From CFP Board's Consumer Advocate, Eleanor Blayney, CFP^®

The countdown begins. American retailers are doing a happy dance, while American kids are doing a sad shuffle. It’s time to go back to school.

Parents and providers are counting, too, not just the days, but the money they’ll need to get their students ready. As a nation, we will spend approximately $23 billion to equip and clothe our kids for grades K to 12. When our college-bound children are considered, that adds another $46 billion to the price tag. This anticipated surge in consumer spending is second only to the money we will spend for the holidays at the end of the year.

According to the National Retail Federation, parents feeling drained by the uncertain economic climate will be looking for ways to keep their expenditures in check, resulting in flat year-over-year projected spending for 2011. Unfortunately, the inflation numbers for clothing – second only to electronics in terms of amounts spent – are not making it easy for parents to rein in school expenses. Huge increases earlier this year in the price of cotton are likely to translate into higher prices for such school staples as backpacks and jeans, as compared to last year.

Clipping coupons and watching out for store sales and promotions will be important, but elementary strategies, for keeping back-to-school spending in line. This year, however, parents may need some higher grade ideas for keeping their back-to-school expenses affordable.

• Take advantage of the “sales tax” holidays that may be available in your state to do your back-to-school shopping. This year, seventeen states will offer some kind of sales tax reprieve, generally for two to seven days, beginning in August. To determine when, and if, your state eliminates or reduces sales taxes, and for what items, contact your state’s Comptroller’s office or Department of Taxation.


• Shop online from out-of-state retailers. This is another way to avoid state sales taxes in most states. However, be aware that some states are now imposing user taxes to capture revenue otherwise lost in online sales. Again, if in doubt, check with your state taxing authority.


• Contact your child’s school or teacher to get a list of required supplies for school. Knowing rather than guessing at what is needed should save on unnecessary expenses, as well as the price of fuel to return unwanted items.


• Leave the kids at home when you shop. According to 2011 survey data from the National Retail Federation, 51.7% of back-to-school spending is directly influenced by our kids. Retailers no doubt use this information when deciding on the placement and display of their items, or in their advertising. As any parent knows, items that were not on the “list” have an uncanny way of showing up in our carts when we have our kids along, and it is often easier to capitulate rather than argue at the register.


• If you do shop with your kids, enlist their help in keeping within your budget. It’s a great learning opportunity for them about the importance of controlling expenses. Add some cash incentives or extra privileges if the budget goals are met, and you may find your kids are more careful about the pennies than you yourself.


• At the same time, remember the lesson about being penny-wise and pound foolish. Particularly when it comes to the new items that need to last for the whole school year, such as backpacks and shoes, don’t sacrifice quality for extra savings. You’ll pay more in the long run for “cheap” goods that have to be replaced.


• Consider a neighborhood back-to-school swap of supplies and clothing. Sometimes different may be just as good as new, from your child’s perspective. What’s more, the useful life of many school items is often longer than your child’s need for them, so take advantage of the bargain prices for second-hand items.


• For college kids with 529 plans, be aware of a potentially expensive pitfall as a result of 2011 tax legislation. Formerly, withdrawals for computers, electronics and internet services were considered as qualified educational expenses, and were therefore tax-free. Now, however, a 10% penalty may be imposed if money from the 529 plan is used for these purchases, unless they are required by the college, university or technical school. Be sure to check with your child’s school to avoid this penalty.


• If your child has a custodial UGMA or UTMA account, and has not yet reached your state’s age of majority, it’s okay for parents who are custodians on these accounts to use the funds for college expenses, including computers and equipment.


• Get educated on the rules for taking educational deductions and credits on your tax return for your child’s college expenses. Talk to a CFP^® professional with tax expertise for a planning strategy to coordinate and maximize these tax benefits. For example, it may be to your advantage to give up an exemption for your student, if he or she has earnings, in order to claim an educational credit on his or her own tax return.

If you are one of the lucky few parents that are not feeling financially constrained this back-to-school season, here’s a final idea to earn some “extra credit” with your child’s teacher this year. Buy him or her a gift card at the beginning of the school year, rather than waiting, as most parents do, till next June. The amount of money that the average teacher will spend out-of-pocket for school supplies for the classroom is, in fact, more than 75 percent of what the average family is projected to spend this school shopping season. Consider your help with these costs as not just another school expense, but a way to invest in your child’s classroom experience and education.

Guest Contributor Connie Stone, CFP^®

Over the past several years, my husband and I helped various family members transition from their homes to retirement communities. After spending numerous hours sorting, donating, throwing out and moving clothing, household goods and keepsakes, the last thing we want in our house is more “stuff.”

Being in a position to help family members is both a privileged opportunity and a heavy responsibility. As the saying goes, “It’s not what you get from an experience; it’s what you become by it,” (Anonymous). I can safely say that we are more compassionate, more patient, more protective of our time and more willing to part with tangible things in favor of a simpler life. After all, “stuff” can be very time consuming.

Although I don’t wish for a different history, I acknowledge that there are some things that would have made the journey easier. Here are three that are top of mind:

Less “Stuff”
One of the best gifts you can leave your children, is saving them the time and heart-wrenching task of handling your belongings. When one of us comes across a special piece of artwork, a vacation keepsake or a holiday serving bowl, it’s really hard to decide what to do with it. If you don’t identify how you want your things given away, it creates a difficult decision for the person cleaning out your belongings. When multiple siblings are involved, it can cause stress, and possibly disagreements with hard feelings. The more stuff there is, the harder it gets.

Organized Information
As a standard operating procedure, I give new clients a financial planning book, a tote box with a "HOMEFILE" filing system and best of all, a "Your Family Records Organizer CD" from the editors of Kiplinger’s Personal Finance Magazine. Despite my enthusiasm, this is not a paid advertisement. The CD is the best tool I found in years to help clients and their families store, update and share important information. It helps track contact information, emergency instructions, funeral arrangements, financial information, family memorabilia and much, much more. The CD has many practical uses.

For couples, each spouse can enter the part of the family personal and financial story that lies in his or her domain. If something happens to one spouse, the other isn’t stuck trying to find computer passwords and the location of insurance policies or legal documents.

For children who care for parents, or parents with a special needs child, a list of doctors, nursing home staff, health insurance, financial and legal information, can be kept in one place. This provides a written summary if the caregiver suddenly is no longer available. It also enables family members to share information and responsibilities.

A Legacy of Final Words
Something I would cherish from my loved ones would be an ethical will, or a letter sharing their life lessons, values and hopes for the remaining family. I often think of questions I would like to ask my father, my grandparents and others who passed. Now it’s too late to inquire. What a treasure it would be to find an essay of what really mattered most to those I love. Now that would be the best gift of all!

Financial Planning for Your Life Now

Market Volatility Is the New Reality, So Make a Plan

Markets that fluctuate hundreds of points a day leave investors feeling insecure. Unfortunately, financial advisors say that kind of volatility is here to stay -- and worrying about it is only exacerbating it. "We need to put Dramamine in the national water supply at this point," says Lynn Ballou, CFP^®. "As I've told clients, volatility is the new reality. We're in an information age where there's no filter. Everything is right this minute and there's a huge sense of immediacy." Marilyn Capelli-Dimitroff, CFP^®, says she, too, believes the volatility will continue because the acceleration and the range of highs and lows is so extreme that it is likely to be self-perpetuating. "If you're adding to 401(k)s and other automatic investments, you should love these situations because you’re buying at prices now that in a decade will look great," Capelli-Dimitroff says. Certified Financial Planner Board of Standards Consumer Advocate Eleanor Blayney, CFP^®, says advisers are watching the Senate's "Gang of 12" deficit-reduction committee and preparing for a potential recession. "Consumers need to go back to their plan if they have one. If they don't have one, they need one -- and not just an investment plan, a financial plan, a road map to what you are going to need, when," Blayney says.

Conquer Your Debt, Improve Your Financial Life

Experts say Americans can learn from the federal government's mistakes in handling the nation's debt ceiling, as many households also spend too much and depend too much on borrowing. Certified Financial Planner Board of Standards Consumer Advocate Eleanor Blayney, CFP^®, calls the United States "a nation of debtors" and notes that debt translates into poor financial choices. Blayney says, "When you get to the point where you are prioritizing the bills, having to make choices about what to pay, you know that you are in real trouble. Even if we pay the minimum payment on time to allow us to pay our other bills, we are paying interest charges that are accruing. People are having to pay 18 percent or more for not being able to pay their bills on time." To control spending and borrowing, Blayney says consumers should set a reasonable budget and be honest about wants and needs, keeping expenses in line with earnings. She says the costs and benefits of borrowing should be kept in the same period, meaning that long-term debt should not pay for things in use right now. Blayney adds that good credit goes beyond borrowing, as it affects employment and the ability to rent an apartment; the fine print in credit card and other financial agreements should be read carefully; and consumers have to manage income, investments, taxes, and spending while reviewing their overall financial goals in order to reduce debt.

Simple Steps to Make Your Financial Comeback

Jude Boudreaux, CFP^®, says there are a number of steps consumers can take to get a hold of their finances. For instance, each member of a couple should be given an allowance they can spend any way they choose. This allows each person to spend money the way they want to while avoiding arguments. Another strategy consumers can use is to focus on larger goals, such as being able to travel, when thinking of things that can be cut from their budgets. This way consumers will not think they are depriving themselves, but will instead see they are allowing themselves to do the things they really want to do. Consumers should also be sure to be vigilant about their finances, Boudreaux says, because it can be easy to slip back into old habits of overspending. Finally, Boudreaux notes that consumers should take about 15 minutes each week to conduct a financial review while focusing on larger goals. Doing this can help prevent impulse spending.

Plan Now; Avoid Running Out of Money Later

Baby boomers need to have a financial plan developed by a CERTIFIED FINANCIAL PLANNER™ professional, says Van Sievers, CFP^®. Such a plan should consist of a personalized analysis of things like insurance, investments, income tax, retirement, and estate planning. Having a financial plan is helpful because it can help consumers determine what they have in assets, what their goals are, and whether they will be able to meet those goals. In addition to having a financial plan, retirees need to live within a budget and determine what kind of risks they should be taking, Sievers says. Understanding the risks that should be taken is important, because it can help consumers avoid using an overly conservative investment strategy. Consumers who are too conservative with their investments do not earn much, and whatever nest egg they are able to accumulate can get eaten away by inflation. Sievers' remarks come as large numbers of baby boomers express concern about running out of money during retirement, and as the number of people over the age of 65 who are filing for bankruptcy grows.

Financial Planning for Your Retirement

Postpone Taking Your Social Security Benefits and Other Tips for People Nearing Retirement

Baby boomers approaching retirement can follow a number of strategies, such as estimating their retirement income and expenses to put together a budget. Once that is done, the next step is to decide when to retire and to determine what portion of your pre-retirement income to live on. A CERTIFIED FINANCIAL PLANNER™ professional can be tapped to provide advice, and locating one near you can be done by referring to the Certified Financial Planner Board of Standards' Web site. Finding a new career or continuing work in your current career are options when you find that your estimated retirement income cannot sufficiently support your desired lifestyle. Deciding when to start taking Social Security Benefits also is key, and Certified Financial Planner Board of Standards Consumer Advocate Eleanor Blayney, CFP^®, recommends that baby boomers work until their full Social Security retirement age, or better yet until age 70. She continues that if married, the spouse drawing the higher salary should postpone retirement until age 70. Other advice for baby boomers weighing retirement includes paying off credit cards and the mortgage, becoming familiar with Medicare and long-term care insurance, and setting money aside for out-of-pocket medical expenses.

Use an Online Calculator to Help Determine When You Should Take Your Social Security Benefits

There is much to be gained by putting off receiving Social Security benefits, and it is best for older Americans to calculate when will be the best time to retire and start claiming those benefits. The largest possible benefit comes at age 70, so retiring at the earliest age of 62 could leave a lot of money on the table. Running the numbers can be difficult, but there are several online tools that can help. AARP has a free online calculator called LifeTuner on its Web site, which asks questions and offers estimates for monthly and lifetime benefits for various ages. It can also calculate spousal benefits and the effect of working while receiving benefits, as well as comparing benefits to expected expenses in retirement. Elaine Floyd, CFP^®, said the AARP calculator is "surprisingly accurate." Dana Anspach, CFP^®, said the fact that the calculator asks whether a person is married or divorced helps users discover some facts about Social Security that they may not know, offering “clear instructions on how to maximize benefits for 'marrieds,' and [telling] you exactly when each spouse should file," she said. Floyd agreed, and said when she put herself through the calculator it suggested she claim her divorced-spouse benefit at 66 and her own at 70, which someone who has little knowledge of Social Security would not think to do. Some experts note, however, that the calculator could be more personalized when it comes to longevity risk, to maximize benefits for a long life and hedge against the risk of dying early. It could also allow the user to change the primary claiming strategy, and to compare one claiming choice to another. There are many other tools available online, including fee-based tools such as Social Security Solutions and Maximize my Social Security as well as free tools from the Social Security Administration and AnalyzeNow.com.

How to Draw Down Your Retirement Portfolio the Smart Way

There are several strategies for managing finances after retirement to make sure the savings will last one's entire life. First, one should make plans for how savings will be used, such as a certain percentage drawdown per year, adjusted for inflation. “You can withdraw between 4 and 6 percent of your portfolio each year and still protect the principal," says Stephen Overstreet, CFP^®. According to the Congressional Research Service, taking 4 percent a year of a portfolio invested 35 percent in stocks and 65 percent in bonds has an 89 percent chance of lasting for 35 years or more. And if one withdraws less in those years that investments underperform, the savings can last even longer. Another tip is to keep an emergency fund of two to three years of income so that sudden unplanned expenses do not hurt the retirement withdrawal plan, Overstreet says. One should also time the withdrawals from tax deferred retirement accounts in order to minimize taxes and prevent rising to a higher tax bracket, and delay Social Security benefits as long as possible in order to get higher monthly payments. "If you don't take your Social Security at 62, you make about 8 percent more per year for every year you don't take it," says Gerald Cannizzaro, CFP^®. If possible one should also pay off one's mortgage, Cannizzaro says, which “greatly improves your retirement income.” Other strategies are to sign up for Medicare as soon as one is eligible in order to avoid premium increases for late starters, minimize investment fees as much as possible, add inflation-fighting investments to one's portfolio such as Treasury Inflation-Protected Securities, and look for a part-time or seasonal job.

Financial Planning for Your Children

Start Your Financial Life Out Right

Jeff Jones, CFP^®, offers financial advice for people in their 20s. Jones advises against making debt payments sporadically and using credit cards for lifestyle expenses. "If you have a plan in place and diligently work to tackle debt, starting with the highest interest rate, each month less interest will accrue and more principal can be paid down, until there is nothing left," he says. Jones says 20-somethings need to build a positive credit history, and they should start by requesting a free full credit report at annualcreditreport.com. For unexpected events, such as losing a job, car breakdown, or unanticipated medical expenses, it pays to have an emergency fund on hand, Jones says. "It is wise to have readily available funds to cover at least three to six months' worth of expenses, preferably in a savings account that is separate from the checking account you use for daily cash management," he notes. Jones also recommends moderate living, and striking a balance between a comfortable present-day lifestyle and reserving a reasonable percentage of one's income for the future. Ideally, you should set aside 15 percent of your salary toward retirement or another future goal, Jones says. "Having a budget in place helps to actively manage your cash flow, identify potential areas of waste and overspending, and efficiently capture excess income into a savings vehicle," he points out. "The easiest way to accomplish this is to have a portion of your direct deposited paycheck automatically transferred into long-term savings vehicles." Jones also says 20-somethings should leverage their employer's 401(k) or 403(b) plan to help prepare for retirement. "At minimum, contribute at least enough to receive any match offered by the company," he advises. "If you have the means and the discipline for further savings, step two is to contribute the maximum $5,000 per year into a Roth IRA."

529 Accounts Can Help You Save for Your Child's Education

When saving for college, parents may want to take advantage of savings programs like the 529 plan, an investment plan offered by a state or educational institution. Each state offers at least one 529 plan, and some states offer several. Such plans offer federal and state tax benefits, including tax-deferred growth, although contributions are not tax-deductible. Parents and grandparents can open these accounts, with rules allowing for contributions equal to the annual gift limit for five years in one lump sum. If a child does not use the money, there are withdrawal options, though often with penalties and taxes involved, or the money can be transferred into an account for another child. A 529 plan may be costly, however, with high annual fees or other considerations. Although a 529 account can help save for college, the most important thing to do is to begin saving when the children are young, and to put retirement savings above college savings.

Hiring a CERTIFIED FINANCIAL PLANNER™ Professional

A CERTIFIED FINANCIAL PLANNER™ Professional Can Help You Deal With Unexpected Risks

Handling your own money is a lot like taking on a do-it-yourself home improvement project; it is entirely possible to mitigate known risks while completely overlooking risks that have not been considered. A CERTIFIED FINANCIAL PLANNER™ professional is not only more familiar with the job of handling finances and investments, but they can do the job better and faster, and are prepared for the unexpected. Because they have the experience, they are better able to handle events that non-professionals are unable to even recognize as problems. Investors may have risks in their portfolios that, up until now, have not resulted in any adverse scenarios. But the risks are still there. Have a professional review these investments. Preferably, talk to someone who has finished a robust certification program like the CERTIFIED FINANCIAL PLANNER™ professional designation and has some experience. These are the experts who may be best able to notice the problem areas in a plan and help an investor avoid risks they have not considered.

Your Friends and Relatives Can Provide Referrals to a CERTIFIED FINANCIAL PLANNER™ Professional

It can be beneficial to hire a financial planner to help develop strategies for dealing with the growing complexity of financial issues. Soliciting referrals from people you know in a similar financial situation is one way to find potential candidates, and once a list is compiled it is a good idea to ask for references and talk with them about the planner's performance and proficiencies. You should have a candid dialogue with the planner candidate about your needs and objectives to ensure they are aligned with the planner's capabilities. Check the candidate's credentials, noting that formal accreditation such as a CERTIFIED FINANCIAL PLANNER™ professional designation is evidence of experience and/or knowledge. You should inquire about the planner's payment structure, and make sure you are comfortable with the response. Free financial planning assistance should be taken advantage of when it is available from employers, while background research on financial planning ought to be done beforehand to understand what to expect from the planner.

Your Financial Adviser's CERTIFIED FINANCIAL PLANNER™ Professional Credentials Are a Good Way to Evaluate Their Competence

A significant loss of money can lead to a serious conflict between an investor and investment adviser. Although advisers are often blamed, investors may have been able to limit their chance of losing money. Before signing on as a client, investors should do their homework to sniff out bad advisers by visiting www.adviserinfo.sec.gov, and conducting a search by name or firm. Investors should make sure the services match what they need and the fees are comparable to those charged by other advisers; also, go to the disciplinary section to see if the firm or adviser has received complaints or violated regulations. Investors should search each adviser at the firm, and look for credentials including education and professional designation, such as the CERTIFIED FINANCIAL PLANNER™ professional designation. The adviser's CERTIFIED FINANCIAL PLANNER™ professional credentials are a good way to evaluate their competence. When meeting a potential adviser, investors should ask for clear disclosure on fees, and when evaluating fees on investments, they should ask if a similar investment has a lower fee.

Financial Planning for Women

Women Fall Short When It Comes to Financial Planning

A recent survey by Genworth has found that women are less likely than men to focus on financial planning on a regular basis. Forty-two percent of women said they focused on financial planning at least once a week; more than half of the men, 54 percent, said they focused on financial planning that often. The survey also found differences among people of different age groups when it comes to financial planning. Fifty-eight percent of those between the ages of 18 and 24 said that they took time to focus on their financial well being at least once a week, making them the age group that is most concerned with financial planning. By comparison, 39 percent of those between the ages of 35 and 44, 47 percent of those between the ages of 45 and 54, 48 percent of those between the ages of 55 and 64, and 39 percent of those over the age of 65 said they took time at least once a week to focus on financial planning. In addition, the survey found that over 60 percent of individuals of all income levels below $75,000 said financial well being was necessary for a balanced life. Finally, the survey found that 21 percent of households making less than $25,000 annually said they needed financial help but did not know where to get it, compared with 15 percent of households at other income levels.

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