Color of Money Live: Yes, FAFSA is a pain. You should still do it.

Oct 18, 2018

Send in your questions to Washington Post nationally syndicated personal finance columnist Michelle Singletary.

“Knowledge isn’t power. The right knowledge is power.”

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Thanks so much for joining me today. 

Don't forget your Thursday Testimonies. 

So, let's get started.

Been waiting a few years to write in with this one: As of last week, my wife and I are officially finished paying off our student loans! It feels great to know that our only debt is our mortgage.

WOW! This is just wonderful. Congrats. So proud of you!

I was having my annual "check-up" my broker just last Tuesday (October 9), and I asked him whether I should switch my TSP Lifecycle funds from 2030 to 2050, since the investments in 2030 have become much more conservative since when I started. He said, "Well, the market is pretty high right now." I said, "So I'd be 'buying high and selling low' " and he said, "Yes, more or less." On Thursday I called him back and said, "So, shall I switch -now-?" and we both got a good laugh. The broker, BTW, is itching to get his hands on my TSP, but I'm dead against it. Private brokers always think they can "do better," and maybe they're right, but I want to keep a solid annuity in my back pocket in case of emergencies. He's got plenty of my money already; he doesn't need -all- of it.

 

Related: Over 16 days, I lost $78,000 in my 401(k). But I didn’t lose any sleep.

I love the way you think and do.

-- Getting professional help.

-- Keeping a watch on things yourself while getting help

-- Paying attention to fees, which directly impact your returns. My husband has a TSP (Thrift Savings Plan offered to federal workers). And we are keeping the money there too after he retires. The fees are super low so we see no reason to roll over the money. Yes, it has some limitations in withdrawals but the low fees offset that for us.

1) My spouse thought our new credit card had 0% interest and was only making minimum payments, we discussed and researched and realized oops! that's not the case, and are now making full payments each month. 2) A family member decided to leave our family phone plan a few months ago and I thought they had been removed and oops! realized we were still paying for the line, so got that fixed. At first I felt like a dummy for not catching those issues sooner, but later is better than never!

I totally agree. No need to kick yourself. Had you known you would have done better.

So, yup later is better than never.

During the big stock dive, my broker said: don’t open your monthly statements right now, put them in the drawer for the next few months. He was joking, but it was his way of telling me not to obsess over the short term market instability. And he was right. The past few weeks, I’ve tried hard to resist daily checks and focus on good routine financial practices like you tell us in every column.

Smart broker. I've of course broken that rule but then again, I'm writing about this stuff so I look to stay informed and really see what others who look see. 

Look if you don't have a plan. Because you may need to change some things.

But if you have a good plan, are diversified don't look. You will make yourself crazy!

I have GE stock that was gifted to me. I want to dump it and put the money in an index fund but I'm not sure how/when I will know it's the right time to sell?

This is a question you answer after considering your overall financial situation. And a good way to do that is sit down with a fee-only financial planner who can put whether you should sell and where to put the money in perspective. 

Hi Michelle, I recently got rid of my PMI (3 years early thanks to home appreciation and home improvements that we paid for in cash, as well as some sporadic extra mortgage payments) and I also just finished saving 6 months of living expenses. I have immediately started sending the old PMI payment to my car payment, which I had already been making extra payments on. I knew I was going to need a new car and wasn't saving enough, but we were paying cash for my husband to go back to school at the time, so I wasn't saving enough for my car down payment. (While I did get a nice car, I just want to say that it was used!) Since then, he has graduated with no debt, and got a job paying more, with a better commute and benefits! So now that the emergency fund is in a good place (and we also have $3K in a life happens fund) I'm trying to figure out what to do with my extra $350 a month. I contribute 7% of my salary to my 401k with a 4% match and another $100 a month in an IRA. My husband contributes 5% of his salary with an 8% match and contributes another 3% on a company stock plan. We have over $200k in retirement accounts, about $7,000 in his company stock and some other stock I inherited. No kids and $260k left on the mortgage. With the extra payments I'm already making on the car, I'm set to pay it off in one year, which is over a year early. So the kicker to the question of the extra $350 a month is that my small company is in a slightly precarious place, and so I might be looking at getting a new job, and I feel like I might have to take a paycut to do so. (I've been with my company for 13 years, so I feel like I'm kind of expensive for my job title) So, while I had planned before that came up to do some combo of additional car payments, additional retirement savings and/or additional mortgage payments, I'm wondering if I now should just keep adding to the emergency fund? Husband and I are both 38, if that gives you some perspective on the retirement funds and no other debt besides car ($5800 left) and mortgage.

Wow. Just wow! You got this savings thing down.

If I understand right you may need to get another job because you may be laid off. In this case, I would build up the emergency fund so that you could over what your income contributes to the household for at least six months. If you can aim for 12 months. That will give you enough space to take your time to look for another job should  you have to do that. If you employment stays stable or becomes stable and you don't  have to use the extra build up in your emergency fund you can take the money and pay off the car sooner and/or pay down your mortgage. 

If all stays the same, I would next aim to make monthly extra payments on the mortgage assuming you no longer have a car note. You could become debt-free very soon and that would put you in a great position to retire or even retire early. 

OR...you could take some of the extra money and boost retirement even more and still pay extra on the house. That's a win/win. 

Hi Michelle. I did the quick FAFSA estimator, and as expected, my expected family contribution is higher than the total cost of in-state university. We've been saving aggressively and live beneath our means. I expected to pay for college without my child getting grants. So, is there any reason to do the long official FAFSA form? I'm dreading the hassle. Thanks.

 

Related: Debunking the myths about college financial aid

You should definitely still do the FAFSA. I did and I knew we would not qualify for any need-based aid. But the school required us to fill it our for merit-aid. Many scholarships also require you do the FAFSA. Besides you never know until you complete it what you may get especially if you have other children in college. 

If you college all the documents you need before starting the FAFSA it won' t be so bad. Just be sure to have your W2, tax return (even though you can get some information downloaded not all transfers), asset information, savings, etc. 

I know it's a pain, but do it. 

We lost over $100K from Oct. 1-11, and since we won't retire for a few years we're fine with that. Time to score some bargains as far as I'm concerned! I wish I could put more towards retirement, but we're maxed out. Anyway, we gained a quarter of that back on the 12th alone! And in 2008, we weren't as confident but knew in theory what we needed to do, so we ratcheted up our retirement contributions, and by the end of 2009 we were already at an all-time high, having made back more than we lost. In retirement I plan on keeping at least two to three years worth of expenses liquid or at least in laddered bonds, so I won't need to bail out of a bear market.

You get it. The losses aren't real until you sell. So people lost in 2008/2009 because they panicked and sold, locking in the losses. 

Now, it was heart-stopping. I lost about 30 percent of my retirement portfolio -- on paper during the crisis. But it soared back and gain far above what I lost.

As I get closer to retirement, I'm about to make some changes because I don't have as many years for recovery. And like you, my husband and I plan to have about 3 years worth of household expenses liquid because we still plan to keep a significant part of our investments in equities for the potential growth. 

Always remember that paper losses aren't real unless you actually sell your positions. The best way to look at a market downturn is that you're reinvesting your dividends at a lower share price, i.e., buying on sale!

Yup. Just what I just said!

But I know it's hard. We are regular folk with regular jobs and seeing those numbers do down like that is scary, especially when you have less working years ahead of you as you do behind. 

 

Hi Michelle - thanks for taking questions! I currently live in Fairfax, in a very modest ranch SFH. I am hoping to retire at age 63 (6 years from now), and the house layout and neighborhood is perfect for that, but the real estate tax isn't. This year's tax was nearly $6000 and it will only go up. The county offers tax relief for seniors, but I won't qualify. My plan was to pay off the mortgage early in case I stay there, but is that sound logic since I might move? Even if it's paid off, the insurance and tax are cost prohibited. So, would you pay it off or put the extra $$ elsewhere? thanks for your advice.

 

Related: Yes, you should pay off your mortgage before retiring.

I completely understand you. The property tax for my home is CRAZY! But like you I love where I live and want to stay. 

I would think about where you might more before deciding you have to more. At the tax right now if you pay off the house you'll have to cover $500 a month in property taxes. 

That's not horrible if you have a good amount of retirement income. And of course it would be lower in a lower-cost area. But what would you be trading lower taxes for? 

Higher home insurance? Less desirable area where you have to drive to get to amenities you want? Less property value growth? 

Despite my high property taxes, I'm staying the course to pay off my home with extra money. I'm not risking my retirement savings to do that. I'm not pulling from retirement to do it. If my husband and I decide to move because the property tax is too high, we can still sell and move to a lower cost area.

 

 

MIchelle I know you are involved in your church, as am I. We have an endowment that is invested in mutual funds, some managed like TIFF and some in Vanguard accounts. There is a greater chance of reward than with CDs or other safer investments, but also plenty of risk. What are your thoughts about churches and how to invest an endowment?

I'm afraid this is out of my wheelhouse. Even if I were inclined to answer, I would need to know so much more about the church's financial situation. I will say this whether you are an individual or church when thinking of the future you always have to consider inflation, which means your money has to grow so that you can buy the things you need in the future. Always remember you need some growth to keep pace with inflation because banks are paying very little on money you have in a deposit account.

My mortgage payments just dropped b/c taxes went down with the value assessment. Should I continue to pay the same amount (putting more on the principal) or just pay the lower amount? This is not the place I plan to retire. I hope to at least upgrade to a 2-bedroom condo some day. And I'm 25 years away from retirement anyways.

If you aren't planning to stay in the home long term and you have other financial goals --saving more for retirement, paying off debt, I would not put the extra toward the principal. I do want you to be mortgage-free but since you know you want to move and maybe sooner than later I wouldn't worry about making the extra payments. 

Hi, Michelle – I am 59-1/2 and was hoping to retire early. Your personal finance newsletters have been invaluable; I especially keep referring to the one from July 9th. I would like to consult with a fee-only Certified Financial Planner to review whether I am in a position to retire early. Online I find hourly rates, but no indication of how many hours is usually needed. One firm offers a package, but I was stunned to see that the package price starts at $5,900 and goes up to $9,000+ (and it's not clear what determines where in the range fees would fall). I had thought I could get advice for $1,000-$1,500, assuming a $250/hour rate – though I had no basis whatsoever for the estimate of the time required. I am single and have a relatively uncomplicated financial life (single, no debt -- house is paid off!, one 401k and one 403b, no other investment accts). Do you know what would be a ballpark figure for what I should expect to pay? Thank you for what you are doing!

How much you pay depends on so much. I've seen plans that ran people about $1,500. Such plans didn't involve active, on-going investment management. 

Keep asking around. Explain you only need someone to look over what you have and see if you are on the right track. 

Tell planners your budgeted amount - $1,500 -- and see what they might offer for that amount. 

Wow! Just don't move to New York; I was paying over $15,000 in property taxes on Long Island (the home sold for less than $600K). $6K sounds like a bargain to me (although I'm only paying $4K now).

It's all relative. The important thing is to keep your retirement budget/income in perspective. At $15,000 a year that's $1.250 in property taxes a month. That could easily break a lot of people's retirement budget. 

You frequently -- like just now -- tell us that paying off a mortgage is a good thing, particularly in retirement. Do you at least recognize that there are legitimate reasons to take a low-interest mortgage and invest your cash elsewhere to earn higher returns and maintain liquidity?

When I write in my column about paying off a mortgage for retirement I provide caveats, yes.

BUT...this is my forum, my chats, my columns, my newsletters. And I believe that being debt-free is a worthy and possible goal for the majority of people out there. 

There are some who have the discipline to keep a lowOr they get sick and can't pay the mortgage even at 3%. 

Most people can't play the game of debt. 

I do not tell people to empty out their retirement accounts to pay off their mortgages. I say pay extra as you can so that you become mortgage-free while also saving for retirement.

No one knows for sure what the market will do in the future. But it's a for sure return when you pay off your mortgage early saving thousands in interest cost.

Further, people touting they can "make" more in the  market don't always consider taxes and fees in comparing paying off mortgage vs. investing the extra money. You save x in interest savings compared to x net return in investing.  

I may sound salty because I get bothered when people want to always say "this math works" when they don't consider behavior. 

I have to write with the masses in mind. The masses don't act rational. For example, sure paying the highest interest rate debt off first works on paper. But often it's when people pay the little bills first and see debt knocked off their list that they become energized and attack the rest of their debt. It's behavior economics over straight economics. 

Same with mortgage debt. 

AND...you can still invest in the market after you pay off your mortgage. But you aren't dragging that debt at any interest rate into retirement freeing up the largest part of your budget. 

So, don't become house rich, cash poor by sacrificing your retirement savings to get rid of your mortgage.

But if you can do both -- save for retirement and pay off your mortgage -- do that. 

This. Students often don't get -any- sort of financial aid if they don't complete the FAFSA. Unless the parents are ready, willing and able to write a check for the entire cost of any university their children might want to attend, they have to fill out the forms. It seems silly to throw away "free money" (for example, a merit scholarship based on SAT score and GPA) just because one don't "feel like" completing the forms. If the OP has got money to burn, and can take the attitude "well, I can afford it easily, so I'll leave it for another student that can't" that's great, but that doesn't sound like the OP's situation from their post.

I don't believe the person was saying it's a "bother." It was just a recognition that the FAFSA is a pain to fill out because it is. It's long. It's tedious. 

But to your point it is worth doing it even if you have money saved. We had money saved but by doing it my kids got merit aid. With less to pay for undergraduate we could fully pay for our eldest to go to graduate school.With less to pay for her we have more to cover our son who has autism and will probably need a 5th year in college when we had only planned for four years.  

Help, please. I had a period of underemployment during the recession and I've been bad about late payments. So I have a bad credit score (though I'm now down to just a couple thousand in credit debt to pay off). But now I'm securely employed with a good salary. Where do I start to make things better and get savvier about financial matters? Is counseling through NFCC a good idea? This feels so overwhelming and shameful, but I know I have to deal with it. And I"m middle age, not a twentysomething just learning. Finances have always been daunting to me. Thanks so much.

 

Related: The simple way to improve your credit

I would definitely sill recommend you talk to a budget counselor to help make sure you are back on track. Go to debtadvice.org (Also the NFCC's site) to find a nonprofit in your area. 

And read the column. The best way to boost your credit score is to pay your bills on time. It really is that simple. 

Michelle, the crypto markets are volatile for sure, but this year they are down quite a bit. Would you ever think that people should invest money they could afford to lose in crypto? If they hold, and digital assets become more stable as some predict with the increasing interest of institutional investors and stabilizing regulation which it looks like we might get from the SEC by the end of the year, there could be a good return.

 

Related: Bitcoin is all the rage — but is it worth the risk?

Thinking about investing in bitcoin? The currency may be virtual, but the risk is real.


If you have NO debt, on track to save for your retirement (for real), got an emergency fund, life happens fund then sure gamble with bitcoin. Otherwise, it would be a no for me. 

The debate (in some circles) seems to still be ongoing about early retirement (people in their 30s and 40s). While it might be nice to not have to answer to "the man" I just don't think it's sustainable in the long run-- lots of potential unforeseen and unbudgeted expenses. I know that you, Michelle, have thoughts on this subject, too. I am 52, and using the 4% safe withdrawal rule, probably won't retire until 60. My question is: if you had a child in their late 20s that wanted to "retire early" what would you say?

I would make just the points you just made. Now if the kid had say $5 million to $10 million saved, sure go ahead and retire. 

One thing I learned about investing is to trust myself. Then again, I am very stoic and don't get emotional about money, but trust your plan. As soon as you have a solid plan that you are comfortable with for the funds, sell. Did GE drop 5% that day? Sell! It might be the start of a big shift, or it might rebound. You'll never know except in hindsight, and in the meantime, your better plan is not working for you. As soon as I am sure I have a better plan, I make my move. And part of that is because I know how easy it is to let inertia carry you or to become paralyzed by "what ifs", so I make myself take action when I know I'm ready instead of worrying or analyzing it to death.

Thanks for sharing.

You're right about some state universities requiring the FAFSA even for MERIT scholarships. It seemed very strange so I asked the schools why, and someone explained that they don't want to give away their precious merit scholarship money to people that would have qualified for government grants anyway. It's their way of making sure 100% the government helps first so a FAFSA is required.

Glad you asked.

Yes, $6000 is a lot of tax. But how where else can you live for less than that a year? Rent will be more and any property will have some level of tax. I've in a lower cost area but it's still close to $3000 a year. So how much would you really save by moving?

Valid question. 

Not a question, just an observation. I've been talking to fee-only financial planners, trying to get a handle on my future retirement. They aren't cheap, and some can do more for you than others. Some treat you like just a collection of numbers they will run through their computer program, others take a more holistic approach, looking at your goals, lifestyle, etc. I'm realizing that I probably need more help than I thought I did, and that finding the right fit will be key. So, I'm still looking.

Really good advice and perspective. Thanks.

Michelle, I got into a conversation with someone else this week about FAFSA, and it came up that the sticker price of four years of college is somewhere between $30,000 and $250,000 -- or, between a new luxury car and a new house. Nobody would think that they could fit a new house payment into their current budget without big stress, but they sure do seem surprised when Mr. FAFSA basically tells them the same thing. (And it's even worse because at least you can spread a mortgage over 15 or 30 years, instead of just 4.) People, please -- save! and start early!

We started saving when our kids were wee people. Over 18 years we were able to save enough to get them through college -- in-state -- with no debt. If we hadn't been able to save enough we would have sent them to community college first and then they could transfer to 4-year school. And they would have lived at home. 

 

Thanks to all who participate and even challenged me. It's all good. The point is we are talking about money and that always mean we all are better informed.

See you next week. I have a guest and we will be talking about 529 college saving plans. 

 

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Michelle Singletary
Michelle Singletary writes the nationally syndicated personal finance column, "The Color of Money," which appears in The Post on Wednesday and Sunday and is carried in more than 120 newspapers.

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