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Real Estate and Retirement

Aug 12, 2017 by

Little known secret: A retirement plan that works well for agents is the Solo 401(k). You can save up to $ 54,000 ($ 60K for agents over 50) a year and deduct it from your taxes.

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Study: Is Home Equity Still a Retirement Failsafe?

Nov 13, 2016 by

Homeownership is one of the more viable paths to a secure retirement—but many older homeowners missed the prime opportunity to leverage that equity before the recession. How much usable equity can older homeowners now expect in retirement, given the rebound in home values?

A recent study by the Urban Institute explored the answer to this question, analyzing the equity patterns among older households before, during and after the recession.

“Not only does a house meet the basic need of shelter, but it’s an asset that typically can be used to build wealth as homeowners pay down their mortgages,” the study’s authors state. “In fact, many retirement security experts argue that the conventional three-legged stool of retirement resources—Social Security, pensions and savings—is incomplete because it ignores the home.”

Homeowners aged 65 or older, according to the study’s findings, could have used their home’s equity to grow their retirement income by over 50 percent (up to $ 60,000) pre-recession, either by borrowing a home equity line of credit, selling their home at a profit, or taking a cash-out refinance or second mortgage. That percentage dropped to 40 percent (up to $ 49,000) by 2012, despite accumulating an average 10 percent more equity then than in 1998. Home values, still, grew 3 percent by 2014. Monetarily, the average older homeowner’s equity stake increased from $ 117,000 to $ 166,000 between 2000 and 2006, then decreased to $ 129,000 by 2012.

The swings not only parallel the movement of the market—according to the study’s findings, equity patterns follow mortgage debt trends, as well. From 1990 to 2006, national mortgage debt grew to $ 11.3 trillion from $ 2.5 trillion, then fell to $ 9.9 trillion by 2015; for the average older homeowner, debt grew from $ 44,000 to $ 82,000 between 1998 and 2012.

Mortgage loan-to-value (LTV) ratios also moved in tandem; in fact, the proportion of older homeowners with LTV ratios at 80 percent or more doubled from 1998 to 2012, according to the study. The proportion of underwater homeowners tripled over the same period.

Older homeowners today have more favorable retirement conditions, but not without contingencies. Low-income and minority homeowners tend to have most of their wealth tied up in their homes, but accumulate the least equity overall, according to the study—with loan approval related to income, these segments could become challenged, even though they have the potential to increase their retirement incomes considerably more so than other higher-income or majority groups. Low-income and minority homeowners, the study’s authors postulate, will likely rely on Social Security as their primary source of income in retirement.

Older homeowners overall, however, have more of an opportunity now to unlock the wealth potential of their homes in retirement, even with the recession in the rearview. Their prospects, as the study demonstrates, lean on home value, as well as mortgage debt. State the study’s authors, “The majority of older adults, regardless of income, race and ethnicity, and education, own homes that they could use to help finance their retirement.”

Source: Urban Institute

Suzanne De Vita is RISMedia’s Online News Editor. To submit a tip or story ideas for consideration contact Suzanne at sdevita@rismedia.com or 203-855-1234 ext. 141.

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Depending on stock returns to fund your retirement? Think again

Oct 6, 2015 by

How worried should I be?

That’s a question financial people get a lot when the market is as unstable as it has been over the past several weeks. Actually, it’s a question we ask ourselves in those environments.

Having both asked and answered that question several times recently, let me share some of the answers I’ve come up with.

Down 500 points? No big deal.

The stock market has hit some major downdrafts lately, including days when the Dow Jones Industrial Average lost over 500 points.

Inevitably when this happens, the media post pictures of Wall Street traders tearing their hair out. That’s okay. Baldness is an occupational hazard, and they are compensated well enough to afford Rogaine.

An important thing to remember about those traders is that they have large amounts of money at stake on very short-term market positions. Outside of the financial sector, though, most investors are trying to save for the long term, for retirement. This means accumulating wealth over 20, 30, or 40 years. Have you ever seen what a 3 percent loss (roughly the equivalent of a 500-point drop at today’s level of the Dow) looks like on a 40-year chart of stock market returns? It is barely a ripple, something you wouldn’t even describe as a speed bump.

Bigger problems than market downturns

For long-term investors, then, most day-to-day or even month-to-month fluctuations can be shrugged off. What is more disturbing is that, for all its ups and downs, the stock market has made very little progress over a long period of time.

Since the beginning of this century, the S&P 500 has gained just over 34 percent, or a compound average of 1.90 percent a year. Throw in a couple percent a year for dividends and you would roughly double that on a total return basis. But returns in the neighborhood of 4 percent a year are far below the growth assumptions people make when they are doing retirement planning. This has been going on for more than 15 years now, which is a significant chunk of anyone’s retirement time horizon.

Add to that the low yields on bonds over the past several years and the even lower rates on savings accounts and other bank deposits, and you are looking at long periods of sub-standard returns for most U.S. investors. This is a bigger problem than any short-term market downturn.

Economic reality vs. perception

Markets are one thing; the economy is another. While the U.S. market was going through all the angst of late August, one very positive piece of economic news went almost unnoticed. The official estimate of U.S. gross domestic product was revised upward to 3.7 percent, a substantial improvement over the original estimate of 2.3 percent, and significantly better than the first quarter’s rate of 0.6 percent.

The contrast between the stock market and the underlying economy is even greater in China. For all the attention the dramatic plunge in Chinese stocks has gotten, what is less reported is that their economy is continuing to grow, albeit at a slower rate than in recent years. Squeezing some of the speculation out of the Chinese stock market should be good for investment there in the long run.

Protecting your number one asset

When the investment environment gets worrisome, your attention should turn to your number one asset. This probably is not your portfolio or even your house. It is your job.

Keeping that stream of income coming — and growing it through career advancement if possible — can help pick up the slack when investments are doing little to build your wealth. Keep your skills sharp, and look to add value at your job to a degree that would make it difficult for your employer to do without you.

Control what you can control

Besides attending to your career, the other thing you can control when investment results disappoint is your spending. Lower returns may mean you have to lower your spending expectations, both now and in retirement. Doing this on your own terms is much less painful than having austerity forced on you when you can’t pay your debts. Just ask the Greeks.

One way to think of all this is that you should be concerned rather than worried. Concern means that the situation is serious enough to merit some attention, particularly with regard to safeguarding your career, tightening up your spending habits, and being alert for investment opportunities. Acting out of concern is distinct from merely worrying, which usually involves unproductive activities like checking the market every five minutes or lying awake at night worrying about decisions that are already behind you.

This notion of acting constructively toward things you can control is perhaps the best cure for a worrisome environment. Once you’ve done all you can do, it is easier to stop worrying and turn your attention to other aspects of your life while the stock market’s drama plays itself out.










fivecentnickel.com

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How to play retirement catch-up

Mar 30, 2015 by

I told the story elsewhere of how my wife and I woke up in our late 40s to the fact that our investment cupboard was bare. We were not alone, millions of Americans in their 40s or 50s don’t have nearly enough money saved to retire.

So what can you do if you find yourself in that position? After you shake off the scorn of the self-righteous around you and stop beating yourself up, it is time to get to work because the good news is that there is hope. We managed it. You can do it, too.

The strategy

1. Cut

The first step is you have to cut your expenses to the bone. The key number you’re looking to improve is the difference between your income and your expenses, and the quickest and easiest way to do something about it is to focus on reducing your expenses.

If you are serious about getting caught up, Step 1 is to put together a budget, listing income and expenses. Then you need to put the knife to the expenses, sparing no holy cows: vacations, eating out, movies, hobbies, smartphone, car(s), everything has to come under the knife.

The good news is that you are usually at or close to your peak earning years, so creating a surplus is usually a lot easier than for a 20-something. But still, it isn’t going to be easy. Expect pain. Saving and living on a budget is not pleasant, especially if you are not used to it. Doing it to catch up is even less so.

2. Earn more

Set a target, starting small, like $ 200 a month. Find things to do like moonlighting, selling off collections, or monetizing a hobby — the list of possibilities is limited only by your determination to catch up.

Here is an interesting thing many people discover: Once you start pursuing opportunities for extra income, more present themselves. It’s almost as if they crawl out of the woodwork. Then you can begin to set your target higher.

Many discover that once they begin to turn their hobby into an income, they do better than they expected and it becomes a natural segue into a fulfilling and profitable retirement. But you rarely get there without taking that first uncomfortable step.

3. Save aggressively

Rather than save what is left over between your income and expenses, save first — and force your expenses to match what is left over. If you don’t pay yourself first, chances are you will not get caught up.

Make maximum use of the tax-advantaged funds available to you. My wife and I made our first priority maxing out both our IRA and 401(k) contributions. Easy, it wasn’t; but desperate times call for desperate measures and results trump easy when you are in the position of playing catch-up.

On top of the retirement accounts, pay down as much on your home mortgage as possible. That’s most everyone’s largest expense, and once that is gone, your monthly nut drops significantly.

4. Research social security

I heard from a financial planner that there are 587 ways for married people to file for Social Security. How and when you do it can affect your payout significantly. This is something we didn’t do, and we still haven’t figured out how to do it without involving financial planners who want to sell you annuities.

5. Plan to work past 62

Many people fixate on 62 because it is the youngest age at which one can begin to collect social security. However, if you have a job and can hold on to it, it will be worth your while to plan on staying past 62. The good news is that life expectancy is increasing and improved health means many more people are capable of working well beyond 62.

However, increased health and longevity can be a double-edged sword. It means we all will probably live longer than the generation which preceded us. In turn, that means that whatever funds you have set aside for your retirement will need to last longer than you anticipated.

Working past 62 not only adds to the fund, it postpones the day you begin to draw against it.

6. Change your lifestyle

This might sound the same as cutting expenses, but it is meant to cover a lot more. Think of it as Phase 2. This is where you would explore options like going from two cars to one, scaling down your home to the minimum you can live in.

If you are looking at an underfunded retirement, you know at some point you will have to make drastic changes to your lifestyle. The earlier you do that, the less likely a change like this will be traumatic for you.

7. Stop supporting dependents

It may sound callous or cruel; but if your retirement fund is short, it makes no sense to put the needs of children, their families, or other people who should be taking care of themselves before your own needs if that would result in your ending up unable to support yourself.

Once your finances come into line, you can always resume doing nice things for others. However, continuing to support dependents when you are at financial risk is short-sighted.

8. Become knowledgeable about investing

Warren Buffett’s famous rule for investing is: “Don’t lose it.” That, of course, refers to avoiding unnecessary risk. However, when you are 50 with no retirement fund, you have forfeited to a large extent the luxury of picking investments with modest earnings but high security that you would have enjoyed in your younger years.

There are investments with higher returns than safe index funds, but reaping those requires more than a passing knowledge. You might think of it as another career, and in a way it is. The only way to “not lose it” is to know more than most other people, and that takes time and effort.

The mindset

If this sounds like an uncomfortable topic and strategy, it is. “No pain, no gain” is not just true with exercise. But if you know it up front, you can knuckle down and get where you want to be.

What got my wife and I through the serious sucking-it-up part of getting ready for retirement in a hurry was our view that this was a challenge, a project. We never had a woe-is-me attitude. Instead, we looked at it as a challenge — not easy, but not impossible, either.

Admittedly, we didn’t have to make emotionally tough choices like cutting back on things for kids or grandkids, and we didn’t have health issues, which can wreak havoc with any plan, normal or catch-up.

We also had a few investments work out unexpectedly well for us. Although there is no guarantee that will happen, I suspect it happens to many people; but when it does, they react like I did when I was younger: they celebrate by spending it. When you are in project-mode, those windfalls don’t disappear. They become crucial building blocks.

Is it easy to catch up building your nest egg when you wait till it looks too late? No. But it is possible — and, in balance, that is at least some good news.








fivecentnickel.com

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‘myRA’ Accounts This Fall May Alter Your Retirement Plans

Nov 13, 2014 by

Important changes are coming this fall for what’s become one of the biggest concerns of the era: affording retirement. Those who are saving for retirement and meticulously troubleshooting tax obstacles may want to restructure their plans. While members of Congress continue to battle over the budget, the Obama administration is preparing to roll out “myRA” […]
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