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How to Prepare for Financial Shocks in Retirement

By U.S. News & World Report

You’ve always lived below your means and were a diligent saver, and now you’ve built a pretty sizable nest egg. Or maybe you’ve just been lucky enough to work for a company that has a well-managed 401(k) plan and has always matched your contributions. However you did it, you now have a reasonable retirement income that, with the help of Social Security and possibly a pension, provides you with a comfortable retirement lifestyle.

So, you’re all set, right? Not necessarily.

Remember the great recession of the late 2000s? And the stock market crash of 2000 and 2001? Financial meltdowns have occurred many times before. And since your retirement can last 20 or 30 years, another one will likely come along in your lifetime, and perhaps more than once.

Here are six ways to prepare yourself for the next bout of economic trouble, so it registers as a hiccup in your financial timeline rather than a galactic explosion that destroys your financial future.

1. Rebalance your investments. If you’ve enjoyed the run-up in stock prices over the past seven years, you might be too heavily invested in stocks. Financial experts recommend rebalancing your accounts once or twice a year to get back to your target allocations. For example, if you target 50 percent of your IRA or 401(k) in stocks, but now that stocks have appreciated they make up 60 percent of your portfolio, it may be time to sell off 10 percent, to get back to your original level. The same principle holds for bonds, real estate or any other investment.

2. Set aside an emergency fund. Experts recommend keeping enough cash outside your retirement accounts to cover six months of expenses, to use in case of emergency. An alternative: Figure out how much you typically withdraw from your savings to cover the gap between your ongoing expenses and your recurring income from pensions and Social Security. Then set aside enough cash to cover the gap for five years. For example, if you spend $3,000 a month, and take in $2,500 in pensions and Social Security, you have a $500 shortfall. So $500 a month for five years equals a cash balance of $30,000.

3. Plan for a major health care expense. Of course you want to exercise and eat right to try to stay as healthy as possible. But let’s get real. You’re getting older, and chances are you will need a surgical procedure or expensive drug regimen at some point. Even with the best medical insurance your out-of-pocket costs can run up to thousands of dollars. One way to soften the blow is to set aside an extra cushion of cash. If you’re eligible, a health savings account can be useful. Also, consider a long-term care insurance policy. It’s expensive, but can make it possible for you to get home health care, or institutional care, if you need it.

4. The time to downsize is now. For most people, the cost of housing is their single biggest expense. Moving to a smaller house in a less expensive neighborhood will likely generate a one-time windfall as you sell the family home and buy a less expensive house (but don’t forget to figure in moving expenses). More significantly, the move should ratchet down your ongoing expenses — as you save on real estate tax, utility bills and maintenance — and keep you on a lower spending plateau for the rest of your days.

5. Be tax smart. If you’re selling your primary residence you will likely not be taxed on your profit. But if you sell an investment property, you will. You will also be taxed for capital gains on investments and withdrawals from your IRA. Even Social Security benefits are partially taxed at the federal level (starting at $25,000 annual income for individuals and $32,000 for joint filers), and there are 13 states that also levy income tax on Social Security benefits. So get out a pencil and paper, open up a spreadsheet or consult your accountant, and plan out how to turn your assets into income with the smallest tax bite possible.

6. Consider an annuity. An annuity is not always a good investment these days, since the income you receive is partially determined by interest rates. Instead, think of an annuity as insurance that at least some income will never run out. There are many kinds of annuities, and they can be complicated, so consult a financial advisor before signing up. And don’t allocate too much of your nest egg to an annuity. Remember, you already have Social Security, which is a kind of annuity in itself.

Tom Sightings blogs at Sightings at 60 .

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How to Prepare for Financial Shocks in Retirement originally appeared on usnews.com

Don’t Settle for Student Loans to Pay for Online Education

By WTOP Staff
Online college programs are becoming a more popular choice for prospective students, with one study finding that more than 6 million students enrolled in at least one online course in fall 2015. The popularity of these courses can be attributed in part to their flexibility with working adults' schedules, students' ability to progress more quickly through online programs and, oftentimes, cheaper tuition. [See 10 low-cost online bachelor's programs for out-of-state students.]Online degrees can be beneficial to many college students, but some studies have shown online learners complete their programs at lower rates than students at traditional brick-and-mortar campuses. Individuals with student loans but no degree comprise two-thirds of defaulted borrowers. Though these numbers are not encouraging, just like for traditional programs, there are ways to reduce how much you'll need to borrow for an online program to ensure you won't become one of these statistics. Don't just settle on borrowing student loans to cover the whole cost of your program and living expenses. Instead, start thinking about how to cut costs and cover your balance in different ways, such as the following. -- Grants and scholarships: Even though you are taking an online course, you can still apply and receive grants and scholarships. But your first step should be to complete the Free Application for Federal Student Aid, commonly referred to as the FAFSA, which will allow you to receive a Pell Grant if your expected family contribution is low enough. The EFC criteria and award amounts are adjusted annually, but the 2017-2018 academic year awards range from $606 to $5,920, which could significantly lower the amount you borrow annually. Your next step is to apply for scholarships. You can start by checking online scholarship search engines, such as the Salt Scholarship Search, College Board's BigFuture and Peterson's. But don't forget to take advantage of local organizations and your school's financial aid office. Both may offer scholarships that you can't find with a national scholarship search. [Review these 10 sites to kick off your scholarship search.]For instance, organizations like the Elks Club, Knights of Columbus or the Rotary Club typically offer scholarships annually to local students. Just because you're going to school online doesn't mean you're ineligible. Visit your local library for scholarship listings, and ask around town. You might be surprised how many local organizations offer scholarships. While these scholarships typically aren't large, every little bit counts. Each dollar you receive in a scholarship is a dollar you don't have to borrow and pay interest on. -- Work-study: Another option for online students may be work-study awards. Not all students enrolled in online programs are eligible, but students at some schools -- including, for example, SUNY Empire State College and Liberty University -- are. Work-study awards are not given upfront like scholarships and grants. In most cases, they are an offer to earn up to the awarded amount if you secure an eligible work-study job. While there is a misconception that all work-study jobs must be on campus, students can work for off-campus, nonprofit or public employers as long as the work is in the public's interest. You may be able to work for a for-profit employer if the job is relevant to your course of study. No matter who the outside employer is, it will need to have an established agreement with your college for you to receive work-study funds. Remember, to be eligible for federal financial aid, you must be enrolled and pursuing a degree or certificate. If you're not working toward a credential, Pell Grants and work-study won't be option, but you may still be able to take advantage of private scholarships -- just be sure to read the eligibility criteria carefully. [Explore what to know about financial aid in online programs.]-- Pay as you go: One of the great benefits to enrolling online is the flexible schedule, which can allow you to complete your college coursework around your responsibilities. But prospective students often overlook using their part- or full-time job earnings as an option for paying for college. Almost 80 percent of college students in 2015 worked at least part time while attending classes, according to the National Center for Education Statistics. By budgeting and thinking strategically about your college costs, you can likely reduce your dependence on student loans by paying a portion out of pocket. Many -- but not all -- online programs are less expensive than traditional programs and often have shorter payment periods. Six, eight or 10 weeks are common course durations. Because of the frequency of payments in an online setting, you may be well-placed to pay as you go and possibly avoid borrowing altogether. Attending college online and avoiding student loans may be challenging, but if you are willing to put in the effort, you can limit the amount you need to borrow. More from U.S. News Q&A: Understanding Student Loan Discharge Eligibility Student Loan Refinancing Isn't Right for All Borrowers
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