Let’s talk about how to celebrate National Financial Planning Month (October), which is intended to “remind us to keep our spending in check and prepare our budgets.”

From my perspective as a money manager and a promoter of financial literacy education, debt is sometimes necessary (helping pay for an education that leads to a well-suited career), sometimes vital (helping you buy a house for your family), and sometimes, nothing but harmful (supporting overconsumption).

Financial planning for student loans involves staying on top of things. For example, you need to know that payments on eligible federal student loans, which have been suspended since March of 2020, will resume after Jan. 31, 2022. For more on that subject, see tinyurl.com/sv8bxc6s.

How to pay off student loans is another planning point. Studentaid.gov offers a Loan Simulator to help you examine possible payment plans, as well as an income-driven repayment plan. Fidelity Investments also offers a free student debt tool (tinyurl.com/2mvjdkxf) to help examine ways to pay off your student loan.

If you are borrowing money to accumulate more stuff than you need, is there any planning that you can do? The first step is to do a self-assessment -- to identify problems to solve.

Problem one: Reconsider spending habits. Solution: Buy only what you can afford without taking on debt.

Problem two: Uncertain of interest charges. Solution: Review the interest rates charged by your creditors. And if they are high, plan on finding lower options.

High-interest debt often involves the use (or overuse) of credit cards. Some credit cards are more “expensive” than others when it comes to interest rates. A recent survey by CreditCards.com (tinyurl.com/2nu8ud39) found that the highest retail store credit card annual percentage rate (APR) was 29.9%, with the average retail credit card APR at 24.35% and the average non-retail card at 19.92% APR.

As FINRA advises, “Few money-management strategies pay off as well as, or with less risk than, paying off all high interest debt you may have” (tinyurl.com/yx2rssw5). (FINRA, the Financial Industry Regulatory Authority, regulates the brokerage industry.)

When planning for the future, don’t leave out other uses for the money you are using to cover debt payments. Think ahead to retirement. For example, if you are paying off a credit card with a $10,000 balance and 18% interest, Steven D. Brett, a partner at Marcum Wealth LLC, points out: “By getting rid of those interest payments, you’re effectively getting an 18% return on your money. That means your money would generally need to earn an after-tax return greater than 18% to make investing a smarter choice than paying off debt.” For more on this topic, see “Pay Down Debt or Save for Retirement?” (tinyurl.com/ybf3tpfk).

As to mortgages, this interest rate market offers a number of low-interest rate options. The goal is to do your research and find the best options for financing or refinancing. Here is a tool for further research from the Consumer Financial Protection Bureau: tinyurl.com/2xtbfncw.

With any discussion of debt, good or bad, the starting point must be a thorough understanding of your personal financial situation. FINRA provides a form for calculating your monthly income and expenses at tinyurl.com/5f2vrza3.

Take on October with a view to creating a plan by the end of the month. When you celebrate Halloween, remember that debt doesn’t have to be scary.

If you have an interest in promoting financial literacy education, you can help get the word out about a financial literacy competition that I sponsor. Reach out to your social media connections with #401kChampion.

There is still time for 401(k) participants to compete for the 401(k) Champion® Award, which encourages 401(k) participants to share their knowledge of 401(k)s with each other. To compete for the award, go to 401kchampion.com.

Julie Jason, JD, LLM, a personal money manager (Jackson, Grant Investment Advisers Inc. of Stamford, Connecticut) and award-winning author, welcomes your questions/comments (readers@juliejason.com). Please visit www.juliejason.com.

DISTRIBUTED BY ANDREWS MCMEEL SYNDICATION

When you are thinking about investing, do you consider risk? And, if you do, how do you assess your tolerance and capacity for losing money, especially if you are retired?

Risk tolerance is “the level of risk an investor is willing to take” -- as good a definition as any. This one is cited in “How to Determine Your Risk Tolerance Level” (tinyurl.com/3rh8j55x), posted in the Intelligent Portfolios section of the website for Charles Schwab, a multinational financial services company.

Risk of loss is measured behaviorally against possible gains. People are usually biased to avoid losses (“loss aversion”), that is “the fear of loss can play a bigger role in decision-making than the anticipation of gains.”

Risk capacity is something very different. Capacity is all about how much you can afford to lose. For example, when moving from a working career into retirement, the transitionary period is by far the most risky for anyone. Retiring at a market top is the worst time to begin a program of monthly withdrawals to pay for living expenses.

While a retirement timeline can last decades, be careful about advice that suggests you can take on more risk when your time horizon is long. The investment period of time is long, but the waiting period is not. That is, most people have to create a way to generate portfolio withdrawals over the decades of retirement. Risk has to be understood in those terms.

Contrast a young investor who is saving for retirement. The desired outcome is a large nest egg 30 or 40 years into the future. In that case, a long time frame until the savings and investment program matures can support a higher level of risk over that period of time -- as long as the risk is reduced as one transitions into retirement. As I said, you don’t want to be hit with a downturn when you need your portfolio to shift into cash flow production after you leave your job.

In any event, trying to quantify risk tolerance is hardly easy for individuals to tackle on their own.

“Individual investors may also require an assessment of their intellectual and emotional tolerance for potential losses associated with risks; for these assessments, interviews or questionnaires can be used,” according to a 2010 position paper on investment policy statements (tinyurl.com/5yvu5bay) for CFA Institute, a global association of investment professionals.

If you want to try a self-assessment of your own, the University of Missouri (tinyurl.com/duaj25fc) offers one online that asks more than 20 questions and gives you a score that is linked to its interpretation of your risk tolerance.

Another option is Schwab’s Intelligent Portfolios (tinyurl.com/3a8x6wja). The robo-adviser asks 12 questions to get an assessment of not only the type of investments you want to make (including your goals and timeline), but what type of risk you are willing (or not willing) to take. You can do the assessment without opening an account with Schwab. (By the way, I have no connection with Schwab.)

Whatever assessment a do-it-yourself investor may use, a client of a portfolio manager will likely follow a different path. For example, my personal experience running retirement portfolios calls for setting portfolio risk parameters in conjunction with the client instead of asking for a self-assessment. An acceptable risk level is built around desired long-term and short-term outcomes and the demands placed on the portfolio (cash flow requirements now and projected into the future), all in the context of financial market expectations. This method takes both risk capacity and risk tolerance into account.

How a financial firm determines risk tolerance for you is an important conversation to have before transitioning into retirement. My experience tells me that the most successful portfolios flow from an assessment of risk first, reward second.

On another matter, the deadline to apply for the 401(k) Champion Award, which shines a light on 401(k) participants who make good 401(k) decisions, has been extended to Oct. 28. To compete for the award, go to 401kchampion.com.

Julie Jason, JD, LLM, a personal money manager (Jackson, Grant Investment Advisers Inc. of Stamford, Connecticut) and award-winning author, welcomes your questions/comments (readers@juliejason.com). Please visit www.juliejason.com.

DISTRIBUTED BY ANDREWS MCMEEL SYNDICATION

While the concept of a “trusted contact person” has been around since 2018, regulators are currently encouraging brokerage firms to ask you to name yours. The goal? To provide you with “additional protection.” This is what you need to know.

“Trusted contact” is a term used in FINRA’s customer account information rule (rule 4512(a)(1)(F), which you can view here: tinyurl.com/uy66acjk). FINRA, the Financial Industry Regulatory Authority, regulates the brokerage industry.

Under the rule, when you open an account (or update it), the brokerage firms must ask you for the name of a trusted contact. You have the option of saying yes or no.

The goal is to give authority to the firm to talk with someone about your account in case of a problem -- perhaps the brokerage firm lost contact with you due to a natural disaster, or there is concern about potential fraud.

Because brokerage firm policies can differ, read your firm’s brokerage agreement to see when it will share information with the trusted contact.

In this example, you authorize the firm to reach out to your trusted contact:

“If there are questions or concerns about [your] whereabouts or health status;”

“If [the firm] suspects that [you] may be a victim of fraud or financial exploitation;”

“If [the firm] suspects that [you] might no longer be able to handle [your] financial affairs;”

“To confirm the identity of any legal guardian, executor, trustee, authorized trader, or holder of a power of attorney;”

“If [the firm] has any other concerns or is unable to contact [you] about [your] account(s) held at [the firm].” (Also see this Securities and Exchange Commission’s Investor Bulletin at tinyurl.com/8yb4f42r.)

You would be giving authority to the firm to judge when these circumstances arise.

What information might the brokerage firm share with your trusted contact?

Again, read your brokerage agreement.

In this example, the firm can share “nonpublic personal information.” That includes “financial account information and balances, recommendation for purchase of a security or insurance product, and ... personally identifiable financial information (i) provided by a consumer to a financial institution; (ii) resulting from any transaction with the consumer or any service performed for the consumer; or (iii) otherwise obtained by the financial institution.”

Why would the firm do this? “To address possible financial exploitation; to confirm the specifics of [your] current contact information or health status or the identity of any legal guardian, executor, trustee, or holder of a power of attorney; or as otherwise permitted by FINRA rules.”

Well enough. What happens next? Are there limits on the authority of a trusted contact?

Indeed, there are. The person “cannot make trades in the investor’s account; cannot make decisions about the investor’s account; and does not become a power of attorney, legal guardian, trustee or executor by virtue of being identified as a trusted contact,” according to a joint release (tinyurl.com/pkhse8k8) issued by FINRA and the North American Securities Administrators Association (NASAA).

One more thing: When you provide a trusted contact, you may also be agreeing to indemnify the firm if something goes wrong. Here is an example: You indemnify the firm “from and against any and all claims, judgments, taxes, fines, penalties, damages, liabilities, costs, and expenses” related to “any claim, judgment, or proceeding arising out of or relating to [the firm] contacting, or failing to contact,” the trusted contact.

What can go wrong? I can only guess. What can go right? Potentially preventing fraud.

The concept of protecting a customer is laudable. How well this works will depend on the circumstances, including the brokerage firm’s protocols after engaging with the trusted contact. If you have any experiences you want to share with my readers, write to me at readers@juliejason.com.

For more information on the subject go to finra.org/trustedcontact, which includes an explanatory video.

Julie Jason, JD, LLM, a personal money manager (Jackson, Grant Investment Advisers Inc. of Stamford, Connecticut) and award-winning author, welcomes your questions/comments (readers@juliejason.com). Please visit www.juliejason.com.

DISTRIBUTED BY ANDREWS MCMEEL SYNDICATION