Financial Goals Archives - Page 57 of 271

Apache is functioning normally

June 21, 2023 by Brett Tams

Representatives Donald Norcross (D-NJ) and Tim Walberg (R-MI) have introduced a bill in Congress to allow the default inclusion of annuities in 401(k) plans. If signed into law, it would functionally raise the profile of annuities, allowing individuals to hold large investments in this asset class based on the overall contributions to their 401(k) plans. Here’s what you should know about the bill and whether it’s an option to consider.

Consider working with a financial advisor as you plan out your retirement.

What the Bill Would Do

Currently entitled a bill “[t]o amend the Employee Retirement Income Security Act of 1974 to permit default investment arrangements in annuities, and for other purposes,” it is an updated version of a substantially similar bill from 2022 known as the Lifetime Income For Employees (LIFE) Act. If passed, it would allow employers to include annuities as a default investment option in employer-sponsored retirement plans such as 401(k)s.

Specifically, the bill would classify a certain type of annuity contract as a QDIA, or “qualified defined investment alternative.” In practical terms, this means that employer-sponsored retirement plans could automatically invest a participant’s money in a qualified annuity contract as well as more well-known assets like a stock portfolio. This would expand on steps already taken in last year’s SECURE 2.0 Act, which increased the overall footprint that annuities can have in a retirement portfolio by raising the cap on how much individuals can contribute to annuities with their tax-advantaged retirement accounts.

How This Bill Would Work

This bill limits plan contributions to 50%. This means that, if an employer does choose an annuity contract as their 401(k) plan’s default option, the plan can only invest up to half of a participant’s contributions in that contract. The rest must be invested in other assets such as stocks, bonds and funds. This is meant to ensure diversification in a participant’s portfolio.

Plan participants also must be allowed to opt out of the annuity contract within six months of being opted in, and the plan must explain their investment alternatives. This would apply both to new enrollees, such as a new hire, and to plan changes, such as if the employer restructures the company’s retirement plan in favor of annuities. In either case, each employee will have 180 days in which they can withdraw from the annuity without fees, penalties or any other charges. After that window, the plan can include delays and even surrender penalties if an employee chooses to withdraw from annuity investments.

This opt-out provision is where the updated LIFE Act particularly mirrors SECURE 2.0. That law allows employers to make retirement plan participation the default, giving employees the option to opt out of making contributions if they choose. That changed the current system, in which employees are left out of workplace retirement plans by default and must opt-in. Finance experts have found that opt-out systems increase participation substantially, as employees are much more likely to stay in a plan than they are to seek out participation.

The newly introduced bill would expand on that, allowing employers to automatically enroll their workers in a retirement plan that uses annuities as a default investment, with those participants then given the option to select another investment or stop contributing to the plan as a whole.

Pros and Cons The Bill

If this bill passes, individuals should make sure to carefully consider the potential benefits and drawbacks of annuity investments. The main benefit to annuity investments is its certainty. A standard lifetime annuity is an insurance policy that guarantees fixed payments, typically issued every month, starting in retirement and lasting for the rest of the participant’s life. As a result, it is not subject to the vagaries of market volatility, and it allows for confident financial planning. Participants know what they will receive, when they will receive it and for how long.

Annuities have their risks, though. In particular, they tend to post lower returns than the market at large, meaning that investors usually get a lower return on investment off an annuity contract than an S&P 500 index fund. They can also be fairly expensive, often charging high administrative fees. And, of course, there is always the edge-case risk that the company issuing the annuity contract might go out of business, forcing a risky question of who will hold up their end of the bargain in your retirement.

What’s more, despite its name, the updated LIFE Act does not require employers to select a lifetime annuity. Per the legislative text of the 2023 bill, the selected contract must make payments “for a fixed term or for the remainder of the life of the participant [and spouses or beneficiaries].” Retirement savers should review any plan carefully to make sure that the annuity their employer selects is a lifetime asset, or at least one with appropriate duration.

Annuities can be an excellent retirement vehicle, but make sure they meet your long term goals and needs.

Bottom Line

Recently proposed legislation would allow employers to use annuity plans as a default investment in 401(k) and other employer-sponsored retirement accounts. The goal is to create a functional system of private pension accounts for workers. Whether it makes sense for you depends on the specific terms of your 401(k) and what your particular retirement needs are.

Retirement Planning Tips

A financial advisor can help you build a comprehensive retirement plan. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Are annuities the right investment for you? If your employer is going to start making this hybrid pension product the default choice in your 401(k), it might be time to learn all about how this investment class works and whether it’s a good fit for your plans.

Photo credit: ©iStock.com/shapecharge, ©iStock.com/tadamichi, ©iStock.com/FG Trade

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.

Source: smartasset.com

Apache is functioning normally

June 20, 2023 by Brett Tams

Since the mid-1990s, inflation has stayed very close to the Federal Reserve’s benchmark of 2% per year, often dipping much lower than that. The upshot has been a long run in which prices have changed little from year to year, with the noticeable exception of an 8% overall jump in 2022. Fortunately, current inflation has largely stabilized and, while still high compared with recent years and the Federal Reserve’s target rate, is back within overall historic norms. All told this has created an environment in which consumers don’t usually think about changing prices all that often.

For retirees, on the other hand, the picture is very different. They have to think in terms of years and decades. For them, inflation is a very powerful force. As prices rise decade over decade it can meaningfully eat away at your retirement savings unless you have prepared in advance. A financial advisor can help you better protect your retirement savings from the effects of inflation and plan for the future.

What Is Inflation?

Inflation measures changing prices in the marketplace. Specifically, it measures how prices increase for the same goods and services over time. For example, when the price of milk increases from $2.85 per gallon to $4.04 per gallon, that’s inflation. The opposite effect, when prices fall, is known as deflation and it is counterintuitively a borderline disaster for most households and consumers.

There are as many ways to measure inflation as there are economists, but the standard measure is known as the Consumer Price Index or CPI. It measures how prices change on an annual basis for a representative group of goods and services across the United States, omitting energy prices and agricultural products. These last two, while essential to household spending, are left out of the inflation statistics because they’re extremely vulnerable to geopolitical and natural events, respectively.

Economists consider a little bit of inflation beneficial. It shows that the economy is producing at capacity, which encourages growth. This is why the Federal Reserve has its inflation benchmark set at 2%, not zero.

For most households, inflation is reflected in both costs and incomes. As prices rise, employers typically increase pay scales to compensate. This is why economists treat inflation as such an emergency because it can create a feedback loop of rising incomes and prices with no natural stopping point. This also makes inflation, under ordinary circumstances, a minor issue. Most households don’t notice small price adjustments over short time frames and pay increases help them keep up over the long run.

Costs of Living in Retirement

In retirement, your basic math is simple: money in vs. money out. If your retirement accounts can generate more money than you spend, you can afford to retire.

The problem with inflation is that it gradually changes the math in this formula. Each year, your “money out” gets a little bit more expensive. Up front, it’s hard to notice. If a gallon of milk goes up by $0.02, that doesn’t stand out. But in the aggregate, these changes add up. For example, say that your costs come to $5,000 in spending per month. With 2% inflation, the next year you would spend $5,100 per month. The year after that, $5,202. The year after that, $5,306.

Even with just a 2% annual price increase, within just three years of retirement, you’re spending $300 more per month than you initially budgeted. And since retirement lasts for decades, inflation has plenty of time to set in.

Some Areas Are Particularly Vulnerable

One of the biggest things to remember about inflation is that it often hits some areas harder than others. For example, a disproportionate and large amount of 2022’s high inflation came courtesy of astronomical prices in the used and rental car markets. For retirees, this can be a double-edged sword depending on how you have structured your finances. You might be safe from some of the worst sectors or you might be particularly exposed.

A few costs of living that are particularly vulnerable to inflation and price swings are:

Housing: In recent decades the cost of housing has risen sharply. If you own a home, whether it’s paid off or on a fixed mortgage, you’re safe from these rising costs. If you rent, particularly in a big city, this will be a huge cost sector as prices go up year-over-year.
Energy and food: These two sectors are omitted from the core inflation measure because they’re extremely volatile. However, that volatility tends to make them particularly sensitive to inflation across the marketplace at large. That’s a particularly big problem because, ultimately, utilities and groceries make up the bulk of most households’ bottom line and just because they’re not in the BLS’ official report doesn’t mean you won’t feel the squeeze.
Imports: Historically, imported goods tend to experience inflation earlier and sooner than most other products in the marketplace. If you buy or rely on products brought in from overseas, this will show up in your budget.
Travel: If you want to travel in your retirement, inflation can make that more expensive. Airfare often jumps during periods of inflation and if you are leaving the country a weaker dollar will make your trip that much more expensive.

Savings and Social Security

Most retirees rely on three sources of income for the “money in” side of their retirement: savings, investments and Social Security. Let’s take a look at each.

Savings: Savings generally refers to the money you have in cash or cash-like assets. Basically, this refers to the money you have in banking products like checking, savings and certificates of deposit. The appeal of keeping money in savings is a certainty. Just putting everything into a savings account is about the lowest-risk option short of buying Treasury bonds. However, it also exposes your money to near-constant erosion. This feels like the safe option, but keeping all your money in the bank is a good way to effectively lost it little by little rather than all at once.
Low-Risk Investments: Low-risk investments tend to include assets like bonds and annuities. These are the middle ground between growth and safety. You want some growth but are willing to sacrifice potential gains for the confidence that you’ll get your money back. These are a mixed bag when it comes to long-term inflation management. The biggest problem is that low-risk investments often define their gains up-front.
Higher-Reward Investments: The most common footprint for a high-reward investment in stocks is either buying shares of an individual company or buying into industry or index funds. These are the growth end of the risk-reward balance. You will get the strongest returns but with the most risk. High-reward investments are the best way to manage inflation in the long run, since strong returns are the best way to keep your investments current with rising prices.
Social Security: Finally, most retiree households depend on Social Security to one degree or another. When it comes to inflation, this is the good news. Each year the Social Security Administration issues its annual COLA or “Cost of Living Adjustment.” This increases the monthly benefits issued to all recipients based on the government’s benchmark inflation rate. The COLA is based on national inflation figures. When prices go up, they tend to increase more in some areas than in others.

How To Address Inflation

So this is what inflation does. It tends to erode the value of low-growth assets and income as prices increase faster than the value of investments. Here are two things you can do to address inflation.

1. Manage Investments

The best way to address inflation in your retirement is to plan for it upfront. Specifically, build your retirement portfolio with inflation in mind. This can mean a few different things, such as investing in:

All of these assets tend to be sensitive to inflation. Stocks and REITs tend to grow with the value of the market, as companies increase their prices to keep pace with inflation. Short-term bonds, meanwhile, mature every few years, allowing you to reinvest in new assets that may better reflect current pricing. And some annuities offer an inflation-adjusted payment schedule, allowing you to plan for long-term growth in your returns.

2. Manage Costs

The biggest issue here is housing. The cost of housing has soared in recent decades and that fever shows no serious signs of breaking. This is most prominent in the rental market. Buying a home before you enter retirement, even if that means downsizing from your apartment, can help you secure your housing costs going forward.

If you own a paid-off home, you won’t have to plan for housing payments. If you start a mortgage prior to retirement, you will at least have fixed rather than escalating costs. Beyond that, prepare a good cash reserve for the wide fluctuations common to the energy and food sectors. These two areas are most prone to volatile price swings, both up and down, during periods of inflation.

The Bottom Line

Inflation can significantly eat away at your retirement savings. It’s important to build a retirement plan that anticipates enough growth to offset this, otherwise, you can see your quality of life decline as your bills get more expensive year after year. It’s important to take the necessary steps to protect your retirement savings.

Inflation Management Tips

The other best way to make plans is with good, solid help. A financial advisor can help you determine how inflation will impact your ability to save what you will need for retirement. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
The best way to make plans is with hard, solid numbers. Run your retirement plans through our inflation calculator to get a sense of whether you’re on the right track.

Photo credit: ©iStock.com/Eleganza, ©iStock.com/Hirurg, ©iStock.com/coldsnowstorm

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.

Source: smartasset.com

Apache is functioning normally

June 20, 2023 by Brett Tams

Reliance First Capital out of Melville, NY says it makes custom mortgages to ensure its customers obtain a home loan that fits their specific financial goals.

In short, they want you to rely on them and their years of experience for your home loan needs.

And they seem to be achieving a high level of customer satisfaction, recently making it into the coveted top-10 list for customer satisfaction on the LendingTree platform.

They’re also one of the few “certified lenders” you’ll find on LendingTree, which is an accolade given out for outstanding performance. Read on to discover more about this direct mortgage lender.

Reliance First Capital Fast Facts

Retail direct-to-consumer mortgage lender
Founded in 2008, headquartered in Melville, NY
Offers home purchase loans and refinance loans
Licensed in 41 states and the District of Columbia
Funded over $1 billion in home loans last year
Nearly 75% of total volume was cash out refinances
Did the most business in their home state of New York

Reliance First Capital is a retail direct-to-consumer mortgage lender that operates six regional loan origination centers throughout the country.

Those offices are in Charlotte, Cleveland, Dallas, Nashville, Pittsburgh, and their headquarters in Melville, NY.

To that end, they basically operate remotely like an online lender so you won’t be visiting a branch to get your mortgage. Instead, you’ll deal with someone over the phone, via email, etc.

At the moment, they are licensed to do business in 41 states and D.C., with Iowa, Nevada, North Dakota, Oklahoma, Missouri, South Dakota, Utah, West Virginia, and Wisconsin the exceptions.

Based on their HMDA data, they are big on cash out refinances, with nearly 75% of total volume coming from such transactions.

This means they mostly serve existing homeowners with plenty of equity who wish to tap into it by way of refinance.

However, they also offer home purchase financing and rate and term refinances as well, they just aren’t as prevalent.

The company is most active in its home state of New York, unsurprisingly, followed by North Carolina, Pennsylvania, Ohio, and Tennessee.

The remainder of their loan volume is scattered across the United States, with lending taking place in nearly all 50 states.

Applying for a Mortgage with Reliance First Capital

They say they’ve got a proprietary loan origination system
It’s a digital mortgage loan experience with a personal touch
You must first fill out a contact form on their website, then a mortgage analyst will contact you
Once signed up you’ll be able to access a borrower portal to upload documents and check loan status

Reliance First Capital offers a digital mortgage experience with a personal touch, aka a human loan officer standing by to assist.

They strive to provide superior customer service and work to determine your desired level of service (e.g. lots of personal interaction, mostly borrower portal, or a mix).

From what I gathered, you first need to fill out a short contact form on their website, at which point you’ll be contacted by a member of their team.

They say you’ll be matched with one of their licensed mortgage analysts, who will be your main point of contact throughout the loan process.

This individual will work alongside your loan processor to evaluate and gather the items needed to submit your loan to underwriting.

Their online customer portal known as myReliance allows borrowers to view/manage their loan application and upload necessary documents.

You can fill out the loan application online, save your work, and revisit it along the way to check loan status.

The same goes for scanning and uploading documents, signing disclosures, and so forth. They refer to this process as a “proprietary loan origination system.”

It’s also possible to simply give them a call to get the balling rolling. In any case, you will likely need to speak to someone before you begin, which these days isn’t always the norm.

There are online mortgage lenders that let you get going right away without any human interaction.

In summary, your unique needs will dictate how much of the loan process is self-serve versus directed by their lending team, but you get options either way.

Loan Programs Available at Reliance First Capital

Home purchase loans
Refinance loans: rate and term, cash out, and streamline
Conforming home loans backed by Fannie Mae and Freddie Mac
Government-backed loans: FHA, USDA, and VA
Jumbo home loans
Manufactured home loans
Reverse mortgages
Fixed-rate and adjustable-rate loans with various loan terms

While Reliance First Capital offers home purchase loans, they seem to specialize in refinance loans, and cash out refis specifically.

That means they might be best-served for the existing homeowner looking to tap their home equity to pay for other expenses and/or reduce more expensive debt.

However, they offer a full slate of loan programs, whether you want a conforming loan backed by Fannie/Freddie, a government loan with zero down, or a jumbo home loan.

They say they offer FHA loans and VA loans with credit scores as low as 500, along with jumbo loans as large as $3 million.

Additionally, they offer both manufactured home loans and reverse mortgages, so they’ve got something for just about everyone.

It’s unclear if they offer home renovation loans, such as the FHA 203k or the Fannie Mae HomeStyle renovation loan.

Based on their HMDA data, they mostly originate fixed-rate mortgages, but ARMs are also available if you’re looking for something a little different.

My assumption is you can get financing on a single-family home or condo/townhome, and the occupancy can be primary, secondary, or investment.

Reliance First Capital Credit Coach Program

One neat feature that Reliance First Capital offers that others might not is their free Credit Coach program, which can help borrowers boost their credit scores prior to application.

For example, if your credit scores are just shy of good enough to get approved for a certain type of home loan, they might be able to offer suggestions to improve them.

The Credit Coach program features a one-on-one conference call that involves an in-depth credit report analysis.

This expert will work to explain how credit scoring works, what’s on your credit report, and what you might be able to do to raise your credit scores.

They apparently provide “time-tested recommendations” that can lead to a credit score boost, whether that’s paying off debt or attempting to remove negative information.

Regardless, it can certainly be beneficial to raise your scores over certain key thresholds because of the many pricing adjustments related to credit scores and mortgages.

Reliance First Capital Mortgage Rates

You won’t find mortgage rates posted on the Reliance First Capital website. Instead, you’ll need to call them and speak to a mortgage analyst to discuss pricing.

The same goes for lender fees – while making that call, be sure to get both mortgage rate quotes and a list of lender fees they charge, such as loan origination fee, processing/underwriting, application, and so.

Once you’ve got all these numbers, you can determine your mortgage APR and use it to shop your home loan with other banks, brokers, and lenders.

While it’s unclear how competitive Reliance First Capital is relative to other mortgage lenders, their customer reviews on both LendingTree and Zillow are favorable, with many reviews indicating lower interest rates than expected.

But don’t just take anyone’s word for it – put in the time and truly shop to ensure you get the best deal on your loan.

Reliance First Capital Mortgage Reviews

They are one of just nine certified lenders on the LendingTree platform and currently have a 4.8-star rating out of 5 from over 2,000 customer reviews.

A certified lender is apparently “recognized for outstanding performance on the LendingTree network.”

Additionally, they landed in the top-10 list for customer satisfaction in the first quarter of 2020 and currently have a 96% recommend rate.

On Zillow, they have a 4.81-star rating out of a possible 5 from about 70 reviews, with many saying the interest rate received was lower than expected.

Their Google reviews are somewhat mixed based on physical location, with a 4.3-star rating in Charlotte, a 4.8-star rating in Dallas, a 2.9-star rating in Franklin, TN, a 4.1-star rating in Pittsburgh, a 4.8-star rating in Independence, Ohio, and a 3.2-star rating at their Melville headquarters.

So you may want to check your local office first and scour individual loan officer reviews if you want to work with someone specific, as experiences seem to vary.

They are accredited with the Better Business Bureau and currently have an ‘A+’ BBB rating based on customer complaint history.

To sum it up, they might be a good fit if you’re an existing homeowner looking to refinance, but be sure to get multiple quotes from other lenders to ensure they offer a competitive rate and lender fees.

Reliance First Capital Pros and Cons

The Good

Online borrower portal to manage your loan
Plenty of loan programs to choose from
A+ BBB rating, accredited business
Free mortgage glossary on site
Free Credit Coach program to help boost borrowers credit scores
They may service your loan as opposed to transferring it

The Maybe Not

Do not lend in all states
Do not publicize mortgage rates
No mention of lender fees

(photo: Josh)

Source: thetruthaboutmortgage.com

Apache is functioning normally

June 20, 2023 by Brett Tams

Hammered by inflation, recession fears and doubts about the future of Social Security, an increasing number of working Americans say they plan to claim their Social Security benefits early while staying on the job. Here are the factors driving this trend and the pros and cons of following suit.

Consider working with a financial advisor to create a retirement plan that fits your goals, risk profile and timeline.

More People Claim Social Security Early

42% of Americans said they plan to file for Social Security before their full retirement age while also continuing to work, according to a 2022 survey by the Nationwide Retirement Institute – up from 36% in 2021.

Workers who’ve paid into the retirement system can claim their Social Security benefits as early as age 62, but that decision can result in a monthly benefit check that’s as much as 30% less than the payment they’d receive at full retirement age, which is between ages 66 and 67 depending on what year you were born. By waiting beyond longer to file, a retiree can increase their Social Security payment by 8% each year beyond the full retirement age they wait to file, topping out at 70 years.

As of February 2023, the average monthly Social Security check among all retirees is $1,693.88, according to the agency. Meanwhile, the average check for a 62-year-old retiring this year would be $1,247.40, while the average payment at the full retirement age of 67 would be $1,782.

Over a 20-year retirement, the monthly difference of $534.6 would add up to more than $128,000 in retirement income, not counting any cost-of-living increases. These adjustments increase benefits by a set percentage calculated each year to keep retirement income paced with inflation.

Collecting benefits early isn’t always wrong, planners note. Many workers start taking Social Security benefits when they’re forced to retire because of corporate downsizing, age discrimination in hiring, illness or the need to care for a sick family member.

The Break-Even Point

Waiting to collect a higher benefit check later means the recipient is foregoing some cash flow. The “break-even” point – where the total benefits collected at full retirement are more than all the cash that could have been collected by starting early – usually comes somewhere around age 80, financial planners say.

Using this year’s average benefit amounts, someone who starts collecting benefits at 62 would collect a total of more than $254,000 over 17 years before they would have collected slightly more by waiting to claim the higher full-retirement benefit. By the year 2040, the higher benefit amount for waiting would produce slightly more than $2,000 in additional total cash (unadjusted for inflation).

Tax Considerations

Social Security benefits themselves aren’t taxable, but a downside of receiving Social Security payments early is that many of the beneficiaries will continue to work, which can make some or even much of their benefits taxable. In fact, that tax can apply to anyone collecting benefits who receives additional income.

A single tax filer receiving Social Security payments who makes more than $25,000 of what the IRS calls “combined income” will be taxed on 50% of his or her benefits, up to a limit of $34,000 in income. At that point, the tax apply to 85% of their benefits. The limits for joint tax filers are $32,000 and $44,000, respectively. Combined income is a taxpayer’s adjusted gross income, plus nontaxable interest income from bonds and half of their Social Security benefits.

Bottom line

The number of workers claiming Social Security early in their 60s is increasing, which may be due to a multitude of reasons. Everyone’s retirement path is different, so it’s important to calculate your needs and apply your Social Security accordingly. And if you continue to work while receiving benefits remember to estimate your tax penalty.

Tips on Retirement Planning

Deciding when to claim Social Security is only one part of retirement planning. A financial advisor can help you see and understand all the variables that go into a retirement plan. If you don’t have a financial advisor yet, finding one doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Use our no-cost retirement calculator to get a quick estimate of what your net worth will be when you retire.

Photo credit: ©iStock.com/JJ Gouin, ©iStock.com/Charday Penn, ©iStock.com/PixelsEffect

Source: smartasset.com

Apache is functioning normally

June 18, 2023 by Brett Tams

Should we pay off our house early? What about the next house? Don’t worry guys, we haven’t bought our next house just yet. We’re keeping our current one for at least another 12 months.

However, we have been thinking about whether we should pay off our current house quickly (we have been debating whether we want to rent it out or not – if we decide to sell then we of course wouldn’t pay off the current house quickly) and even whether or not we should pay off our next house quickly as well.

Our income has increased by a lot over the past couple of years, and I talked about this in my post from last week Financial Goals and Increased Income – Many Changes. Because of the increased income, it is hard not to think about just throwing everything extra (after student loans and retirement) towards our mortgage.

We’ve been making around $8,000 extra each month because of all of our side hustles, and it’s hard to not want to pay down all debt, regardless if someone thinks that it is good or bad debt.

Earlier this month, Holly made a post about how she wrote a check for $8,700 so that they could pay down their mortgage a little more quickly. Most people were extremely happy for her and her family, but of course there are others out there who would rather pay down their mortgages slowly. Crystal also recently made a post about how they paid off their first house recently, WOOHOOO!

I have calculated it over and over again, and we could pay off our current house early next year if we wanted to. WHATTT? Then why would you even want to buy a second house?!

This is something that I’ve/we’ve been asked often. We love our house, but we bought it when we were 20 years old. It’s a great home, but we bought it knowing full well that it was only a starter home for us.

Anyway, I do have my Finance MBA and realize that I should be using debt to my advantage, such as with taking advantage of historically low interest rates (boy, do I sound like a commercial). But there’s that nagging inside my head that keeps saying “MORTGAGES ARE DIFFERENT! Pay that baby off!”

Advantages of Paying off Your Mortgage Early

The main advantage is that if I pay off my mortgage, at that point it would mean that we would have no other debt. That just sounds awesome.

And, I’m the type of person who keeps a large amount in our emergency fund. Even though we will probably never have to tap into it, I still want it. I like the comfort of knowing that it’s there, and that if something did come up, I wouldn’t have to run around with my head chopped off trying to solve whatever went wrong.

And this is how I see paying off our mortgage early. I see freedom, comfort and everything else. Yes, I do realize that paying off our next house completely is years away (hopefully less than 5 years from the purchase date though) and that there are other costs of having a home such as property taxes and home insurance which will still need to be paid even though we would no longer have a house payment. However, having a big chunk completely eliminated from our budget every month sounds nice.

Once my student loans are gone, which should be next month, then I of course want somewhere else to shovel my money. We do have car loans, but that is at a low rate (much lower than our mortgage), and I’m not worried at all about paying those off. I am not saying that I want to shovel 100% of all leftover money towards paying off our next house quickly. We would still save for retirement and other fun things, but we would also make extra payments as much as we can as well.

If you have a high interest rate on your mortgage, it is probably worth it to pay off your loan as well or at least get it refinanced. However, it doesn’t seem like I hear about too many people with high interest rates on their mortgage these days though.

Advantages of Paying off Your Mortgage Slowly

There are many advantages of paying off your mortgage slowly or just making the normal payment every month. You can invest your extra cash elsewhere and earn a higher rate since today’s interest rates are very low, especially when you factor in inflation. If you have a fixed rate loan, then a $1,000 payment today will still be a $1,000 payment 30 years from, but with inflation 30 years from now, $1,000 will be nowhere near the amount that it is worth today.

If you don’t pay off your mortgage quickly and put it in other investments, then all of your money won’t be tied into one thing, which is real estate. This point doesn’t really apply to us, as we would be working on paying it off quickly, but we would still aim to be saving for retirement at a larger rate. But for others who shovel 100% of their money towards their mortgage, this could be a problem if they needed a large chunk of change at the last second. Then there is of course the tax factor and how you can deduct interest expense as well.

If you have loans at a high interest rate (or anything higher than your mortgage), are not saving for retirement at all, have no emergency fund and so on, then making mortgage repayment your priority might not be the best option. Pay off those high interest loans!

Why are you paying down your mortgage quickly or slowly?

If you don’t currently have a mortgage, what would you do?

Apache is functioning normally

June 17, 2023 by Brett Tams

Over the past couple of weeks, more than a few GRS readers have complained about the site’s tone. These folks are afraid that Get Rich Slowly is turning into a column that’s only about frugality and self-denial, one that is neglecting the “rich” part of the blog’s title. These concerns came to the fore in last week’s article about remembering to appreciate what I already have.

In that discussion, ObjectiveGeek wrote:

I want the best possible life for myself and my family. Maybe that means a dream house, or maybe that means the freedom to travel any and everywhere, but maybe that means both. I’d be proud of my dream home if I had earned the means to own it. I don’t think contentment is much of a virtue — it’s more of a guise for mediocrity.

Alex offered a similar sentiment:

I sometimes cringe when I see these kinds of articles. What is so wrong with wanting 5 bedrooms you may never use? What is sooooo bad about wanting a bigger house? If you have diligently saved, and planned, and you can truly afford those nice-ities in life, why not reach for them? Why not buy them?

Here’s the thing: I agree with both ObjectiveGeek and Alex. If Get Rich Slowly has been frugality-minded lately, that’s simply an accident of scheduling. While I believe that frugality is an important part of personal finance, GRS remains dedicated to the Big Picture, to all aspects of getting rich slowly.

There’s nothing wrong with wanting more, and there’s nothing wrong with reaching for nicer things in life if you’ve diligently planned and saved. I certainly don’t mean to imply that it’s bad to choose to buy things that will make you happier. But it’s important to find the proper balance between what you want and what you can afford.

How I Spent My Money in the Past

It used to be that I bought a lot of little Stuff:

I spent hundreds of dollars a month on books and magazines.
I had a lot of recurring expenses, such as my monthly cable bill and magazine subscriptions.
I bought a lot of limited-use tech gadgets, like voice recorders and expensive digital cameras.
I bought too many clothes. When Kris and I went through my closet recently, I was saddened to see so many items still with their tags on!

There was plenty more, of course. Basically, I bought what I wanted without thinking. If a friend had a new gazingus pin or thneed, I’d be inclined to buy a new gazingus pin or thneed, too. And when my income went up, my spending always went up. This is how I succumbed to the tyranny of Stuff.

It’s this kind of spending that I encourage you to question. I’m not saying, “Stop! Don’t spend on the things that make you happy.” I’m saying, “Hold on a second. Take some time to think about the money you’re spending — make sure it aligns with your priorities and goals. Don’t just buy a bunch of Stuff.” Buy based on your goals and values, not out of habit.

How I Spend My Money Today

What do I mean by this? Let’s take a look at how I’ve spent my money over the past couple of years. Each of the things I list below were purchased consciously, with money I already had, because I knew they’d make me happy.

Here’s a gallery of my recent major purchases:

My Mini Cooper, which I coveted for years before I was able to save enough to buy it with cash. I bought a five-year-old used car, and have been very happy with it. Meanwhile, I’m slowly saving for an eventual replacement Mini.

My nice furniture, for which Kris and I saved until we could combine a coupon (yes, really) with a colossal sale. We got this stuff at 50% off regular pricing. That has to be the best coupon I’ve ever used.

My comic books. I have a monthly budget for purchasing comic books (and comic strips) in collected editions. Before I dug out of debt, my comic spending was part of the problem; now, it’s part of the solution — it’s part of what makes all these smart choices seem worth it.

My bicycle. It was a tough decision whether I could afford (and justify) $900 on a new bike last summer, but I’m glad I did. I’ve been riding this thing constantly since I returned from Alaska, and it’s helping me drop the weight. Also helping me drop weight is…

My gym. I spend a lot of money to be a part of the local Crossfit gym. But I also derive a lot of value. Since joining in April, I’ve lost fifteen pounds. By the end of the summer, I’ll be fitter (and stronger!) than I’ve been in my adult life. To me, that’s money well spent.

My travel. Most of all, I’ve been spending on travel. Kris and I hope to be able to make one big trip every two years. (Maybe every year, if we’re diligent.) This year is an exception. I used part of my book advance to go to Belize in February, and later in 2010 we’ll travel to France and Italy.

Make no mistake: I live a rich life, for which I am tremendously grateful. But this rich life is largely a result of the choices I’ve made. I worked hard to dig out of debt and get where I am today. I’m fortunate to have found work that I love and am good at, and I’m lucky to be a winner in the “lottery of birth” — and I make sacrifices on the things that don’t matter to me so that I can indulge in the things that do.

I write about thrift and frugality a lot, but it’s only because I recognize their value in helping me obtain my goals.

Important: I make certain to have a full emergency fund, and to set aside my target amounts for retirement and taxes before I spend on the fun stuff. Again, it’s about managing priorities.

Conscious Spending

“I should write a post for Get Rich Slowly,” my wife told me the other day. “I could tell your readers all about how you’re not frugal.” She meant that unlike what some of you think, I’m not into self-denial. I do buy nice things for myself.

But here’s the difference between my current spending and my former profligate ways: I can afford everything I’m buying, and when I do buy, it’s a conscious decision. I’m not financing my lifestyle on debt, and I’m not buying things just to “keep up with the Joneses” or out of habit. My spending now reflects my priorities, my goals, my values.

Because I’m spending consciously and living within my means, I’m much happier than I was before. I can’t have everything I want — no $2.3 million home for me, for example — but I can have a few of the things that seem most important.

In a follow-up comment to my post last week, objectiveGeek wrote:

Of course having money for money’s sake is nearly pointless, but having money for what it represents (value, effort, innovation, hard work, success) and for what it provides (freedom, time, safety, opportunity — essentially life!) is the noblest of goals.

I think that’s correct. We’re all striving to get rich — quickly or slowly — because of what we believe money can bring to our lives. I just think it’s important to maintain balance, to remember that money and happiness aren’t always connected, and to acknowledge that the best way to achieve your financial goals is to make active, conscious choices about where and when you spend your money.

Maybe it’s time to officially add a fifteenth tenet to the Get Rich Slowly philosophy. Namely, you can have anything you want, but you can’t have everything you want.

Source: getrichslowly.org

Apache is functioning normally

June 16, 2023 by Brett Tams

The Federal Reserve is pressing pause on its series of interest rate hikes designed to tame inflation – for now at least.

The Federal Reserve Open Market Committee announced Wednesday that it would leave the federal funds rate unchanged, forgoing what would have been an 11th consecutive rate hike. Those increases, which began in March 2022, have brought the federal funds rate from near zero to its current target range of 5-5.25%.

A financial advisor can help you protect your money from the effects of inflation. Find an advisor today.

The increases have been the central bank’s primary weapon in its fight against inflation, which crested at 9.1% in June 2022 but has since receded to 4%. Despite inflation’s recent downward trajectory, it remains well above the Fed’s long-term target of 2%. In fact, officials signaled they expect to see two more quarter-point increases.

What It Means for Retirees

While inflation’s downward trend feels encouraging, retirees and those on fixed incomes remain vulnerable as inflation is still double the Fed’s target range.

“It’s like saying, ‘He’s getting much better because he only robs four people a week and he used to rob 20 people a week.’ Inflation is a kind of robber which steals the value from retirees’ savings accounts and monthly pensions,” said Christopher Manske, founder and president of Manske Wealth Management in Houston.

“The fact that inflation is now stealing a bit less is still too much theft.”

Here are a few things retirees should be thinking about related to inflation and current interest rates:

Put Interest Rates in the Proper Context

High interest rates have made various savings vehicles, including certificates of deposit (CDs) and money market funds, more attractive. But Hao Dang, an accredited investment fiduciary at Consilio Wealth Advisors in Bellevue, Washington, says retirees should remember that the net return on their savings is barely outpacing inflation.

Yet, there is still a benefit to holding more cash at higher rates.

“Safe money can help them sleep better at night and help withstand any future sell-offs in the stock and bond markets,” he said. “If a retiree typically holds six months’ worth of expenses in cash, it could help to increase that to nine months to a year.”

And while a traditional portfolio of stocks and bonds benefits from diversification, savers can also stand to benefit from diversifying their cash position with an eye toward the future.

“Bonds are sensitive to rate hikes so if there are more rate increases down the line, there could be some losses in even the safest bonds,” Dang added.

“Enjoy higher rates while they can but start anticipating where to place cash for two to three years down the line.”

Good News for Pensions?

High interest rates not only mean better yields on bonds, they can also boost the investment returns of public pensions. In fact, a 2019 study conducted by the Federal Reserve Bank of Boston found that low interest rates often lead public pensions to assume more investment risk in an attempt to generate higher yields. This was especially true for funds that were underfunded or affiliated with states that had weaker public finances, the researchers found.

When Will the Fed Lower Rates?

If you’re expecting the Fed to lower interest rates this year, at least one heavyweight in the financial services industry says you may be setting yourself up for disappointment.

Vanguard economists say it’s far more likely that the Fed will either raise interest rates or leave them at their current target as opposed to cutting them this year. In fact, Vanguard’s model predicts that the Fed won’t start to lower rates until the middle of 2024.

“Our model suggests that it’s nearly three times as likely that the Fed will raise its target for the federal funds rate or keep it on hold this year than that it will cut rates,” Asawari Sathe, a Vanguard senior economist, said in a recent edition of Vanguard Perspective. “Our model’s output underscores our conviction that the Fed’s fight against inflation hasn’t yet reached an inflection point.”

As a result, if a saver is looking to open a new savings account or lock in a long-term CD, they’ll want to do so in the next six to 12 months, says Mark Hayes, a certified financial planner (CFP) and founder of Infinitive Wealth Advisory in Fishers, Indiana.

“Savers should consider taking action soon to lock in rates while borrowers might want to hold off,” he said.

Bottom Line

The Federal Reserve chose to leave interest rates untouched at the June meeting of the central bank’s Federal Open Market Committee. The pause comes after 10 consecutive interest rate hikes that brought the federal funds rate from near zero to its current target range of 5-5.25%. With more rate hikes potentially on the way, retirees may want to reevaluate their debt and even consider refinancing, as well as diversify their cash positions.

Retirement Planning Tips

A financial advisor can help you navigate the complexities of retirement planning. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Social Security and portfolio withdrawals are two vital components of a retirement income plan. But how much income do you expect to generate in retirement? SmartAsset’s retirement calculator can help you estimate how much money your portfolio

Photo credit: ©iStock.com/sasirin pamai, ©iStock.com/BongkarnThanyakij

Patrick Villanova, CEPF®
Patrick Villanova is a writer for SmartAsset, covering a variety of personal finance topics, including retirement and investing. Before joining SmartAsset, Patrick worked as an editor at The Jersey Journal. His work has also appeared on NJ.com and in The Star-Ledger. Patrick is a graduate of the University of New Hampshire, where he studied English and developed his love of writing. In his free time, he enjoys hiking, trying out new recipes in the kitchen and watching his beloved New York sports teams. A New Jersey native, he currently lives in Jersey City.

Source: smartasset.com

Apache is functioning normally

June 16, 2023 by Brett Tams

For those fresh out of college and newer to the workforce, it can be challenging to figure out how to balance between managing looming student loan debt and saving for your future.

Student loans are a particularly burdensome source of debt, totaling $1.63 trillion — or $37,600 per borrower — in the United States, according to a recent WalletHub study. They’re the second-highest form of debt for Americans, second only to home mortgages. And after a three-year pause, federal student loans will resume accruing interest on Sept. 1, with payments coming due in October.

You may have heard of the 50-30-20 rule — dedicating 50% of your money toward needs, 30% toward wants and 20% toward savings — but there is more to post-college budgeting, Chris Briscoe, vice president and director of financial planning at Girard Advisory Services, tells CNBC Make It.

While there is no one-size-fits-all approach, especially for Gen Zers and millennials burdened with student debt, here are a few steps young professionals can take to start balancing loans and future savings.

1. ‘Take your time’ and establish your financial goals

Putting together a plan for financial success right out of college is not an easy or quick task, Briscoe says. College graduates do not have to find the perfect job right off the bat, nor should they feel the pressure to immediately know how to handle their money.

“You don’t have to take care of this all at once. Take your time,” he says.

Start by establishing a preliminary budget and outlining financial goals. There are a few simple questions you can ask yourself in this process, Briscoe says.

“[The budget] doesn’t have to be set in stone, but at least take some time to figure it out a few months after you get used to making money. What fixed expenses do you have? What do you like to do? What would you like to do for enjoyment? How much money is going in? How much money is going out?”

Additionally, “write down your goals. Where do you want to be in one year? Where do you want to be in five? Where do you want to be in 10 years? If you have debt, how do you want to tackle that debt?”

2. Always make the minimum payment

For those grappling with student loan debt, the most important thing is to stay on top of your minimum monthly payments, Andrew Meadows, senior VP of HR, brand and culture at Ubiquity Retirement and Savings, tells CNBC Make It.

“It costs money to owe money. It is a funny thing to say, but that’s the truth,” he says. “In order to not have that debt grow, continue to make the minimum payments.”

That’s because “if you get late on your payments, they add late charges on top of that,” he says. “The last thing you want when you’re facing debt is to face more debt.”

Ultimately, the sooner you can pay off your student debt — by making minimum payments and paying a little more each month if you can — the less you will pay overall.

3. Start building a savings buffer

While it might be difficult to immediately set aside a full emergency savings fund of three to six months’ worth of expenses soon after entering the professional world, at least build a cash savings buffer, Meadows says.

“Start taking a little bit of money away that will cover two months’ worth of your student loan debt and a couple of months’ rent,” he says. “This isn’t a full emergency savings. It’s just that buffer so that you have some breathing room and you can lower your anxiety overall.”

Some jobs are not forever, he reminds young professionals. It’s important to prepare while you can and have enough money to get yourself through periods without steady pay.

4. ‘It is never too early to save for retirement’

If you have a savings buffer and are making your minimum loan payments, it’s time to start putting money away for the future.

If given the opportunity, opt for a job that offers an employer-sponsored 401(k) plan, Meadows says. “It is never too early to save for retirement.”

For working professionals, 401(k) retirement plans allow your money to grow tax-free, offer you an upfront tax break and can include employer matching. If your company offers a match, save at least that amount every month, Briscoe says. It’s part of your compensation, and basically “free” money.

If your company does not offer a 401(k), a Roth IRA might be a strong alternative. Roth IRAs are funded with post-tax funds, which you can withdraw tax-free in retirement, provided you meet all the requirements. They’re often recommended for early career investors because you’re more likely to be in a lower tax bracket early on than in retirement.

5. Maintain your ‘study mindset’ and continue to learn

When it comes to gaining greater financial literacy and learning how to effectively balance student loans and retirement savings, it is essential to learn all that you can.

“Be a sponge,” Briscoe says. “If you’re at your job and you have questions about your retirement plan, make sure you’re asking somebody that might be a little bit more experienced about what they’ve done.”

Recent college graduates should maintain their “study mindset,” Meadows says, and devote time to building their budget and financial resources. It shouldn’t feel like a burden — rather, it’s a chance to maximize your postgraduate experiences.

“Your retirement plan is the ultimate DIY project,” Meadows says. “You can’t rely on Social Security as your primary form of income when you retire. Many of us are not going to have jobs that provide pensions. The only thing you have left is your own personal savings.”

“You are working hard now, you’re out there making a living. But don’t forget to treat yourself a little bit,” he adds. “Just understand what your boundaries are so that you can be setting up your future self for the most comfort possible in retirement.”

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Get CNBC’s free Warren Buffett Guide to Investing, which distills the billionaire’s No. 1 best piece of advice for regular investors, do’s and don’ts, and three key investing principles into a clear and simple guidebook.

Source: cnbc.com

Apache is functioning normally

June 15, 2023 by Brett Tams

Embarking on a downsizing journey as a senior can be exciting and overwhelming. It’s a time filled with anticipation for a new chapter in life, but it also involves making tough decisions about belongings accumulated over the years. A comprehensive checklist can be an invaluable resource to ensure a smooth and successful downsizing process. Whether you’re considering downsizing for retirement, transitioning to a smaller home or exploring senior living options, this checklist will help simplify the process and pave the way for a stress-free transition. You can also work with a financial advisor to help you with a retirement budget, which can often help you decide what and when to downsize.

Downsizing Checklist for Seniors

When creating a downsizing checklist for seniors, it’s essential to consider specific needs and goals, efficiently declutter and organize belongings and effectively plan for the move. Here are key items to include in the checklist.

1. Gather Important Paperwork

To get started, the first thing you should do is organize your essential documents in a neat and organized way. It’s a good idea to keep important information safe by storing it in a secure place like a safe deposit box or a fireproof safe. That way, you can have peace of mind knowing that your documents are well-protected.

Next, consider making digital copies of all your vital documents. This will provide an extra layer of security in case anything happens to the physical copies. Store these digital copies securely online using a reliable and encrypted storage service. This way, even if something happens to the originals, you’ll still have access to them whenever you need them.

Lastly, remember to let your loved ones know about the whereabouts of these crucial documents. It’s important to share the location with them and provide clear instructions on accessing them. This ensures that your loved ones can easily find and retrieve the necessary information in case of an emergency or when important decisions need to be made.

Remember, taking these steps will give you peace of mind and make it easier for you and your loved ones to access important documents when needed.

Documents to Include

Here are some documents you’ll want to save and organize:

Contact information for professionals like your attorney, doctors, financial advisor and insurance agent
A list of personal assets like property and investments
A list of liabilities and debts like auto loans, mortgages and credit cards
Social Security and Medicare cards
Copies of your federal and state income tax returns for the last five years
List your checking account, savings account and credit card numbers and accounts
Legal documents, including trusts, wills or amendments and necessary directives like the durable power of attorney and advance directives
A letter addressing any personal matters or issues you want to communicate or document

2. Pack and Organize Your Belongings

You can greatly simplify the packing and moving process by organizing and planning ahead. Here are some key tips to make your packing more efficient:

Enlist the help of family members, friends or the moving company to assist with packing tasks. The moving process will be much more straightforward, with everything labeled adequately in advance.
Ensure you have markers and labels available for labeling boxes.
Label each box with its intended destination room or area in the new residence. This will make unpacking and organizing much more efficient.
Consider utilizing specialized containers the moving company provides, such as wardrobe boxes for keeping clothes on hangers or protective boxes for flat-screen TVs.
Prepare an “open first” box or boxes. These should contain essential items for setting up sleeping accommodations and the bathroom. Include fresh bedding, toiletries, nightclothes, towels, utensils, a change of clothes, a flashlight, tape, scissors and cash for ordering dinner since moving often takes longer than expected.
Pack essential items that you’ll need to keep during the move separately. These may include the new lease or residence contract, keys, medications, legal documents, checkbook, cell phone, address book and a first-aid kit. Remember to label this container. Valuables like jewelry should be kept in a safe-deposit box unless regularly worn.

3. Prepare for Moving Day

Preparing for moving day is crucial to ensure a smooth transition to your new home. Some important tasks to complete include:

Organize a moving binder that includes important information like critical contacts, estimates, receipts and an inventory of the items you’ll take.
Confirm the final details with your mover or moving coordinator.
Arrange utility disconnects according to your moving schedule.
Schedule post-move-out cleaning services to ensure a smooth transition.
Ensure you have a written contract from the moving company that clearly outlines coverage for lost or damaged possessions.
Obtain a specific arrival time from the moving company for your old and new residences.
Verify the available payment options for the moving company, such as credit card or check.

4. Wrap Up the Remaining Moving Day Tasks

When the moving day finally arrives, there are a few last-minute details that can assist you in completing the downsizing process smoothly.

Assign someone to meet the movers at your new residence, ensuring they have a key and that the community manager is aware of your arrival.
Begin by cleaning out the pantry and deep freeze, remembering to reduce your cleaning supplies.
Double-check inventory lists to ensure everything is accounted for.
Properly label all boxes to facilitate organized unpacking.
Ask a neighbor for any mail that might arrive after your move.
If you bring a pet, pack their food and medications to ensure a smooth journey and safe arrival.
Pack a suitcase with your clothes and medicines, so you’re ready for the first day after your first night in the new home.
Personally pack valuables and belongings that you don’t frequently use.
Use the “open first” boxes to set up the bedroom and bathroom immediately.
Be prepared to spend a few days unpacking and organizing. Enlist someone to help you. Work efficiently to make your new home feel comfortable quickly.

Tips for Downsizing Seniors

It’s not always easy to know when or how you should be downsizing. You need to first understand your budget before moving forward with the whole process so you know how much money you want or need to save. Here are six recommendations to make downsizing a smooth transition.

Start Early

Downsizing can be daunting, especially for seniors who have resided in their homes for an extended period. The mere thought of downsizing can easily lead to feeling overwhelmed, causing individuals to become paralyzed and delay the process. Unfortunately, this only adds to the difficulty of the task.

You gain the advantage of time by starting early, even before embarking on the search for a senior living community. This approach reduces stress for everyone involved and provides an opportunity to cherish memories while sorting through old family photographs and keepsakes throughout the house. Taking it slowly ensures a smoother downsizing experience.

Prioritize the Essentials

Take an inventory of the possessions you hold dear and cannot let go of. Consider the limited space you will have in your new home. Additionally, create a separate inventory for belongings that hold significance but may need to be relocated to a friend or family member’s home.

Safeguard Your Valuables

The process of downsizing and relocating can often be chaotic, especially when you’re preparing to sell your home. To simplify matters and mitigate risks, consider renting a storage space or utilizing a family member’s garage or basement to temporarily store your cherished possessions. This precautionary step not only safeguards these items but also creates a more spacious and appealing environment for potential buyers.

Design a Layout

If you have decided on a senior living community or a condominium, obtain the measurements of each room. Next, measure the furniture you intend to bring along. Utilize these dimensions to develop a comprehensive floor plan for your new home. You can use either graph paper or user-friendly online tools like RoomStyler or Homebyme.

This process will visually represent how many of your belongings can be accommodated in the new space. Therefore, helping you determine what will fit and what may need to be left behind.

Develop a Strategy for Discarding Unwanted Stuff

Determining the best action for disposing of unneeded items requires careful consideration. Although your community may have several nonprofit organizations that accept donations, it may take some effort to determine which items they are willing to receive. Disposing of older electronics can also pose additional challenges.

Fortunately, specific charities provide pick-up services, which can be particularly helpful if you have larger furniture pieces or multiple boxes of smaller items to donate. Lastly, remember to request a receipt from each charity, enabling you to claim tax deductions for your donations.

The Bottom Line

Downsizing offers seniors a transformative experience. It enables you to embrace new opportunities and discover a more manageable lifestyle. With a comprehensive checklist, seniors can confidently navigate the process, from assessing needs to organizing belongings. By planning ahead and making informed decisions, you can ensure your new living space is filled with cherished possessions.

Retirement Tips

Retirement brings its own set of challenges, but financial worries shouldn’t be one of them. If you aspire to have a substantial nest egg when you retire, consider seeking guidance from a financial advisor. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
When planning for retirement, it is crucial to accumulate a solid savings portfolio. However, it’s equally important to factor in your Social Security benefits. Utilize SmartAsset’s Social Security calculator to estimate the potential benefits you may receive.

Ashley Kilroy
Ashley Chorpenning is an experienced financial writer currently serving as an investment and insurance expert at SmartAsset. In addition to being a contributing writer at SmartAsset, she writes for solo entrepreneurs as well as for Fortune 500 companies. Ashley is a finance graduate of the University of Cincinnati. When she isn’t helping people understand their finances, you may find Ashley cage diving with great whites or on safari in South Africa.

Source: smartasset.com

Apache is functioning normally

June 15, 2023 by Brett Tams

Nursing home care can be extremely expensive. According to Genworth’s 2021 Cost of Care Survey, the median monthly cost of a private room is a nursing home is $9,034. That’s over $100,000 a year! And most people will need nursing home care or something similar in their old age: A study from the Urban Institute and the U.S. Department of Health and Human Services found that 70% of Americans who reach the age of 65 need some long-term care during their remaining years.

But there are ways to get some of these costs covered, as well as strategies that can help cover any out-of-pocket expenses. We’ll examine four ways to pay for nursing home care, some of which you can implement early in your life to ensure a financially secure retirement. Consider working with a financial advisor if you want more personalized retirement and savings advice.

What Government Programs Will Cover

There are three government programs intended to insure and help cover medical costs for Americans ages 65 and older. Let’s take a look at how each of these may be able to help you pay for nursing home care.

Medicare: Medicare typically doesn’t pay for nursing home stays because it doesn’t cover custodial care. Custodial care is defined as “non-skilled personal care, like help with activities of daily living like bathing, dressing, eating, getting in or out of a bed or chair, moving around, and using the bathroom.” Medicare will only cover nursing home care when you need more advanced medical care — like regular injections that can only be administered by a medical professional. Medicare has additional restrictions and limits, and shouldn’t be counted on as a way to pay for long-term care in a nursing home.
Medicaid: Medicaid will cover 100% of your nursing home care so long as you meet the program’s financial eligibility requirements, according to the American Council on Aging. Individuals typically must have a low enough income and few financial resources to qualify for Medicaid. States limit the amount of income you can earn while qualifying for Medicaid and also typically put a $2,000 cap on the amount of cash and other assets you can have (beyond your home’s value). Additionally, the services must be deemed medically necessary by a physician.
PACE: Some states offer a Program of All-Inclusive Care for the Elderly (PACE), which is a joint Medicare-Medicaid program that can help those who need nursing home care. If you’re eligible and there’s a PACE program in your area, you can apply for care.

What Specialized Insurance Will Cover

Long-term care insurance is a fantastic option that can help you pay for nursing home care if you don’t qualify for government programs. This product is intended to cover the exact kind of care that isn’t often covered by Medicare — custodial care — as well as any specialized care or rehabilitation therapy you need.

Long-term care insurance isn’t cheap, but it can be a lot cheaper than paying out of pocket. The American Association for Long-Term Care Insurance found in its 2023 analysis that a 55-year-old man purchasing long-term care insurance with $165,000 in immediate benefits can expect to pay $900 a year. A woman in the same situation can expect to pay between $1,500 and $3,600.

How Tax Deductions Can Help

According to the IRS, you can deduct some or all of your nursing home expenses on your tax return. A tax deduction is a provision that allows some of your income to go untaxed. For instance, if you make $40,000 in income and qualify for a $5,000 tax deduction, you’ll only pay taxes on $35,000 of your income. While these tax provisions won’t necessarily help you pay for nursing home care up front, they can save you money after the fact.

The IRS specifies that if you’re in nursing home care primarily for medical reasons rather than custodial care, you can deduct the total cost. If you’re in nursing home care primarily for non-medical reasons, you can deduct the cost of any medical care, but not the cost of services such as lodging and meals. To figure out your tax deduction amount, most taxpayers will simply need to total up all of their qualifying medical costs, then subtract 7.5% of their adjusted gross income.

How to Cover Out-of-Pocket Costs

Even if you have long-term care insurance or another plan for covering your nursing home care, you will still want to have some money on hand to finance any uncovered expenses or surprise costs. Plan ahead for these out-of-pocket expenses by setting up a tax-advantaged retirement account.

A good option is to open a Roth IRA to use for these costs. Since you fund a Roth IRA with after-tax money, you won’t be taxed when you withdraw the money as long as you have reached age 59 ½ and the account has been open for five years. And unlike a traditional IRA, you won’t be subject to required minimum distributions (RMDs) at a certain age, so that money can remain invested until you need it.

An annuity is another smart way to cover out-of-pocket expenses or anything insurance won’t cover. An annuity is an insurance product where you pay a certain amount in exchange for receiving payments at a later date. You can specify when you want the payments to start, what schedule you want them to follow and how much you want them to be. You can also purchase an annuity with a long-term care rider to help cover some specified conditions requiring medical care.

Bottom Line

Nursing home care is expensive, but there are ways to plan for it and programs that can help you cover the costs. See how much government programs can help you, look into insurance options and make sure to take advantage of medical expense tax deductions. Lastly, set aside some savings for the costs that won’t be covered by government programs or insurance.

Retirement Planning Tips

Consider talking to a financial advisor about your options for preparing for long-term care costs. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three qualified financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
A related concern is how much life insurance you may need. SmartAsset’s life insurance calculator will give you an estimate of how much life insurance you should have.

Source: smartasset.com

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