How Much Does It Cost to Raise a Child?

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Kids aren’t cheap. That’s the consensus among both the government parents, but exactly how much they cost is up for debate.

The U.S. Department of Agriculture used to publish an annual report that calculated the average cost of raising a child to adulthood, not including college expenses. It was last published in 2017 found the cost of raising a child born in 2015 was $233,610, assuming the child was born to a middle-income, married couple.

However, costs can vary depending on a number of factors, including where you live your lifestyle. For instance, the USDA found parents in the urban Northeast spend an average of $264,090 while rural parents across the country had average expenses of $193,020. Lower income, single-parent households spend an average of $172,200.

“When you break it down per year, perhaps it’s not insurmountable,” says Jean Chatzky, CEO founder of HerMoney Media. The USDA figure for a middle-income couple raising a child to adulthood equals out to nearly $13,000 a year, or $1,081 per month.

The government numbers aren’t necessarily reflective of all families’ experiences though. There are a number of circumstances choices that can increase or decrease the cost of child rearing.

How Much Does It Cost to Raise a Child?

The USDA comes to its figure by using data from the annual Consumer Expenditures Survey. When factored for inflation, the number jumps to more than $284,000 today, says Anthony Paul, managing director co-founder of The Hamilton Group, a financial planning firm in Greenwood Village, Colorado.

For children born in 2015, average spending is expected to break down into the following percentages, according to the USDA:

  • Housing – 29%
  • Food – 18%
  • Child care education – 16%
  • Transportation – 15%
  • Health care – 9%
  • Miscellaneous – 7%
  • Clothing – 6%

Those percentages can vary significantly depending on a child’s age the family’s lifestyle. In 2019, LendEDU, an online marketplace for financial products, surveyed 1,000 parents who had a child between the ages of 1 3. They found parents spent an average of $13,186 per year raising their child, although the median cost was only $6,000.

Baby items such as diapers, toys strollers made up 30% of the expenses reported by parents to LendEDU. Meanwhile, health care accounted for 17% of costs child care absorbed 13% of spending.

While publishing average costs can be helpful for budgeting purposes, they can also paint an overly bleak picture of parenting. Many parents can do spend significantly less. “If the (COVID-19) pandemic has taught us anything, it’s that a lot of needs, or things we thought were needs, are actually wants,” Chatzky says.

Factors That Influence Child Raising Costs

While cost estimates can be a helpful benchmark for parents, they may overstate certain costs while ignoring others. “Cost of living family support are things you have to consider,” Paul says.

Grandparents nearby who are willing to babysit for free can all but wipe out child care expenses. Meanwhile, monthly mortgage rent payments may be lower for those living in states with affordable housing, such as South Dakota Michigan.

However, there are trade-offs to living in some states with a lower cost of living. For instance, Michigan parents need to buy clothing appropriate for four seasons, says Michael Foguth, a father of six founder of Foguth Financial Group in Brighton, Michigan. “With kids, you have to buy winter boots coats every year,” he notes.

As kids age, they may have added expenses for school activities, sports teams electronic devices. One way to minimize these costs is to ask teens to find a job pay for their own discretionary expenses, Paul suggests.

Are You Able to Afford a Child?

While couples often discuss whether they can afford children, Foguth doesn’t think parenthood should be reduced to a financial decision. Rather than asking if you can afford children, a better question may be whether you are willing to shift money away from your current expenses in order to accommodate the needs of a child. “Are you willing to make financial sacrifices for someone else?” Foguth asks.

Chatzky has a similar philosophy. “It’s really a matter of what you as a family prioritize,” she says. The financial expert recalls her mother saying that if she had waited until she could afford children, she never would have had any.

There are immediate costs associated with the birth or adoption of a child that couples can anticipate. However, after that, parents usually have significant flexibility in how much or how little they spend on their kids.

Having multiple children can raise costs but perhaps not as much as parents expect. “The cost per child does go down because some of the upfront costs will be covered,” says Trina Patel, financial advice manager for Albert, a financial service app.

The USDA notes that married couples with one child have expenditures that are 27% greater than what married couples with two children spend per child. Meanwhile, those with three or more children spend 24% less per child compared to two-child households.

Parents may already have a home vehicle large enough to accommodate multiple children. Child care providers may also offer sibling discounts. Plus, clothes toys can be passed down to younger siblings, food that is purchased in bulk can result in a lower per-serving cost.

Budgeting for Baby

For would-be parents, the various numbers come with bad news good news. The bad news is that the savings they have prepared in anticipation of a baby might not be enough. However, the good news is there is a wide variation in the cost estimates because so many expenses can be optional.

Rather than buying expensive gadgets, upsizing the house for more space insisting on new items, parents can keep costs down by making due with what they have already. Paul, who has three daughters, encourages people to consider buying secondhand, maximizing the use of grocery savings apps rethinking expensive family vacations.

Rather than fill your house with toys, he recommends asking relatives to donate to a child’s college fund instead. “(Toys are) literally a vacuum for your wallet,” Paul quips.

“If you can automate any of your savings, that’s really powerful,” Patel says. Directly depositing money from your paycheck to savings or setting up automatic transfers to a 529 plan for college can make it easier for parents to prepare for future expenses.

Kids don’t have to be as expensive as the numbers suggest. Couples should honestly evaluate not only their finances but also their commitment to sacrificing creature comforts for the sake of raising children. For those who make the leap to parenthood, they may find there is ultimately only one word to describe the cost of kids: priceless.

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Retirement Accounts You Should Consider | 401ks

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Saving for retirement doesn’t involve a one-size-fits-all plan. Since every situation is unique, it’s important to look for the retirement account that best lines up with your personal job situation future goals.

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Here are some of the types of retirement accounts you might be eligible to use:

  • 401(k).
  • Solo 401(k).
  • 403(b).
  • 457(b).
  • IRA.
  • Roth IRA.
  • Self-directed IRA.
  • SIMPLE IRA.
  • SEP IRA.
  • HSA.

Here’s a look at how each type of retirement plan works how to make the most of these long-term savings vehicles.

401(k)

A 401(k) account is offered through employers, so you’ll need to check if this plan is available at your workplace. In 2021, the IRS allows you to contribute up to $19,500 to a 401(k) if you’re under 50 years old. If you are age 50 or older, you can put up to $26,000 in the account. Your employer may match a certain portion of your contributions. The amount contributed to a 401(k) is deducted from your taxable income. You’ll need to start taking withdrawals from the account, known as required minimum distributions, starting at age 72. When funds are withdrawn, they are subject to taxes. You may also face penalties if you take money out of the account before age 59 1/2.

Solo 401(k)

Also known as a one-participant 401(k) plan, a solo 401(k) is designed for an individual business owner without any workers. If you are self-employed don’t have any employees, you may also be eligible for a solo 401(k). The IRS allows contributions of up to $58,000 in 2021. If you are 50 or older, you can also make catch-up contributions of up to $6,500.

403(b)

If you work for a nonprofit or tax-exempt organization, you may be eligible for a 403(b). This account is similar to a 401(k) allows you to contribute up to $19,500 in 2021. If you are 50 or older, you can set aside up to $26,000. Earnings grow tax-free until you withdraw them. Distributions from a 403(b) are considered taxable income.

457(b)

A 457(b) plan is offered through state local governments. If you are eligible for the account, you’ll be able to contribute up to $19,500 in 2021, or $26,000 if you are 50 or older. You can also withdraw funds before age 59 1/2 without incurring a penalty.

IRA

An individual retirement account is only available to those with earned income. If you earn $2,000, you’ll be able to put up to $2,000 into the account. The contribution limit for an IRA is $6,000 in 2021, or $7,000 if you are 50 or older. Like a 401(k), you’ll receive a tax deduction for the money you put into an IRA. When you withdraw funds, they will be considered taxable income. You’ll need to start taking distributions from the account after you turn 72.

Roth IRA

Like an IRA, you need earned income to be eligible for a Roth IRA, the amount contributed cannot be more than the amount you earn. You can set aside up to $6,000 in 2021, or $7,000 if you are age 50 or older. Unlike an IRA, you’ll pay taxes on the amount you contribute to a Roth IRA. However, the money grows tax-free in the account, no income tax will be due on Roth IRA withdrawals in retirement. A Roth IRA does not require that you take distributions in retirement.

Self-Directed IRA

A self-directed IRA has the same contribution limits eligibility requirements as a traditional IRA, but differs in the investments that you are able to make. Unlike traditional accounts, a self-directed IRA allows you to place funds into alternative assets such as cryptocurrencies, precious metals real estate.

SIMPLE IRA

If you work at a small business with 100 or fewer employees, you may be eligible for a Savings Incentive Match Plan for Employees IRA. To participate in a SIMPLE IRA, you’ll need to have earned at least $5,000 from the company during the previous two years also be expected to receive at least $5,000 in the current year. Through this account, you’ll be able to contribute up to $13,500 in 2021. If you are age 50 or older, you can make an additional catch-up contribution of $3,000. In addition, employers are required to make contributions to the account. Like a 401(k), the amount you contribute will be deducted from your taxable income, but when you withdraw funds in retirement, they will be subject to taxes. If you take money out of a SIMPLE IRA before age 59 1/2, you may have to pay a penalty.

SEP IRA

A Simplified Employee Pension IRA is designed for small business owners with several employees self-employed individuals. If you are eligible for a SEP IRA, you’ll be able to set aside up to either 25% of your compensation or $58,000 in 2021, whichever is less. You won’t pay taxes on the amount contributed, but the funds withdrawn will be subject to taxes. You’ll need to start taking withdrawals at age 72. If you withdraw funds before age 59 1/2, you may have to pay penalties on the amount taken out.

HSA

A health savings account can be used to build funds to help cover health costs in retirement. To be eligible for an HSA, you need to have a high-deductible health insurance plan. You can contribute up to $3,600 to an HSA in 2021 as an individual, or as much as $7,200 if you have family coverage. There is an additional $1,000 contribution allowed if you are 55 or older. The amount set aside in an HSA is tax-deductible. The funds grow tax-free can be withdrawn tax-free if they are used to pay for qualifying medical expenses.

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Mutual fund categories to choose when starting your investment journey

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Investing in mutual funds requires patience as well as understanding one’s risk appetite. Choosing the right scheme today can be a daunting task given the options available the market conditions.

The biggest mistake investors could make when beginning their investment journey is looking at past returns. Here is a checklist to follow if you are investing in mutual funds for the first time.

According to experts, timing the market for new investors at this point is going to be tricky. Also, they say that if initially, investors have good experience in the market, they tend to stay invested for the long-term.

Harshad Chetanwala, a Sebi-registered investment adviser co-founder of MyWealthGrowth believes that it is good to begin the mutual fund investment journey with the portfolio of well-established companies. “A gradual approach to investing can work well at present, hence, SIPs (systematic investment plans) are the best way to begin in any market condition. Even if you have a lump sum to invest, you can invest 25% right now the rest can be invested over the coming three months or through SIPs of six months,” he said.

With the market at an all-time high, Chetanwala suggests that first-time investors should consider investing in index or large-cap funds. “They should avoid small-cap mid-cap funds at this stage as these are more volatile.”

According to Kirtan Shah, chief financial planner at Sykes Ray Equities (I) Ltd, if one wants to do an SIP of 10,000, he or she can look at an index fund, a flexi-cap fund a value fund, which will give the right kind of diversification.

“Historically, at such high valuations, value has worked really well. So, if someone is starting, they should keep few things in mind. Not try invest in schemes that they don’t understand. So, thematic or sectoral themes, which are flavor of the season, can be avoided.”

Despite pricey valuations, experts say that for young investors who are new to the market, it doesn’t make sense to invest outside of equities. However, the investment horizon should be of at least seven to 10 years.

For Nishith Baldevdas, founder of Shree Financial a Sebi-registered investment adviser, a balanced advantage fund would be the best strategy for investors coming into the market right now.

“It is dynamically managed protects downsides as well. Ever since the Sensex hit the 46,000 level, we have been suggesting the asset allocation option. Newcomers are mostly coming in looking at the returns over the past one year. However, they haven’t seen the downside, which can be much more painful,” he said.

A balanced advantage funds, or also called dynamic asset allocation funds, has equity allocation between 30-80% depending on the market conditions.

“Even if investors have long-term goals, we are starting with BAFs, because we will be changing the strategy tactically once the valuations become attractive less expensive. At time point, we might move to mid-cap or large cap,” said Baldevdas.

A good investment strategy for freshers at this point would be to stick to the basics of investment, stay away from flavor of the season themes.

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PFRDA proposes changes in premature exit rules for Atal Pension Yojana, facilitates timely payment of money

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NEW DELHI: To increase acceptability of Atal Pension Yojana (APY) scheme among informal sector workers, the Pension Fund Regulatory Development Authority (PFRDA) has proposed modifications in premature exit processing for the benefit of subscribers.

APY is a social security scheme administered by PFRDA through banks the department of post. The scheme offers guaranteed pension benefits to eligible citizens after reaching the age of 60 years, who subscribe contribute to the scheme.

According to a PFRDA circular issued on 3 September, “The existing mode of premature withdrawal under APY is examined from time to time by PFRDA based on the inputs/suggestions received from various stakeholders the changes are proposed with suitable technological intervention.”

The scheme will introduce instant bank account verification in the interest of underlying subscribers for the orderly processing of their exit requests.

The following guidelines are issued for facilitating timely transfer of withdrawal amount in the bank account of APY subscribers also as additional due diligence to protect their corpus lying in the Permanent Retirement Account Number (PRAN). 

There could be two scenarios at the time of exit which are explained as under:

A. If the SB account details of subscribers at the time onboarding & exit are the same

1. APY subscriber should incorporate the field indicating active status of savings bank (SB) account in the revised exit file format provided by CRA which is mandatory from 15 September, 2021.

2. Instant Bank Account verification by penny drop shall also be undertaken by CRA to verify the operative status of savings account as part of enhanced due diligence.

3. The above changes are being implemented to enable CRA system to process the premature withdrawal requests where the associated SB Account is operative so as to ensure receipt of APY account closure proceeds in the SB account, as per the PFRDA circular.

4. If the associated savings account is closed/dormant, the modified process ensures preservation of subscribers’ contribution in the PRAN itself to generate optimum market-based returns.

B. If the savings account details at the time of onboarding & exit are not the same, different account numbers of the same bank or the different bank

1. Subscribers are advised thatAPY closure proceeds be credited to the same bank account number may accept the request with a different account number or account of a different bank only as an exception. Such requests are to be accompanied by proof of alternate account number acceptable to the bank, as per the PFRDA circular.

2. Instant Bank Account verification by penny drop shall be undertaken by CRA as part of enhanced due diligence including name matching between PRAN bank account number.

3. Exit requests with mismatches or with unsuccessful account verification, post penny drop is to be confirmed by respective APY subscriber for further processing of exit requests by CRA, as per the circular.

4.Subscribers are to be educated to keep their respective bank account active when they submit their premature withdrawal request the request is processed. A suitable undertaking can be obtained from the subscriber as part of the withdrawal request.

5. The applicable charges for instant bank account verification would be recovered by CRA from the respective PRAN for reimbursement to service provider. Prevailing charges for verifying bank account number through penny drop is Rs2.40 tax, as per the PFRDA circular.

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Here are some of the risks of investing in NPS after 60

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NEW DELHI: The National Pension System (NPS), a market-linked scheme, helps you save for retirement. Anyone between the age of 18 70 can open an NPS account start saving till retirement. This means individuals or senior citizens joining at the age of 60 get around only 15 years to stay invested in NPS, as the maximum age allowed at the time of maturity is 75.

However, there are some risks involved with late investment in NPS. Here is a look at them:

NPS investing: Investment options the pension fund manager remain the same for senior citizens joining after 60.

The normal exit will be after three years, a senior citizen cannot defer the annuity beyond it. They are allowed to withdraw a maximum of 60% of the corpus at 75. However, the balance of 40% will have to be compulsorily annuitized. It means the subscriber has to purchase pension or annuity from any life insurers using 40% of the NPS corpus after three years once the initial investment is made. Further, if a senior citizen decides to exit before three years, only 20% can be withdrawn as a lump sum, with the balance of 80% of the corpus, he needs to purchase an annuity plan.

Risks of investing in NPS after 60

It is important to note that saving taxes should not be the sole objective for senior citizens to invest in any tax saving investment, especially NPS.

1. Liquidity risk: The first is the liquidity issue. Adhil Shetty, CEO, BankBazaar.com, said, “NPS has lock-ins not just during the investment period but also after the investment when the investor needs to purchase annuity compulsorily. For senior citizens, the lock-ins may not be convenient.”

2. Returns are not assured: NPS is a market-linked product with contributions exposed to equities, debt needs time to perform.  

“A Senior Citizen Savings Scheme or National Savings Certificate (NSC) investment, for instance, advertise the rate of return clearly. Also, with the annuity requirement, the investor must invest 40% of the NPS corpus in a pension plan that may provide sub-optimal returns fully-taxable returns comparable to FDs. Therefore, the overall returns from the NPS investment start falling on maturity due to the annuity requirement. In contrast, an alternative – an index fund, for example – could continue providing sustained growth for any length of time,” Shetty said.

3. Lesser investment horizon: NPS can perform better over a longer duration as equities have generally outperformed other asset classes over the long period.

“The NPS investment tenure available to a senior citizen is much shorter compared to, say, a 35-year-old who can get through several market cycles to earn good returns. But a senior citizen will not have that luxury. Currently, the returns from corporate government debt are very low likely to remain low. Therefore, an aged investor will not have enough time to remain invested for higher returns. Even if the senior citizen took a 50% exposure to equity, there might not be enough time to enjoy optimal returns due to a short investment tenure,” said Shetty.

4. Taxable pension income: Annuity received as a pension income is taxable in the hands of the senior citizen as per their tax slab in the year of receipt.

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