferral options in the event that you return to school or lose your job. For some people, the added benefit of a lower interest rate isn’t worth the added risk.

Another interesting aspect of using a HELOC to refinance student loans is that unlike student loans, a HELOC can be discharged in bankruptcy although doing so would likely mean that you would lose your home.

3) Refinance Using an Unsecured Line of Credit

If you don’t want to put your home up as collateral for your loan, you can potentially get an unsecured line of credit.

The challenge is that these are harder to get. In fact, they are often only available to people who are either making a significant annual salary and/or those who have excellent credit. Because they are unsecured there is more risk to the bank which means that the interest rates are generally higher than with HELOCs.

Other than that, they are exactly like HELOCS in that you will give up some of the benefits of student loans but they are dischargeable in bankruptcy.

4) Refinance Using an Installment Loan

Like lines of credit, installment loans can be secured or unsecured. Secured installment loans will generally have lower interest rates than unsecured loans but like unsecured lines of credit are hard to qualify for. The main difference between installment loans and lines of credit is that when you pay back a line of credit like a credit card that credit is available to you again.

Positives of Refinancing Parent PLUS Loans

You have several good reasons for transferring your Parent Plus Loan to your child:

Savings: Your child may qualify for a lower interest rate that could save thousands of dollars in interest. Current Parent PLUS Loans have an APR of 7.6%.

Parental Obligation Released: As the parent, you will no longer be responsible for paying back the Parent PLUS Loan.

Child can Build Credit: Young graduates often have scant credit history and credit ratings that are less than good. Refinancing the loan in the child’s name gives the child the opportunity to raise credit scores with on-time payments.

Lender Support: Lenders usually offer support services such as career service, unemployment protection, and networking events.

Soft Pull: The lender can usually provide an interest rate on the new loan via a “soft pull” of the child’s credit history without affecting credit scores. A hard pull will be needed to approve the loan.

Negatives of Refinancing Parent PLUS Loans

There are a few issues to consider when refinancing a Parent PLUS Loan:

Child Assumes Obligation: Your child will become legally liable for a new loan that replaces the Parent PLUS loan. Feelings of guilt OR resentment might arise!

Permanent: Once undertaken, the process cannot be reversed.

Agreement: Parent and child should be in total agreement with regards to refinancing the loan. Some families might find this an obstacle.

Loss of Federal Benefits: Parent PLUS Loan refinancing changes the nature of the loan from federal to private. This means that some of the benefits of the original federal loan are lost, including public service loan forgiveness and income-based repayment options.

Alternatives to Refinancing Parent PLUS Loans

Standard Parent PLUS Loan Repayment Choices

Fix Interest Rate (6.41%) on a Period of 10 Years: this is the standard repayment plan for the PLUS loans. This is a good option as long as the parents can cope with making the monthly payment, while also supporting the dependent child. The advantage associated with this standard plan is the fact that you know exactly how much your monthly payment is, so you can plan ahead and even make advance payments when the personal budget allows it )advance payments are not taxable).

Graduated Rate on a Period of 10 Years: the payments are variable, starting low so that the parents can cope with current expenses and the incipient loan payments. The payments increase every two years, so this payment plan is a good choice for people who expect income increases in the future. Also, if the beneficiary wants to help in paying the loan, the graduated rate is perfect, since it is lower when there is one payer and higher when the parent and child can join forces (or better said “finances”). This repayment plan is not recommended for parents who will retire in less than 10 years.

Extended Repayment Period: this plan can span over a period of 12 to 25 years, according to client’s preferences. The monthly payments are smaller, but overall the reimbursed amount of money is higher because of the interest, which is not subsidiary and adds up in time. The plan is suitable for people with low income, who cannot pay a large sum of money every month, but who are capable of working during the period of the loan contract. Paying the monthly loan bill from pension is never a viable solution.

Public Loan Forgiveness Program

Available for parents working in the public sector or in non-profit organizations can apply for a Public Loan Forgiveness. The program erases educational loans which are older than 10 years. The only criterion to be met is to have 120 full, consecutive payments made on time. The state will wipe out the remaining debt after these 10 years. The plan is beneficial for those parents who have opted for a gradual or a long-term loan. Also, the debtors who chose to consolidate their loans have the chance to obtain some kind of forgiveness after 10 years of payments.

The program was established in 2007, so the first loan forgiveness measures were taken in 2017. If you have not yet applied for this program, it is advisable to calculate how much money will you save and how long you will be able to pay the monthly bills. There are persons who may need to retire in a few years, so they will not afford to make payments for another decade in order to benefit for the Public Loan Forgiveness program.

Make an Informed Decision

No matter what method you use to refinance your student loans be sure that you read all the fine print so that you understand what you’re giving up and what you’re gaining by refinancing your Parent PLUS student loans. Use a student loan repayment calculator to determine how much you’ll save by refinancing so that you can make an informed decision about whether it is worthwhile to refinance.

Interest Rates Rise on Federal Student Loans for 2018-2019

June 26, 2018 By SeaCure Advisors Leave a Comment

student loan rates rise Interest rates on federal student loans are set to rise for the second year in a row. This table shows the interest rates for new loans made on or after July 1, 2018, through June 30, 2019. The interest rate is fixed for the life of the loan.

	New rate 2018-2019	Old rate 2017-2018	Available to	Borrowing limits
Direct Stafford Loans: Subsidized* Undergraduates	5.045%	4.45%	Undergraduate students only Subsidized loans are based on financial need as determined by the federal aid application (FAFSA)	For dependent undergraduates: 1st year: $3,500 subsidized 2nd year: $4,500 3rd, 4th, 5th year: $5,500 Max: $23,000
Direct Stafford Loans: Unsubsidized* Undergraduates	5.045%	4.45%	Undergraduate students only, all students are eligible regardless of financial need. FAFSA must be submitted.	For dependent undergraduates: 1st year: $5,500 2nd year: $6,500 3rd, 4th, 5th year: $7,500 Max: $31,000
Direct Stafford Loans: Unsubsidized Graduate or Professional Students	6.595%	6%	Graduate or professional students only; all students are eligible regardless of financial need. Unsubsidized loans only.	$20,500 per year (unsubsidized only); max $138,500 ($65,500 subsidized)
Direct PLUS Loans: Parents and Graduate or Professional Students	7.595%	7%	Parents of dependent undergraduate students and graduate or professional students. Unsubsidized loans only	Total cost of education, minus any other aid received by student or parent.

Subsidized vs. unsubsidized

What’s the difference? With subsidized loans, the federal government pays the interest that accrues while the student is in school, during the six-month grace period after graduation, and during any loan deferment periods. With unsubsidized loans, the borrower is responsible for paying the interest during these periods. Only undergraduate students are eligible for subsidized loans, and eligibility is based on demonstrated financial need.

The subsidized and unsubsidized Federal Direct Loan program are all under the same “umbrella.” What this means is that there are not two separate maximum loan amounts, the way it might appear at first glance.

For example, for undergraduate freshmen, the maximum loan amount a student can receive from the Federal Direct Loan is $5,500. Of that amount, $3,500 may be subsidized based on financial need. So, when the government says that there is a $31,000 maximum limit to what a student may receive in the Federal Direct Loans, $23,000 of that amount may be subsidized. There are not two discreet limits – one at $23,000 and one at $31,000 for a total of $54,000. The unsubsidized limits are contained within the subsidized limits.

Before taking out any loans, consult with a loan officer and, if possible, a financial advisor with college planning experience. There are excellent loan repayment options available and the earlier you construct a plan that incorporates loan repayment, the less likely you are to get blindsided by debilitating monthly payments.

Additional resources:

Federal Direct Loan Program

Direct PLUS Loan Program

Direct Consolidation Loans

Federal Loan Repayment

Late Stage College Planning

June 5, 2018 By SeaCure Advisors Leave a Comment

“Help! My child is two years away from college and we haven’t saved much. What should we do?”

late state college planning

Your late start means you’ve missed most of the best opportunities to grow the money you have. With only two years until your child starts college, you’ll need to refine the college selection process, accumulate enough of a down payment for the early college bills, and establish a savings plan for the later college years. Here are some constructive steps you can take.

School search

First, help your child investigate schools that provide a good value. Some less expensive state universities and second-tier private colleges may offer better programs than their more expensive private counterparts. Think creatively. Your child could attend a nearby school and live at home for a year or two to save money on room and board. He or she could attend a community college for two years and then transfer to a private four-year college. Or, your child could consider cooperative education, where semesters of academic work alternate with semesters of paid work. If your finances are severely limited, your child might consider taking a year off before starting college.

Financial aid

Second, learn all you can about financial aid. Do a dry run through the federal government’s financial aid application to determine whether your child is likely to qualify for financial aid, and, if so, for how much. When you’ve zeroed in on a few colleges, examine their financial aid statistics. For example, what percentage of students receive financial aid? What percentage of the average package consists of loans? What percentage of a student’s financial need is generally met — 100%? 75%? Does the college offer merit scholarships? Use a net price calculator on a college’s website to get an idea of how much grant or scholarship aid your child might receive at a particular college based on your financial information.

Private Scholarships

Third, start investigating potential scholarships. There are a number of websites where your child can type in his or her interests, abilities, and goals to obtain a list of relevant scholarships. FastWeb is free and excellent.

However, outside scholarships generally make up only a small portion of a student’s overall aid package, and the process can be very competitive. So don’t make the mistake of thinking that a private scholarship will magically cover most of your child’s college expenses. It’s important that this search be made in addition to, not in place of, the quest for federal and college-sponsored financial aid.

Savings and Investments

Fourth, examine any current financial resources that you can draw on for the early college bills. Do you have savings accounts, stocks, mutual funds, or cash value life insurance? Can you pay a portion of the tuition bills from current income? Can you increase the family income by getting a second job or having a previously stay-at-home spouse return to the work force? If you’re still short, you’ll need to investigate a personal loan, home equity loan, or federal Parent PLUS Loan. In other cases, you may need to tap your retirement accounts, though this is generally recommended only as a last resort.

Cash Flow

Finally, you’ll need to start earmarking as much of your current income as you can for college bills that will come due in four or five years, when your child is a junior or senior in college. Because you’ll need the money relatively soon, you should avoid high-risk investments. Instead, choose a low-risk, stable investment, such as a certificate of deposit that is timed to mature when you need it, or a money market mutual fund.

Have A Plan

This process is complex and timing is critical. Often, families don’t have the bandwidth or resources by themselves to do the work necessary to ensure their college plan is right for them. If this sounds familiar, you aren’t alone. Many families with high school sophomores, juniors, and seniors are in the same situation. Help is available.

Speak to a college financial planner who has specific experience in the college planning space and have them review your plan and options. You can book a complementary personal consultation with SeaCure here.

Investing For Major Life Goals

May 22, 2018 By SeaCure Advisors Leave a Comment

Go out into your yard and dig a big hole. Every month, throw $50 into it, but don’t take any money out until you’re ready to buy a house, send your child to college, or retire. It sounds a little crazy, doesn’t it? But that’s what investing without setting clear-cut goals is like. If you’re lucky, you may end up with enough money to meet your needs, but you have no way to know for sure.

How do you set goals?

The first step in investing is defining your dreams for the future. If you are married or in a long-term relationship, spend some time together discussing your joint and individual goals. It’s best to be as specific as possible. For instance, you may know you want to retire, but when? If you want to send your child to college, does that mean an Ivy League school or the community college down the street?

You’ll end up with a list of goals. Some of these goals will be long term (you have more than 15 years to plan), some will be short term (5 years or less to plan), and some will be intermediate (between 5 and 15 years to plan). You can then decide how much money you’ll need to accumulate and which investments can best help you meet your goals. Remember that there can be no guarantee that any investment strategy will be successful and that all investing involves risk, including the possible loss of principal.

Looking forward to retirement

After a hard day at the office, do you ask, “Is it time to retire yet?” Retirement may seem a long way off, but it’s never too early to start planning — especially if you want your retirement to be a secure one. The sooner you start, the more ability you have to let time do some of the work of making your money grow.

Let’s say that your goal is to retire at age 65 with $500,000 in your retirement fund. At age 25 you decide to begin contributing $250 per month to your company’s 401(k) plan. If your investment earns 6 percent per year, compounded monthly, you would have more than $500,000 in your 401(k) account when you retire. (This is a hypothetical example, of course, and does not represent the results of any specific investment.)

But what would happen if you left things to chance instead? Let’s say you wait until you’re 35 to begin investing. Assuming you contributed the same amount to your 401(k) and the rate of return on your investment dollars was the same, you would end up with only about half the amount in the first example. Though it’s never too late to start working toward your goals, as you can see, early decisions can have enormous consequences later on.

Some other points to keep in mind as you’re planning your retirement saving and investing strategy:

Plan for a long life. Average life expectancies in this country have been increasing for years and many people live even longer than those averages.
Think about how much time you have until retirement, then invest accordingly. For instance, if retirement is a long way off and you can handle some risk, you might choose to put a larger percentage of your money in stock (equity) investments that, though more volatile, offer a higher potential for long-term return than do more conservative investments. Conversely, if you’re nearing retirement, a greater portion of your nest egg might be devoted to investments focused on income and preservation of your capital.
Consider how inflation will affect your retirement savings. When determining how much you’ll need to save for retirement, don’t forget that the higher the cost of living, the lower your real rate of return on your investment dollars.

Facing the truth about college savings

Whether you’re saving for a child’s education or planning to return to school yourself, paying tuition costs definitely requires forethought — and the sooner the better. With college costs typically rising faster than the rate of inflation, getting an early start and understanding how to use tax advantages and investment strategy to make the most of your savings can make an enormous difference in reducing or eliminating any post-graduation debt burden. The more time you have before you need the money, the more you’re able to take advantage of compounding to build a substantial college fund. With a longer investment time frame and a tolerance for some risk, you might also be willing to put some of your money into investments that offer the potential for growth.

Consider these tips as well:

Estimate how much it will cost to send your child to college and plan accordingly. Estimates of the average future cost of tuition at two-year and four-year public and private colleges and universities are widely available.
Research financial aid packages that can help offset part of the cost of college. Although there’s no guarantee your child will receive financial aid, at least you’ll know what kind of help is available should you need it.
Look into state-sponsored tuition plans that put your money into investments tailored to your financial needs and time frame. For instance, most of your dollars may be allocated to growth investments initially; later, as your child approaches college, more conservative investments can help conserve principal.
Think about how you might resolve conflicts between goals. For instance, if you need to save for your child’s education and your own retirement at the same time, how will you do it?

Investing for something big

At some point, you’ll probably want to buy a home, a car, maybe even that yacht that you’ve always wanted. Although they’re hardly impulse items, large purchases often have a shorter time frame than other financial goals; one to five years is common.

Because you don’t have much time to invest, you’ll have to budget your investment dollars wisely. Rather than choosing growth investments, you may want to put your money into less volatile, highly liquid investments that have some potential for growth, but that offer you quick and easy access to your money should you need it.