How to Find the Best Medicare Plan

Hey Paul: I will turn 65 next year and will start Medicare for my health insurance. I am confused on the how to choose among the different plans including prescription drug coverage. What do I need to know?

 Medicare can be relatively straight-forward for most people but you do have some choices that can make a big difference in your out-of-pocket medical expenses as well as choice of medical providers. I’ve compiled a list of the most important terminology, plan selection process, and cost estimates. Fortunately the State and senior groups have excellent support services. So here’s the core knowledge you should arm yourself with as you go into the Medicare maze:

  • Medicare is public health insurance for essentially all Americans 65+. If you (or your spouse) paid Medicare taxes for a decade then you are eligible for Medicare upon reaching age 65.
  • Medicare also covers Social Security Disability recipients after two years of disability and those with kidney failure (ESRD).
  • A related but separate program is Medicaid that provides public health insurance for “the poor”. A household must be below the 100% to 138% (depending on the state) of poverty level to be eligible for Medicaid.
  • The Elderly can be on both Medicare and Medicaid if they are poor. Even a middle-class individual or couple can qualify for Medicaid once they run their assets down to essentially zero; Medicaid is a major payer for Nursing home care.
  • Obamacare is essentially an extension of Medicaid up to 400% of the poverty level. Higher income households receive smaller subsidies in purchasing insurance on the insurance exchange.
  • You may also be eligible for other health care plans: employer (current benefit, COBRA or retiree benefit), Union plan, VA (vets) or TRICARE (military). Typically these are supplements to Medicare adding benefits such as vision or dental or perhaps paying towards Medicare premiums or copays. If you work past age 65 and have group health coverage then it pays first and Medicare may (or may not) cover what is left over on your medical bills.

What medical services does Medicare cover? If you have employer-provided health coverage than you’ll find Medicare is very similar. Doctor visits are usually 80% covered by Medicare leaving 20% for you to pay. The first day in the hospital will cost you a $1288 deductible but then Medicare covers the cost for 60 days.

Medicare covers many other services – an ambulance to get you to the hospital, skilled nursing care as you recover from the hospital and hospice if you won’t be recovering. All these services fall under what are called Part A (Hospital) and Part B (Physician Services). Everyone with Medicare will have Part A as it premium free. Essentially everyone would also have Part B although it requires a monthly premium of $104.90 for most seniors (very high retirement incomes will roughly triple the premium).

So what isn’t covered by Medicare’s Part A and B? Let’s start with the easiest one and that’s prescription drug coverage. Fortunately Medicare Part D plans can be purchased for around $35 a month that will offset much of your prescription costs. You’ve probably heard of the infamous “doughnut hole” where coverage is very limited. Obamacare is reducing the self-expense in the hole but it still very much exists. See for all the delicious details.

A second set of items that Medicare doesn’t cover are the various deductibles, coinsurance and copays. You could reasonably pay these as they occur or you could purchase a Medigap (supplemental insurance) that covers the $1288 hospital deductible or 20% physician services or the odd charge for the first 3 pints of blood. There are 10 standardized plans known by their letters. Plans F and N are the most popular with consumers. Plan F is comprehensive covering essentially all out-of-pocket Medicare expenses while N covers the major ones and usually has a lower premium.

A third set of medical expenses lie outside of Medicare. The most foreboding is long-term care (nursing home). Other potential expenses include dental, vision, hearing, and cosmetic surgery. You have three choices here: pay out-of-pocket and pray to the Lord for a one-hoss shay demise, purchase private insurance or explore Medicare Advantage Plans that I’ll discuss in the next section.

The majority of seniors enroll in traditional Medicare (Parts A & B). Then you have the option to add Part D (Rx) &/or Medigap (supplemental insurance). You can also opt for the all-in-one package, Medicare Advantage plans (Part C). In a nutshell MA plans are Parts A, B, D and Medigap all rolled into one. You pay the Part B premium but generally pay less then if you bought separate Part D and Medigap plans. A further bonus is that MA plans throw in some health goodies – vision, dental, hearing, maybe even a gym membership!

Why doesn’t everyone go with these cheaper, better plans? Well they may be neither cheaper nor better. Unlike piecing together Parts A and B and then customizing Part D and Medigap to fit your expected needs, you have a one-size-fits-all plan that may have among other things rather skimpy Rx benefits. The other big downside of MA plans are that you are limited to a network of local doctors and hospitals much like an HMO.

Ok, so when and where do I sign-up? You have a seven-month window around your 65th birthday month to complete the original sign-up. You almost certainly want to sign up for Medicare including Part D during this period. If you don’t have a good excuse (like continuing employer coverage) you’ll be hit with a late penalty once you do apply and could be subject to medical exams and review. is the first place to go to learn more and to enroll once you’ve chosen your plans. You can review Medicare Advantage, Part D and Medigap plans. For assistance you can contact Medicare, the AARP or the KY Cabinet for Health and Family Services.

For those who are already on Medicare and think they are on auto-pilot, think again.

Medicare Advantage plans, Part D and Medigap plans can have shifting premiums and revised coverage particularly in Part D formularies (what drugs are covered). Each year from October 15 until December 7 you can review and change plans to best fit your health needs at the lowest cost. An annual review could save you $100’s. It’s worth a look each year!

Dr. Paul Hamilton, CFP is currently offering a comprehensive planning session that will cover your specific situation in Social Security, Taxes, Retirement, and Estate Planning. The one-time fee of $500 is guaranteed to return savings, confidence and peace-of-mind. Contact him at or 502-405-8125 to discuss your situation.


Teachers Get Dinged on Social Security

Hey Paul: I have taught in the local school system for 30 years. I plan to retire in a few years and my teacher’s pension will be about $36,000. I also managed a tutoring business for 10 years and paid social security taxes out of those paychecks. My Social Security statement projects my age 66 benefit to be $500 a month. How will my teacher’s pension impact my social security benefit?

 Teachers like yourself and other state workers generally do not pay social security taxes so they don’t receive full social security benefits. To the extent that they also worked in employment covered by social security as you have they will receive partial social security benefits.

There are two gotchas the SSA applies to those who did not pay into the social security system on all their employment. The first is called the Windfall Elimination Provision (WEP) and means that the reported value of $500 of your own benefit in your SS statement is likely going to be much lower in reality. As a rough rule-of-thumb expect about half in social security from what is stated on the SSA report.

The reasoning behind this reduction is that your limited number of years (10 in your case) in SS covered employment with a modest salary gives the impression that you are a low-income earner. Of course in reality you also had a good teaching salary in addition to the tutoring income.

The SS retirement benefit is based on a three-tiered formula in which the first $856 of averaged monthly earnings is replaced at 90%. The second tier drops down to 32% for earnings between $856 and $5157 and then is only 15% on higher earnings. That is low income workers get almost all of their working years’ income replaced by SS benefits. Middle-class and high-income earners get a larger SS check but at a progressively lower rate.

Accounting for your teachers’ pension makes you “middle-class” so the WEP reduces the first benefit bracket from 90% to 40%. I applied this lower rate to your situation and your own SS benefit will be about $222 a month rather than the reported $500 due to WEP. Sorry to be the bearer of bad news.

There are a several caveats and exceptions to WEP but most don’t apply to new retirees. One exception is that your SS can’t be reduced by more than half your pension. This applies primarily to those with very modest pensions. In your case SS will be reduced by about $278 that is much less than half your monthly pension of $1500.

Another WEP exception is that you can bump up the 40% rate by 5% for each year above 20 years that you have “substantial earnings”. If you have 30 plus years of substantial earnings you are no longer WEP’d! In 2016 substantial earnings was defined by the SSA as $22,050. In your case you only had 10 years that may have qualified as substantial earnings so you are stuck with the WEP 40% rate.

For those who serve as life-long teachers with little or no SS covered employment the WEP doesn’t come into play as you need at least 10 years of work to be eligible for your own social security benefit. But suppose you have a spouse (or ex-spouse you were married to for 10 years). Can you receive a SS spousal benefit approximately equal to half their retirement benefit or can you receive a SS widow benefit equal to their full retirement benefit if you survive your spouse?

No, sorry that’s not going to happen. The Government Pension Offset (GPO) reduces any spousal or widow benefit by two-thirds of your pension. Since your monthly pension is $3000, two-thirds of this or $2000 will be offset on any spousal or widow benefits. Since the maximum SS own benefit this year is about $2600 the maximum spousal benefit is $1300. So you definitely won’t be receiving a spousal benefit. If your spouse dies then your widow benefit would be sharply reduced by $2000. For anyone like yourself with a good pension, don’t count on much if any SS spousal or widow benefits.

Is there anything you can do to avoid or diminish the impact of the WEP and GPO? Yes, here are a couple of things to keep in mind. First, the WEP and GPO are triggered by the actual receipt of your teacher’s pension. If you can start your own SS or spousal benefit at 62 (or widow benefit as early as age 60) before you start your pension then these adjustments do not apply. Once you do start your pension they will likely wipe out any SS benefits but perhaps you can get a few years in of un-dinged SS benefits.

If you are married then it typically is a good idea to select a joint-life annuity rather than single life annuity. This provides longevity insurance at the cost of a smaller benefit check. However the smaller pension would reduce the GPO penalty on spousal and widow benefits. I wouldn’t make the annuity payment type based solely on trying to skirt the GPO but it is another reason to consider a joint payout.

The SSA has two-page briefs on the WEP and GPO ( and that give further details on these laws.

Dr. Paul Hamilton, CFP is currently offering a comprehensive planning session that will cover your specific situation in Social Security, Taxes, Retirement, and Estate Planning. The one-time fee of $500 is guaranteed to return savings, confidence and peace-of-mind. Contact him at to discuss your situation.

 A Free workshop covering Medicare will be held this Sunday (Aug. 14) at the Jessamine Public Library from 3 to 4pm.










Does Your Teenager Need His or Her Own Ride?

Hey Paul: Our son just turned 16 and has his driving permit. He drives our family cars – a Toyota Camry and Chevy Tahoe. We plan to get him an inexpensive car once he earns his full license – what do you recommend?

My daughter is going through this rite of passage herself so I can give you a few insights from our experience. There are many websites that give practical advice on buying a car so I won’t go into the “common sense” ideas that others have penned much more eloquently. USAA has several good posts about teenage driving and insurance. One of USAA’s recommendations is staying away from compacts and SUV’s that have higher crash rates for teens; their top 10 are four-door sedans like your Camry.

For some of my readers money is no object but even if that is the case I recommend starting out all new drivers with a “beater”. My friend, Daniel Wrenne, has an excellent blog post on Navigating Car Buying Decisions. Daniel’s financial planning practice focuses on young physicians who could potentially buy an expensive car. But just because you can doesn’t mean you should, right?

His four points fit well with teenage drivers so I’ll modify them slightly to fit your family’s situation. First, start with the “Why”. Is the car to simply take your son from point A to point B? Will having an extra car free up Mom and Dad’s chauffeuring time? Is it a status symbol for him or his parents? Will owning a car teach responsibility or reveal immaturity? Of course it could be each of these to some extent.

The second point is determining the true cost of ownership. The sales price is only the first of many on-going costs. Daniel emphasizes the well known but often ignored high depreciation costs in the first few years. Buying a car at least five years allows the steepest drops in price. In our case we got a great deal on a 2004 Sebring for $1850. Title and sales tax were $138. Registration will be another $50. Of course there is a reason a car is selling for less than 10% of its original sticker price.

Lurking with every used car purchase is the preventative maintenance and the fear and reality of major repairs. Although my wife thinks I am completely over-the-top on this one I think a fitting metaphor is what you experience when you have your first child – it runs through your mind all the ways they can get hurt or worse. Of course over time you learn that that kids are pretty robust and stop sterilizing everything they own and checking on them in the middle of the night. Hopefully I’ll come to the comfort zone with Bethany’s car soon.

The third point is to set your budget. In your case it sounds like you are being very reasonable in looking for an inexpensive car for your son. I encourage you (or him) to be able to pay for the car up-front – NO financing! Living within his means may be one of the most important lessons you can teach him. I find it rather odd when I see luxury car commercials with great financing options. But perhaps that’s the American way. In our case Bethany lifeguarded two summers (pulling one girl from the drink) and her grandparents helped out to buy the Sebring.

An important part of the true cost of car ownership and budgeting is the added cost of adding a teenager to your auto policy. In most cases it is cheaper to add your child to your own policy rather than having them shop independently for a policy. As a rule of thumb plan on your auto insurance premiums doubling with the addition of a teenage driver. And that’s with a good student discount and driving course. In our case adding a third car even of much less value than our other two vehicles added about $35 a month to our premium. Adding Bethany to the family policy added another $75 a month. This took our monthly premium from $91 to around $200.

The final consideration is to beware of the mind tricks. To be honest these can involve important tradeoffs. Do I buy a newer car that has more safety features and less chance of major repairs? Does the gas-savings of a compact offset the risks of every other vehicle that I may run into being larger? Should I finance to truly get the car of my dreams? These issues may not be trivial but often cloud what are the more important decision factors.

So in conclusion look for a car that you can pay cash while doing the standard due diligence on repair and reliability. Bonus advice: Wait a few years until they get their own ride – I was 21 when I got my Honda Prelude and although open to some debate I think I turned out alright.

Dr. Paul Hamilton, CFP will be offering a free Social Security Workshop this Sunday, August 7, at the Jessamine Public Library from 3 to 4pm. It is not necessary but if you have one bring a laptop/tablet/smartphone and your SS questions. Contact Paul at with any questions.


No One Can Afford to be Poor

Hey Paul: What is the “ghetto tax”? I heard this mentioned on a blog about poverty in cities and how the poor are taxed more than others. Do we have a ghetto tax in Jessamine County?

The name “ghetto tax” is a bit misleading and it doesn’t necessarily apply to a “ghetto” and is definitely not a tax imposed by the government. The concept was popularized about a decade ago by a study conducted by the Brookings Institute. The study focused on the urban poor — “ghetto dwellers”.   The main idea is that the poor often pay more for things because of lack of access to the same deals as the middle-class or rich.

The study listed the following ghetto taxes that are better described as poverty premiums and a tally of what it may cost the typical poor person:

  1. Check Cashing: Using a check cashing service rather than a personal checking account costs 1% to 5% of the check’s value. Suppose you cash $1000 in checks each month with a 2% fee – this would a $240 annual ghetto tax.
  2. Pay-day Lenders: The fees can be upwards of 15%. The larger problem with this type of loans is that they are a temporary solution that creates a permanent problem as the loans are rolled over. Suppose you take out just one pay-day loan for $400 to pay your winter heating bill and fortunately a Christmas miracle pays it off when due paying fees of $60.
  3. Tax Refund Services: The advance payments of the tax refund could have implied interest rates of 70% to 1800%! Suppose you are due a $1000 refund but take $800 for immediate cash – you are down $200.
  4. Car Prices, Loans, & Insurance: For the exact same car and driving record the poor paid $50 to $500 more, an extra 2% on car financing and $50 to $1000 more for auto insurance! For a modest $5000 car suppose you get a good deal on the price but have to finance at 10% rather than a customer with good credit who would get an 8% auto loan. This will cost you about $70 each year over a five-year loan.
  5. Home mortgages & Insurance: The poor pay on average about 1% more on mortgage rates and about $300 more for home insurance. Suppose your 30-year mortgage on a $100,000 home is at a 5% rate rather than 4%. This is costing you an extra $700 each year in housing payments.
  6. Furniture, Appliances & Electronics: Renting-to-Own any of these is an expensive proposition. One example cited in the Brookings study was that a $200 TV ended up costing $700 once the interest charges were factored into the cost. Suppose you got a widescreen TV and the finance charges are $100 a year for five years.
  7. Grocery Prices: The lack of personal transportation forced some urban poor to shop at local grocery stores that tend to be smaller and with higher prices.  In Wilmore we’ve got the iconic Fitch’s IGA and in Nicholasville Walmart and Kroger’s each with competitive prices. So let’s suppose there is no ghetto tax on groceries.

The grand tally of the “ghetto tax” for this hypothetical poor Jessamine resident is $1370! Yes, it could be less if you do not “own” a home but it could easily be double or triple this amount if one finds himself in the throes of a pay-day-lender spiral or falls deeply into one of the other poverty premium traps.

So the answer to your question is yes, there is most definitely a ghetto tax that is subtly draining money off the local poor. Is there anything we can do to reduce or even completely avoid these financial dings? Yes, but it will require rethinking how we approach our finances.

A common theme through these poverty premiums is that the poor have to take on debt and then consequently pay higher rates due to weak credit scores or simply not shopping around for a better rate. My suggestion is plain and simple – if you do not have money to buy it with cash, then do not go into debt. This applies to cars, couches, appliances, electronics, clothes, and vacations. Buy used items or accept used furniture or appliances from Southland or one of many other local churches who pass along perfectly acceptable items.

A home is a bit different as very few will ever save up enough to pay cash; but if one can save enough to put down a 20% down payment and has no other debt then you may very well qualify for the best mortgage rates.

To save on tax processing you can do a few wise things. First, you should have no Federal or state taxes taken out of your pay check – it’s coming all back the following April if you are anywhere close to poor. In fact you can also be prepaid the Earned Income Tax Credit if you qualify. Second, do your own taxes using a free online software. If you can’t do this then bring your tax documents to the Jessamine public library early in the year for free tax filing sponsored by the AARP. You can file in early February and have your refund check within a week.

Finally open up a free or low cost ($5 a month) checking account. Talk to my friend Steve Smith at Town Square Bank or Jess Correll at First Southern National about an automatic savings strategy. Build up a $1000 emergency fund so you aren’t dragged under a pay-day-lender debt avalanche.

In summary by avoiding debt, not overpaying taxes, and using a bank for banking the poor and the rest of us can avoid the dreaded “ghetto tax”.




The Triumphs and Agony of High School Athletics

Hey Paul: I am in high school and played Little League baseball and rec soccer. I can probably make the varsity team but won’t be a starter. Should I play high school sports?

The sports participation question is a tough one. I thoroughly believe that every student should have some form of daily physical activity. Very few are going to do P90X in their basement so it becomes almost necessary to join a team to keep motivated.

As you know the competition level can be very high both within the team and against the local schools. That kind of pressure can help you rise to levels of performance you didn’t know you could reach. It could also tear you down and make you hate a game you once loved.

It sounds like you are actually in a position of advantage – you are not putting all your hopes on an athletic full-ride scholarship or winning every game. If you can enjoy the camaraderie of your teammates and can work towards improving your skills then I say go for it.

If you can’t find the right situation then create it. Talk to the AD or a teacher about starting an intramural league of co-ed wiffle-ball or pick-up basketball games. You’ll get the joy of sports without barking coaches and every day practice.


What It Takes to be a CEO

 Hey Paul: I am in middle school but know that I would like to be CEO of a business when I grow up. I already have my own my own business mowing lawns. What advice do you have to reach my goal?

My middle daughter just completed WJMS and is also an entrepreneur so I asked her what advice she would give to someone like yourself. The first thing is that you don’t have to wait until you are in college or a working adult to start a business. Holly hand knits scarfs and hats. She learned some of the challenges that all businesses face – competing against machine-woven scarfs that looked about the same but didn’t have her custom stitches, the local market won’t pay premium prices, and a $20 sale works out to much less than minimum wage even with her father springing for the yarn.

In your case you’ve already taken on starting your own business so may also have learned how to market your skills against established competition. I’m guessing you undercut the prices of the pro landscapers. But compared to the standard fee of $50 for a yard there is plenty of room to prove yourself at a very good hourly rate. One valuable trait of a CEO is that they often learn the business from the ground up. This will give you an appreciation for the entry-level workers as you move into leadership roles.

Holly also recommended that you do something different than everyone else. Finding a niche is easier said then done. In her case she would customize the scarfs in any way the customer wanted. She also invested a lot of time watching YouTube videos to develop her skills. In your mowing company perhaps you can learn to pattern cut the lawn – make it look like Wrigley Field.

Holly’s next advice was to not work too hard. You are only young once and at some point work will become mandatory. Until then enjoy spending time with your friends and family. Play a sport or other hobby just because it’s fun. I know several of my high school friends who gave up sports to work after school to pay for a car. Don’t let your spending budget control how you spend your days.

Holly’s last piece of advice was to work for a higher purpose. She saved enough to sponsor a needy child for a year. A good practice at any age and income is to see your work as more than just for yourself or even your family. That can be hard to do when you are mowing lawns in 90 degree heat and have a long wish list of toys you’d like to buy. One suggestion is make a service gift – identify someone in your neighborhood who could really use help with their yard but doesn’t have any money.

I would add to Holly’s advice to continue to dream big but work and live for today. The best business men and women usually showed and honed their talents at an early age. Middle school offers some opportunities for leadership – if you can change the administration’s rigid lunch seating policy then you are on your way to becoming a stellar CEO!


No One Gets Smart by Watching TV

Hey Paul: My kids are watching too much TV – it seems like it’s on all the time! If not watching the TV they are on their computer or cellphone. They are all great kids with good friends and are doing well in school. How much is too much screen time?

A recent Nielson study found that U.S. adults have broken the five-hour barrier in average daily television time. People over the age of 50 watch the most TV, somewhere in the range of 50 hours a week — over 7 hours a day! By way of comparison the average married couple talks to each other a total of five minutes each day.

The NY Times reports that “The amount of time you spend consuming media — watching TV, surfing the web on a computer, using an app on your phone, listening to the radio and so forth — continues to go up. Nielsen said that in 2015, Americans spent about nine and a half hours each day consuming content this way. This year? The average is 10 hours and 39 minutes.”

The University of Michigan School of Medicine has a concise summary of TV habits among Americans and how screen time competes with other activities as well as the potential long-run detrimental impacts.

UM reports that that children age 2 to 5 spend on average 32 hours a week in front of the tube – mostly watching shows but also playing games. The free baby-sitting may be necessary or at least a huge convenience for the stay-at-home parent but a virtual education is not likely what these toddlers are receiving from serious tube time.

An average American child will see 200,000 violent acts and 16,000 murders on TV by age 18. What starts with Bugs Bunny ends up in Game of Thrones.

71% of 8- to 18-year-olds have a TV in their bedroom. Kids with a TV in their bedroom spend an average of almost 1.5 hours more per day watching TV than kids without a TV in the bedroom. Take the screens out of their bedroom and turn that freed up time into something outdoors.

The American Academy of Pediatrics takes a “better-safe-than-sorry” stance on TV for young children: “It may be tempting to put your infant or toddler in front of the television, especially to watch shows created just for children under age two.

But the American Academy of Pediatrics says: Don’t do it!

These early years are crucial in a child’s development. The Academy is concerned about the impact of television programming intended for children younger than age two and how it could affect your child’s development. Pediatricians strongly oppose targeted programming, especially when it’s used to market toys, games, dolls, unhealthy food and other products to toddlers. Any positive effect of television on infants and toddlers is still open to question, but the benefits of parent-child interactions are proven. Under age two, talking, singing, reading, listening to music or playing are far more important to a child’s development than any TV show.”

Does TV make you poorer or do the poor just watch more TV? The Nielson study goes on to report “when looking at adult users of multimedia devices, black homes making under $50,000 averaged more than 33 monthly hours, Hispanic homes notched about 27 hours, and Asian-American homes had about 41 hours. In homes of these same ethnicities that made over $50,000, the monthly time spent with multimedia devices shrinks to 20 hours (black), nearly 19 hours (Hispanic) and 25 hours (Asian-American).”

I have a few pet peeves regarding television. Most the shows my kids watch not only have animals but talking animals. I don’t see why animals must have personalities and grand adventures. The entire Bible has only two talking animals (the snake in Genesis and oddly a talking donkey). I suppose there is a reason that C.S. Lewis’s Narnia series was made into movies and not The Screwtape Letters.

Another hangup I have with Sitcoms is the need for seemingly every actor’s line to be a  snide remark or comeback to the previous line with each sarcastic reply supported by piped-in audience laughter.  Is that how people should interact? Is it too much to ask to have regular conversations that build-up to the occasional hilarious scene?

Here are my suggestions for gauging the influence of TV on your family:

  1. Can you go without TV for a day? Try to go 24 hours with no screen time for the family – parents included.
  2. Whatever ages your children are spend a full day watching their shows. Count the number of talking animals for younger kid programs or the number of violent acts for older kids. Multiply it by 6000 (about the number of days in 18 years) – do you think that kind of repetition will have an impact on your child?
  3. Try the push-up game: have your child do a push-up every time the audience laughs. That could easily be 150 pushups in an hour program; if they watch five hours a day – look out Herschel Walker!
  4. Get all screens out of any child’s bedroom. Even Steve Jobs enforced this rule.
  5. Have dinner around a table looking at each other not the TV.
  6. Use a DVR to pre-record TV programs. Preferably you don’t have cable not only for the monetary outlay but more so for the time in can drain away from your life. For those with network stations you can get an inexpensive DVR from Amazon that will pause or record shows. Never watch another Cialis commercial!

Who Pays for College?

Hey Paul: Our daughter is headed off to college next year. Scholarships and financial aid will cover half the cost of college leaving $15K each year that we have to pay or borrow. We have some savings and ability to pay but certainly don’t have the full amount to cover all her college expenses. Should we pay for her college education or have her take out student loans?

College is the biggest investment most people will make other than their retirement and home. As you are experiencing first-hand the costs of college are staggering – we could buy a ski boat or take an around-the-world vacation each year if we didn’t have tuition payments to make. But then we would fall into one of Jeff Foxworthy’s definitions of “you know you’re a redneck if…. you’ve got more invested in your pickup truck than your college education.”

The decision of whom to burden with paying for college – either along the way out of savings or who is saddled with the student loan debt – is a tricky issue. An analogous decision is how to pay for government programs – should the rich pay higher taxes based on ability to pay or should those who are directly benefiting from the program foot the bill (e.g. toll roads)?

In your case the total bill over four years is $60,000. As I’ve mentioned in prior columns a college degree is worth about $1,000,000 in higher lifetime earnings. Of course the sole reason of attending college shouldn’t be solely to secure a large future earnings and even if that is the goal it isn’t always realized. Based on the premise that college is going to more than pay for itself, your daughter should take responsibility for paying her student loans off out of the proceeds of her future earnings.

It sounds like you have an aversion to debt and also want to limit how much debt your daughter is forced to accrue in getting a college education. Keep in mind that an undergraduate degree is usually just the beginning of a very pricey decade in her life. Many careers require a couple years or more of graduate school where the price tag is higher and the financial aid is sparse. Then she’ll meet some guy (also in debt) and have dreams of a big wedding on your tab. My point isn’t to forgo college or marriage but to keep in mind the bigger picture in how future expenses and debt can mount up.

Since you are willing and able to help pay for college, I suggest that you set up an incentive system to reward academic progress. As much as we talk about college graduates burdened with hefty school loans a bigger problem are college dropouts who have big loans and no diploma. So what we’re working towards is a payment split that balances your daughter being connected to the educational finances but not necessarily fully responsible for paying for college herself.

The first thing to establish is your own ability to pay. The standard advice in financial planning is to fund your retirement first. You can borrow to pay for college but not your retirement. I would add to that if you have any high-interest debt to make that your priority in eliminating before funding for college. Let’s assume you can devote $5000 each year towards paying your daughter’s college.

As I alluded to earlier the biggest problem facing parents isn’t paying for college. The biggest challenge is making sure your financial investment pays off with your daughter completing college. One life event you’ll soon face is that your 18 year old is no longer a minor and various privacy laws mean that you won’t be able to track how she’s doing in school the way you have for the previous dozen years. That is, the school is not allowed to divulge her grades to anyone without her permission.

Given that you will be partially funding her college experience I think it is entirely reasonable to be briefed on how that’s going by asking to see her grades. Most students won’t have any problem with this. If they do you can likely assume poor grades or they have become a Libertarian consumed with “their rights”.

There is no magic formula but a reasonable agreement could be that you’ll pay $5000 and take on half the student loans if your daughter is making progress toward graduating with a B average in four years. College expenses beyond the four years will be her responsibility.

The college experience is certainly intertwined with financial issues and challenges. Although my advice is to approach it as a “business decision” the greatest gains can be found by keeping involved in your daughter’s life. Conversations about hard topics like paying for college or how she’s changing her major (again) will likely be more important than who is signing the promissory note.




Jessamine High Then and Now

Hey Paul: How is high school different today then when you attended Jessamine High? What advice do you have for today’s high school students?

 A lot has changed since I graduated from Jessamine High in 1987. The classrooms are nearly identical but the athletic facilities are first rate – I ran on a gravel track. We started school at 7:50am before scholarly studies showed that teenagers are not awake then – something that I could have told them a long time ago.

In my class we had three students graduate with a 4.0 or higher – No, I wasn’t in that select group. Two of them are surgeons. In recent years with the explosion in popularity of AP classes about 30 students graduated with above a 4.0 – evidently in the future we are going to have a lot of doctors in the area.

We had basically the same problems that students get themselves into today. Human nature hasn’t evolved but the technology certainly has that amplifies our ability for good and bad. On that note I will say there is one trap that many students are falling into that is disastrous to learning and positioning themselves for academic success.

According to my reliable sources in many of the classes the majority of students are spending class staring into their cellphone. Are they just checking a score or news story? Is the technology being used to engage the students? I doubt it.

So my one piece of advice to high school students is to do whatever it takes to stay off their cellphone during class. I anticipate this sage advice that I conservatively value in the hundred of thousands to students will not be well received. I may become identified with #ProfNoseNuttin to which I’ll counter #DropoutsLiveInVanByTheRiver.



The Inside Scoop on the Local Schools

Hey Paul: We are looking into buying a home in Jessamine County and have three school age children. Where will they go to school? What are the best schools?

 I grew up here and the three schools I attended no longer exist at least in their original form. Wilmore Elementary, Jessamine Junior High, and Jessamine High school are now Providence High, the Early Learning Village and West Jessamine HS. As you likely know Jessamine is one of the fastest growing counties in the state and this has lead to the addition of schools and periodically rebalancing the schools by shifting the district boundaries.

The ELV enrolls all 900 Kindergartners in the county and then they are dispersed to one of the six Elementary schools based on where you live. A school district map can be seen at the Jessamine schools website Nicholasville, Rosenwald-Dunbar, and Wilmore Elementary students head on to West Middle and then West High. Brookside, Warner, and Red Oak Elementary students feed into East Middle and East High School. Middle school is grades six through eight.

If you look purely at the numbers such as students at proficiency level then there is a distinct advantage to Wilmore Elementary and Rosenwald-Dunbar Elementary that carries on to West Middle and West High. You can see all the statistics you want at the state school report card website,

But let me advise you to look beyond the aggregate numbers or better yet don’t look at them at all. Why do I say that? Well stats can be misleading in that they attach the success (or lack of there of) to a school rather than the student or the student’s family. Unfortunately this type of school report cards has sullied many good administrators and teachers when the blame lay somewhere else.

Laura Callisen on the Family Share blog describes the “hard capital” factors as forces largely outside of the family’s control whereas “soft capital” factors were harder to quantify but were to some degree choices a family could make to improve their child’s success rate. Your home purchase will largely dictate the quality of the schools and the neighborhood influences upon your children. But other factors such as the parent’s involvement in the child’s education, reading with your child, eating meals together and overall providing a stable family life trump the school influences. In other words if your kids turn out “bad” don’t put the entire blame on the schools.

Our local schools are across the board good schools with dedicated teachers who know their stuff. Okay probably with a few exceptions but that’s true at any school. Unlike many counties in Kentucky where the schools are subpar due to challenges such as finding quality teachers, we are fortunate not to have that problem in Jessamine County.

I would suggest focusing your house search on factors other than trying to place your children at the so-called best schools as they’ll be shaped more by the home than by where the house is located.