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What Now, After the Kids Are College Bound

College Bound

9 Financial Tips for When Your Kids Leave Home

 

Key Takeaways

 

 

Goodbye, Kids. Hello, Future.

You've been saving and planning for college for years. Now the day has arrived. As you drive away and look in the rearview mirror, you watch your son or daughter start a new life, away from home.

Your kids are not the only ones affected by this milestone. You're starting a new phase of life too. There's still plenty to look forward to. And it still takes saving and planning. So keep your hands on the wheel, pay attention to the road ahead and drive safely into the future. Here are 9 ways you and your J.P. Morgan Advisor can prepare.



1.
Get through the next four years

If you still need to raise money for college, resist the temptation to withdraw or borrow from your retirement accounts. In addition to possible penalties, it could reduce your child’s eligibility for financial aid. Taking out student or home equity loans will keep your retirement plan intact. Max out on low-rate federally sponsored loans before turning to the private market.

EARLY WITHDRAWALS CAN BE COSTLY

Every $1 you withdraw from your 401(k) or IRA can cost you more than $3 in retirement savings due to taxes, penalties, reduced financial aid and lost years of compounding.1

costly-withdrawals

DON'T CASH OUT YOUR 5292 There are plenty of reasons to keep excess savings in your 529 account:

  • Your assets keep growing tax deferred
  • You can keep the account forever (no required minimum distributions)
  • You can change the account beneficiary to another child or family member
  • You can start an educational legacy for future grandchildren
  • You can even use those funds for non-educational purposes (earnings subject to an additional 10% tax)
2.
Put extra savings to work

You may be among the diligent few who saved more than necessary. Perhaps your child landed an unexpected scholarship or went to a public university whereas you planned for a private one. Since your college savings were likely in short-term instruments, now is a good time to move them into a longer-term asset allocation.

3.
Fast-track your retirement savings

With your largest expenses—like home buying and college—in the rearview mirror, this is the crucial moment to switch gears and accelerate your retirement plan. The next few years are likely to be your peak earning years, when you can make a huge impact on your savings—and make up for lost time to prepare for the day you stop working.

CATCH-UP CONTRIBUTIONS

Now is the time to max out on every tax benefit. Talk to your advisor about your eligibility for IRAs, Roth IRAs, SIMPLE IRAs and other tax-advantaged plans. Investors over 50 may be eligible for “catch-up contributions.” Here’s how they work:3




* 403(b) participants with more than 15 years of service may be eligible for additional catch-up contributions if plan allows. Consult your advisor for these complex rules. https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-403b-contribution-limits

4.
Stay focused on the long term

Retirement might be just 5, 10 or 15 years away. But don’t start shortening your time horizon yet. After you retire, you could still face 30 years or more of living without a paycheck. That takes more than aggressive savings. It takes long-term investing in a diversified portfolio that’s aligned to your goals, situation and preferences

How life expectancy is increasing4

The average life expectancy of a 65-year-old is expected to increase by more than 5 years for women and 7 years for men from 1990 to 2090.

increase-life-expectancy

EXPECT A LONG RETIREMENT


At age 65, the average man has a 22% chance of living to age 90 and the average woman has a 34% chance.5  For a couple, there’s a 49% chance that one of them will live to 90.6 Many advisors recommend planning for a retirement to at least 95 years old.

5.
Review your insurance

Your insurance goals can change when your family is grown. You may no longer need as much life insurance. But you may want to raise your liability coverage to protect your growing wealth, or keep your kids on your health insurance until they’re settled. Don’t forget to keep your homeowners policy in effect after your mortgage is paid off. Insurance can play a role in legacy planning, too.

IS LONG-TERM CARE INSURANCE RIGHT FOR YOU?


Not everyone should get long-term care insurance. But if you do, it can make sense to start in your 50s when rates are lower. You’re more likely to qualify, and you can lock in discounts which won’t change even if your health deteriorates later. If you’re self-employed, your premiums may be tax-deductible. 

6.
Consider downsizing your home

Some families move to a smaller home and invest the difference for retirement. But this strategy isn’t right for everyone. Taxes, real estate commissions and moving expenses can eat into your investable assets. If your home has increased substantially in value, you might plan to tap into your home equity through a line of credit or reverse mortgage instead, and keep the house in your estate where it can benefit from a step-up in basis cost.

7.
Plan for your legacy

Like many people, you may have done your estate planning when your children were small. Now that they’re entering adulthood, you might have a different perspective about passing on your wealth. This would be a good time to revisit your legacy plans and make sure all your documents are up to date. Some families also use this time to have a frank conversation about their finances and start including their children in financial planning.

LEGACY CHECKLIST

Here are some estate- planning steps to consider:

  • Make sure your wills are current
  • Review your account beneficiaries
  • Check your living wills and other healthcare documents
  • Put a durable power of attorney in place
  • Develop a business succession plan
  • Store important documents where your heirs can find them
8.
Prepare for the unexpected

Your kids are gone, but life still happens. Unexpected events like illness, disability, job loss or business downturns can have a profound financial impact. And you might still need to help out your children or care for aging parents in the future. Building a cash reserve can help protect your assets against unforeseen expenses or loss of income.

9.
Sit down with your J.P. Morgan Advisor

When your children start college and you contemplate the next phase of your life, planning can become more complex. But you don’t have to make all these decisions on your own. Your J.P. Morgan Advisor can help you prepare for what’s next and get you on the road to a successful retirement.

 

Next Steps: Put These Ideas into Action

 



Some states, for example, offer favorable tax treatment and other benefits to their residents only if they invest in the state’s own Qualified Tuition Program. Investors should determine if their home state offers 529 Plan that may offer such favorable tax treatment and benefits to residents or beneficiaries of that state that may not be available to investors or beneficiaries of other states.


Investors should consult their legal, tax or accounting advisor before investing in any 529 Plan or contact their state tax division for
more information. JPMorgan Chase Bank, N.A. and its affiliates do not offer legal, tax or accounting advice.


Not all investment ideas referenced are suitable for all investors. Investing involves market risk, including the possible loss of principal. There is no
guarantee that investment objectives will be reached. Diversification does not guarantee a profit or protect against a loss.


Opinions and estimates offered constitute our judgment as of the date of this material and are subject to change without notice, as are statements of financial market trends, which are based on current market conditions. We believe the information provided here is reliable, but do not warrant its accuracy or completeness. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The 
views and strategies described herein may not be suitable for all investors. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, accounting, legal or tax advice. References to future returns are not promises or even estimates of actual returns a client portfolio may achieve. Any forecasts contained herein are for illustrative purposes only and are not to be relied upon as advice or interpreted as a recommendation.


© 2018 JPMorgan Chase & Co.

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