Reverse Mortgages: How do you know if it’s right for you?

Kristi's Quotes

Let’s get detailed about reverse mortgages.

This isn’t the first time I’ve tackled this subject. But Investopedia recently published a more detailed article (written by yours truly) that provides more information about reverse mortgages and whether or not they’re right for you.

Take a look.

 

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.

Reverse Mortgage Basics

Here are some reverse mortgage basics:

  • Reverse mortgages are also known as home equity conversion mortgages (HECM) and are administered by the FHA.
  • You enter an arrangement with the lender to take money out of your home based on the amount of equity you have and your age.
  • You don’t have to have earned income to qualify.
  • You keep the ownership of your house until the last occupant dies or moves out.
  • You can receive the income from home equity in a variety of ways: For a specific time period, as a credit line to use as needed, or for your lifetime or the time that you or your spouse occupy the home.
  • When you pass away or move from the home, whatever equity is left after the debt and fees are paid will pass back to you (if living) or to your estate. (For related reading, see: How Does a Reverse Mortgage Work?)

Your Financial Goals: Are you keeping your New Year’s resolution?

Kristi's Quotes

Yes, I know that New Year’s was a few months ago, but I just thought I’d check in and see how you’re doing with all of those financial goals you made at the beginning of the year.

 

Here’s an article that might get you back on track: Jean Chatzky, one of my favorite personal financial authors, included me in this piece that helps people achieve the monetary goals that they set way back in January.

Achieving your financial goals.

 

Only 8 percent of people who make resolutions are successful in achieving them.

That sounds like a challenge to me. Nothing gets me motivated like someone thinking I won’t succeed. So let’s make this the year we successfully keep our resolutions. And while I can’t help you lose weight or get organized, I can certainly help with the financial piece of the puzzle.

Here are five steps you can take to help stick to your resolution.

Build in rewards. You don’t want to sabotage your efforts, but much like cheat days help you diet — if you know there’s cake on Saturday, you’re more likely to eat clean on Tuesday — a small reward can give you the motivation you need to keep moving when the urge to spend strikes. “Reward yourself for small victories along the way to stay motivated,” says Kristi Sullivan, a Denver-based CFP professional. “For example, if your goal is to save $2,000, treat yourself to a movie, facial or drink with a friend for every $500 saved.”

Everything But The House: Cleaning out someone’s lifetime of stuff

cleaning out

Cleaning Out + Emotions = Feeling Overwhelmed

 

One of the blogs that I have gotten the most response from was where I implored people to start cleaning out stuff so their kids don’t have to.  Okay, let’s say that proactive wish didn’t come true and now YOU must clean out someone else’s lifetime full of stuff.

 

How will you do it?  You’re busy with work, kids, and your life.  Plus, there are lots of emotions, logistics, and confusion.  How do you know if you are about to throw away a priceless painting or hang onto a worthless piece of a 3rd grade art project?

 

Enter my favorite solution to sticky dilemmas:  outsourcing!  Following is an interview with Alessandra Banno of the estate sale firm Everything but the House.

 

Q:  What is the benefit of hiring an estate sale firm to clean out a house versus doing it yourself?

 

A:  Many people who have done it themselves before can attest that preparing and hosting an estate sale yourself is incredibly stressful, arduous and time consuming! Also, our team often discovers many pieces that might be overlooked otherwise, and, because of our incredible exposure, our clients are able to achieve 3 to 5 times higher revenues than traditional avenues of sale would bring.

 

Q:  What should people consider when deciding to keep or sell items?

 

A:  I encourage my clients to think about the last time they used the items. If they’ve been in boxes or out of sight for some time, then consider how you’re benefiting from these belongings: physically or emotionally. If it’s an emotional benefit, would taking and keeping pictures of the items suffice? If not, I always encourage you hang onto anything you’re emotionally attached to. I never want to persuade my clients to sell something they are not ready to let go of.

 

Q:  Are people realistic about the values of their possessions or do you find they attach a monetary value to memories?

 

A:  It certainly differs depending on the client. Most people understand the fair market value, but if they’re emotionally attached to the item, then we see them attaching a monetary value to the memories.

 

Q:  How does your process work to help people effectively dispose of their household items?

 

A:  At EBTH, we coordinate trash removals and donations for our clients, if necessary, and then we can photograph and catalog the sellable items for sale on our website.

 

Q:  What should people expect to pay for a service to help sell the family valuables?

 

A:  We charge either 40 or 48 percent commission depending on the distance and how labor intensive the project is for our team.

 

Alessandra Banno

 

Thanks to Alessandra for participating in my Spring Clean Out article!  For more information, check out the website:  www.ebth.com

Environmental Investing: How Do I Invest in Global Warming?

Environmental Investing

Ski season is over for the Sullivan family and it was a warm one.  It was still fun, but we were skiing on slush as early as February.  Not to get political, but this global warming debate is all fun and games until it interferes with my winter recreation. So, now it’s time to turn my attention to Environmental Investing.

 

I DON’T give investment advice in this blog, but in case you were wondering, there are some investments that you can make to help Mother Earth.  These would not be areas where I would suggest putting a lot of money.  Maybe 5%-10% at most of your total portfolio should ever go into extremely specialized investments.

Is Environmental Investing a good idea?

 

Historically these environmental sector investments have not had a great risk-reward trade off.  In other words, much risk, not so much reward. However, some are starting to do better.  Okay, disclosures over.  Here are some interesting sector investments I found.

Guggenheim S&P Global Water ETF (CGW)

“Seeks to benefit from the development of new infrastructure, intended to ensure the efficient delivery and quality of water, by investing in companies spanning the water sector.” Quoted from the Guggenheim website.

VanEck Vectors Global Alternative Energy ETF (GEX)

“Index is concentrated in companies whose technologies are involved with solar power, bio energy, wind power, hydro power, and geothermal energy.” Quoted from the VanEck website.

PureFunds ISE Mobile Payments ETF (IPAY)

“The ISE Mobile Payments Index is designed to reflect the performance of companies involved in the mobile and electronic payments industry, including card networks, processors, infrastructure/software and solutions companies.” Quoted from zacks.com.

 

PowerShares Cleantech ETF (PZD)

“The Index is designed to track the leading cleantech companies, from a broad range of industry sectors that offer the best investment returns. The Cleantech Index is a modified equally weighted index composed of stocks (and ADRs of such stocks) of publicly traded cleantech companies. The Fund and the Index are rebalanced and reconstituted quarterly.”  Quoted from invesco.com.

 

Fidelity Select Environment and Alternative Energy Portfolio (FSELX)

“Investing primarily in companies engaged in business activities related to alternative and renewable energy, energy efficiency, pollution control, water infrastructure, waste and recycling technologies, or other environmental support services.” Quoted from fidelity.com.

 

Vanguard FTSE Social Index Fund (VFTSX)

“This low-cost fund seeks to track a benchmark of large- and mid-capitalization stocks that have been screened for certain social, human rights, and environmental criteria. In addition to stock market volatility, one of the fund’s other key risks is that this socially conscious approach may produce returns that diverge from those of the broad market.” – Quoted from personal.vanguard.com.

From Money.com: 3 Tips for Seniors Looking to Make Extra Income

Kristi's Quotes

I was thrilled to be included in this article from Money.com about seniors who are ready to retire from a full-time job…but who might want to keep working a job that will allow them to stay active. I talk about how your age can affect your income tax while Karen Van Cleve, a fabulous Lakewood, CO personal and business coach, offers suggestions for part-time work.

 

Eight percent of U.S. adults earned money from an online work platform in the past year, while 2% sold handmade goods online and 1% had income from home-sharing sites, according to the Pew Research Center. Seniors are less likely than younger generations to participate; for example, about 2% went online for gig work. But older people who venture there typically earn a bigger share of their income online, as the graphic below shows.

Sharing-economy work can add more social interaction and challenges to your day, as well as make your savings last longer. Here are three pointers to find your way.

Click here for more….

Kristi’s Quotes: Do you know what a FED rate hike means?

Kristi's Quotes

Kristi was asked by KHOU News in Houston…what does a FED hike mean to the average American?

Here’s what you should know.

Consumers should be aware of the rate hike for a simple reason: Lenders and banks base their interest rates on the federal funds rate, so when the benchmark increases or decreases, it can impact rates on products like credit cards, auto loans, mortgage rates, and more.

So, what could change for you?

Click here for more….

How much should I have saved for at my age?

saved

What’s the magic number?

 

Forgive me if I’m like the drunk at a party and I’ve already said this to you before.  But it’s come up in a bunch of client meetings lately, so I’m going to tell you again.  And again.  And again.

 

Americans really like to compete when it comes to material wealth.  If you are surprised by this, look no further than our current president.  As such, I get asked often, “Do I have more or less than the average amount saved for someone my age?”

 

The answer is, there is no magic number that every 30-year old, 45-year old, or 70-year old should have in the bank.  There are too many variables to come up with a pat answer.  Everyone has different earnings histories, different plans for when they want to retire, different amounts of home equity, different goals, different everything!

 

But this might help.

The good news is, I found this handy article that gives a nice guideline of how much a person should have saved by various ages.  It’s tied to income (makes sense!) and anyone can use it as a benchmark; it says you should have the equivalent of your salary saved by age 30.  This includes retirement savings, emergency funds, other investments, but not home equity. (Click here for more.)

 

By 35, you should have 2 times your salary saved and up it goes like this every 5 years.  By age 65 (traditional retirement age) you should have 10 times your salary saved.

 

The beauty of this guideline is that it is income based.  If you earn more, you should be saving more.  If you earn less you will be able to save less, but then, you’re used to living on less and don’t need such a big retirement nest egg.

 

 Article Links:

 

Want more info on reverse mortgages without the sales pitch?  Check out this guide from your friendly Federal Trade Commission:  https://www.consumer.ftc.gov/articles/0192-reverse-mortgages

 

This is a very handy chart comparing different small business retirement plans side-by-side:

https://www.fidelity.com/retirement-ira/small-business/compare-plans

 

This article comparing Roth and Traditional IRAs from Nerdwallet has some handy calculators built right in.  https://www.nerdwallet.com/blog/investing/roth-or-traditional-ira-account/

 

Here is another guide to different nest egg goals for different ages and incomes.  http://www.financialsamurai.com/how-much-should-one-have-in-their-401k-at-different-ages/

 

Kristi’s Quotes: How much rent can you afford?

Kristi's Quotes

When Credit.com asked Kristi her advice on how to determine how much rent someone can afford, she offered this advice:

Consider your expenses.

If you’re like many Americans, you have debt. This is especially prevalent among young college grads. That has to be a factor in deciding what you can afford in housing costs.

“The conventional statistic is that no more than 28% of gross salary be spent on housing and no more than 36% on consumer debt. However, that does not at all take into account other obligations in people’s budgets,” said Kristi C. Sullivan, a CFP in Denver….

 

Click here for more….

Roth IRA vs. Traditional – Which Is Right For You?

Roth IRA

Have you saved for 2016?

 

April 15th looms and for those of you who haven’t saved for 2016, time is running out.  As if that pressure isn’t enough, you have to decide what kind of retirement account to use.

 

Roth IRA

Roth IRAs allow you to put up to $5,500/year in ($6,500 if you are 50 or over).  The money you put in has no tax write off today, but the growth is tax free when you withdraw at retirement.   You need to have the money in the account for a minimum of 5 years or until age 59 ½, whichever is longer in order to access the growth tax and penalty free.

 

Money you contribute to a Roth can be accessed at any time with no taxes or penalties. So, if you put $10,000 in a Roth IRA and the account is worth $20,000, you can withdraw the first $10,000 without taxes or penalties regardless of your age.

 

Not everyone can contribute to a Roth IRA.  Like any benefit the IRS gives, there are income limits on who gets to enjoy them.  The income limits start at $117,000/year for single folks and go up to $187,000/year for married couples in 2016.  (Click here for more details.)

 

Traditional IRA

Traditional IRAs are the original players in the retirement account game.  The money you contribute (same limits as above) can be deducted from your income taxes as long as you don’t have access to a workplace retirement plan and fall under IRS income limits.  (Visit the the IRS website for the income limitations.)

 

Growth in the Traditional IRA does not generate a current tax bill, but you will pay taxes at your regular income tax rate when you withdraw the money at retirement.

 

Which is best?

It’s hard to say because we don’t know what your tax rate in retirement will be compared to now.  If you know you tax rate is higher now than in retirement, go for the tax-deferred option.  If you suspect you will have same or tax rates in general will be higher in your retirement, you might like the Roth better.

 

Since we don’t know future tax rates any more than future investment returns, it’s a good idea to have a mix of both Traditional and Roth retirement accounts.  That way, you are ready for anything!

 

Retirement Plans for the Small Business Owner

small business owner

Want to sell your business for $1billion?

 

At the heart of the small business owner is the hope that someone will come along and buy his business for exactly the right amount of money to retire to the Caribbean.  Just in case that doesn’t pan out, how you will support yourself when your business no longer does?

 

You need to save for retirement.  Every year.  Unglamorous, but your 65-year-old self will thank you.  And, your lower-income-tax-paying self today will be happy, too.

How to do it?

Individual Retirement Account (IRA): 

These can be used by anybody with earned income. The money you put into a Traditional IRA can be deducted from your income taxes if you don’t have access to a workplace retirement plan and fall under certain income thresholds.

 

The growth is tax-deferred, meaning you don’t pay taxes on the earnings of the account until you withdraw at retirement when taxes are owed at the rate of your taxes in retirement.  The maximum amount you can put in each year is $5,500 and you have until April 15th following the tax filing year to contribute.  Anywhere that handles money (your bank, credit union, brokerage company) will open an IRA for you.

 

A variation is the Roth IRA where you contribute up to $5,500/year, but do NOT take a tax deduction for the contribution.  Why bother?  Tax-FREE growth!  When you take the money out at retirement, you don’t owe any taxes withdrawal.

 

SEP IRA: 

This IRA is meant for small businesses. You can deposit 25% of compensation to a max of $54,000 in 2017.  The contribution is deductible from your taxes and the growth is tax-deferred like a Traditional IRA.

 

The catch is that you must put the same percentage of compensation for any eligible employees as you do yourself.   Accounts must be set up and funded by April 15th of the year following the tax year for which you are contributing.

 

Self-Employed 401(k): 

This is account is available only to small business owners who have no employees other than their spouse.  The SE 401(k) allows you to put 100% of compensation up to $18,000 ($24,000 if you are age 50 +) plus 25% of eligible compensation as a profit-sharing match.  The contributions are pre-tax and the growth is tax-deferred.  The maximum dollar amount allowed is $54,000 for 2017.

 

This plan allows those with less net income to put more away than a SEP IRA.  The plan must be established by December 31st of the tax year the contribution is for, but can be funded up until April 15th of the following year.

 

Simple IRA: 

These accounts let businesses with less than 100 employees open a low-cost retirement plan where employees can contribute their own money.  You are required to offer a small match for contributing employees, but it’s not as much as the SEP IRA.  The maximum employee contribution is $12,500 for 2017.

 

Please, do not take this as personal tax advice.  Consult your CPA before deciding which plan is right for you.

 

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