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What Is the Real Return of an Investment? – SmartAsset

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When measuring investment performance, it’s helpful to understand its real return. The real return on investment is what you earn after returns are adjusted for inflation and taxes. Nominal returns, on the other hand, don’t account for those deductions. Understanding the real return on investment matters, as it can tell you more accurately how much purchasing power it’s likely to yield.

You can talk to a financial advisor about how to create a strategic investment plan.

How Is Real Return Calculated?

Finding an investment’s real rate of return involves a fairly simple formula. Here’s an example:

Real return = (1+ Nominal rate) / (1 + Inflation rate) – 1

To find the real rate of return on investment, you need to know the nominal rate and the inflation rate. The nominal rate is the stated interest rate or return that you can expect to earn on an investment. The inflation rate measures changes to the prices of consumer goods and services over time.

As a general rule of thumb, nominal rates are always higher than real return rates. That makes sense since the nominal rate doesn’t account for inflation or taxes. The nominal rate and the real rate of return may align more closely when inflation is close to or at zero, or the economy is experiencing a period of deflation, both of which are rarities.

Real Return Example

It’s easy to gauge the effects of real return, even if you’re not doing a step-by-step calculation. For example, let’s say that you deposit $20,000 into a CD. The bank is offering a 5% APY, which represents the nominal rate you could earn on your money. Over a 12-month period, you’d earn $1,000 in interest.

But what if the inflation rate is 2.5%? That cuts the purchasing power of the $1,000 in interest you earned in half. So now, that money is technically worth $500, which represents your real return.

That just accounts for the impact of inflation on your CD earnings. CD interest is considered taxable income by the internal revenue service (IRS), along with interest earned on other types of savings accounts. Once you factor in what you might owe in taxes on the interest, that can shrink your real return even further.

Are There Any Flaws With Real Return?

Calculating the real rate of return requires you to factor in taxes and inflation. That’s a good thing, as again, it can give you a more realistic picture of how much spending power a particular investment is generating.

There is, however, one thing that real return doesn’t account for. This formula doesn’t incorporate the fees you might pay to own an investment, and that can include:

Managing investment fees is important as those additional costs can detract from the total returns that you get to keep. Choosing tax-efficient investments, such as low-cost index funds or exchange-traded funds (ETFs) with a low asset turnover ratio, can help to minimize your fee expenses.

It’s also important to keep in mind that every investor’s tax situation is different and that inflation is not static. Even small changes to the tax code or slight increases in prices for consumer goods and services can have a significant impact on real return calculations.

How to Maximize Real Return

Getting the most return possible for your money is challenging, as certain factors may be outside of your control. While there are things you can do to pay less in fees for your investments, there’s not a whole lot that you can do directly to control inflation or changes to the tax code.

What you can manage is how you deal with the impact of both on your investments. With regard to inflation, that can mean choosing investments that tend to offer a higher rate of return overall. Stocks, for instance, can outperform certificates of deposit (CD) rates or money market funds. However, investing in stocks does carry more risk.

You can also choose investments that move with inflation or are otherwise inflation-proof. Real estate is a great example. Property tends to appreciate in value over time and when inflation goes up, rental prices can increase in tandem. If you’re renting a property out, then you can ride with the tide so to speak when it comes to how much you charge.

Minimizing the Effects of Taxation

In terms of taxation, there are a few strategies you can use to minimize the effects. Some of the best ways to save on taxes as an investor include:

  • Choosing longer-term investments, which are subject to the more favorable long-term capital gains tax rate.
  • Contributing to tax-advantaged accounts, such as 401(k) or individual retirement accounts (IRAs).
  • Allocating less tax-efficient assets, such as traditional mutual funds, to an IRA or 401(k).
  • Harvesting tax losses to offset capital gains.
  • Claiming all eligible deductions in order to shift into a lower tax bracket.

Bottom Line

Understanding real return is important when deciding how to invest money. The more purchasing power you have, the further your dollars can go. If you’re just looking at nominal returns, you can end up with a skewed sense of how much your investment might be worth. For example, say that you’re eyeing an investment that has delivered a 15% rate of return to investors over the last 10 years.

That sounds good but it doesn’t tell you how inflationary changes or updates to the tax code may have affected the earnings investors actually got to keep over that same period. It’s possible that once inflation rates and taxes are factored in, the net return is negative or zero. That’s something you’d like to know before you invest. Talking to a financial advisor can help you come up with a plan for managing taxes on investments so that you can get the best real return possible for your money.

Investing Tips

  • If you need help calculating the real return on investment, consider talking to a financial advisor. A financial advisor can walk you through the numbers when deciding what to include in your portfolio. And finding one doesn’t have to be difficult. SmartAsset’s financial advisor matching tool makes it easy to connect with three vetted financial advisors who serve your area. It takes just a few minutes to get your personalized advisor recommendations online. Get started now.
  • Many investors confuse an investment’s returns with its yield. You never have to make that mistake again, though. Learn the difference between these two key concepts, along with how a combination of strong yields and steady returns can help you meet your financial goals.

Photo credit: ©iStock.com/tdub303, ©iStock.com/Orientfootage, ©iStock.com/oatawa

Rebecca Lake, CEPF®
Rebecca Lake is a retirement, investing and estate planning expert who has been writing about personal finance for a decade. Her expertise in the finance niche also extends to home buying, credit cards, banking and small business. She’s worked directly with several major financial and insurance brands, including Citibank, Discover and AIG and her writing has appeared online at U.S. News and World Report, CreditCards.com and Investopedia. Rebecca is a graduate of the University of South Carolina and she also attended Charleston Southern University as a graduate student. Originally from central Virginia, she now lives on the North Carolina coast along with her two children.

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Save more, spend smarter, and make your money go further

MintLife investing columnist Matthew Amster-Burton has been answering questions from the Mint.com Facebook page and Twitter.

Angela writes: I’m getting married – and soon! What are the top investment-related things my fiancé and I should be thinking about?

Congratulations, Angela!

My favorite investing topics are how stocks and bonds work, how to pick the best funds in your 401(k), and putting it all together into a plausible financial plan.

Unfortunately, the most important investing topic for newlyweds isn’t any of those things — it’s debt. (I know, I kind of want to punch me, too.)

Debt is the opposite of investing. When you invest, you’re turning your money over to someone else in hopes they’ll do something smart with it and give you more money back later. When you take on debt, someone else is investing in you. (Try saying that in a horror movie voice.)

That doesn’t mean all debt is bad, though. It’s just that mixing debt and investing — with a couple of exceptions I’ll get to in a minute — is usually a bad move and most newlyweds bring at least some debt to the marriage.

Let’s say you or your fiancé has a student loan charging 6.8% interest, which is the going rate for an unsubsidized Federal Stafford loan. Paying down this loan is the equivalent of earning almost 6.8% on a risk-free investment (I say “almost” because the interest in tax-deductible, so the effective rate is a little lower).

What is the most you can actually earn on a risk-free investment? About 2.25% on a 5-year CD.

The same goes for credit card debt (duh) and car loans. It doesn’t make any sense to start investing in stocks and bonds when you can get a guaranteed risk-free return by paying off the debt.

Most couples find debt stressful to talk about, partly because it’s easy to see right there in black and white (and red ink). It’s also painfully obvious whose debt is bigger and that’s not a contest anyone wants to win.

You and your fiancé probably already know about each other’s debts, but if not, now’s the time to lay it all out and start talking about how you’re going to conspire to wipe it out.

Oh, and build an emergency fund, too. Sigh.

Exceptions to the rule

Now that the unpleasantness is out of the way, let’s talk about a couple of reasons why you might want to go ahead and start investing — even if you still have some debt around.

Get the 401(k) match. Do your employers offer a 401(k) match? Take it, take it, take it. Even if you have other debt, turning down a 401(k) match is like turning down a raise. Please don’t do that.

Think about your mortgage attitude. If you’re planning to buy a house, some people (like me) argue that you should concentrate on paying down the mortgage and neglect your investment accounts. Others argue just the opposite: mortgage rates have never been lower, you can refinance if they go down further, and you’re likely to earn a higher return on your investments than the interest you pay on your mortgage.

You and your fiancé should have this conversation and if you find yourselves in the “pay it down” camp, consider a 15-year fixed rate mortgage. You’ll get a lower interest rate and force yourself to pay the mortgage down fast.

Advanced moves

Maybe I’m not giving you enough credit. Maybe you’re a couple of go-getters coming to the marriage without any debt; maybe one of you already owns a house and the other is moving in. (No, I can’t believe I just said “go-getters” either.)

In that case, you need to make sure you’re on the same page — investing-wise. This is important for two reasons:

  • Since you presumably expect to live off a shared pool of savings in retirement, it makes little sense for you to manage your investments with two separate philosophies. If one of you likes index funds and the other is a stock-picker, you need to hammer out a compromise.
  • Looking at all of your investments as a single portfolio allows you to simplify your holdings and choose the best funds in each of your accounts. For a great overview of how to do this and why it’s important, see author Mike Piper’s post from the Oblivious Investor blog: It’s All One Portfolio.

Oh, and one last piece of advice: talking about investing on your honeymoon kind of kills the mood. You might want to wait until the night you get back to pull out this column and say, “We need to talk.” That should really win him over.

Matthew Amster-Burton is a personal finance columnist at Mint.com. Find him on Twitter @Mint_Mamster.

Do you have an investing question for Matthew Amster-Burton? Head over to the Mint.com Facebook page and ask away!

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Seattle may be cold and rainy, but these apartment spas are the perfect place to escape the elements in the Pacific Northwest.

When you live in a city where it rains 9.4% of the year, it’s essential to have a peaceful place to escape to that’s protected from the unpredictable elements outside. The apartments on this list stand head and shoulders above the rest of the Seattle apartment scene and provide residents with everything they need to unwind and recharge within Seattle’s best spas without leaving their buildings.

Whether you’re a practicing yogi, a busy nine-to-fiver or simply someone that enjoys the spa treatment, these apartments offer up a long list of amenities tailor-made to help you disconnect from the stresses of daily life.

Source: Rent. / Onni South Lake Union

It almost isn’t fair to call Onni South Lake Union an apartment complex. That’s because the list of amenities on offer at this Cascade complex is over the top in all the right ways. Onni South Lake Union provides residents with everything they need to unplug and unwind. The residents of this 795-unit apartment community benefit from an on-site sauna, steam room and yoga room.

That’s not to mention the indoor pool and jacuzzi that rivals that of the most exclusive spas and clubs in the country. This indoor oasis has a large pool and hot tub as well as a plunge pool. Good luck finding all that at another apartment complex.

Source: Rent. / The Ivey on Boren

Every amenity provided at The Ivey on Boren is executed to the highest degree. There’s no better example of this than the serene yoga studio. With huge windows, soaring ceilings and a mirrored wall, this proves the ideal place for stretching, self-reflecting and recharging in peace.

In addition to the stunning yoga studio, The Ivey on Boren also boasts a dry sauna and plunge pool in addition to an elevated outdoor pool and jacuzzi. With all these amenities at your fingertips, you’d be hard-pressed to find a better place to call home in the Denny Triangle area.

Source: Rent. / Kiara

Kiara is a 461-unit apartment complex that provides the residents lucky enough to call it home with a long list of spa-like amenities. Including a sizable stretching room, a gorgeous pool and some of the most luxurious bathrooms you’re ever going to find, this place is perfect for people that want to unwind whenever they’re at home.

These luxury high-rise apartment homes in South Lake Union offer some of the most stunning views in Seattle. Imagine an unobstructed view of the Space Needle while you brush your teeth before bed. Picture getting ready in the morning while watching the city go by outside. Life at Kiara is about as close as you can get to actually moving into a five-star hotel.

Source: Rent. / Helios

Helios is a stylish high-rise apartment complex that provides residents with everything they need to relax and recharge. The expansive yoga studio boasts light-wood flooring, a mirrored wall and all the equipment required to undo the stress and tension of a long week. Whether you stretch every morning or just need a quiet place to chill every once in a while, you’ll feel at home at Helios.

This Pike Market paradise also boasts a large rooftop deck with some of the best Elliott Bay views in existence. It doesn’t matter if you’re a dedicated yogi or more of a stare-out at-the-water-and-reflect-on-life type, Helios has what you need to stay sane.

Source: Rent. / Avalon Belltown Towers

Avalon Belltown Towers has some of the most stunning common areas you could ever imagine. The property is also peppered with outdoor seating areas accompanied by fire tables to help fight off the Pacific Northwest cold.

The indoor common areas in this Belltown beauty are just as stunning as well. These spaces boast chandeliers that look like they belong on a large French estate and light fixtures that may as well have been pulled out of a modern art museum. You’ll find the common areas undeniably calming and a wonderful place to unwind after a long day before locking up your apartment for the night.

Source: Rent. / The Waverly

The luxurious amenities at The Waverly leave residents wanting for nothing. The numerous common areas throughout the complex all boast designer furniture and an undeniably cool vibe.

Beyond that, what really earns the Waverly a place on this list is the elevated bathrooms. Laid out to maximize space and comfort, the bathrooms in these upscale apartments are second to none and a great place to start and end your day.

This Cascade complex also provides a spa for the resident pups. This area has a long turfed run area so your furry friends can strut their stuff and stretch out without having to leave the complex.

Source: Rent. / Coppins Well

Another apartment complex on the list that earned its spot because of its spa-style bathrooms is Coppins Well. Built-in shelving, soaking tubs and plenty of counter space make the in-unit bathrooms at Coppins Well so calming and serene.

Beyond that, the common areas in this First Hill complex are second to none. Large windows, designer lighting and comfortable furniture are what you can expect to find in these communal meeting spots.

Whether you’re looking for a quiet corner to crack open a book or hoping to enjoy a cocktail with a neighbor, Coppins Well provides its residents with plenty of space to relax and unwind however they like.

Source: Rent. / Harbor Steps

Located in the heart of Downtown with the hustle and bustle of the big city all around, it can be tough to imagine finding a serene spot to unplug from the worries and responsibilities of the real world. That’s exactly what the yoga room at the Harbor Steps provides for residents.

This well-lit, roomy space with light-wood flooring and a mirrored wall is perfect for dedicated practicing yogis, novice stretchers or anyone looking for a little peace and quiet outside of their apartment unit.

Source: Rent. / Met Tower

With an indoor spa and pool, it’s easy to see why Met Tower is on the list. Let’s be honest, it looks more like a spa where’d you have to pay triple digits just to enjoy a session than it does a common area in an apartment. These upscale Denny Triangle apartments are all about letting residents live the good life and it’s easy to see from their elevated amenities package.

Met Tower also has a private resident library complete with floor-to-ceiling shelves, leather couches and large windows. There may not be a better place in all of Seattle to kick back with a good book than this stunning study.

Source: Rent. / Westlake Steps

Located on the shores of Lake Union in the scenic Westlake neighborhood, Westlake Steps is an undeniably comfortable place to call home. Many of the apartments feature oversized bathrooms with large countertops, soaking tubs and ample lighting. The ideal place to decompress while you complete your before-bed routine, here you can let the stress of the day slip away before you head to sleep.

Westlake Steps also has a sprawling green area on the roof with space for yard games and sitting areas with loungers and more. Regardless of your preferred method of recharging, you’ll find what you’re looking for at Westlake Steps.

Indulge in the best spas in Seattle

Few cities call for the need for spa-style amenities more than Seattle. With cold weather and constant rain, not much matters more than the amenity package provided by the place you call home. Sign a lease at one of these legendary spa-style apartments today and enjoy the good life in all its glory.

Featured Image Source: Rent. / Onni South Lake Union

Source: rent.com

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Life insurance is a vital element of most all financial plans. One of the biggest reasons for this is because the proceeds that are received by life insurance policy beneficiaries can be used for any number of financial needs, such as the payoff of debt (including a home mortgage), as well as the payment of everyday living expenses. This could be especially beneficial if the insured were a family’s primary breadwinner.

Before you purchase a life insurance policy, it is essential to ensure that you will be getting the proper type of coverage, as well as the right amount of protection for your specific needs. Knowing that the underlying insurance company is reliable and stable financially is another important piece of the puzzle, as you will want to know that the insurer can pay out it’s allotted claim if or when the time should come. One company that has an excellent reputation for its financial stability, as well as its timely payment of policy holder claims is Liberty Mutual.

The History of Liberty Mutual Insurance Company

Liberty Mutual has been in the business of helping consumers and businesses protect what is important to them for more than 100 years. The company was initially founded in the year 1911 when the Massachusetts Legislature passed a law that required employers to protect their employees with workers’ compensation insurance.

The company was originally known as the Massachusetts Employees’ Insurance Association or MEIA, and it officially began its operations on July 1, 1912. The company began as a mutual insurer, which means it was owned by its policy holders, as versus having to answer to a group of stock holders. The company is still a mutual insurer today.

Throughout the years, the company has grown and expanded – and today it is a top U.S. insurer. Liberty International has grown from a collection of smaller local businesses into a multi-billion, multi-national entity that has operations in Europe, Latin America, and Asia Pacific, in addition to the United States.

Other components of this entity include:

  • Liberty International Underwriters
  • Liberty Specialty Markets
  • Liberty Mutual Surety

In addition to offering products and services that can assist clients with growing and protecting their wealth, Liberty Mutual is also a large sponsor of sporting events, as well as charitable organizations. The company’s primary headquarters is in Boston, Massachusetts.

Liberty Mutual Life Insurance Review

Today, Liberty Mutual is ranked as number 75 on the Fortune 500 list of largest U.S. corporations (based on the company’s 2016 revenue figures). As of year-end 2016, Liberty Mutual Insurance brought in roughly $38.3 billion in revenues for the year.

The company has invested its assets conservatively, to be ready to make timely payments of its policy holders’ claims. More than 87% of Liberty Mutual’s cash and invested assets are placed in Bonds, while another 4.1 percent is invested in cash and other short-term cash equivalents.

The life insurance and annuities that are provided by Liberty Mutual are issued by Liberty Life Assurance Company of Boston, with the company’s headquarters located in Boston, MA, and the service center based in Dover, New Hampshire.

Insurer Ratings and Better Business Bureau (BBB) Grade

Liberty Mutual Insurance is very stable financially – and because of that, it has received high ratings from the insurer rating agencies. These include an A (Excellent) from A.M. Best Company, an A2 (Good) from Moody’s Investor Services, and an A (Strong) from Standard & Poor’s.

Also, Liberty Mutual has been a qualified company of the Better Business Bureau (BBB) since April 26, 1931. The company has been given a grade of A+ by the BBB, which is on a general grade scale of A+ to F.

In the previous three years, Liberty Mutual has completed a total of 1,236 custom complaints, of which 242 of these complaints were closed out within the past 12 months. Of the total 1,236 complaints, 872 regarded problems with the company’s products and services. Another 276 were regarding billing and/or collection issues, 46 had to do with advertising and/or sales problems, and 22 were related to delivery issues. The remaining 20 were about guarantee/warranty issues.

Life Insurance Plan Options Offered By Liberty Mutual Insurance Company

Liberty Mutual insurance has a long list of life insurance policy options from which to choose. These include both term and permanent life insurance coverage. Term life insurance policies provide a death benefit, with no cash value build up. Because of this, a term life insurance policy can be quite affordable – especially if the insured is in good health at the time of the application for coverage.

Term life insurance policies are purchased for a set number of years, such as ten, fifteen, twenty, or even thirty. Typically, these policies will offer guaranteed coverage during the level term period, as well as a level amount of premium that cannot be increased.

With Liberty Mutual, coverage options for term life insurance policies include 10, 15, 20, or 30 years. These plans also have a variety of different optional riders that are available and can be added to help with further “customizing” the coverage.

The term life insurance policies offered through Liberty Mutual include the following:

  • Liberty Series Passport 10
  • Liberty Series Passport 15
  • Liberty Series Passport 20
  • Liberty Series Passport 30

Liberty Mutual also offers permanent life insurance product options. With a permanent life insurance policy, there is both death benefit protection, as well as cash value. The cash that is in the liquid section of the policy can grow on a tax deferred basis, meaning no taxes are due on the gain unless or until the money is withdrawn.

Policy holders can either borrow or withdraw cash from the cash value for any need they see fit, such as the payoff of debts, the supplementing of retirement income, or even to take a nice, long awaited vacation.

Liberty Mutual has both whole life and universal life insurance plans. While life offers level premiums, strong guarantees, and valuable protection that will last for the remainder of the insured’s lifetime. Whole life insurance will also steadily build cash value over time.

Many whole life insurance plans are offered through Liberty Mutual. These include the:

  • Liberty Series Whole Life – This plan provides level premium payments for the entire life of the insured – up to the policy anniversary that follows the insured’s 100th birthday.
  • Liberty Series Life (paid up at age 65) – This plan provides the ability to make level premium payments until the policy anniversary that follows the insured’s 65th birthday.
  • Liberty Series 20-Year Payment Life – With this plan, the policy holder will make level premium payments for 20 years. After that, the policy will be paid up.
  • Liberty Series Extra Value Life – The Liberty Series Extra Value Life plan is a “hybrid” policy that combines both permanent and temporary life insurance coverage. This allows for a premium that is usually lower than that of a whole life insurance policy.
  • Liberty Series Estate Maximizer Next Generation – With this plan, the insured is covered by a whole life insurance policy that is paid for via just one, single lump sum premium payment. This policy provides permanent life insurance protection and a death benefit that is larger than the original premium payment. The payment with this policy will increase in value over time by a factor that is based on the insured’s gender and age. The immediate increase in death benefit makes this life insurance a good match for those who wish to transfer assets in a tax advantaged manner.

There are also several options for universal life insurance that can be purchased through Liberty Mutual. Universal life insurance provides death benefit protection and cash value; however, it is more flexible than whole life. This is because the premium due date can be altered (within certain guidelines). The policy holder may also be able to decide how much of his or her premium goes towards the policy’s cash value component, and how much goes towards the death benefit.

Universal life insurance plans that are offered by Liberty Mutual include the following:

  • Spirit Series Performance Universal Life – This plan provides permanent life insurance protection that builds cash value. Policy holders have the flexibility to adjust their level of coverage, as well as their premium payments, to meet their needs.
  • Spirit Series Universal Life – The Spirit Series Universal Life insurance policy provides an affordable form of permanent life insurance that is not necessarily designed for building long-term cash value. This plan does offer unique lapse protection features, as well as continuous life insurance protection through any circumstance if the insured meets certain requirements.

Other Products and Services Available

In addition to life insurance, Liberty Mutual also offers a broad range of other goods and services. These include the following:

  • Critical Illness insurance
  • Identity Theft insurance
  • Pet insurance
  • Tuition insurance
  • Small Business insurance
  • Home owner’s insurance
  • Apartment insurance

  • Condo insurance
  • Landlord insurance
  • Mobile Home insurance
  • Flood insurance
  • Umbrella insurance
  • Car insurance
  • Motorcycle insurance
  • Boat insurance
  • Watercraft insurance
  • Antique and Classic Car insurance
  • ATV and Off-Road Vehicle insurance
  • RV (Recreational Vehicle) insurance
  • Vehicle Insurance Plans
  • Rental insurance
  • Key Employee Insurance

The company also has a selection of retirement annuities. Because people are living longer today, one of the biggest concerns that retirees have is running out of money during retirement. An annuity can help to alleviate this issue, when the lifetime income option is chosen.

Through Liberty Mutual, there are single premium deferred annuities (SPDAs), and flexible payment deferred annuities (FPDAs). With a single premium deferred annuity, just one single lump sum payment is needed to attain a guaranteed stream of income in retirement. With a flexible payment deferred annuity, deposits may be made over time, prior to converting the annuity over into an income stream. The growth on the money that is inside of the account will grow tax deferred.

How to Get the Best Premium Quotes on Life Insurance Coverage from Liberty Mutual

If you are shopping around for the best premium rates on life insurance coverage from Liberty Mutual – or from any life insurance company – then it is recommended that you partner with an independent insurance agent. In doing so, you will be able to compare policies and premiums in an unbiased manner – and from there, you can determine which option will be best fit for you.

When you are ready to proceed, we can help. We are an independent insurance brokerage and we work with many of the top life insurance carriers in the industry today. We can assist you with getting all the key details that you need for making a well-informed buying decision. To get started, all you need to do is just simply fill out our quote form.

We understand that the acquisition of a life insurance plan can be somewhat overwhelming. There are many different parameters to think about, and you want to be sure that you are moving in the right direction. But this process can be made so much easier when you are working with an ally on your side who can walk you through it from start to finish. So, contact us today – we’re here to help.

Source: goodfinancialcents.com

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Dental Savings Plan vs. Insurance: Pros and Cons – SmartAsset

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Health insurance doesn’t cover your teeth. Your teeth can cause pain, get infected and need treatment, just like any other part of the body. But when it comes to actually getting treatment the standard health insurance doesn’t cover it. Instead, you need specialized coverage to pay for a trip to the dentist’s office.

The specialized coverage comes in two main forms. The first is dental insurance. This is standard insurance that covers most of the cost of treatment in exchange for a monthly premium and co-payments. The second is a dental savings plan. This is a discount program that gives you a percent off your bill in exchange for an annual membership fee. We’ll discuss how it works.

A financial advisor can help you plan for future healthcare expenses. 

What Is Dental Insurance?

Dental insurance works like standard health insurance. It is accepted at dentists’ offices, including specialists like orthodontists and endodontists, although depending on their range of services, some medical practices might accept it as well if they have dentists on staff. It pays for care that involves your teeth and gums.

With dental insurance, the insurance provider pays for a portion of each treatment. The exact amounts range based on the nature of the treatment and the nature of your insurance plan. For example, many if not most plans will pay for 100% of preventative treatment like routine cleanings and checkups, while the same plans might not pay for any part of a cosmetic procedure like teeth whitening.

What Do You Have to Pay?

You have to pay any amount that your insurance doesn’t cover, which are out-of-pocket expenses. For example, if your insurance covers 50% of a $700 treatment, that means the plan would pay $350 and you would pay the remaining $350.

Like other forms of health insurance, dental insurance is structured around three main forms of payment from the customer:

  • Premiums – Monthly payments that you make for the plan
  • Co-payments – Payments that you make when receiving any given service
  • Deductibles – The amount you pay before your insurance covers costs

Premiums are fixed. You pay the same amount each month for a given plan. Co-payments and deductibles will change based on the nature of the treatment that you get. Your insurance plan will have different co-payments for any given treatment and will apply different rules about deductibles.

Types of Dental Insurance 

Like with other forms of medical insurance, there are different major categories of dental insurance. The three main types of dental insurance are:

  • Dental Health Maintenance Organizations – this offers lower premiums. But it has more restricted coverage options.
  • Dental Preferred Provider Organizations – Midrange premiums and more treatment options, but fewer providers.
  • Dental Indemnity Insurance – Higher premiums, but more options and coverage.

Pros and Cons of Dental Insurance

Pros

The main advantage to dental insurance is coverage. This works the same way as all other forms of medical insurance, in that your insurance company pays for a portion of your treatments. They will pay for dental services in whole or part, and your spending for covered services is capped each year.

That doesn’t mean your out of pocket expenses wont’ be high. Dental insurance isn’t subject to many of the same rules as health insurance, so if you need specialty services like braces, a retainer or a root canal you can still expect to spend thousands of dollars out of pocket. That’s still far less than you would spend without insurance or with a dental savings plan though. It’s also far more likely that any given dentist will accept your insurance, as fewer providers accept dental savings plans compared with insurance.

Cons

The main disadvantage to dental insurance is the costs involved when you don’t need treatment. Dental insurance isn’t nearly as expensive as health insurance, but this will still cost a lot more than something like a dental savings plan. Depending on how much coverage you need and how many people are in your household, you can expect to spend anywhere from $20 to $200 per month on dental insurance.

An individual looking for decent, but not comprehensive, coverage should expect to spend at least $50 per month.

Another way of looking at it is this: Dental insurance is better if and when you need treatment. You will spend less money and find care more easily. A dental savings plan is better when you don’t need treatment because it will cost you less.

What Are Dental Savings Plans?

A dental savings plan, otherwise known as a “dental discount plan” is different than health insurance. Instead, it could be thought of as a membership. With a dental savings plan, you pay an annual fee, typically $150 or less for a family, to enroll. In exchange, you receive a discount on services at participating dental providers.

For example, you might receive 40% off a routine cleaning or 25% off the cost of filling a cavity. Unlike insurance, the savings plan doesn’t pay for these costs. Instead, they are negotiated discounts for plan members.

You are responsible for paying for the rest of the costs of any given service. For example, if you have a $1,000 procedure and your dental savings plan gives you a 20% discount, you will pay the remaining $800.

The details of a dental savings plan can vary widely. Every program will have different dentists who participate, different costs for membership and will offer different discounts for services. Generally, fewer dentists accept a savings plan membership than insurance, so you will usually have a smaller provider network to choose from.

Who Should Consider a Dental Savings Plan

There are several situations in which it makes sense to consider a dental savings plan.

If you’re on Medicare. Such plans don’t cover most dental care (including procedures and supplies like cleanings, fillings, tooth extractions, dentures, dental plates or other dental devices). Original Medicare may pay for some dental services that are closely related to other covered medical services. Medicare Part A will also pay for certain dental services that you get when you’re in a hospital.

If you’re unemployed. These plans are relatively inexpensive and, unlike many dental insurance plans, you can access the benefits in two or three days.

If your teeth are in great shape. People who consistently floss, brush and gargle several times a day and have a history of zero cavities, may not need coverage.

Pros and Cons of a Dental Savings Plan

Pros

The main advantage of a dental savings plan is the up-front cost. Typically one of these programs will cost several hundred dollars per year in membership fees. By contrast, dental insurance can cost several hundred dollars per month (if not more) in premiums.

You also have no coverage caps with a standard dental savings plan, meaning you don’t have maximums or deductibles. And you simply receive the set discounts for any given service.

Cons

However, the downside here is that you will almost always pay more for the actual services. Despite co-pays and deductibles, insurance will typically cover more costs when it comes to receiving treatment, so you can expect a savings plan to cost more out of pocket.

The result is that a dental savings plan can often fill a role similar to catastrophic insurance. If you are healthy enough that you only need the occasional cleaning and checkup, this might be a good option. If you will need real treatment, this may end up costing you more in the long run.

Bottom Line

Dental insurance is health insurance that applies to your teeth. In exchange for premiums and a co-pay, the insurance plan pays for the rest of your treatment. A dental savings plan is a discount program, in exchange for an annual payment, that gets you a negotiated percentage off your treatment at the dentist’s office.

Tips for Managing Your Healthcare Costs

  • Just as you would consult a healthcare professional to assess your well-being, be sure to consult a financial professional to assess your fiscal well-being. Finding the right financial advisor who fits your needs doesn’t have to be hard. SmartAsset’s free tool matches you with three vetted financial advisors who serve your area. If you’re ready to be matched with local advisors that will help you achieve your financial goals, get started now.
  • Considering alternatives to health insurance is important for maintaining a healthy budget. A comprehensive budget calculator can help you understand which option is the best for you.

Photo credit: ©iStock.com/mihailomilovanovic, ©iStock.com/bymuratdeniz, ©iStock.com/LightFieldStudios

Eric Reed
Eric Reed is a freelance journalist who specializes in economics, policy and global issues, with substantial coverage of finance and personal finance. He has contributed to outlets including The Street, CNBC, Glassdoor and Consumer Reports. Eric’s work focuses on the human impact of abstract issues, emphasizing analytical journalism that helps readers more fully understand their world and their money. He has reported from more than a dozen countries, with datelines that include Sao Paolo, Brazil; Phnom Penh, Cambodia; and Athens, Greece. A former attorney, before becoming a journalist Eric worked in securities litigation and white collar criminal defense with a pro bono specialty in human trafficking issues. He graduated from the University of Michigan Law School and can be found any given Saturday in the fall cheering on his Wolverines.

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Source: smartasset.com

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Posted on: April 28, 2022

Higher mortgage rates are likely in the cards

The Federal Reserve is set to have its third meeting of the year next week, and for hopeful mortgage borrowers, it’s probably not good news.

Given the nation’s skyrocketing inflation rate (the highest since the early 1980s), plus recent commentary from Fed Chair Jerome Powell, higher mortgage rates are almost guaranteed in the days and weeks following the bank’s May 3-4 meeting.

It will only add insult to injury in an already affordability-challenged housing market. Home prices are up 19% over the year, according to the Federal Housing Finance Agency, and last week’s average 30-year mortgage rate? That clocked in at 5.11% — a whopping 200-basis-point uptick since the start of the year.

For homebuyers and borrowers mulling a refinance, it signals one thing: Act now or pay more.

Click here to check today’s VA rates (Apr 27th, 2023)

What the Fed has planned for May

The Federal Reserve has already indicated it plans to tighten monetary policy as the year goes on. The bank increased the federal funds rate for the first time in six years at its March meeting, and Powell has indicated it will do so again at next week’s gathering too.

Only this time? Powell says a 50-basis-point hike is possible — double what was seen back in March.

“​​If you look at the last tightening cycle, which was a two-year string of 25-basis-point hikes from 2004 to 2006, inflation was a little over 3%,” Powell said last week at an International Monetary Fund meeting. “Inflation is much higher now, and our policy rate is still more accommodative than it was then. So it is appropriate, in my view, to be moving a little more quickly. That points in the direction of 50 basis points being on the table.”

To be clear: Inflation isn’t just “much higher” than the last time around — it’s significantly higher. Earlier this month, inflation came in at 8.5%, the highest point since 1981. So Powell’s hint at a more aggressive rate hike is probably more than just speculation. In fact, according to CME Group, there’s a 96.5% chance that the federal fund’s target rate will jump 50 basis points next week, putting it at 75 to 100 for the first time since pre-pandemic days.

How mortgage rates respond to Fed actions

To be clear: The Federal Reserve doesn’t dictate mortgage rates, but when it tightens policy, interest rates on loans and mortgages tend to rise.

Just take March’s Fed meeting as a case in point: After the bank raised the federal funds rate for the first time in years, mortgage rates surged. Rates on 30-year loans went from 3.85% prior to the meeting, jumped to 4.16% the week after, and have climbed steadily ever since. They’re now at 5.11%, 126 basis points higher than before the meeting.

Most experts predict mortgage rates will continue their upward climb on the backs of another Fed rate hike but just how far they’ll go is uncertain. One thing that’s for sure? Borrowers likely won’t see lower rates for some time (at least until inflation is under control).

Move quickly or adjust accordingly

If you’re eyeing a refinance or home purchase, your best bet is to lock in a rate quickly. Once the Fed announces its official actions next week, there’s no telling how high rates could climb in the weeks following.

If acting now just isn’t possible, you’ll want to adjust your expectations accordingly. Prepare for a higher monthly payment or reduced refi savings, and think about alternative loan options, like ARMs, which offer lower rates at the outset of the loan.

And if you’re still looking for a property, reduce your price range to ensure you stay on budget. You can also consider smaller properties or townhomes or expand your search into more affordable, rural communities. Both steps can help you offset the added costs that higher rates will come with.

Click here to check today’s VA rates (Apr 27th, 2023)

Source: militaryvaloan.com

Apache is functioning normally

Your monthly car payment might be your biggest automotive expense, but it’s not the only one. Insurance, repairs and fuel can add up to hundreds of dollars per month, depending on your situation. These ownership costs are sticky — you’ll keep paying them even after you make your last car payment, or if you buy your car with cash.

Car prices

The average sale price for an electric car was $58,385 in February 2023, according to Kelley Blue Book. That’s about $13,000 more expensive than the average gas-powered, new non-luxury vehicle.

Lower-cost EV options do exist: There are a couple available with a range of at least 200 miles for less than $30,000 and a few more for less than $40,000. EV tax credits can bring your total costs down — if you and your car qualify. These tax credits even apply to used EVs that meet similar qualifications.

If you plan to purchase your EV with financing, check whether you qualify with lenders who offer loans tailored for EVs. These loans can come with rate discounts and additional features, like financing for a home charger, though an applicant may find a better rate elsewhere.

Charging costs

Most people can probably save money on fuel costs compared to gas-powered vehicles. To maximize your savings, you should:

  • Charge at home instead of at a public charging station.

  • Check the rate schedule from your electric company and charge only at off-peak hours.

  • See whether a place you shop or your workplace offers free or discounted charging options.

For example, adding 200 miles of range to a Tesla Model 3 costs $7.50 using the charger that comes with the vehicle, assuming the national average of 15 cents per kilowatt-hour for residential locations. The ultimate cost to charge your EV depends on factors including the type of car you drive and your electric rates.

At-home charging

Unless you have access to free charging, the cheapest charge you’ll find is at home. You can plug into a regular outlet using a Level 1 charger, but that only adds about 5 miles of range per hour. Plus, you’ll probably be plugged in constantly when you’re home, which means charging during peak rates.

The U.S. Department of Energy says installing a Level 2 charger at home can cost between $2,000 and $5,000. Your total could be lower if, for example, your home’s electric panel doesn’t need upgrading and if access to your changing location is straightforward. State and local incentives can also bring this figure down.

In some cases, new cars come with Level 2 chargers included, and some even include free installation.

Public chargers

If you’re traveling long distances, you’ll almost certainly want to use a public charger. Charging from almost empty to full can take eight hours at home. With a Level 3/DC fast charger at a charging station — the fastest EV charger — it could take 30 minutes.

That’s still much slower than filling up with gas, however. Using that time to eat a meal, for example, is one way to avoid sitting around. But charging stations aren’t always adjacent to amenities.

🤓Nerdy Tip

When mapping a long-distance route, use an EV-specific mapping service, like EV Navigation. These services can create routes that take into account your car’s range and any amenities you’d like when you stop to charge.

Charging on the road is also more expensive than charging at home, though possibly still cheaper than gas. For example, adding 200 miles of range to a Tesla Model 3 at a price of 40 cents per kWh would cost $20.

You can also find Level 2 chargers that are available for public use. Although slower than Level 3/DC fast charging, these make up the majority of public chargers. Level 3/DC chargers tend to cluster around interstate exits. In contrast, you can find Level 2 chargers in a variety of public places, including restaurants, hotels and parking garages. It’s an easy way to add a few miles if your car is parked for a few hours anyway.

Maintenance

Electric vehicles generally have lower maintenance costs than gas-powered cars. Without an engine, there are fewer parts that can break. You can also say goodbye to oil changes, and your brakes should last longer. A 2020 Consumer Reports study estimates the average EV’s maintenance and repair costs to be 3 cents per mile driven over the course of its lifetime — half the cost of the gas-powered vehicle average. New EVs, which need less maintenance, are cheaper to maintain, at 1 cent per mile driven on average.

There are also downsides. Some EV owners report tires wear out quickly, possibly due to the battery’s weight. Some people worry about the cost of a new battery. True, it’s expensive if you need to replace it, but that worry might be overblown. Batteries are typically covered by warranty for eight years or 100,000 miles of use and will likely last much longer. The battery issue that might be more concerning is that maximum range typically declines with use, even if you follow care instructions perfectly — just like the battery on your phone.

Taxes and registration

Taxes are unavoidable for car purchases — whether gas or electric, used or new — unless you live in Alaska, Delaware, Montana, New Hampshire or Oregon.

Taxes might be familiar, but there could also be additional fees when you register the vehicle in your state. Thirty-two states now have EV-specific fees to offset reduced gas-tax revenues, according to the National Conference of State Legislatures. These fees, which are between $50 and $200, fund transportation projects, including, in some states, charging infrastructure.

Insurance for EVs might be more expensive than for gas-powered cars. Higher vehicle costs and complex equipment that lead to expensive repairs are the culprits, according to the auto insurer Progressive. State Farm’s website states that potential damage to the battery, even in otherwise minor collisions, can be costly, and there are fewer technicians trained to repair them.

Source: nerdwallet.com

Apache is functioning normally

Posted on: May 25, 2022

VA loans present an incredible opportunity to eligible active duty service members, veterans, reservists and qualifying surviving spouses. But if you live in an expensive area or need a bigger loan, a regular VA loan might not be enough. Luckily, a VA jumbo loan is an option. 

Here’s what you need to know about this mortgage type.

See if you’re eligible for a VA home loan (Apr 27th, 2023)

What is a VA jumbo loan?

A VA loan is considered a jumbo loan if it exceeds the conforming loan limits for your county. Technically, there is no maximum VA loan amount. But the loan cannot exceed the appraised value of the home. 

What is VA Entitlement?

Essentially, VA entitlement is the amount that the Department of Veterans Affairs will guarantee for a lender. So, if you default on the loan, your VA entitlement is the maximum amount that the VA would repay your lender. 

You will have a full entitlement if this is your first time using a VA loan. Another way to get full entitlement is to pay off a previous VA loan in full and sell the property. If you have a full entitlement, the VA will guarantee up to 25% of the loan amount. Importantly, you can only have your full entitlement restored once. 

But if you previously purchased a house with the VA loan and haven’t paid off the loan, you may only have a partial entitlement left. With a partial entitlement, otherwise known as an impacted entitlement, you may still qualify for a jumbo loan. But you’ll have to make a down payment if you exceed your entitlement.

See if you’re eligible for a VA home loan (Apr 27th, 2023)

VA loan limits & VA jumbo loan limits

As a homebuyer, knowing the limits of a loan type are important. 

When it comes to government-backed VA loans, most homebuyers don’t have a limit. As of 2020, the Department of Veterans Affairs announced changes to the loan program. These changes included that it would guarantee the same percentage of the loan amount for lenders without regard to the loan amount. 

Of course, this generous guarantee is only available if your full entitlement is intact. 

If you have a partial entitlement, the numbers change a bit. You’ll run into a loan maximum that is impacted based on your down payment. Essentially, you’ll multiply your remaining entitlement by 4 to arrive at your maximum loan amount. But if you are making a down payment, you can add that to your remaining entitlement and multiple it by 4 to arrive at your maximum guarantee available through the VA. 

What qualifies as a VA jumbo loan?

A VA mortgage loan is considered a jumbo loan when the amount exceeds the conforming loan limits. Although these limits vary by county, the range is from $647,200 to $970,800 for single-family homes. You can find the conforming loan limits through this convenient map provided by the Federal Housing Finance Agency. 

But just because the VA is offering to guarantee this amount, it doesn’t mean that you’ll find a lender willing to approve you for a jumbo loan. With this in mind, you won’t run into a loan ceiling set by the VA. But you will run into a loan limit based on your qualifications. 

VA jumbo loan requirements

A VA jumbo loan might be an option for you. The requirements to qualify for this large loan will vary based on the lender.

Is a down payment required for a VA jumbo loan?

For those with full entitlement, the loan can exceed the conforming loan limit for your county. With that, you would have access to a VA jumbo loan. You may not even need to make a down payment. 

If you have a partial entitlement, you could still qualify for a jumbo loan. But you may need to make a bigger down payment because you’ll likely exceed your entitlement. 

Ultimately, the lender will determine whether or not you need to make a down payment on a VA jumbo loan. For example, a lender may offer a loan of $1.5 million without a down payment to a borrower with a high credit score. But the same lender may require a down payment of 10% on a $2 million loan. 

When considering a VA jumbo loan, it is critical to shop around. The right lender will be able to provide the ideal loan for your situation. 

Requirements to qualify

The requirements for a jumbo VA loan vary based on the lender. 

In general, you can expect more stringent requirements than you would find with a regular VA loan. 

Most lenders will want borrowers to have a credit score of at least 620. Plus, you may need to have some cash reserves on hand to qualify for this loan. 

VA jumbo loan rates

Typically, VA jumbo loan rates are similar to regular VA mortgage rates. The exact fixed rate you see will vary based on the lender and your loan qualifications. 

The good news is your VA jumbo loan rates should be lower than they would be for a traditional jumbo loan. Low rates are just one of the many VA loan benefits available for those with the appropriate military service. 

VA jumbo loan funding fees

As with all VA loans, you’ll have to pay a funding fee for the jumbo option.

The VA loan funding fee ranges from 0.50% to 3.6% of the purchase price in 2022. The exact fee will vary based on your loan purpose, which can include purchase, refinance (IRRRL), or cash-out refinance. Additionally, any previous usage of the VA loan can impact your fee. 

Although there is a funding fee, you won’t have to pay PMI. With that, your monthly mortgage payment won’t have that added cost. 

Pros & cons of a VA jumbo loan

Every mortgage product has advantages and disadvantages. Here’s what to keep in mind about the VA jumbo loan. 

Pros of a VA jumbo loan

  • Lower interest rates: You’ll likely find lower interest rates with a VA jumbo loan than with a traditional jumbo loan. 
  • Possibility of no down payment: Depending on your situation, you might not have to make a down payment. 

Cons of a VA jumbo loan

  • Funding fee: You’ll have to pay a funding fee of 0.5% to 3.6%.
  • More extensive property requirements: The property will need to pass a VA home inspection. 

VA jumbo loans vs. traditional jumbo loans

Like VA jumbo loans, traditional jumbo loans offer amounts over the conforming loan limit. And with that, traditional jumbo loans cannot be sold through the secondary mortgage market based on the guidelines set by Fannie Mae and Freddie Mac. 

The limitations on resale of traditional jumbo mortgages make it challenging for borrowers to find these types of home loans. If you are seeking a traditional jumbo loan, you’ll likely need to make a 20% down payment. That’s on top of having great credit and significant cash reserves. 

But VA jumbo loans can be securitized through Ginnie Mae, which makes lenders more willing to provide the loan. Plus, the guarantee by the VA makes a VA jumbo loan easier to obtain than a traditional jumbo loan. 

VA jumbo loan FAQ

What is a VA jumbo loan?

A VA jumbo loan offers loan amounts over the conforming loan limits for your county. 

This loan type is available through VA lenders that work with eligible borrowers. You’ll need to be an active-duty service member, veteran, or surviving spouse seeking a primary residence. If you are eligible for a standard VA loan, you may be eligible for a VA jumbo loan. 

Does the VA allow jumbo loans?

Yes, the VA allows jumbo loans as part of its home loan benefit program. 

If you have a full entitlement, you won’t encounter a loan limit from the VA. 

How does a VA jumbo loan work?

A VA jumbo loan works by allowing eligible borrowers to obtain loans larger than the conforming loan limits. If you are eligible for a VA loan, a lender may be willing to provide a VA jumbo loan. 

What is considered a VA jumbo loan?

A VA jumbo loan is considered any VA loan with an amount larger than the conforming loan limits for a particular county. 

When making a home purchase in a high-cost area, the conforming loan limit can be higher. But it might not be enough if home prices are too high. That’s when a VA jumbo loan can come in handy because the loan amount can exceed the limits. 

How much do you have to put down on a VA jumbo loan?

The required down payment for a VA jumbo loan varies. In some cases, you won’t have to make a down payment. But some lenders will require a down payment. 

In either case, you’ll need to cover a VA funding fee of 0.50% to 3.6%. That’s a substantial fee that will add to your closing costs. 

Can I get a VA loan for $1,000,000?

It’s possible to get a VA loan for $1,000,000 but you’ll need to meet the unique borrower requirements of a lender. You’ll likely need a great credit score and substantial cash reserves to qualify for a VA loan of this size.

See if you’re eligible for a VA home loan (Apr 27th, 2023)

Source: militaryvaloan.com