5 Top Money Tips From a Financial Planners Conference
How to cut taxes, invest for income and shrink college bills
I’m always prowling for new, timely and practical advice to help my 50+ readers manage their money better, lower their taxes, invest smarter and secure their financial future. Recently, I hit the jackpot.
I attended the Financial Planners Association (FPA) annual Business and Education conference, in Boston, Mass., a gathering of 2,000 Certified Financial Planners (CFPs) featuring workshops with financial professionals and researchers dispensing their tips and findings.
Here are my five big takeaways:
1. It’s getting a little easier for the middle class and underserved to work with Certified Financial Planners. “There’s a preconceived notion that to engage, you need a minimum net worth of $1 million. That’s not true at all,” FPA president Edward Gjertsen II told me. “It may take a little longer to find, but there are plenty who charge annually or hourly, not just AUM [Assets Under Management].”
I’m not sure I’d agree with “plenty.” But there is Garrett Planning Network, with 300 independent fee-only planners typically charging $180 to $300 an hour; the fee-only, virtual XY Planning Network (it specializes in Gen X and Gen Y clients) and the 2,400-member fee-only planners group, National Association of Personal Financial Advisors.
“The industry is making progress” in serving middle-income Americans, said Sheryl Garrett, founder of the Garrett Planning Network. “It used to be as rare as finding a bald eagle. Now it’s not quite as rare; it’s like finding a golden eagle.”
I also learned at the conference that the FPA’s Foundation for Financial Planning provides pro bono financial planning advice for the underserved. So far, 13,000 industry professionals have volunteered 136,000 hours providing free help to more than 350,000 people.
If you or someone you know are interested in learning more, contact the Foundation for Financial Planning at its website.
2. In today’s low-yield investing environment, look for global dividend-paying stocks or mutual funds that buy them. This advice came from Raji Manasseh, a senior vice president at the PIMCO investment firm.
A few years back, PIMCO said investors were living in “the new normal” era of low economic growth. Now, Manasseh, said, we’re investing in “the new neutral” — low interest rates, converging growth of developed and emerging markets, huge global debt and aging populations. In “the new neutral,” a Fed target of 4 percent short-term interest rates is “a dream;” neutral is more like 2 percent.
As a result, investors “need to activate every part of their asset allocation for income,” said Manasseh. Among stocks, he said, you are looking for: attractive dividend yields; dividend growth and capital appreciation.
And that means going global for dividend stocks. Today, Manasseh said, you can find telecom and utility stocks with 3 percent yields in Australia, Nordic countries, Latin America and the U.K., but not many in the U.S.
Federal Reserve Board Chair Janet Yellen recently said interest rates will rise before year’s end. Manasseh's guidance: in periods of rising rates and low inflation, technology, consumer discretionary and materials companies tend to outperform the market.
3. You can make your money last years longer by defying the conventional wisdom on retirement portfolio withdrawals. This advice came from Bill Reichtenstein, a Baylor University investments professor and head of research for Social Security Solutions software, at his packed session based on his March/April 2015 Financial Analysts Journal article, Tax-Efficient Withdrawal Strategies.
The conventional wisdom has been that, from a tax standpoint, in retirement you should take money out of your taxable accounts first and when that money is exhausted, withdraw from your tax-deferred accounts such as a 401(k) or traditional IRA and then, finally, from your tax-exempt accounts (municipal bonds and bond funds).
Instead, says financial magician Reichtenstein, (and, trust me, I’m oversimplifying here) in your early years of retirement, you should first take money out of your tax-deferred account — but no more than an amount that would take your taxable income to the top of the 15 percent tax bracket. Then, withdraw from your taxable account and finally from your tax-exempt one. Essentially, he rigs the game so you never pay more than 15 percent on your tax-deferred account withdrawals.
In an example Reichtensteing gave, a retiree using the conventional wisdom would run out of money in 30 years. But with his system, the money would last for 34.37 years. He has an even-more-complex strategy — which includes two Roth IRA conversions — where, in that example, the retirement money would last a full 36.17 years.
4. If your kids are going to college within a few years, you can lower your tuition bills by understanding the realities of college pricing. That advice came from Lynn O’Shaughnessy, a smartie who runs TheCollegeSolution.com site.
“The financial industry hasn’t been concerned about late-stage college planning,” she said. “Their perception is that paying for college is just using a 529 plan.”
Think of colleges like the airlines, O’Shaughnessy advised, where “everybody pays a different price.” Many parents don’t realize, she said, that 58 percent of students at state schools don’t pay full price and 89 percent of students at private colleges and universities get price breaks — a historic high.
Also a historic high, she said: the average college discount from the tuition sticker price, now 54 percent. The reason (and the exceptions are the highly selective elite schools) is that many admission departments have trouble filling their freshman spots.
“So throw a wider net to get the discounts,” said O’Shaughnessy. Colleges and “master universities” are more likely to discount than research universities like Berkeley, Northwestern and Michigan “where rich students want to go.”
To see if you’ll qualify for financial aid, O’Shaughnessy said, figure out your Expected Family Contribution (EFC) with the College Board site’s calculator. The EFC is what you’d be expected to pay for one year of college, and it's based on a variety of factors including your income, assets and how many kids you'll have in college. “Your goal is to find a school to bridge the gap between what it costs and your EFC,” O’Shaughnessy said.
“Most families let their child apply to any school they want and they keep their fingers crossed and wait until the aid packages come back to see if they have the money,” she noted. “Sometimes it works out, sometimes it doesn’t. Don’t let your 17-year-old blindly drive the process.”
Another tool she recommends: the Net Price Calculator on college websites, which the government began mandating in 2011. (The net price is the cost of school minus scholarships and grants.) To find these calculators, “Google the name of the school and ‘net price calculator,’” O’Shaughnessy said.
Two more of her suggestions:
1) Research the generosity of schools to see how much need-based aid they offer (this info is on the College Board site). For example, Columbia is generous, O’Shaughnessy said, but NYU is stingy — although it does give out some merit aid.
2) Check out a college’s four-year graduation rate so you’ll know your odds of getting stuck owing a fifth year of tuition. You can find this stat by Googling “college completion” and that’ll take you to the College Completion microsite of the Chronicle of Higher Education. Pomona College has a 93 percent four-year grad rate but neighbor Cal State Poly at Pomona has a 10 percent rate.
5. And one over-the-top way to save on taxes, pay for college and help your kids if you have a business: hire your children and then get “creative.” This last tip came from Jeff Rattiner, the fast-talking president of JR Financial Group and creator of Rattiner's Financial Planning Fast Track.
Here’s his idea: Pay your child $11,800, which equals the maximum $5,500 traditional IRA contribution and the $6,300 standard deduction. That will bring his taxable income down to zero. And open an IRA for your child.
“Then, say to the kids: You have to give back the $6,300 to mom and me,” Rattiner said. “Put that money into a 529 college savings account; you may even get a tax deduction. It works out really, really well. All of a sudden, you have a 529 and an IRA for your kid.”
A bonus: You don’t have to take out payroll tax for some types of businesses if the child is under 18, said Rattiner.
What kind of work should you have your child do? “What are kids better at than probably all of us? Technology! Have them set up your social media and Internet presence,” said Rattiner.