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Teaching Money

by Ryan Stith | May 10, 2019 | Teachers, Weekend Pivot Points

It’s May. It’s the end of the school year. It’s graduation time. Summer-itis is taking over.

If you’re a teacher (as I know some of you are), you may have had the thought recently, “what can I do to keep these kids occupied (errr…out of trouble) for these last few days or weeks?”

Well, if this is you, I have a recommendation: Build Your Stax. I may be a bit biased in this suggestion…I am a financial planner after all…but, nonetheless, it’s a great way to introduce older kids (or even adults, for that matter) to some invaluable life lessons around personal finance and money management through an interactive, gaming experience.

It’s a free, online game that teaches kids how to invest through the experience of making 20 years of investment decisions in….20 minutes. The goal is to build the most wealth over time while interactively competing against the computer and/or classmates. Play it alone or play it in a group, but, for best results, play it repetitively.

Kids will learn why having an emergency fund is important as “life happens” via unexpected surprises, like hospital bills, loan repayments, wedding expenses, etc. They will learn that diversification matters in protecting and growing your wealth by building a portfolio consisting of savings, CD’s, stocks, bonds, and/or index funds. They will learn how compounding interest works and how crucial it is to building wealth over time. They will learn that life can be unpredictable and so can the stock market. But most importantly, they will learn that patience most often triumphs over emotion in creating wealth.

Give it a try…with your students, with your family, or even by yourself. Play, learn, adapt, then play it again!

Here’s what caught my eye this week:

MONEY: Financial Superpowers (A Wealth of Common Sense)
“While trying to boil down the many reasons for Warren Buffett’s long-term success, Alan Greenspan once told the Oracle, “Warren, it strikes me that if you did nothing else you never sell. That is, if you can grit your teeth through and just disregard short-term declines in the market or even long-term declines in the market, you will come out well.”

MONEY: How does the stock market work? (TED) *VIDEO*
“In the 1600s, the Dutch East India Company employed hundreds of ships to trade goods around the globe. In order to fund their voyages, the company turned to private citizens to invest money to support trips in exchange for a share of the profits. In doing so, they unknowingly invented the world’s first stock market. So how do companies and investors use the market today?”

LIFE: PARENTS: Don’t Sacrifice Yourselves On The Altar Of Your Children’s Education (Tim Maurer)
“Parents have sacrificed their financial futures on the altar of their children’s education. Fueled by easy federal money and self-interested colleges, the result is a student loan crisis that appears already to be eclipsing the catastrophic proportions of mortgage indebtedness leading up to the financial collapse of 2008.”

Kentucky Teachers’ Pension Update

Teachers

by Ryan Stith | Dec 14, 2018 | Teachers, Weekend Pivot Points

The Kentucky pension reform that was passed in the 11th hour of the 2018 Kentucky General Assembly has been officially and unanimously overturned by the Kentucky Supreme Court.

So, as of this moment, the Kentucky teachers’ pension will remain as it was before. Current teachers’ and retirees’ pensions are unchanged, and new teachers will NOT be placed into the proposed hybrid plan.

What does that mean for the pension moving forward?

The teachers’ pension “health” actually improved slightly from 2017 to 2018. Most of the improvement can be attributed to the State funding a higher percentage of their “required” portion of the contributions and, to a lesser extent, better-than-projected investment returns. The current state budget includes funds to fully fund the required contributions for 2018 and 2019 (which hasn’t happened in over a decade). This should continue to improve the pension’s health in the short-term.

Long-term, though, I think the biggest risk to the pension’s health will continue to be the state’s ability to fund their portion of required contributions. As long as the state continues to operate on a tight budget and pension funding continues to be one of the biggest expenses in the budget, pension reform will be a popular conversation in the state government.

As of yesterday, current pension reform is dead, but I wouldn’t be surprised to see the debate get revived in 2019.

______________________________

Here’s what caught my eye this week:

MONEY: When Your Neighbors Move In To Your Investment Portfolio (The Wall Street Journal)

Recent data shows that our tolerance towards investment risk is influenced by where we live and who we associate with. It turns out that the geographic region that you live in actually influences how you may react to your investments…and, surprisingly, predicting which regions would be considered conservative vs. aggressive investors isn’t as simple as you’d think.

LIFE: What Straight-A Students Get Wrong (The New York Times)

Studies have revealed that academic success doesn’t necessarily translate to career success. The correlation between G.P.A. and career success diminishes over the first couple of years post-college and then almost completely disappears after a handful of years. Students that strive for the perfect G.P.A. may be missing out on the important skills that translate to career success, like creativity and social skills.

KENTUCKY PENSIONS: Kentucky Supreme Court strikes down pension reform law (The Courier-Journal)

This is a good resource if you’re looking for more detail and a recap of the pension reform timeline.

Student Loan Forgiveness is Real!

General

by Ryan Stith | Oct 12, 2018 | General, Teachers, Weekend Pivot Points

It’s been 7+ years in the making…but the day finally came! My wife and I get to say “good riddance” to $5,000 of student loan debt thanks to the Teacher Loan Forgiveness program.

I think most people carrying any amount of student loan debt have at least heard mention of the federal student loan forgiveness programs at this point…and I’d venture to guess that a good chunk of people are even relying on these programs to help provide some relief to the student loan burden.

The Teacher Loan Forgiveness (TLF) program is only one of the several federal student loan forgiveness programs available through the US Dept. of Education. The TLF program requires teachers to be employed in a qualified low-income school for five complete and consecutive years. Once the service requirements are met, teachers can have up to $17,500 (amount depends on the subject area taught) of their Direct or Stafford Loans forgiven.

If you’re doing the math in your head…yes, it took seven years of teaching in qualified schools before my wife’s loans satisfied the five-year requirement. Also, if you thought that last paragraph was clear as mud, know that you are not alone in that thought. The student loan forgiveness programs are notorious for their specific (yet confusing) set of requirements and their adherence to them.

In my wife’s case, a three-month gap between teaching contracts after her first year of teaching reset the TLF Program’s service requirement clock. So, although she has taught 7 years at qualifying schools, the first two years didn’t qualify because they didn’t meet the complete and consecutive requirement…a detail we didn’t know until applying for forgiveness after her fifth year of teaching. It’s these finer details that many people (like us) won’t discover until they apply for forgiveness and receive a rejection letter from the Dept. of Education.

If you’re eligible for Teacher Loan Forgiveness, Public Service Loan Forgiveness, or another federal program, I highly encourage you to take a moment to examine the details and requirements today and avoid any confusion and frustration 5-10 years from now. Not sure where to start? This blog post from the Dept. of Education is a good starting point to learn the basic requirements.

Despite all the requirements and hurdles though, if all the “i’s” are dotted and the “t’s” crossed, the program works and the student loan forgiveness is real. Be cautious, be attentive but be hopeful!

Healthcare HRA vs. FSA vs. HSA

Employee Benefits

by Ryan Stith | Sep 28, 2018 | Employee Benefits, Teachers, Weekend Pivot Points

It’s the cross-section of everyone’s favorite topics…healthcare and taxes! Trying to navigate the alphabet soup of employee health benefits can be a migraine-inducing task.

Healthcare insurance and expenses continue to rise. An HRA, FSA, and HSA can be a great way to help offset some of the increases. The aforementioned accounts can help you pay for qualified healthcare expenses, like deductibles, copays, coinsurance, and prescription costs, while saving on taxes at the same time.

Here are some important differences you should consider when determining which account is the best fit for your needs:

Type of Tax-Advantaged Account	Health Reimbursement Arrangement (HRA)	Flexible Spending Account (FSA)	Health Savings Account (HSA)
Who funds it?	Employer-only	Employer or Employee	Employer or Employee
Who is eligible to use?	Only offered in conjunction with employer-provided health plans	Only offered in conjunction with employer-provided health plans	Must have a high deductible health plan (HDHP)
How much can you contribute each year?	None; 100% employer-funded	$2,650	Individual: $3,500, Family: $7,000
How much can be rolled over each year?	Allowed at employer’s discretion	Allowed at employer’s discretion; $500/year maximum	Full rollover allowed
Can it be transferred from one employer to another?	Portable at employer’s discretion	No	Full portability allowed
How is it taxed?	Contributions not included in income; tax-free reimbursements for medical expenses	Contributions not included in income; tax-free reimbursements for medical expenses	Contributions not included in income; tax-free reimbursements for medical expenses
What can it be used for?	Medical, dental, vision, and prescription expenses.	Medical, dental, vision, and prescription expenses.	Medical, dental, vision, and prescription expenses. COBRA, retiree medical insurance premiums, long-term care premiums/expenses.

Choosing which account or accounts to contribute to and how much to contribute will vary from person-to-person. A good rule of thumb as you begin thinking about these accounts and how much to contribute is to determine how much would be needed to cover your deductible, expected medication costs, anticipated doctor’s visits, etc.

Consider using an online calculator to help start the conversation. Also, don’t be afraid to ask your HR representative as you come across questions or work with your financial planner to help determine the best plan of action for you and your family.

Dependent Care FSA’s

Employee Benefits

by Ryan Stith | Sep 28, 2018 | Employee Benefits, Teachers, Weekend Pivot Points

Dependent Care Flexible Spending Accounts are one of my favorite, yet lesser-known employee-benefit options. Child/Dependent care is expensive and a DCFSA can help ease some of the stress on the budget. It can be a great tool for young families, like my own, who will have a significant amount of daycare expenses in a given year.

So…what is it, how does it work, and why should you consider it:

What is a Dependent Care FSA?

It’s a voluntary employee benefit option allowed by some (but not all) employers to help you save money on your family’s child care expenses.

How does it work?

By saving from your paycheck into a Dependent Care FSA, you use pre-tax dollars to pay dependent care expenses. This allows you to shelter a portion of your child care expenses from Federal and State income taxation, and, in many cases, Social Security and Medicare taxation also. This helps to reduce your taxable income and, in turn, may reduce the overall amount of taxes you pay.

Benefits of enrolling?

Tax savings is the main reason for using a Dependent Care FSA. As an example, if you contributed the household maximum of $5,000 in a year and fall into the average household tax bracket (22% Federal, 5% State) for most Kentucky families, you might expect to save roughly $1,350 a year in Federal & State taxes alone and up to $1,732 if you include the Social Security and Medicare tax.

Drawbacks of enrolling?

Dependent Care FSA’s are “use-it-or-lose-it” accounts. The money you contribute each year cannot be rolled over into the next year. Families must be careful not to contribute more than they expect to pay in child care expenses for that given year.

Families must also be careful to keep good records/receipts of their child care expenses and also ensure that their child care expenses meet the qualifications for reimbursement (i.e. child care provided by someone outside of your family, etc.).

What you should consider before enrolling?

The first question to ask yourself is “will I be paying child care/dependent care expenses next year?”. If the answer is “yes”, it becomes important to start estimating how much you expect to spend in that year so that you prevent over-contributing to the account.

The final and more difficult question to consider is “will it be more beneficial to save into a Dependent Care FSA or take the Child Care Tax Credit?“. Unfortunately, that answer is beyond the scope of this post. While tax saving is important, it’s also important to consider how this decision fits into your overall financial plan. The decision to enroll or not enroll in a Dependent Care FSA should ultimately be made on an individual basis with the help of your CPA and/or financial planner. At the very least though, it should be part of the conversation.

How will the new Kentucky teacher pension reform affect you?

General

by Ryan Stith | Mar 30, 2018 | General, Teachers

On Thursday, March 29^th, Kentucky legislature passed Senate Bill 151 which included an amendment to reform Kentucky’s pension system. The changes to the Kentucky Teachers’ Retirement System pension have not fully been revealed at this point but based on details in the recent reform proposal (SB1) and other known details of the new legislation (SB151), we can start to piece together how this will affect teachers’ retirement benefits.

Let’s address the real questions that everyone’s asking, “What does it all mean? And, how does it affect me?”

Before we dive too far into my interpretation of the changes, it’s important to note three things:

the changes have been officially voted on and passed by the Kentucky House and Senate…but due to its hasty adoption and lack of actuarial analysis, it may face additional legal hurdles before permanent adoption
while the major points of the plan have been released, there are still minor details yet to be revealed that could change or require adjustments to my interpretation, and
this is only one person’s interpretation of the changes and its effects.

Please approach the rest of my words with a healthy amount of skepticism knowing that the interpretation may need revision as the full details of the plan are made available.

Now, with that C.Y.A. clause out of the way, let’s get down to it.

“What Does It All Mean?”

Here are the key changes (or non-changes as compared to previous reform bills) that you need to know:

NO changes for current retirees’ benefits
NO change to the Cost-of-Living Adjustments (COLAs) for current or future retirees (remains at 1.5% annually)
NO changes to the full retirement eligibility (i.e. 27 years of service or age 60), benefit factors used for pension calculations, or calculation of final average salary (i.e. High 3 or High 5) for current teachers
On 12/31/18, the amount of unused sick leave used to calculate pension benefits will be capped at each individual’s accrued amount on that date
- Does not change the school district’s decision to pay a lump sum at retirement for unused sick leave, but rather, only what may be used to enhance pension calculations/benefits
For current teachers retiring after 1/1/19 and becoming reemployed with a school district, no second retirement account in the Teachers’ Retirement System will be permitted if receiving a pension benefit
BIGGEST CHANGE…NEW teachers starting on or after 1/1/19 will be placed in a hybrid cash balance plan (hybrid 401k/pension), instead of the traditional pension

“How Does It Affect Me?”

If you’re not sure how these changes apply to you, don’t worry. It has taken me several hours of reading and discussing with colleagues and friends to get to a point where I feel comfortable with my interpretation of the change and its impact. With that said, here’s how I think current and new teachers will be impacted:

Years of Service (as of 1/1/19)	6 or More Years	5 or Less Years	New Teachers
Pension	✔	✔	✘
Hybrid Cash Balance Retirement Plan	✘	May “Opt-in” & rollover current accumulated contributions	Required from the first day of employment
Retirement Eligibility	UNCHANGED (27 years of service, or 60 years old with 5+ years of service)	UNCHANGED (27 years of service, or 60 years old with 5+ years of service)	Rule of 87 (Age + Years of Service), or 65 years old with 5+ years of service
Final Average Salary for Pension Benefit Calculation	UNCHANGED (High 3 or High 5; based on age & years of service)	UNCHANGED (High 3 or High 5; based on age & years of service)	Not Applicable
Unused Sick Pay Bump for Pension Benefit Calculation	Yes, but sick days are capped as of 12/31/18	Yes, but sick days are capped as of 12/31/18	✘
Cost-of-Living Adjustment in Retirement	UNCHANGED (1.5% Annually)	UNCHANGED (1.5% Annually)	✘
KTRS-Provided Life Insurance Benefit	UNCHANGED $2,000 when working; $5,000 when retired	UNCHANGED $2,000 when working; $5,000 when retired	✘
Employee Retirement Contribution Rate (excl. health care)	UNCHANGED (9.105% of pay)	UNCHANGED (9.105% of pay)	9.105% of pay
Employer Retirement Contribution Rate (excl. health care)	UNCHANGED (12.355% of pay)	UNCHANGED (12.355% of pay)	8% of pay
Inviolable Contract	✔	✔	Yes, but limited to the accumulated account balance in the cash balance plan (i.e. previously earned benefits are protected but changes may be made to future benefits)

(*Previously linked calculator has been disabled)

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