Monthly Archives: July 2016

What is Inflation, and How Does It Affect Me?

When you hear your grandparents talk about the price of their house or a loaf of bread “back in their day,” it isn’t because they are out of touch with reality. The fact is prices are much higher than they were several decades ago. This is due to a term called inflation.

Shopping Cart and Piggy Bank on Teeter Totter Showing Inflation Concept

Shopping Cart vs. Piggy Bank: What is this inflation photo illustrating?

What is Inflation?

Inflation is the rise in the price of goods and services over time. Each year, we experience inflation. This is the reason a gallon of milk you buy today will likely be more expensive at this time next year.

When inflation happens, it also means the value of your dollar is less. In other words, your purchasing power decreases with inflation. If you spend $1.00 for a bottle of water today and this day next year it costs $1.05, you are getting less for your dollar.

How Does Inflation Affect Your Life?

If you think about the way inflation works, then you can start to understand how it impacts you. For example, you now get less groceries, less house, less car for the same amount of money than you did a year ago, and even five or ten years ago. You may be spending the same amount every month on your morning lattes, but over time you will get less lattes for that amount of money.

This means you eventually need to increase your income, which usually occurs naturally with a cost-of-living salary adjustment. You may also need to put more money in savings. If you keep the same amount of money in your savings account, over time it will be worth less. To keep up with inflation, you may need to contribute more often.

Now that you know the answer to “What is Inflation?” – are you going to do things differently in the coming year?

– The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

The Surprising Laws behind Long-term Care

Sign for Long-term Care

Long-term care is something we talk about regularly with our clients, because it can influence the overall financial and retirement plan. As people continue to live longer, they may have to pay for medical and personal care that is not covered by traditional insurance, Medicare or Medicaid.

In fact, almost 70 percent of people turning 65 will need long-term care at some point in their lives1. Yet, even with this knowledge, many clients fail to enroll in LTC to protect their finances.

While this is certainly detrimental to the individual who develops health issues later in life, it can also affect their adult children by way of little-known laws called filial responsibility.

What is Filial Responsibility?

Filial responsibility laws hold adult children legally responsible for the cost of their parents’ care. This can mean food, clothing and housing, but it can also include the cost of medical care and nursing homes.

While more than half of U.S. states maintain filial support laws, it is rarely enforced. However, recent cases where children were ordered to pay2 may be signaling a change is on the horizon.

Why this Matters for Long-term Care

If you have a long-term care policy and it covers the cost of a nursing home or medical bills, then it is likely your children will not need to worry about footing the bill. However, if you fail to enroll in long-term care, then your children could be stuck with the debt.

We recommend planning LTC into your retirement and enrolling when the time is right. Not only do you protect your own finances, but you also reduce the financial burden for your kids.

– The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

1 http://longtermcare.gov/the-basics/

2 http://www.investmentnews.com/article/20160524/FREE/160529968/why-filial-laws-are-a-sleeping-giant-that-could-prompt-long-term

What Can You Pay for with a 529 College Savings Plan?

Finger Points to 529 – College Savings Plan Image

School will soon be back in session and for those of you with kids heading off to college, you may be wondering which educational expenses can be paid for with your 529 college savings plan.

The IRS states, “Qualified expenses include required tuition and fees, books, supplies and equipment including computer or peripheral equipment, computer software and internet access and related services if used primarily by the student enrolled at an eligible education institution. Someone who is at least a half-time student, room and board may also qualify.”

While this seems cut and dry, it does come with a few stipulations.

For example, you can pay for room and board with a 529 college savings plan, but only if the expenses do not exceed the school’s estimates for room and board for attendance there. If the estimate is $600 and you have to pay $800 for room and board off-campus, then you have to come up with the remaining $200 from other sources of income.

What Happens If the Expense is Not Qualified?

If you do decide to take a withdrawal for something that does not meet the qualified expense criteria, then the earnings portion of that distribution will be taxed as ordinary income and could incur a 10 percent federal penalty.

If you think your expense is qualified but you are being penalized, then you may want to speak with the financial aid office at your school, your tax advisor, or your financial advisor. It is always a good idea to purchase qualified items separate from non-qualified items, so you have clear documentation of what you paid for with your 529 college savings account.