Archive for Personal Finance

Reverse Mortgage – Not a Dirty Phrase Anymore

reverse mortgage

The Reverse Mortgage

 

Chances are high that when I mention the idea of a reverse mortgage to clients, I’ll be met with a very sour expression.  I think this is because of the impression that these instruments are expensive and that you give up ownership of your home to use them.

 

Now, I am NO expert in these products, but for clients who have most of their net worth tied up in their homes, finding a way to use that equity to pay bills is a must.

 

Brainiacs who are way smarter than me have been modelling the use of a reverse mortgage in the overall retirement plan.  The numbers show that using home equity for income, especially when retirement investments are down, can lengthen the time your nest egg will last.

 

What are the benefits?

 

Wade Pfau has been doing research on the use of reverse mortgages in retirement income plans says there are two big benefits:

 

  1. Using reverse mortgage early in retirement can reduce the stress of market volatility on the invested portfolio by allowing people to live off of their home equity rather than selling investments when values are down to pay bills.
  2. The second benefit is that opening a reverse mortgage now (especially with current low interest rates) can allow for the principal that you can borrow against to grow for a longer time.

Who qualifies?

 

Not everyone can get a reverse mortgage.  You must be at least 62 years old, live in an “eligible” home, and there is a limit to how much debt can be against the home.

 

I’m not saying this is for everyone. Reverse mortgages are more expensive than conventional loans and they may tempt you to spend your home equity on dumb stuff instead of using it prudently.  However, if you are feeling your retirement income is too tight and you meet the eligibility requirements, it could be worth investigating.

 

Check out more from Wade Pfau in this Forbes article.  There is also a link to his website at the bottom of the piece.

Love and Money – What Can Possibly Go Wrong?

love and money

Counseling Center of Cherry CreekThis week, I am thrilled to get the expertise of Jenny Glick to talk about love and money.  Jenny Glick, MA, MSC, LMFT is a licensed marriage and family therapist, sex therapist and owner of the Counseling Center of Cherry Creek. She and her team of therapists focus on working with couples and individuals looking to improve the relationships in their lives. Visit the team at www.CounselingCenterofCherryCreek.com.

 

With Valentine’s Day upon us, many couples feel pressure to show love by purchasing gifts.  What is a better alternative to showing your love to your partner?

I often to say couples that the definition of love is to “attend to.”  We love our children so we attend to their various needs — whether that is health, education, or sports activities. We love the idea of retiring so we attend to our retirement accounts on a regular basis by investing a limit bit regularly over a long period of time. Similarly, with one’s spouse simply paying attention and investing on a regular basis goes a very long way.

 

I cannot tell you how many times I’ve sat in a room with a couple and the wife says that she has felt ignored by her spouse and all that she wants is for her husband to notice her or help with the dishes. The husband (as cliche as it may sound) will often say in earnest, “I know that I have heard you say that before but I didn’t really know what you meant.”

 

And truly…he didn’t know what she meant because he was not attending to her…really paying attention to her needs.  Practice listening to your partner and really hearing how you can attend to him or her better.

 

When couples argue about money, what is commonly at the root of that fight?

When couples argue about money it is usually because they have not mastered an important developmental skill in marriage called differentiation. Simply put: differentiating is tolerating (and even supporting) your partner’s difference.

 

She wants A. He wants B.  She tries to get him to see how B is wrong and A is better.  He feels hurt and angry and she is criticizing B (and hence criticizing him) and puts down A.  She feels unsupported (“like always!”).  He feels rejected (“just like in the bedroom!”).  You may be familiar with how this ends.

 

Rarely is a money argument about money. You and your partner need to level up your skills to learn to be curious about your different rather than attack your differences.

 

What are some tips for couples looking to engage in a therapist?  What should they be looking for? 

 

First and foremost, always ask your potential therapist what percentage of their clientele are couples. Those of us who specialize in this work see at least 60% couples. That means that we have lots of experience and training in helping couples with things like communication, intimacy, and co-parenting.

 

Secondly, it is important to find someone who gets you — someone who speaks your language. Every therapist is different and personality matters so take the time to shop around and find a strong match. You are investing in one of the most important relationships of your life…your marriage!

 

Thanks to Jenny for this fabulous insight!  Here’s hoping your Valentine’s day is one of attending to your relationships, not adding to your credit card balance.

Do You Know When You’re Going to Die?

retirement

How long will your savings last?

 

What an uplifting question!

 

But in retirement planning, it is probably the MOST IMPORTANT question and the most impossible to answer.  If we all knew how long our savings would need to last, it would be so easy to determine how much we could afford to spend during retirement, what age to retire, how much risk to take for growth, and on and on.

 

Just for fun (I know, an odd idea of fun), I went onto a website I’d heard about for years.  It’s called The Death Clock (www.deathclock.com) and by filling out just a few fields, I got my exact date of death.  I’m reluctant to tell you in a public forum because then thieves will know when my funeral will be and take the opportunity to rob my house.

 

Oh, what the heck! I’m not using that stuff anymore so let them have it.  My estimated date of death is September 30, 2073.  Wow.  Those would have to be some old thieves, too, so I guess my house is safe.

Here are a few areas of perspective this gave me:

 

  • That is age 101. I hope I don’t look a day over 80.
  • At today’s standard retirement age of 65, I’ll need my savings to support me for 36 years. Sounds like a reason to work until at least 70.
  • If my sons have kids by age 30 and their kids have kids by age 30, I’ll live to see my first great-grandchild enter his pre-teen years.
  • If my husband lives as long as I do (and he has 3 living grandparents, so why wouldn’t he) we will be married for 77 years.

 

And the last item of perspective I will share is this:  If I make on average 2 major decisions per week (where to send my kid to middle school, how to invest my savings) and 50 small ones (what to wear to a meeting, what to cook for dinner, People Magazine or Us Weekly), I will make over 154,000 decisions between now and my appointment with Mr. Reaper.  Some will be good, some not so great, but since I have until 2073 to see the ultimate results, I think I’ll try to chill out a little.

How’s That New Gym Membership Working Out?

gym membership

According to a survey of 5,000 people by GoBankingRates in 2016 the top five New Year’s Resolutions were:

 

  1. Enjoy Life to the Fullest
  2. Live a Healthier Lifestyle
  3. Lose Weight
  4. Spend more time with family and friends
  5. Spend less, save more

 

In order to achieve Resolutions 2 and 3, many people joined a new gym in January.  Unfortunately, that may not be the way to realize Resolution #5.  Some interesting statistics from statisticbrain.com:

 

  • Average cost of a gym membership: $58/month
  • Amount of gym membership money that goes to waste from underutilization: $39/month
  • Percent of people with gym memberships that never use them: 67%

 

Okay, so 43% of us are hitting the gym regularly/sporadically.  Great!  Enjoy your group sweat.

 

For those of you who are flushing $58/month down the drain, consider an investment in some modest home gym equipment would save you money and actually get used.  After all, you don’t have to bundle up and drive on snowy roads to go to your basement and work out.  Bonus, you can pick whatever music or TV you like to enjoy while pushing around the weights.

 

I never thought I’d be using a website called askmen.com as a source for my blogs, but here is a nice list of small, inexpensive home exercise equipment.  Thanks, Men!

 

  • Adjustable Dumbbells – starting at around $130 on Amazon
  • Stretching Mat with Exercise Guide – $30
  • Jump Rope – $7 – $20
  • Resistance Bands – $15 – $30
  • Core Training Wheels – $40
  • Exercise Ball with Guide – $25

 

Happy sweating!

Social Security and Numbers to Know in 2017

Social Security

Sorry, this is not like a fortune cookie where I reveal your lucky numbers (“Confucius says buy stocks on days 14, 28, 200, and 360 of the year.”).  Rather, here is a quick update on new retirement savings limits and other info you can use when planning your financial year.*  You are doing that right now, aren’t you?

 

Social Security Cost of Living Adjustment:  A whopping .3%. That’s $5 to the average Social Security recipient.

 

Social Security tax for high earners:  The amount you earn before Social Security tax stops being deducted from your paycheck goes up to $127,200.  It was $118,500 in 2016.

 

Higher earnings allowed for Traditional IRA deductions:  If you have a 401(k) at work, you cannot deduct your IRA contribution if you make above $72,000 in 2017 ($119,000 for married couples).  If you don’t have your own 401(k) but are married to someone who does, the earnings limit is $196,000.  If you don’t have access to a workplace retirement plan, there is no limit to how much you earn and still be able to deduct your traditional IRA contribution.

 

Higher Roth IRA earnings limit:  The maximum amount you can earn and still contribute to a Roth IRA is going up $1,000 ($2,000 for couples) to $133,000 and $196,000 respectively.  Note there are phase outs to the earnings limits for both IRAs and Roth IRAs, but that’s too many words for  this blog.

 

Last, if you are taking Social Security before your full retirement age, the amount of earned income you can have before having 50% of your benefit withheld for 2017 has gone up to $16,920.

 

All contribution limits to 401(k)s and other retirement programs have stayed the same at $18,000 plus $6,000 catch up for those 50 and older.  IRA contribution limits also remain the same at $5,000 with a $1,000 catch up for those 50 and older.

 

There you are, Savers!  Now go forth and make good financial decisions!

 

*Source:  http://money.usnews.com/money/retirement/iras/articles/2016-11-07/how-retirement-benefits-will-change-in-2017

Kristi’s Quotes: 15 Signs You Need a Financial Planner

Financial Planner

Financial planning is the process by which a person or family works with a financial professional to set goals, financial and otherwise, and to develop a plan for meeting them. A Certified Financial Planner™ (CFP®) is trained to develop a plan to serve as that map or GPS. And the CFP designation means they must adhere to a code of ethics and a fiduciary standard that require them to put their clients’ best interests first. To find a CFP® in your area, visit the Financial Planning Association’s national database at www.PlannerSearch.org.

Whatever you’re financial circumstances, it’s probably a good idea for you to consider working with a financial planner if…

The stock market’s volatility sends you into an extreme state of agitation. This “may mean that you don’t have a real plan for your investments and just pick stuff at random to buy,” says Kristi C. Sullivan….

 

Click here for more….

 

What Happens When You Become a Ghoul Yourself?

This time of year we celebrate our dearly departed by dressing up like gorillas and gorging on our kids’ hard won Halloween candy.  But what happens when you actually pass on to the other side?  Have you given thought to your send-off?

 

Jamie Sarche, Director of Outreach and Pre-arranged Funeral Planning at Feldman Mortuary  was kind enough to answer a few questions about the art AND finance of a good funeral.

 

Q:  What are some elements of a funeral that you think are essential for the grieving process of those left behind?

 

Jamie:  A public event, being surrounded by family and friends, who also care about the person who died, helps the bereaved to process the loss and begin to create a new normal. Taking time away from the day-to-day is helpful too. A funeral and mourning period reminds us that grief is a MUCH longer and more complicated process than our death-averse society acknowledges.
 Q: As an expert funeral pre-planner, how is pre-paying for a funeral a smart financial decision?

 

Jamie:  Funerals typically go up in cost 7-10% a year. That means they double in cost approximately every 7-10 years. By planning in advance and paying for the funeral long before it’s needed, you can avoid all that inflation AND give your loved the emotional gift of knowing they are doing exactly the right thing. They will also avoid the overspending that often comes when one has to make all the decisions on the day of a death, the day they are LEAST able to think.

 

Q:  What are some ways that a person can save money on a funeral without sacrificing quality?

 

Jamie:  Choose a funeral home that is family-owned — one that is beholden only to the family, not to shareholders. Choose one that will not pressure you to get more than you think you need. Think about what REALLY matters to you. Is a fancy casket important? A simple box does the same job. If you are creating and scattering the ashes, do you really need a fancy urn? Plan long in advance to avoid inflation and give yourself the ability to pay over time. The funds are held by an insurance plan; if you die while making payments, there is life insurance coverage to pay any outstanding balance.

 

Thanks, Jamie, for your expertise!  For more information on planning your own Day of the Dead, contact Jamie at jamie@feldmanmortuary.com or 303-322-7764.

Ask the Advisor: What you Need to know About Divorce and Money

I recently received a question from someone who wishes to remain anonymous: he and his wife are considering separating and he was wondering about his next step financially – specifically about relocating and what his options are.

 

Divorce is an unsettling time and one of the biggest concerns is where to live.  And this is a question I have had often from recently divorced people:

 

Should they use their portion of retirement accounts to buy a new house?

 

If a large part of your divorce settlement comes in the form your former spouse’s retirement accounts, it can be tempting to use that money for a down payment on a new house.  Here is why I discourage this idea:

 

You will take an enormous tax hit:  Say you want to use $50,000 out of a 401(k) plan to buy a house.  You will be adding $50,000 to your annual income for the year (in addition to work and/or maintenance payments) for tax purposes.  If you are under age 59 ½, you also will be hit with a 10% early withdrawal penalty.

 

If you are in the 25% tax bracket, that $50,000 withdrawal will cost an additional $12,500 in taxes plus $5,000 for the IRS penalty.  So, that $50,000 down payment actually costs you $67,500 after you pay the IRS.

 

You sacrifice your future retirement:  Using the example of the $50,000 withdrawal, let’s figure out what you will give up in retirement security by using that money for a house.   Say you are 45 years old and will retire at age 65.  If you average 7%/year growth in a stock mutual fund over 20 years, that $50,000 would be worth $179,000 at retirement.

 

You may not know where you want to permanently settle right after your divorce:  My realtor friends tell me that buyers shouldn’t expect to make money on a home purchase if they are in the home for less than 5 years.  Commissions, moving expenses, and uncertain real estate values make a home purchase a long term investment.

 

Since divorce is a time of adjustment, it’s hard to say where you will want to live 1, 2 or 3 years after the split.  Maybe a new job will require relocation.  There may be child custody arrangements that necessitate a move.  It may make sense to take 6 months or so to rent and see what happens in your life before you commit to a new real estate purchase.

 

Although you are likely feeling unmoored after a divorce, don’t let emotions cloud your smart financial judgement.  Taking money out of a retirement account to buy a house was a bad idea when you were married and that doesn’t change after a divorce.

 

Ask-The-Advisor-1

Your Year End Tax Planning Starts Now!

Think you can wait until December 31st to do tax planning for 2016?  Think again!  Starting your tax to-do’s earlier in the year makes life easier for your CPA, financial advisor, AND you.

 

Thanks so much to Elizabeth Moore, CPA and Partner at Ryan, Gunsauls & O’Donnell, LLC (http://www.rgo-cpa.com) for these top 5 actions to take NOW.

 

  • Get your books and records in order for the year (i.e., record all of your cash receipts and disbursements in QuickBooks or the software of your choice, reconcile your bank and credit card accounts, update your mileage logs, gather receipts to document expenses, etc.).

 

  • Donate to your favorite charity including churches, schools, or other 501(c)(3) public charities.  You can even donate up to $100,000 directly from your IRA to a charity of your choice which counts toward your Required Minimum Distribution (RMD) for the year and isn’t includable in your adjusted gross income for the year, which is a huge tax benefit.

 

  • If you haven’t met your deductible, get all of those medical and dental appointments out of the way and PAID for by check or credit card prior to year-end.

 

  • Start researching the business vehicle of your choice, NOW, instead of on 12/31.  To establish adequate business use (i.e. 50% or more) of a vehicle to get the maximum amount of depreciation deductions, buying well before year-end is a must.

 

  • Take inventory of your business fixed assets (i.e. furniture, fixtures, equipment, vehicles, etc.) NOW and determine what you need to buy this year, instead of waiting until 12/31.  Not only must the purchase occur prior to 12/31, it must be placed in service prior to 12/31 to be eligible for depreciation.

 

Remember, if you spend New Year’s Eve on last minute tax deadlines, who will be wearing that lovely lamp shade at the neighbors’ party?

 

How Does the Election Affect Your Portfolio?

Well, another Election Day is coming up and I am thrilled.  Why?  Is it because I am SO excited about the two potential candidates that I can’t wait to cast my vote?  Not exactly.

 

The benefit of Election Day to all investment advisers is that hopefully for the next 3 ½ years we can get a break from people asking how I think the election will affect the stock market.  The answer is I don’t know and neither do all of these so called experts on TV making predictions.

 

For those of you who find comfort in numbers, here are some historical facts around elections, parties in power, and stock market returns as measured by the S&P 500:

 

  • Presidential Election Years: +7.4%
  • Incumbent Party Wins (doesn’t matter what party!): +14%
  • Incumbent Party Loses (ditto): -4.4%
  • Democrats Win: +4.3%
  • Republicans Win: 3%

 

The above returns are just one year numbers and…they are in a vacuum.

 

What about if the incumbent party is Democrat and the Republicans win, and of course, it’s a Presidential Election Year?  Will the stock market return 7.4%-4.4%+10.3% = 13.3%?  Who knows?

 

Here is another favorite topic of debate:  What political party is better for the stock market?  Again, there isn’t a very clear answer because it’s not just about who is President, but also who is controlling Congress.  And it’s probably not caused by either factor, but what is happening in the world economy at any given time.

 

Below are average annual returns of the S&P 500 from 1901-2016 in different political climates:

 

  • Democratic President/Republican Congress: +8.6%
  • Republican President/Democratic Congress: +2.4%
  • White House/Congress controlled by the same party: +7.1%
  • Democratic President/Split Congress: +10.4%
  • Republican President/Split Congress: -4.3%

 

Now, how helpful is this information to helping you make investment decisions in an election year?

 

Not at all helpful! 

 

Since Congressional elections happen every two years in some form, these combinations of Presidents/Congress are constantly in flux.

 

Here is what you can do in an election year and all other years:

 

  • Have a well-diversified, low cost portfolio
  • Don’t try to time the market – stay the course through ups AND downs
  • Save, save, and save more
  • Control your spending and don’t go into debt buying elephant or donkey buttons

 

Special thanks to MFS Investments for the fantastic study that I quoted in this blog.  Click here for the whole thing.

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