Browse > Home / Archive: September 2012

| Subscribe via RSS

The Retirement Reality Check

September 26th, 2012 | No Comments | Posted in Financial News

Little things to keep in mind for life after work.

Decades ago, there was a popular book entitled What They Don’t Teach You at Harvard Business School. Perhaps someday, another book will appear to discuss certain aspects of the retirement experience that go unrecognized – the “fine print”, if you will. Here are some little things that can be frequently overlooked.

How will you save in retirement? More and more baby boomers are retiring with the hope that they can become centenarians. That may prove true thanks to healthcare advances and generally healthier lifestyles.

We all save for retirement; with our increasing longevity, we will also need to save in retirement for the (presumed) decades ahead. That means more than budgeting; it means investing with growth and tax efficiency in mind year after year.

Could your cash flow be more important than your savings? While the #1 retirement fear is someday running out of money, your income stream may actually prove more important than your retirement nest egg. How great will the income stream be from your accumulated wealth?

There’s a longstanding belief that retirees should withdraw about 4% of their savings annually. This “4% rule” became popular back in the 1990s, thanks to an influential article written by a financial advisor named Bill Bengen in the Journal of Financial Planning. While the “4% rule” has its followers, the respected economist William Sharpe (one of the minds behind Modern Portfolio Theory) dismissed it as simplistic and an open door to retirement income shortfalls in a widely cited 2009 essay in the Journal of Investment Management.1,2

Volatility is pronounced in today’s financial markets, and the relative calm we knew prior to the last recession may take years to return. Because of this volatility, it is hard to imagine sticking to a hard-and-fast withdrawal rate in retirement – your annual withdrawal percentage may need to vary due to life and market factors.

What will you begin doing in retirement? In the classic retirement dream, every day feels like a Saturday. Your reward for decades of work is 24/7 freedom. But might all that freedom leave you bored?

Impossible, you say? It happens. Some people retire with only a vague idea of “what’s next”. After a few months or years, they find themselves in the doldrums. Shouldn’t they be doing something with all that time on their hands?

A goal-oriented retirement has its virtues. Purpose leads to objectives, objectives lead to plans, and plans can impart some structure and order to your days and weeks – and that can help cure retirement listlessness.

Will your spouse want to live the way that you live? Many couples retire with shared goals, but they find that their ambitions and day-to-day routines differ. Over time, this dissonance can be aggravating. A conversation or two may help you iron out potential conflicts. While your spouse’s “picture” of retirement will not simply be a mental photocopy of your own, the variance in retirement visions may surprise you.

When should you (and your spouse) claim Social Security benefits? “As soon as possible” may not be the wisest answer. An analysis is needed. Talk with the financial professional you trust and run the numbers. If you can wait and apply for Social Security strategically, you might realize as much as hundreds of thousands of dollars more in benefits over your lifetimes.

Citations.
1 – www.forbes.com/forbes/2011/0523/investing-retirement-bill-bengen-savings-spending-solution.html [5/23/11]
2 – articles.marketwatch.com/2010-05-19/finance/30729568_1_retirement-period-retiree-spending [5/19/10]

Out-of-the-Box Ways to Pay for College

September 26th, 2012 | No Comments | Posted in Financial News

Today’s average student borrower takes out more than $25K in loans. Education debt has reached record levels in America – more than $1 trillion. In the face of those numbers, parents and students are looking for assorted ways to pay for college without incurring big liabilities.1

In addition to grants, loans, merit-based aid and your student holding down a job, there are other ways to reduce college cost – some little recognized.

First, how expensive will college be? Can you project the total cost of your student’s college education? Assuming five years in school (which is the average for today’s undergrads) and no change in majors along the way, can a financial aid officer give you a ballpark figure? If not, an online resource such as Alltuition.com may be able to estimate it for you.1,2

Presumably, you opened a 529 plan or some other form of college savings fund for your student years ago. If those funds aren’t enough, where can you find other resources to meet a projected shortfall?

What about outright gifts of cash? If you or relatives or friends have the money, that is an option. Will you suffer gift tax consequences as a result? No. If the money constituting that completed gift is used directly to pay tuition expenses at an educational institution, that gift is not taxable. It will not cut into your annual gift exclusion amount ($13,000 for 2012) or your lifetime unified credit (currently set at $5.12 million).3,4

One caveat, however: if you make any kind of tuition payment on behalf of your student, that will be characterized as untaxed income on the FAFSA (Free Application for Federal Student Aid). That could wipe out your student’s chances of getting any need-based financial aid. This is why some families elect to put off tuition gifts until a student’s senior year.4

Can you reduce your taxable income to get your student more financial aid? You may be able to do so. If getting federal student aid is your objective, knocking down your taxable income (through moves big and little) might make a big difference.

On the FAFSA, family income matters more than family assets. Retirement account balances, net worth attributable to home values and small businesses – none of this matters, it doesn’t factor into the needs analysis. The FAFSA is used to determine the expected family contribution (EFC), which is the combination of funds that the parent(s) and student can make available for a school year. The gap between the EFC and the expected total education costs of the school year represents the level of financial need weighed in determining federal student aid.5

So the lower your EFC is, the greater your level of financial need will be – and the greater amount of federal student aid that may be available. This is why many parents and students elect to spend down their combined savings and assets set aside for college during the freshman year. With no assets left for the sophomore year (and by this same logic, subsequent academic years), eligibility for federal student aid is wide open. Of course, you may be also opening a door to potential long-term debt.

There are other ways to alter your tax picture to get your student some financial aid –aid not linked to lingering debt.

Have you heard of “tax scholarships”? No, not scholarships linked to a state tax credit (though those may be worth a look). These are de facto scholarships that you may be able to create for your student with the help of a CPA or financial advisor (and the IRS). If you can find or arrange new tax deductions this year, you can redirect that money toward your student’s college expenses. Savvy business owners and professionals often make this move.

What about untraditional scholarships? For example, CollegeNet.com currently offers a “weekly scholarship” running between $3,000-10,000. Collegians themselves decide which applicant deserves the funds. There are other such examples.1

Can you negotiate tuition? At first instinct, does that seem rude, uncouth? It may prove smart – and it is done. There are such things as tuition discounts (and grant programs) offered to those who negotiate, even those not eligible for need-based aid. If a university really wants your student, you may have some leverage.

Are you willing to go the JC route, or the online route? Going to a local junior college for the first two years of study toward a bachelor’s degree can save a student and family tuition, housing and travel and auto expenses, and maybe a little anxiety – if your student decides he or she wants to major in oceanography instead of marketing, you haven’t paid $10,000 or $20,000 a year to arrive at that conclusion.

Recognizing the costs of housing, commuting and parking permits, some colleges are offering parts of their curriculum online or in more accessible settings – for example, Virginia Tech offers introductory math courses through computer labs and the University of Minnesota’s new Rochester campus uses part of a local shopping mall to hold classes. While taking classes on a computer or at some obscure satellite campus may not give you the full university experience, it may help to reduce expenses.2

Need help with college planning? Talk with a us at PRIMESolutions Advisors – sooner rather than later.

Citations.
1 – www.dailyfinance.com/2012/04/19/paying-for-college-two-websites-offer-outside-of-the-box-ideas/ [4/19/12]
2 – www.businessweek.com/printer/articles/70120-student-loans-debt-for-life [9/6/12]
3 – www.irs.gov/uac/In-2012,-Many-Tax-Benefits-Increase-Due-to-Inflation-Adjustments [10/20/11]
4 – www.education.com/reference/article/pay-college-saving-understand-gift-tax/ [9/6/12]
5 – thechoice.blogs.nytimes.com/2011/01/11/fafsaq-and-a/ [1/11/11]

Reverse Mortgages Reconsidered

September 26th, 2012 | No Comments | Posted in Financial News

Is a reverse mortgage worth it? Before this last recession, couples who asked their retirement advisors if they should get a reverse mortgage were often given a quick answer: “No.”

Today, the answer to that question might be “yes”. In an environment with minimal interest rates, these loans can offer retired homeowners a source of tax-free cash, either in periodic payments or a lump sum. (A HELOC is also possible.)

How does it work? A reverse mortgage allows you to borrow against your home equity while retaining ownership of your residence. Many of these loans have variable rates, consequently permitting different payment options.1

Reverse mortgage balances increase with time, as there are no monthly payments to reduce principal as in a “forward” mortgage. The loan doesn’t have to be repaid until you move out of the home or pass away. At the time of repayment, the amount owed will not exceed the home’s value – but when the loan becomes due it must typically be paid in full, including interest and closing costs.1

What are the qualifications? You must be 62 or older to get a reverse mortgage. You also have to own your home free and clear, or have a mortgage balance that can easily be paid off using funds from the loan. In addition, you must keep paying property taxes and homeowners insurance and maintain your residence with needed repairs to avoid defaulting on the loan.2,3,4

Why not get a reverse mortgage? These products have gotten a bad rap for many reasons. At first, they were seen as loans of last resort. If you were up in age and close to outliving your money, they could give you needed income.

Then the perception of reverse mortgages began to change, thanks to marketing. Commercials for these loans appeared everywhere, with celebrities hawking them as a cure for retirement income woes. Sixty-something homeowners liked the pitch and signed up – but today, some wish they had studied the fine print.

  • Reverse mortgages can come with severe fees – origination fees, closing fees and even ongoing fees to cover the risk of a possible default or the sale of the property for less than the value of the loan.
  • If just one spouse takes out the loan and then dies or moves out of the house, the spouse whose name isn’t on the loan is stuck with paying off the mortgage – and that often means selling the home in question.
  • You are giving up home equity. Let’s say that you have to move because of family or health reasons. How would you finance that move?
  • If you have cash flow problems and can’t keep up with your property taxes or homeowners insurance, you could default and lose your home. According to Forbes, about 10% of U.S. homeowners with reverse mortgages currently face this risk.
  • If you really want to use your home as an ATM in retirement, you could refinance or take out a home equity loan or HELOC with no reverse mortgage involved.3,4

During 2011-2012, Wells Fargo, MetLife and Bank of America all got out of the reverse mortgage business. Interpret that as you wish. Their reverse mortgages represented 36% of the market. In their absence, smaller nonbank originators have picked up the slack – perhaps not the best development for interested homeowners.3

So why get a reverse mortgage? Even with all the demerits that these loans have, they can be a boon to retirees searching for a consistent income stream. That includes younger retirees: a recent MetLife study shows that 15% more homeowners aged 62-64 considered a reverse mortgage in 2010 than in 1999. Forbes notes that reverse mortgage applicants trending younger, with about 70% opting for a fixed rate lump sum payment option.3,5

There are three types of reverse mortgages. The single-purpose reverse mortgage (offered by nonprofits and state and local agencies) is the least expensive. Federally insured Home Equity Conversion Mortgages (HECMs) are HUD-backed and may only proceed after consumer counseling from an independent government-approved housing counseling agency. That is also true for some proprietary reverse mortgages available from private lenders. HECMs let you choose your cash payment option, and you can change it if you need to for a fee of about $20.1

Reality can’t be ignored: many baby boomers are house-rich, cash-poor and scared of retiring with insufficient income. Is a reverse mortgage their only choice? Hardly – yet with interest rates so low and retirement savings so scant, more and more baby boomers may resolve to convert home equity into cash.

Citations.
1 – www.ftc.gov/bcp/edu/pubs/consumer/homes/rea13.shtm [3/11]
2 – blogs.smartmoney.com/encore/2012/08/07/reversing-the-negative-view-of-reverse-mortgages/ [8/7/12]
3 – www.forbes.com/sites/ashleaebeling/2012/06/28/cfpb-dont-get-stung-by-a-reverse-mortgage/ [6/28/12]
4 – www.npr.org/2011/02/15/133777150/Reverse-Mortgages-Good-For-Seniors [2/15/11]
5 – www.bankrate.com/financing/mortgages/too-young-for-reverse-mortgage/ [4/2/12]

September’s Monthly Economic Update

September 26th, 2012 | No Comments | Posted in Monthly Economic Update

Dad Under Fire for Revealing He Has a Favorite Child. Do You Have a Favorite?

September 26th, 2012 | No Comments | Posted in Lifestyle

Buzz Bishop and his son, Zacharie. Bishop has been under
fire for calling Zacharie his favorite son.

Let’s face it: It can be easier to spend time with a sunny kindergartener than a tantruming toddler. And while most parents are quick to say that they love all of their children equally, they’re also willing to admit, in private, that there are times when they like one a little more than another. One dad has come under fire for publicly declaring that his older son is his favorite, sparking a debate about how we feel as parents—and whether it’s OK to say it out loud.

Related: Are parents who hate parenting the latest trend?

“If I were to be absolutely honest, my older son is my favorite of the two,” Buzz Bishop wrote at Babble.com, where he blogs as DadCamp. “He and I are adventurous partners in crime, and I can’t imagine life without him. He was an accident waiting to happen, and I’m so glad it did.”

There were plenty of other things for people to judge about the post—he also confessed that his girlfriend discovered she was pregnant just two months after they met, while he was still married to his first wife, and said he had been a “second fiddle step-dad” who never thought he’d have “my own” kids”— but parents honed in on the second-to-last paragraph, about his favoring his five-year-old son, Zacharie, over two-year-old Charlie.

Related: Do you have a favorite child? Take the quiz

“Favorite is a strong word to some, perhaps that’s where the outrage comes in,” Bishop told Yahoo! Shine in an interview. “I do not play favorites, or create inequities in my children’s lives. My default habit, however, is to reach for my older son’s hand first when it comes to our family outings.”

He was even more candid in a follow-up post on Babble.com, in which he said, point-blank: “Yes, I have a favorite son and I’m not ashamed to admit it. I’m guessing you could look deep in the mirror and admit you have a favorite, too.”

His wife, Jennifer, says she understands what he means.

“I know where he’s coming from, and I know he loves them both the same,” she told The Daily Mail. “It’s just the age of the two, his favorite is the older one because he can relate more to him. It doesn’t necessarily mean Zacharie is a favorite overall, he’s just a favorite right now.”

Bishop agrees.

“My choosing Zacharie as my favorite is not about ‘playing favorites,’ or ‘preferential treatment’ when I’m parenting,” he wrote on Babble. “I don’t let Zacharie get away with anything because he’s my first pick, I just… y’know … like him better. I’ve admitted that while I loved my sons the minute they were born, I didn’t really fall in love with them until they could do stuff.”

With Zacharie, that happened when the boy was about 26 months old—around the same age that little Charlie is now.

“I don’t ‘do babies’ very well, and so I would take time to get Zacharie out of the house when Charlie was napping,” he told Yahoo! Shine. “I have just spent so much more time getting to know my older son that I lean his way when it comes to doing things.”

“One commenter said, astutely I think, that I don’t necessarily have a favorite kid, I have a favorite phase,” he continued. “I’m looking forward to Charlie growing up and being able to get out and be active with me the ways Zacharie has.”

Bishop, a radio DJ who lives with his wife and kids in Calgary, Alberta, Canada, acknowledges that what happens on the internet can stick around forever, but insists if his boys ever find out about his favoritism, it won’t affect his relationship with them or their relationship with each other. If they ask, he says he’ll point out that he’s better with kids than he is with babies but, even so—and even after a three-year-long stint as a step-dad—he says that there’s just something special about his first born.

“Z will always be special. He’s my first. I never thought I would have kids until my wife got pregnant very soon after we met,” he said. “He chose us to be his parents, and I am so grateful for the twist my life has taken. I will always hold that special. That said, when he’s a petulant teen, and Charlie is a bubbly pre-teen, I’m sure I will ebb and flow with my ‘favoritism’.”

It’s not unusual for parents to to have a favorite child, David A. Reinstein, a clinical social worker and psychotherapist, pointed out. “Favoritism, in one form or another, is an ever present reality in parenting,” he said. “People don’t like to hear this, but I speak from many years of experience with thousands of families. It can be destructive, but more generally is not—it is just a reality.”

What is unusual, Reinstein and other experts say, is for parents to admit that they have a favorite. And the outrage provoked by Bishop’s blog post seems to back that up, with readers more upset about the public nature of his post than the content.

“You are a self-absorbed idiot who let his ‘honesty’ get in the way of the true responsibility of protecting one’s child at all cost,” wrote Jen Johnson Long of Fox River Grove, Illinois, on Facebook. “You have damaged both sons with your stupid comment.”

“Just wanted to let you know that I stand by you regarding your comment about favoring one son over the other,” Debby Basciano of Montreal wrote on Facebook. “Although I want to hit you in the head for putting it in writing, I do understand your point.”

“I feel so sad for your younger child that this article has been published for him to find later in life. It will be very damaging to him,” wrote Kim Slater. “Imagine how you would feel if your parents said that.”

(The oldest of three kids, “My parents never called out a favorite,” he told Yahoo! Shine. “That said, they never had a blog.”)

While he doesn’t regret writing the posts, Bishop—whose other posts on Babble have been decidedly less controversial—said that the uproar has made him more aware of how he relates to his kids.

“Yes, that means I need to spend time to get to know my younger son better,” he said. “I have had to talk about myself and my situation so much these past few days that it has made me acutely aware of how I treat my boys. I am now very aware of showing any signs of bias and am working to balance the scales.”

“Some good has come out of this,” he added, “and I’m thankful for it.”

What do you think? Is it fair to your kids to admit that you have a favorite?

View Source

The Best and Worst Vending Machine Snacks

September 26th, 2012 | No Comments | Posted in Lifestyle

THE WINNERS

Fiber One bar, Oats & Chocolate (1.4 oz)
The Good: Nine grams of fiber, calcium-rich, and it’s chocolate.
The Bad: High in carbs and sugar.
The Bottom Line: The extra fiber will keep you full.

Planters peanuts (2 oz)
The Good: Decent source of protein, iron, and fiber; these might be the most filling option in the machine
The Bad: Lots of sodium and 45 percent of your daily fat allowance (though it’s mostly the healthy kind).
The Bottom Line: They’ll sate your appetite without putting you in a carb coma.

Nature Valley granola bar, Oats ‘n Honey (1.5 oz)
The Good: You get two (pretty tasty) whole-grain bars for fewer than 200 calories.
The Bad: Twelve grams of sugar is hefty for a little snack.
The Bottom Line: It’s no apple, but it’s relatively guilt-free.

THE LOSERS

Doritos, Nacho Cheese (1.75 oz)
The Good: Provides six percent of your recommended daily allowance of bone-building phosphorus.
The Bad: The triangles contain heart-clogging saturated fat, a boatload of sodium, and artificial colors, which stain your fingers (and memos).
The Bottom Line: Skip.

Herr’s Original Popcorn (1 oz)
The Good: Low in sugar and contains two grams of protein.
The Bad: The “partially hydrogenated oil” listed on the back of the bag is a fancy term for trans fats.
The Bottom Line: Skip.

Twizzlers (1.5 oz)
The Good: Nutritionally bankrupt, but if you bite off the ends, they work as fun, fruity straws.
The Bad: Eighteen grams of sugar, courtesy of corn syrup.
The Bottom Line: Skip, unless you’re splitting the pack with a friend (or seven).

IN THE MIDDLE

Welch’s Fruit Snacks (0.9 oz)
The Good: Packed with vitamins A, C, and E, plus no fat and just 80 calories.
The Bad: Don’t fall for the fruit line: This is healthier candy in disguise.
The Bottom Line: As far as treats go, this one is a pretty safe bet.

Popchips (0.8 oz)
The Good: A healthy dose of potassium (thanks to real potato), no trans fats, and only 100 calories.
The Bad: They’re high in sodium.
The Bottom Line: Why not?

Pirate’s Booty (1 oz)
The Good: Low in sugar, with a shorter list of natural ingredients like cornmeal, rice, and Cheddar cheese
The Bad: High in fat, low in protein, and zero fiber (you’ll be hungry again in an hour).
The Bottom Line: Better than chips, but not by much.

Fig Newtons (2 oz)
The Good: The fiber content means you’ll stay satisfied.
The Bad: They’re still cookies, and they contain sulphur dioxide, a gas created by burning coal or oil.
The Bottom Line: If you’re desperate. They’re better than other cookies, and they contain real fig.

View Source

Outsmart Your Fellow Traveler

September 26th, 2012 | No Comments | Posted in Lifestyle

Traveling is hard enough with all the logistics, headaches and lately, rising fees, but you can outsmart your fellow traveler on planes, trains and automobiles – even hotels – with these insider travel tips.

PLANES

#1 Check Flight’s Occupancy
The trick to knowing if it’s time to buy now or wait for a fare sale is to check the flight’s occupancy. If there are only a few seats left, book fast. Prices will likely rise from here on out.

#2 Opt For Flat-Fee Upgrades
Flat-fee upgrades are becoming more common and the cheapest way to fly upper cabin, despite the fact that airlines do not advertise these deals. Its not quite first class but often means more legroom, more earned miles and early boarding. Prices depend on the number of seats free and range from $50 to $250 for domestic flights and up to $500 for oversees crossings.

#3 Get Bumped on Fridays
Everyone knows that volunteering your seat on an over-booked flight is an easy, if inconvenient, way to earn free air travel. But did you know that Fridays are often the best day of the week to give up your seat? According to insiders, with business travelers desperate to get home and leisure travelers departing on weekend trips, few are willing to give up their seat on a Friday night.

“The more desperate the airline is, the better deal you’re going to get,” says J.D. Rinne of Jetsetter.com. “This is particularly true on peak travel days like Thanksgiving Eve and Christmas Eve. So if you’re planning on travelling on these days, you should book a morning flight but plan to volunteer to get bumped to an afternoon one. This is also true of resort and honeymoon destinations.”

#4 Enlist Rewards Specialists
If you want to outsmart your fellow traveler through your frequent flier miles, it sometimes helps to enlist an expert. Experienced rewards specialists can help you use your own loyalty programs to help you make the most of your trip.

#5 Hire a Travel Agent
But even if you don’t have miles to work with, good old travel agents can still save you time and money and there services are free to use. I recently worked with an agent and saved about 30% on flights alone

TRAINS

#6 Got Kids? Go By Rail
If you prefer to travel by land, consider rail. It’s often cheaper than both driving and competing airfares, especially true in high-speed corridors like along the Northeast. And if you’re traveling with kids or seniors, this is a no-brainer. Children ages 2-15 ride for 50% off and infants always ride free. Members of Triple AAA and AARP also get a 15% discount.

AUTOMOBILES

#7 Rent Cars By the Hour
As for car rentals, Hertz and other big rental car firms are increasingly offering hourly rates for their cars.

“One great site is Autoslash.com,” says Rinne. “Think of it as the Kayak for car rentals. What’s even more is that after you make a reservation, Autoslash continues to search for great rates and if it finds a better one it goes ahead and cancels that initial reservation and rebooks you at the lower rate.”

HOTELS

#8 Sign Up For Loyalty Programs
Now that you’ve landed at your destination, time to make the most of your lodging. And just like flyer miles earn you free airfare, hotel loyalty programs are among the most generous to members.

“At Jetsetter one loyalty program we love is Starwood’s Preferred Guest Program This gives you access to great brands like Sheraton, Westin and Le Meridien – basically 1,000 hotels in almost 100 countries,” says Rinne.

#9 Seek Upgrades
Even if you’re not a loyalty member, don’t be shy to ask about upgrades, especially at the big hotel chains. In fact, the best time to ask is around 6 p.m. the day you check in, at which point hotel clerks can see which of the better rooms are likely to go vacant.

View Source

© Prime Solutions Advisors, LLC. All Rights Reserved. Visit our website at www.primesolutionsadvisors.com | Powered by OnLetterhead Digital Marketing Solutions.