Category Archives: Blog

Unconventional Ways to Save For Retirement

Many experts recommend saving a minimum of one million dollars to fund retirement adequately. Others advise clients to set aside ten times your end of career salary, which in many cases amounts to one million dollars or more. Late starters could need to save 20% or more from now until retirement, to achieve adequate savings. With other pressing financial needs such as paying down debt or assisting children with college, the savings recommendations can feel out of reach.

Before deciding you can never retire, consider unconventional saving strategies which can supplement employer-sponsored or personal retirement plans you have in place. Three potential options which can create cash flow in your senior years include the following:

Real estate is a form of diversification that can create wealth and cash flow. While the typical home appreciates 5% each year, you can use other strategies to increase your rate of return, and they provide diversification from traditional stock and bond investments. One major benefit of real estate investments is the many forms available based on your interest, knowledge, and comfort with risk. You have the option of buying and renting residential or commercial property, repairing and flipping homes for a profit, providing cash for other investors, or buying tax liens.

Annuities come in fixed and variable products and can provide lifetime income in retirement much like a pension. They appeal to conservative and moderate investors because they offer a safety net traditional brokerage accounts lack.

Small business ownership. Starting a part-time business before leaving work can provide a way to occupy your time while supplying cash flow in retirement. The Internet has opened new options to seniors wanting to parlay current skills into a part-time income, supplementing retirement income needs.

Capitalizing on unconventional income opportunities can enhance your quality of life in retirement even if you are short of your savings goals.

Saving for Retirement with No 401K

The Bureau of Labor Statistics estimates that 33% of the workforce have no access to employer-sponsored retirement plans such as 401ks. While employer plans help millions of employees’ fund retirement, others must build a retirement nest egg through their own efforts. There are several options available to workers without access to a company-sponsored plan, offering tax incentives for participation. Those with a 401K can often double up by contributing to additional accounts earmarked for retirement.

The top solutions when you must fund your account independently include the following:

Traditional IRAs offer many of the same benefits of a work-sponsored plan, including deductible contributions and tax-free growth. You may contribute up to $5,500 per year and an additional $1,000 for everyone over the age of 50. Contributions lower taxable income, and you do not pay taxes until withdrawing the funds. To gain the tax benefits, you must leave funds in the account until you reach 59 ½, with few exceptions. Withdrawals must begin by age 70 ½.

Roth Ira is another IRA option that provides tax free growth on funds earmarked for retirement. It holds the same contribution limits as a traditional IRA, and you can choose to fund one or both accounts up to the maximum of $5,500 annually plus any qualified catch-up contributions. The key difference is you forgo the initial tax deduction to gain tax-free withdrawals.

SEP Ira accounts are available to anyone receiving a 1099 or the self-employed. They offer higher contribution limits, up to 20% of compensation annually and follow the rules of the Traditional IRA with regard to taxation and withdrawal requirements. The IRS has specific guidelines which must be followed to qualify. SEP accounts offer the potential to save larger amounts for the self-employed.

Paying for your retirement takes discipline and consistency. Automating deposits and building payments into your budget will help you stay on track.

Should You Apply for a Reverse Mortgage?

Recent changes in reverse mortgage policies are leading to a surge in popularity. Seniors who enter retirement, but lack adequate savings can tap the equity in their primary home to bridge the gap. However, using a reverse mortgage unwisely could lead to the loss of your home. Here are the key factors to consider when considering if a reverse mortgage is right for you.

  • How much equity do you have? To qualify for a reverse mortgage, you must have substantial equity. New rules limit withdrawals during the first 12 months to 60% of approved equity, requiring any current balance to be below than amount. Lenders decide on a loan amount based on the home’s market value and your life expectancy. They will leave enough equity to cover the interest payments which will grow with your balance.
  • What are your ongoing cash flow needs? In some cases, you can eliminate the mortgage payment and have enough income to pay all other bills. Using the funds to pay off debt, buy a vehicle, or other current needs could leave you with no resources for rising medical bills or living assistance needed later in retirement.
  • How long do you plan to remain in the home? With high upfront fees, sometimes over 10% of the loan amount, it is an expensive loan. If you plan to move in the near future, a traditional equity line may better meet your needs.

A reverse mortgage eliminates a mortgage payment and can give you access to cash using the equity in your home. Provided you remain in the home and pay annual taxes and insurance; you may live in the house without repaying the loan. The new loans also come with protections for a non-borrowing spouse, making them more attractive to many seniors nearing retirement.

Changes in Reverse Mortgages Lowering Default Rates

The recovery of the housing market, combined with regulatory changes regarding reverse mortgages, has once again made them attractive to seniors looking for an influx of cash in retirement. The industry faced challenges when home values fell, leading to negative equity in millions of reverse mortgages, threatening the survival of the product. The Reverse Mortgage Stabilization Act of 2013, with the last phase implemented in 2015, addresses the most pressing issues, including strategies to lower the double-digit default rate.

The two major changes in the Act make reverse mortgages safer for seniors.

Limits on initial draws. The new policies limit payments during the first 12 months of the loan to 60% of the initial loan amount. Leaving 40% equity in the home allows borrowers to tap those funds if needed to pay annual taxes and insurance. It also keeps available additional funds to bridge cash flow gaps in retirement. Seniors can take a lump sum or monthly payments on the equity loan without repaying the balance. The downside to the change is the first current mortgage must be lower than 60% of the approved equity to pay off the loan.

New underwriting policies. In the past, anyone with adequate equity in a primary home could qualify for a reverse mortgage. New legislation now requires lenders to underwrite the loan similar to traditional mortgages. They must consider both the credit and financial health of the applicant and ensure they have enough reserves to maintain the home.  Failure to meet the new standards could lead to a loan decline. For borderline applicants, banks can require a reserve fund called a Life Expectancy Set Aside, which earmarks funds the bank controls to cover the cost of annual taxes and insurance.

The goal of the new policies is to cut the default rate in half and enable more seniors to remain in their home longer.

Weighing the Option of Reducing Student Loan Debt or Paying for Retirement

Record high student loan balances, have many graduates putting off other long-term financial goals, which often include funding retirement. The immediate bill can feel more urgent than retirement in the distance. However, failing to account for the benefits of compounding could leave you with significantly less in retirement accounts down the road.

Factors to consider when deciding to reduce student loan debt versus retirement savings:

  • What is the loan interest rate compared to the potential investment return? Federal student loans come with low interest. The S&P averaged over 10% in the last decade, which includes recession figures, making it possible to gain more on investments than the interest paid. A higher investment return gives you a net gain, even if it takes two decades to pay off the loans.
  • How long before you retire? The closer retirement is, the higher the cost of delayed funding. Saving for retirement takes on more urgency as you get enter your 40’s and 50’s. With less time to grow funds, additional delays can lead to working longer and lower long-term financial security.
  • Do you have free money options to increase savings? An employer match of retirement funds is essentially free money, provided you contribute enough to max out the benefit. Foregoing the match to pay down debt will cost you not only potential compounding but free money from your job.

In many cases, you are better off setting extra money aside for retirement, rather than expediting student loan payoffs. You will build savings faster, leaving you with a more secure financial future.

On the other hand, when facing high-interest credit card debt, you may need a different strategy. Double digit interest and daily compounding, makes it difficult to earn an investment return high enough to warrant the trade-off.   

Understanding the ROI Calculation

Calculating the Return on Investment (ROI) is an uncomplicated way to compare one investment with another. It is one of several measures, which help determine the strength of an investment and estimate future gains. Investors commonly use it to assist with long-range financial planning.

ROI is a simple calculation that considers the investment gains compared to the cost. To calculate the percentage, take the financial increase and subtract the cost, then divide by the cost.

An ROI provides an investment snapshot at a specific point in time. You only realize the gain or loss, if you sold the investment at the time you complete the calculation. It is often called a paper profit or loss because you do not receive the funds or take the loss until you sell.

The calculation has limitations because it does not consider other key investment factors such as volatility or liquidity. Volatility measures the range the value of the investment rises and falls over time, where liquidity addresses how fast you can access funds. Sometimes to get higher returns, you must sacrifice other factors, which might not meet your needs.

When relying on ROI calculations for future gains, estimates assume steady and consistent growth, which is not consistent with actual markets. Averages are not hard figures representing actual performance. Real world experiences mean an average 8% return, could experience losses for several quarters or even years, which still compute a positive average, but impact overall account growth and compounding.

Using an investment’s return allows you to compare it with other options in the market. The rudimentary figure, added to other factors, such as time to retirement and comfort with risk, can serve as a guide. It does, however, have its limitations and serves as one piece of the decision-making process, not the only factor.

Best Ways to Lower Your AC bill This Summer

The HVAC system uses more power than any other device and in some places, can comprise half the energy use in your home. During the heat of the summer, that translates into a much higher power bill. To keep costs in line there are a few simple changes you can make, to reduce the amount of power required to cool your home and lower the power bill.

Check the landscaping around your home. Trees and bushes near the house can create natural shade, and reduce the heat absorbed by walls and windows.

Window treatments. Windows allow light (and heat in) raising the temperature of each room. Block the rays of the sun through simple steps such as closing shades or blinds during the day. Ways to reflect light and reduce energy loss by as much as 70% include using solar screens or placing a reflective film on windows.

Turn on fans. They use less energy and circulate the air, which reduces humidity. Leave the AC unit at a higher temperature and use fans in the rooms you occupy to increase comfort while lowering costs. Both ceiling and floor fans cost effectively increase air flow and lower room temperature.

Watch heat sources. Avoid running the dishwasher, dryer, stove, or oven during the hottest time of the day. Cooking outside, or using smaller appliances such as a toaster oven or microwave will reduce the heat produced in the kitchen. Run the dishwasher overnight and hang clothes when possible to reduce energy use and heat from these appliances.

Program your thermostat. Lowering the HVAC unit’s temperature setting when away can lower the power bill as much as 10%. Program the thermostat around your schedule to automatically adjust the temperature.

You can achieve significant savings on your power bill by taking a few proactive steps.

Auto Loan Balances Hit New Highs

In the last quarter of 2016, outstanding balances on auto loans hit a record high of 1.2 trillion dollars. Consumers, while taking out fewer mortgages, have made up the difference with automobile loans, increasing balances by 22 billion during the last quarter of 2016. Easy lending practices largely account for the higher loan balances.

Since 2010, subprime loans for vehicles rose from 5.1% of automobile loans to 32.5%. Lenders now use technology to track and recover vehicles from delinquent accounts, increasing the comfort of lenders targeting those with poor credit. When a buyer misses a payment, the company can remotely disable the vehicle, or use GPS tracking to locate the car and repossess it. These practices reduce lender risk, but have also resulted in a rising default rate on car loans, reaching 12% in 2016.

Buyer Beware

Borrowers with credit scores as low as the mid 500’s can qualify for a vehicle loan. However, those with lower scores, pay higher fees and high interest, despite the collateralized loan. It is not uncommon for buyers to see rates over 20% with fees adding several thousand dollars to the loan balance. High interest, combined with small down payments and exorbitant fees leaves borrowers upside down on the vehicle, owing more than it’s worth. Trapped in a high-interest loan, buyers cannot refinance, trade in, or sell the car, without paying thousands in out of pocket costs, to pay off the loan. Those struggling to make payments often resort to repossession, further damaging credit and limiting future financing options.

Before buying a new car with unfavorable terms consider all your options which could include repairing your current vehicle or buying an older model car. If you must finance a car, take steps to raise your credit score before applying.   

Finding Family Fun Within Your Budget This Winter

Brisk winter days and cold nights can leave you stuck inside wondering what to do during your free-time. Winter entertainment tends to be more limited than summer months provide because inexpensive activities like parks and outdoor concerts are off the table. Along with a smaller selection, activities also tend to be more expensive. Here are a few creative ways to reduce the cabin fever while engaging in fun and interesting pursuits that will not only save you money but provide quality time with your loved ones.

At Home, Indoor Fun

Tap into your inner chef. Making trail mix, cookies, or other treats will teach children valuable skills and are fun for everyone. All ages can help with the cooking, by assigning tasks based on skill level. Children can learn to follow a recipe, get creative with their own creations, and savor the finished product. You can make trail mix starting with a base of Chex cereal or popcorn and then add their favorite ingredients. It is a healthy snack which includes your choice of nuts, pretzels, dried fruits, raisins, or M&Ms. Finish the mix off with some seasoning such as sea salt, cinnamon, or cayenne pepper for a spicy treat.

Night (or day) at the movies. Visits to the theater is a popular winter entertainment choice. Save money by creating a movie night in your living room. After cooking their favorite treats, children can settle down in sleeping bags on the floor to view their favorite movie or television series. If you want to create a movie screen effect, use your computer and a projector to amplify the feature on a blank wall. Netflix, Amazon Prime, and other streaming services have a wide selection of movies or choose a newer flick from a local Redbox.

Game Night is another way to customize an evening of fun with the family. You can create games on your own or choose your favorite board game for an evening of laughter. Playing games develops important life skills and gives you bonding time over their favorite snacks and hot cocoa. Choose from strategy games like chess, monopoly, or battleship, or more entertaining selections like charades. Many of today’s gaming systems include interactive sports like bowling and tennis the whole family can enjoy.

Start a bonfire. Use an outdoor fire pit to create a warm blaze on a cold night. Add hot cocoa, marshmallow roasting, and music or storytelling for an evening everyone will remember.

Away from Home, Indoor Entertainment

eFree Museum Days are offered year around to residents. Take advantage of indoor activities and free days out during the cold winter months. Many museums offer one day per week or month where residents can visit the museum at no charge. For example, anyone with a Bank of America or Merrill Lynch debit or credit card can receive one free admission the first weekend of each month at participating museums throughout the country. View the museum’s website for other dates offering free admission.

Frequent the library. Today’s libraries have a lot more than books. You can check out movies, games, and books. Enjoy an afternoon reading magazines and newspapers from around the country. Participate in activities, crafts, and story time. Many l ibraries also provide teen rooms, computers with interactive educational games for children, and events, most free of charge.

Movie Matinees are inexpensive entertainment for families. Movies in the early afternoon cost around half the price of an evening show, although some matinee pricing ends as early as 3 pm. During school holidays, some theaters add $1 movies and play old favorites targeted to young children.

Visit a Bowling Alley. Bowling is a sport enjoyed by all ages and skill levels. Look for winter specials that offer two games plus shoe rental, and you may find an evening of fun for around $10 per person. Even without a discount, you can typically enjoy a few hours of bowling for about the cost of a movie plus shoe rental. Most facilities have bumper guards to help young bowlers and score tracking, so you don’t have to keep up with the score. Many places have added additional entertainment like video games, pools tables, and other activities geared towards teenagers and families.

Getting Outside

Play in the snow. Falling snow is a gift from mother nature you may not appreciate as you dig your car out or shovel the driveway. Yet, snowball fights, building a snowman, and sledding are a source of free entertainment children crave. At the first sign of snow, they can make snow angels, build a snowman family, and if there is enough design snow forts or igloos. Sledding requires some equipment, but you can always use trash can lids or cardboard boxes if you don’t have enough snow to warrant buying a sled. If you don’t have an incline in your neighborhood, local parks may provide a safe place to sled on snowy winter days.

eIce Skate indoors or out. Indoor ice skating rinks are widely available and don’t require cold weather to enjoy. However, during winter months, outdoor rinks pop up across the country giving you a chance to practice your skating in the crisp evening air.

Discounted outdoor sports. Winter sports abound in the northern half of the country and include sports such as skiing, snowboarding, snowshoeing, snowmobiling, and camping. The trouble is that many of these activities are expensive ventures. The first way to reduce costs is to own equipment for sports you regularly participate. It can reduce the per trip cost up to half. Season passes to your favorite resort is another way to make an expensive sport more affordable if you use it regularly. Lastly, look for local discounts. Most resorts rely on tourists visiting during the weekend and charge a premium on those days. Lower the cost by going during the week, in the evenings or later in the season.

eAffordable family fun during the cold winter months does not need to relegate you to a boring winter. Make the best of this time to create family memories and take advantage of all nature has to offer. Snuggle up by a warm fire, or grab your gear to enjoy a winter filled with fun yet affordable undertakings.

How to Support Charities on A Budget

We are a generous culture, and charitable giving is an important role in our society. Last year charitable causes received $57.9 billion dollars in doonations, an increase of 6.5% over contributions made in 2014. The average family donated $2,974 in goods and services to charitable causes for a total of $373.25 billion for the year. Corporations and foundations made up the remaining gifts¹.

Charitable giving is becoming more important in society as consumers tailor spending and loyalty towards companies that partner with charitable organizations they support. A fast growing industry trend is partnerships created between corporations and charities, increasing awareness and desire to increase generosity towards these organizations that help make the world a better place. The challenge comes, when you struggle to pay your own bills, it can be hard to justify charitable spending.

Here are 10 ways to support your favorite cause without blowing your budget.

Donate physical items instead of money. Donations help both the giver and receiver. The charity gains items they can give to those in need or sell at reduced prices in retail stores. Companies like Goodwill, offer employees jobs and build skills for additional employment opportunities. You win because you reduce clutter, get rid of things you no longer use, and receive a tax deduction if you itemize your taxes. Donating household goods can be made at stores such as Goodwill and the Salvation Army, or companies that pick up goods in your neighborhood each month. Most cities also have distribution drop off sites, but you should check to ensure the company is connected with a charitable cause you support. Some are private companies rather than charities. Many charities also accept non-traditional items such as old electronics, vehicles, stock, and other non-cash goods.

Donate change. During the holiday’s companies like the Salvation Army have a team of bell ringers collecting spare change from consumers, raising thousands of dollars for their cause. You can also collect change throughout the year at home and donate the cash to your favorite organization each month or quarter. A donation jar at home can involve the whole family and help instill generosity in your children.

Use credit card rewards programs. Most major charities accept rewards as donations and offer a tax-deductible receipt to the giver. You can use the rewards you accumulate from purchases on the card to help those in need. Companies such as Capital One, Discover, and American Express have formal programs making it easy to transfer rewards to your favorite charity and cover any transaction fees for such donations. American Express converts points to cash donations and Make a Wish Foundation accepts miles’ donations to honor the wishes of sick children. A few credit card companies partner with a specific charity, donating a percentage of every purchase to the cause. The World Wildlife Fund Credit Card and Susan B Komen credit card are examples.

Give the gift of time. In addition to donations, Charites need people to volunteer their time. There are local opportunities to work with organizations as leaders, workers, or one-time volunteers. You can choose to participate in an annual event, fundraiser, festival, other one-time events. Most charities also welcome regular volunteers who come in each week or month at specific times. Charities such as scouting, boys and girls clubs, food banks and other local charities rely heavily on volunteers for much of the needed work.

Virtual volunteers can help from home for either local or national charities. With more tasks moving online there are many opportunities to help charities without leaving your home. Do you have a computer, web development, or writing skills? Many charities need help with website design, social media posts, and other content. Even simple computer or phone skills are useful for tasks such as calling volunteers to coordinate schedules or completing data entry, or online research. The ability to volunteer online work enables the elderly and busy families to contribute as your schedule allows.

Participate in drives. Area blood drives, book drives, and other organized efforts help charities immensely without requiring out of pocket money. You can volunteer to staff a blood drive, make cookies, or give blood. Staff a local book drive and donate at plasma centers, which often pay a small amount for your time.

Participate in promotional events and corporate partnerships. Charities sometimes partner with local companies who give the charity donations based on sales. For example, a local grocery store may partner with a local school, and donate a percentage of all your purchases throughout the year, when you connect your grocery rewards card to the school. A restaurant may have a specific night where a percentage of purchases made go to the organization. To participate, you only need to mention you are supporting the non-profit.

Participate in charity events. Races such as marathons, triathlons, and fun runs typically raise money for charity. To participate you pay an entrance fee to cover the cost of the event and then you can raise money for a cause you support. You get the gift of exercise, and the charity increases donations.

Involve the family. Volunteering as a family gives you family time without a cost. Children experience the joy of helping others and can learn valuable skills. Whether they read to younger children, help out at an animal shelter, or serve a meal at a soup kitchen, volunteering can be an eye-opening experience for children of all ages. Choose an activity that is suitable for your child’s age and interest.

Hold a charity event. Garage sales, bake sales, and car washes are common sources of fundraising for charities without requiring a lot of out of pocket funds. Get a small group together and have a sale. Then donate the proceeds to your favorite charity.

Helping others can bring new light to your current financial situation and help you feel useful in the process. Use these ideas to support your favorite cause without going over budget.