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Following Divorce, Who is the “Parent” for Financial Aid Purposes?

By College Planning

The financial aid process is a little more complicated when a student’s parents are divorced. Who is considered the “parent” for financial aid purposes?  The answer differs based on whether you’re applying to a public university that uses the FAFSA or a private institution that uses the CSS.

Let’s start with schools that use the CSS because it’s simple and straightforward. Colleges consider both Mom and Dad – or both Moms or both Dads – to be “parents” for financial aid purposes. They also consider stepparents to be “parents.” They will look at the income and assets of all of them. They’ll examine retirement assets, annuities, home equity and small business assets – basically everything. (The one exception remaining is any cash value you may have in a whole life insurance policy.) Many private institutions have healthy endowments, so they still may award aid to students – but they want to paint a complete picture of all of the resources at a student’s disposal before reaching a decision on aid.

For schools using the FAFSA, who is a “parent” for financial aid purposes is more complicated.

First, parents whose divorce is not yet finalized as of the date the FAFSA is filed are still considered married for financial aid purposes, and the income and assets of both parents will be examined. Second, if a student’s parents live together – regardless of their marital status – the FA office will consider the income and assets of each.

Now, if a student’s parents are divorced, the one who is considered the “parent” for the FAFSA is the parent with whom the student lived the most in the last twelve months. If custodial time is split evenly, the parent who provided more financial support in the last twelve months is the “parent” for the FAFSA – even if that means only $1 more. (Note, it doesn’t matter which parent gets to claim the student as a dependent on their tax return.) The school using the FAFSA will then examine the income and assets of the one “parent” when determining financial aid. And, as for married parents, they will exclude from assets any retirement accounts, equity in your primary residence, annuities and the cash value in whole life insurance policies.

If, however, this “parent” has remarried, the school will also look at the income and assets of the stepparent. Fun fact. Knowing how the FAFSA ensnares stepparents, many divorced parents of high school and college aid children who are in relationships choose to delay getting married until the kids are in their final year of college!

Social Security Provides Benefits for Older Widows Too

By Cash Flow Planning, Financial Planning, Social Security, Widows and Money

Widows 60 or older (50 if disabled) are entitled to receive survivors’ benefits from Social Security based on their late husband’s work record. This includes divorced women whose ex-husbands have died if they were married to the deceased for 10+ years and did not remarry before the age of 60.

These widows receive 71.5% – 100% of what their late husband would have collected at his full retirement age (“FRA”), which is 66 plus some number of months for those born 1945-1959, and 67 for those born in 1960 and later. The exact percentage of their late husband’s benefit that they will receive as widows depends on the widow’s age and how close she is to her own full retirement age. If she has reached her own FRA, she’ll receive 100% of what her late husband would have received at his FRA. The further away she is from her own FRA, the lower the percentage.

What could this mean, in dollar terms?

Currently, the average Social Security benefit is $1,461 per month, while the maximum benefit for someone who’s reached his FRA is $2,861. Thus a widow could receive something in the range of $1,045 to $2,861 per month in survivors’ benefits. This can provide valuable support while a widow is in transition.

That said, there are a couple of things to think about.

First, for women who work and who have not reached their own FRA(1), these widow’s benefits will be taxed at $1 for every $2 of income they earns above $17,640 (2019). For those who have reached their FRA, their widow’s benefits will not be reduced by any income earned from work.

Second, collecting survivors’ benefits will not impact the retirement benefits a woman can claim on her own work record or that of her late husband.

Third, once she is 62 and can collect her own retirement benefit, a woman cannot collect both a survivor’s benefit and a retirement benefit. Social Security will pay only one benefit, and will pay whichever is the higher of the two.

It’s important for widows to file for survivors’ benefits as soon as possible. The Social Security Administration will pay claims retroactively to the date of the filing, but not the date of death.

(1)66 plus some number of months for those born 1995-1959, and 67 for those born in 1960 and later

Social Security “Survivors Benefits” for Widows and Children

By Cash Flow Planning, Financial Planning, Social Security, Widows and Money

Did you know that Social Security provides “survivor benefits” to widows and their children?

Widows can receive benefits, for themselves, if they are caring for a child under 16 or a child of any age who is permanently disabled. Each child under 18(1) can also receive a monthly check for him/herself, payable to the parent. The benefits paid to the widow and her child will each be equal to 75% of what the deceased father would have received at 67, his full retirement age (“FRA”).(2)

So, what could this look like, in dollar terms?

Currently, the average Social Security benefit is $1,461 per month, while the maximum benefit for someone who’s reached his FRA is $2,861. Thus a widow and her child could together receive something in the range of $2,100 to $4,300 per month in survivors’ benefits.

There are some limitations, however.

For widows who work outside of the home, their own widow’s benefit will be reduced by $1 for every $2 earned above $17,640 annually (2019). Since most women earn well above this threshold, the value of the widow’s own benefit is quickly lost.

That said, no matter a widow’s income, filing for the children’s benefit is a no-brainer. It’s found money. These benefits will continue for each child until s/he reaches 18(1) and will rarely be taxed.(3)

There is a maximum benefit that a family can receive, meaning that your combined benefit, widow’s plus children, is capped at 150-180% of the benefit the deceased father would have received at his FRA.

It’s important for widows to know that collecting survivors benefits now will not impact the amount you will ultimately collect in retirement benefits down the road – whether you plan to collect those retirement benefits on your deceased spouse’s earnings record or your own.

Widows must file for benefits in person at their local Social Security Administration office and should do so soon after their husband’s death. Once the application is processed, the Social Security Administration will pay benefits retroactive to the date the application was filed, not to the date of their husband’s death.

Social Security survivors benefits will not likely replace 100% of a late husband’s income, but they can provide valuable support in a widows transition.

(1)Or up 19 years, 2 months if still in high school full time

(2)67 for those born in 1960 or later

(3)The children’s benefits are only taxed if the children themselves have significant income – about $25k – from other sources

How Social Security Works

By Financial Planning, Retirement, Social Security

We’ve been paying into Social Security from the time we earned our first paychecks as teens or twentysomethings. But what can we expect to get back when we retire ten, fifteen or twenty years from now?

“Nothing!” you cry.

Yeah, yeah, the system needs fixing to stay solvent, but I’m confident that the politicians will come up with a solution for two reasons. Seniors care about Social Security. And seniors always vote.

Right now, the government collects 12.4% of the first $132,900 of our income with half (6.2%) coming out of our paychecks and the other half coming from the employer. (The self-employed pay both halves, but can deduct the “employer half” from their income to level the field with corporate employees.) Because the amount of our income that is taxed for Social Security is limited, the amount of Social Security benefits we can receive in retirement is capped.

The exact amount you or I will receive in retirement depends on two factors. The first is our individual earning history. Social Security will use a worker’s highest 35 years of earnings to calculate the amount she receives monthly in retirement. The second is at what age we elect to collect benefits. For those of us born in 1960 or later, we will receive 100% of what we have earned, from Social Security, if we collect benefits at age 67 – our “Full Retirement Age” or FRA. We can elect to receive benefits as early as 62, but our benefits will be reduced.

Collecting at age… Benefits reduced by…
62 30%
63 25%
64 20%
65 13%
66 7%

We can also delay collecting Social Security benefits past 67 and receive more in monthly benefits as a result.

Collecting at age… Benefits raised by…
68 8%
69 16%
70 24%

For many of us, our earnings history will be what it will be. Years when we stayed out of the official workforce to raise children or take care of aging parents will get factored in as zero earnings years and reduce our ultimate Social Security benefits. Decisions about when to start collecting benefits on our own work record or that of a spouse are complex and deserve careful consideration. Delaying claiming will let your ultimate Social Security benefit grow, yes, but if you are relying on savings to pay the bills until claiming, you may be putting your financial security in retirement at too much risk. This is where a CFP® professional can help guide you towards the right decision.

My First Backpacking Trip

By About Eileen, Affirmations, Backpacking, Follow Your Dreams, Living Our Best Lives, Making It Happen

For a long, long time, I’ve wanted to go backpacking.

I can’t pinpoint exactly when or from where this desire first sprang. Maybe it followed a day hike in the Sierras with fantastic views of a vast and beautiful wilderness beyond the reach of cars? Maybe it was a shared desire for adventure after reading “Into the Woods” by Bill Bryson or “Wild” by Cheryl Strayed?

Whatever its source, the desire grew within me. Problem was, no one I knew had any interest in backpacking. Not my husband nor any of my friends.

And so I was stuck – and for a long time.

Finally, about a year ago, I’d had enough. Enough of waiting for someone to come along to help me make my dream of backpacking come true. Enough of allowing my fears to keep me from forging ahead on my own.

So I started to do my homework – figuring out what equipment I’d need and what route would be appropriate for a beginner like me. I recruited my son Declan (12) who’d enjoyed two short backpacking trips with his Scout troop. We made a plan – a three day hike through Desolation Wilderness high above Lake Tahoe.

The night prior to our start, we car-camped near Fallen Leaf Lake. We pitched our tent amidst a dozen variously-sized RVs. Their generators hummed as we roasted marshmallows for s’mores in our fire pit. When bears started to roam the campgrounds after dark, as the rangers had warned they would, folks started to honk car horns to ward them off. We were sleeping on the ground in our tent, yes, but it didn’t feel like we’d really escaped to the mountains at all. The loud, frenetic din of modern life was all around us.

The next morning we set off. The first 2.5 miles were nearly straight up, some 1,000 feet, on narrow switchbacks through groves of red fir. Over the following four miles, we hiked along the saddle between two peaks, taking in stunning views of Lake Tahoe to the east and high Sierra peaks to the west. Snow still covered some of the north-facing slopes above 8,000 feet, creating several streams that we had to ford over rocks and downed tree limbs. We reached our destination – Upper Velma Lake – in mid-afternoon and set up our campsite. We swam in the lake’s crystal clear waters and hiked to a beautiful waterfall for lunch. We had crossed paths with a handful of other backpackers and were expecting some number of them to share our lakeside campground, but no one ever came. It was just me and Declan.

Now, if you’d told me I’d be all alone in the mountains with Declan for the night, back when I was planning the trip, or even when we were standing at the trailhead earlier that morning, I would have broken out in a cold sweat. Because, really, what beginner backpacker should be alone at 8,400 feet with her 12 year old? So many things could go wrong, from bears getting into our food – or our tent! – to a lightning strike, to a snake bite …. You get the picture.

I had expected that there would be some other people around, with more experience, who we could ask for help, if something went awry.

But there weren’t.


Turns out it was a blessing. When the sun went down and we tucked into our sleeping bags, all we could hear was the sound of the nearby waterfall. No generators, no car horns. (And if there were any bears nearby, they left us alone!)

Over the next two days, as we continued our journey, I felt the weight of so many doubts and fears that I’d been carrying slough off, one by one. And they weren’t just concerns about staying hydrated on our hike or getting comfortable pooping in the woods. They were the kinds of everyday self-doubts that keep you from taking risks. The kind of everyday fears that allow you to settle for something less than you deserve.

When we returned to the trailhead, I found myself at once energized and at peace, realizing that I can do just about anything if I set my mind to it. And, really, can’t we all?


The Instant My Mom’s World Was Upended

By About Eileen, Financial Planning, My Why

“Mrs. McPeake, we believe your husband has died of a heart attack.”

These words were the first the doctor had spoken. These were the first words anyone had spoken to me or my Mom since the police officers had picked us up at our home and driven us to the ER. Along the way, we’d passed the scene of the accident. I could see my father’s car smashed up against a tree on the side of the road.

It was 1978. I was nine. My Mom and I were sitting inside a tiny, windowless room at the hospital. I didn’t want to hear any more and bolted out of the room and into the hallway. Clutching my beloved Pooh Bear, I rocked back and forth on a hard plastic chair mumbling “he didn’t say died” over and over.

But it was true. And my and my mother’s lives were forever changed.

I got up the courage to return to the tiny, windowless room after the doctor had left. I sat down next to my Mom, who was just staring blankly ahead. I hugged her and asked, “Are you going to get remarried?”

Looking back, I’m deeply embarrassed that these were my first words to her, but to be fair, I knew that my father was the breadwinner while my mom stayed at home with me.

My parents had both grown up in working class families in the 1940’s and 1950’s. Families where the month always lasted longer than the money. My mom was the oldest of six. She was Valedictorian of her high school and dreamed of going to college, but instead went to work as a secretary to help provide for her younger brothers and sisters. My father had been the youngest of four. His own father had died when my dad was a toddler and his mother had worked in the textile mills of southern New England to support her family. My father put himself through college, studied Electrical Engineering and started a career in management of technology companies. Together, my parents were able to buy a house in the suburbs, put two cars in the garage, give me a room filled with all the toys I could want and build a solid upper middle class life for our family.

But now, all of the financial security that she and my father had finally come to enjoy was gone.

What was going to happen to us?

That’s exactly the question my mother was asking herself.

What would she do for income? She hadn’t worked in nearly ten years, and, then, as a secretary. She could never match my father’s c-suite earnings….How drastically could she reduce our expenses? We had just upgraded to a five bedroom home in a nicer suburb….What about health insurance? This was 1978 and there was no COBRA protection. My father’s company-issued policy would expire at the end of the month….

Over the years, I watched as concerns about money consumed my mother. It was quite understandable in the first six years when we were subsisting on Social Security Survivors’ benefits and she put herself through college and then law school. They persisted, however, even after she embarked on a successful legal career. So often she said “no” to herself, when she could have said “yes.” Yes, I can afford a new TV. Yes, I can afford a vacation.

She never found the person who could help her answer the questions that kept her up at night. A professional to work with her to build a financial plan and regain some of the security she’d lost when my dad died.

This is the reason I’ve become a financial planner. I help women, like my mother, who are going through profound life transitions. Some have recently been widowed while others are newly divorced. Still others have been flying solo for some time but seek to retire or otherwise change course in a profound way. For these women, I build financial plans that help them regain financial security and allow them to say “yes” to themselves.

Why Outside Scholarships Will Actually Reduce Your Financial Aid

By College Planning

Let’s say your guidance counselor tells your high schooler that she should find an “outside” scholarship – one offered by a foundation or other group rather than a college financial aid office. Often these scholarships are targeted at students who meet a specific set of criteria. For example, a San Francisco Bay Area family foundation offers $5,000 scholarships to local students who have good grades and 50% or more Filipino ancestry. Another offers awards to students who are African-American and want to study business. These are indeed great opportunities to gain “free money” for college.

But here’s the catch. If your student receives a $5,000 outside scholarship, your expected family contribution will not go down by $5,000. Instead, the college she ultimately attends will reduce her financial aid offer by $5,000. To illustrate:


Before Outside Scholarship After Outside Scholarship
Cost of Attendance $50,000 $50,000
Expected Family Contribution*  (20,000)  (20,000)
Student Need 30,000  30,000
Financial Aid ** $30,000  30,000
     less Outside Scholarship (5,000)
Revised Financial Aid ** $25,000
What Your Family Pays (aka the “Net Price”) $5,000

* As determined by every institution but following certain guidelines.

** Package can include grants/scholarships, work-study and loans.


So before you spend a lot of time and energy chasing outside scholarship money, visit the College Board’s website and use their tool to get an idea of what your family may be expected to contribute to college costs: Use another of their tools to further estimate the “net price” that a specific college or university could expect you to pay: If you discover that you’ll probably be expected to contribute the at or near the full amount of a college’s cost of attendance, then time devoted to searching out and applying for outside scholarships can be well worth it.

Who Owns an Asset Impacts Financial Aid – Part 2

By College Planning

In my last post, I explained that financial aid officers will treat assets owned by the parent and the child differently for the purposes of calculating a family’s “expected contribution.” Now let’s consider savings set aside for Junior’s college by his grandparents.

The financial aid officers will ignore them.

Yes, you read that right.

But here’s the catch. Colleges look back at the two prior years of income when calculating aid for the next year. If the grandparents take a $10,000 distribution from the 529 they’ve created for Junior in his freshman year, that $10,000 will be considered income to Junior in that year and a college will assess that income at 50% his second year. When determining financial aid for Junior’s sophomore year, your family’s expected family contribution will then go up by $5,000.

You don’t want that to happen. So here’s what you do. Wait to use 529 plan savings from the grandparents until the last year or two of Junior’s college, to minimize the impact on your family’s expected contribution.

Who Owns An Asset Impacts Financial Aid – Part 1

By College Planning

Who owns an asset – meaning the child, the parent, a grandparent or some other wealthy benefactor – can significantly impact how much of that asset a college’s financial aid office expects you to contribute to paying college costs. Let’s explore how and why.

Say you’ve saved $100,000 for your child’s college education by the time she’s a high school senior.

Assets that are considered to be owned by you, the parent, are assessed at 5.64%. This will include funds held by you in checking, savings and traditional/taxable brokerage accounts, and – good news – 529 plans, even if they are nominally owned by your child. Of that $100,000 you’ve saved, a college will expect that $5,640 be used to pay for college each year.

On the other hand, assets that are considered to be owned by the child – like funds held in an UGMA/UTMA – are assessed at a much higher rate – 20%. Of that same $100,000 saved in an UGMA/UTMA, a college will expect you to use $20,000 each year to pay for college.

Can you see what just happened here? The decision about where to save that $100,000 for college – in an UGMA/UTMA v. a 529, just raised your family’s expected contribution, or EFC, by $14,360 each year.


You’re first reaction is probably something along the lines of “No one ever told me….” There’s likely a good reason for that.

For those who’ve been working with a financial advisor

The typical financial advisor is operating under a business model where they make a percentage – usually 1% – of the assets that they’re managing. Since 529 plans are administered by institutional money managers like Vanguard or TIAA-CREFF, a financial advisor can’t profit from them. Savings placed in UGMA/UTMAs, on the other hand, can be included in an advisor’s managed assets, on which s/he earns fees.

Your financial advisor may have told you that 529 plan fees were high, investment plan choices were limited and performance v. traditional mutual funds was difficult to determine. And all of that was quite true in the early days of 529 plans – the late 1990’s and early 2000’s. (Hint: It hasn’t been true for the last decade.)

Your tax professional may have doubled-down on your financial advisor’s advice, since UGMA/UTMAs once enjoyed some beneficial tax treatment.

For those who were “do-it-yourselfers”

You’re off the hook. The financial press was largely echoing the advice that financial advisors and tax professionals were giving. (Hmm, could there be some relationship between what the financial press is touting and what financial advisors are selling? But I digress….)

 What to do now

So you got some bad advice. What can you do now?

Changes to the tax code made in late 2017 severely limited the already small tax advantages given to savings held in an UGMA/UTMA. Greater competition for 529 plan assets over the last decade means that

  • fees have come down drastically, to where a plan using index funds charges about 0.13% in fees;
  • investment options are as broad as they can be; and,
  • performance is transparent.

If you have saved funds in a UGMA/UTMA, all is not lost! You can liquidate the assets held and transfer the cash into a Custodial 529 account that will, ultimately, be considered an asset of the parent for financial aid purposes. You will have to pay tax on capital gains in the UGMA/UTMA, but the savings in financial aid granted should well exceed those taxes.

Next, we’ll explore how you can shelter more college savings in accounts held by grandparents or other wealthy benefactors.

Maximize Financial Aid by Minimizing Your Expected Family Contribution

By College Planning

Parents, our goal is to minimize our Expected Family Contribution so that we can maximize our chance of receiving financial aid.

So, how exactly do we do that?

To determine your Expected Family Contribution, or EFC, a college’s Financial Aid Office will look at income and assets – yours and your child’s. They will weigh income more heavily than assets.

How Income is Treated

Parents will be expected to devote 22-47% of their annual income to college costs. (And, heads up, salary deferrals to employer-sponsored retirement plans and contributions to IRAs, SEPs will get added back into your income.) Students will be expected to contribute more – 50% – of their own earned income. (How’s that for punishing a kid for getting a paid job during the summer or after school? Sheesh!) What’s more, colleges take a two-year “look back” on income, meaning that if you’re applying for financial aid for the 2019/20 academic year, they will look at your and your student’s income in 2017 and 2018.

How Assets are Treated Differs for Public v. Private

Whether a college includes an asset in their financial aid calculations depends on whether they are public or private. Public institutions use a form called a “FAFSA” to collect your financial information. They will include funds saved in bank or brokerage accounts; custodial UGMA or UTMA accounts; 529s and Coverdell ESAs; assets owned by a family business, and investment properties. They will, however,  exclude some assets, including funds saved in 401(k)s, IRAs and other retirement plans; equity in your primary residence; cash values in whole life insurance policies and annuities you’ve purchased. Private colleges use a supplementary form called the “CSS Profile” to collect your financial data. And they basically look at everything.

It’s important to know that who owns an asset also matters when it comes to whether and how that asset gets included in financial calculations. I’ll explain in my next post.