October 2015 - NorthStar Capital Advisors

College Aid Planning Will Start Earlier

Going forward college aid will computed based on “prior prior year” income instead of “prior year”. This means that current high-school sophomores who will graduate in 2018 will 2016, not 2017, as the base year in reporting family income on their first FAFSA form (Free Application for Federal Student Aid). Since student financial aid generally increases as family income decreases, the idea is to strategically manage family taxable income lower.

Families with Class of 2018 students will want to consider the following:

Look for opportunities to shift 2016 income into this year and delay deductions.
For example, parents of sophomores that are considering a Roth IRA conversion may want to do this before year-end since this boosts taxable income.
It would not be wise to prepay the January mortgage and property-tax bills in December (remember, we want to delay and maximize deductions into 2016).
If you receive an annual bonus, see if it’s possible to receive that bonus by December 31st instead of January.
Impacted families that were planning on selling a taxable investment in 2016 should consider moving faster and locking in the capital gains into 2015.
Parents who own businesses could speed up billing to pull payments into 2015 and delay deductible purchases until next year. They could also wait until 2016 to setup and contribute to a simplified employee pension plan.

Companies Push to Boost 401(k) Savings

The most important driver of wealth creation is investor behavior, not investment performance. Taking their queues from research in behavior finance, big companies are helping steer investors to make good decisions and help secure their financial future.

New data reported by the Vanguard Group shows that

nearly 100% of the companies advised by Vanguard have default enrollment (i.e., employees are automatically enrolled in the retirement plan unless s/he opts out)
39% of plans automatically deduct 4% or more of employee’s pay for retirement contributions
~70% of plans automatically increase the employee’s contribution annually
~95% of plans automatically invest contributions in a target-date fund

These three actions — auto-enrollment, auto-increase, and target-date fund default investment — are considered best-in-class behaviors for employers and they’re becoming more prevalent.

Source: WSJ

No COLA in 2016

Not so great news for the 65 million retirees and others that receive Social Security benefits. For the first time in 5 years, there will be no annual raise in Social Security benefits. There’s no cost of living adjustment or COLA going into 2016 because falling gas prices have kept inflation low. According to the Social Security Administration’s calculations, inflation is down 0.6% for the past 12-month period that ended in September. This decline is largely driven by the 30% drop in gas prices.

Automatic benefits increases, also known as cost-of-living adjustments or COLAs, have been in effect since 1975. In the current process. the COLA is computed at the close of September and goes into effect with January’s benefit checks. Here’s complete list of COLAs received 1975-12016:

January 2016 — 0.0%
January 2015 — 1.7%
January 2014 — 1.5%
January 2013 — 1.7%
January 2012 — 3.6%
January 2011 — 0.0%
January 2010 — 0.0%
January 2009 — 5.8%
January 2008 — 2.3%
January 2007 — 3.3%
January 2006 — 4.1%
January 2005 — 2.7%
January 2004 — 2.1%
January 2003 — 1.4%
January 2002 — 2.6%
January 2001 — 3.5%
January 2000 — 2.5%
January 1999 — 1.3%
January 1998 — 2.1%
January 1997 — 2.9%
January 1996 — 2.6%
January 1995 — 2.8%
January 1994 — 2.6%
January 1993 — 3.0%
January 1992 — 3.7%
January 1991 — 5.4%
January 1990 — 4.7%
January 1989 — 4.0%
January 1988 — 4.2%
January 1987 — 1.3%
January 1986 — 3.1%
January 1985 — 3.5%
January 1984 — 3.5%
July 1982 — 7.4%
July 1981 — 11.2%
July 1980 — 14.3%
July 1979 — 9.9%
July 1978 — 6.5%
July 1977 — 5.9%
July 1976 — 6.4%
July 1975 — 8.0%

The Ultimate Alternative Investment Strategy?

The Onion:

“Taking into account the average American’s present level of savings as well as prevailing market conditions, there simply is no sounder choice individuals can make than venturing into a hidden glen or cavern, luring an enchanted creature from its dwelling, and then apprehending it and using its offered wishes to build a solid financial plan for the future,” said researcher Alison Knox, who explained that whether the wishes were acquired by sparing the life of a talking golden fish, rubbing an ancient Arabian lamp, or intoning the name of a woodland troll backwards to make him one’s captive, Americans would be wise to set aside one of their wishes for an ample 529 college savings plan for their children and use another wish on a well-funded retirement account.

Nation’s Financial Advisors Recommend Capturing Magical Creature That Grants Wishes (The Onion)

Home Price Growth Cools Off

The pace of year-over-year home price growth is beginning to cool off according to this week’s 20-city Case-Shiller Housing Price Index which updates through the end of July. At a national level, home prices have seen an annual price increase of 5% year over year as of July 2015. However, that is way off the peak year-over-year growth of nearly 15% seen in previous years. The following charts from Nick at Floating Path do a great job summarizing the trend. Click here to download Nick’s full report with high-resolution charts and great detailed information.

Here’s the whole index followed by a city breakdown showing the rate of growth.

and year-over-year growth by city:

Source:

College Aid Planning Will Start Earlier

Companies Push to Boost 401(k) Savings

No COLA in 2016

The Ultimate Alternative Investment Strategy?

Home Price Growth Cools Off

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