Retire right — plan to do it twice

There’s the retirement that looks like the commercials: biking, travel, enjoying the family.

And then there’s the one where you can’t get up the stairs anymore.

Most of us happily plan for the first, when our health is good and energy high. The second can be hard to contemplate, when health falters and medical crises can change lives in an instant.

Yet a focus on just the active part of retirement can shortchange your quality of life once you begin to decline, which is why financial advisers suggest you also look at how you’ll live in that later phase. In my latest for the Associated Press, what you should consider for that second stage.

Tuesday’s need-to-know money news

Today’s top story: How to prepare financially for your death regardless of your age. Also in the news: The best industries for starting a business in 2017, how insurance companies use your driving record as a crystal ball, and 5 practical steps for creating a retirement backup plan.

How to Prepare Financially for Your Death (No Matter How Young You Are)
Making important decisions.

5 Best Industries for Starting a Business in 2017
Time to start working for yourself.

Your Driving Record: Insurance Companies’ Crystal Ball
Analyzing your behavior.

5 practical steps for creating a retirement backup plan
Always have a Plan B.

Wednesday’s need-to-know money news

money-vacation-saveToday’s top story: Overcoming the obstacles between you and retirement. Also in the news: What the President wants to tell college students, what happens when your debt goes to collections, and how to pay less for staying cool this summer.

5 Obstacles Between You and Retirement (and How to Overcome Them)
Clearing the pathway to a solid retirement.

5 Things the President Wants to Tell College Students
Messages for students and student loan borrowers.

What Happens When Your Debt Goes to a Collector?
Not every debt collection process is the same.

Stay cool, but pay less for electricity this summer
Your wallet’s hot enough.

Wednesday’s need-to-know money news

Zemanta Related Posts ThumbnailToday’s top story: Another day, another massive online security breach. Also in the news: How to decide between brand name and generic, tips for a successful retirement plan, and protecting yourself from bad credit vultures.

7 steps to stronger, more secure passwords
Yet another massive security breach puts millions at risk of identity theft.

Name Brand or Generic? 10 Items Where It Pays to Pick Right
Saving money may not always be worth the cost.

9 Steps to a Successful Retirement Plan
Time tested methods put you on the road to retirement success.

How to protect yourself from credit-card bullies
Don’t become a victim of bad credit predators.

4 Rules to Live By When Making an Offer on a House
How to successfully negotiate your home purchase.

Wednesday’s need-to-know money news

homebuyerToday’s top story: How to purchase a home in a tough real estate market. Also in the news: Keeping your credit cards safe, important retirement milestones, and why you should avoid bad credit loans.

How to Buy a Home in a Competitive Real Estate Market
Getting the right lender is crucial.

The Everyday Household Item That Can Keep Your Credit Card Safe
You’ll never look at a bag of coffee the same way again.

Top 7 Retirement Milestones You Need to Know
Retirement planning doesn’t end when you get the gold watch.

5 Types of Bad Credit Loans to Avoid
The quick fix will be painful in the long run.

Don’t Wait: 6 Good Financial Habits for 30-Somethings
The sooner you start, the better off you’ll be.

Are you ready?

Christchurch Earthquake - Avonside House CollapsesThe earthquake that rattled us out of bed Monday morning also served as a reminder: it’s time to check the emergency supplies. And it occurred to me that preparing for emergencies has a lot in common with preparing for retirement. Consider:

Most people are woefully unprepared. Not just “under-prepared” but not even being in the same room as prepared. When it comes to retirement savings, one-third of workers have less than $1,000 set aside and 60% have less than $25,000, according to the most recent survey by Employee Benefit Research Institute and Greenwald and Associates.

The solution: Use your imagination. Emergency preparedness experts recommend thinking, in detail, about how you would feed, shelter and tend to the hygiene needs of your family if you were without power, water or a roof for three days. Walking yourself through those days will get you motivated to make your life easier should something happen. A similar exercise can jumpstart your retirement planning: Go to the Social Security estimator, see what you’re scheduled to get at retirement, and imagine trying to live on that.

Many people are overwhelmed. The list of emergency supplies you’re supposed to keep in your home, car and office can be pretty daunting, especially if you’re on a budget. Likewise, the amounts of money people are supposed to save for retirement can seem unrealistically large.

The solution: Start small. Anything you scrape together will help. Getting a kit together can start with some canned goods and a few gallons of water stored in a plastic tote. Getting your retirement together can start with a 1% contribution to a 401(k) or an automatic transfer to an IRA. Build from there, as you can.

You can’t “set it and forget it.” Once you’ve assembled them, disaster supplies have to be regularly checked to see what’s expired or wandered off. (Somebody may have pilfered the batteries in an “emergency” for a game console, for example.) Likewise, once you start saving for retirement, you need to check in to make sure your investments are properly allocated and regularly rebalanced. Changes in your life or your plans can necessitate changes in your retirement savings, as well.

The solution: Put it on your calendar. Schedule checkups at least once a year.

By the way, you can find lists of emergency supplies at the Red Cross and FEMA’s Ready.gov sites. Or check out this great graphic from the LA Times, which shows how you can store what you need in a clean plastic trash can.

If you’re interested, here are some of the supplies we keep around the house (as well as my notes about what I need to replace/get):

Outside in storage bins:

  • Water [need more; we have about half of the two gallons per person per day recommended]
  • Food (we have canned food + can opener, peanut butter, crackers, energy bars; I need to add more pet food now that we have a cat]
  • Cat and dog crates
  • Tent, cookstove, fuel
  • Shovel, hatchet, crowbar, hacksaw
  • Plastic sheeting (to replace windows), duct tape [need to get: staple gun]
  • Plastic goggles, hard hats (protection for clearing debris) [need to find: the work gloves that wandered off]
  • Gas shut off tool (we had an automatic shutoff installed, but I like to be sure)
  • Rope
  • Flashlight, lantern, batteries [looks like I moved the portable radio to some other site; now I just have to remember where]
  • Emergency toilet (bucket with a snap-on seat, garbage bags and kitty litter), toilet paper, wipes
  • Bleach, castille soap, towels
  • Mylar blankets & rain ponchos
  • Need: Fire extinguisher, hygiene kit [toothbrushes, floss, hairbrush]

Car kit:

  • Bottled water
  • Energy bars
  • First-aid kit
  • Sneakers, socks, extra sweaters and coats
  • Multi-tool (oooo I love my Leatherman)
  • Wipes
  • Wind-up/solar-powered flashlight/radio/cell phone charger
  • Regular blanket, mylar blankets & rain ponchos

Reverse mortgages: No longer a last resort?

HomeMany financial planners view reverse mortgages as a last resort—expensive and unwise except for those who have no other options.

Recent research and changes in the federal reverse mortgage program are starting to change those views, planner Michael Kitces told a group at the AICPA Advanced Financial Planning Conference in Las Vegas last week.

It turns out that reverse mortgages don’t work that well as a last resort. They’re often much better employed earlier in a client’s financial life. And even people who don’t need to supplement their income by tapping their home equity might want to consider setting up a reverse mortgage line of credit.

This thinking is so at odds with what had been conventional wisdom that I’m glad Kitces was the one leading this particular seminar. Kitces is a bright light of the financial planning community, one whose research and scholarship have changed others’ thinking about complex financial topics. (He blogs at Nerd’s Eye View, in case you want to check out his posts for planners.)

Reverse mortgages allow people to tap some of the equity in their homes without having to repay the loan until they leave those homes—either by selling, moving out (such as into a nursing home) or dying.

Payouts can take three forms: a lump sum, a stream of monthly payments that can last a lifetime, or a line of credit borrowers can tap when they want. The lump sum option can come with a fixed rate; otherwise, the loans are variable. Interest charged on the amount borrowed means the debt grows over time—but again, no payments are due until the borrower leaves the house.

Borrowers typically can tap 40% to 60% of their home’s value up to a cap in value of $625,500.

Although people can apply for such loans as early as age 62, planners traditionally warned people to put it off as long as possible. The concern was that borrowers would run through their home equity quickly and then face years or even decades with no other resources.

But research found that people who delayed often couldn’t get enough out of reverse mortgages to help their situations, Kitces said. People who applied earlier, and used the loans to take pressure off their portfolios, did better.

Having the reverse mortgage allowed them to pull less out of their savings, increasing the odds their savings would last, research found. Borrowers could take a strategic approach using a line of credit: tapping it during bad markets, to allow their investments time to recover, and paying back the line during good times.

Reverse mortgage lines of credit have another interesting feature: the amount you can borrow grows over time. Borrowers who apply for a credit line early and leave it untouched could wind up being able to tap 80% or more of their home equity.

The Wall Street Journal summarizes the new thinking in this post. You can read some of the research published in the Journal of Financial Planning here and here.

 

 

 

 

Monday’s need-to-know money news

Today’s top story: How small business owners should plan for retirement. Also in the news: Picking the right credit card for college students, mistakes to avoid when you’re buying insurance, and what to do when bankruptcy is your only option.Help at financial crisis

Retirement plans for small business owners
Tailoring a plan to fit your needs.

How to Pick a Credit Card for College
Finding the right card that won’t get you into trouble.

5 Insurance-Buying Mistakes to Avoid
Never shop based on the price.

How to Know When Bankruptcy Is Your Best Option
What happens when your last resort option becomes the only one left.

What to Zero In On When Curbing Family Expenses
Tracking expenses is absolutely essential.

Who should save 10%

Dear Liz: I often hear financial planners say you should save 10% of your income, but they don’t go into exactly what that means. Is that 10% separate from retirement or including retirement? Does that include saving for your emergency fund? Is this just archaic advice now? I’m 46 with only $40,000 saved for retirement so I’m in the panic mode that I will never be able to save enough for retirement.

Answer: Saving 10% for retirement is often considered a minimum for those who start saving in their 20s. The older you are when you begin, the more you’d need to save to match the nest egg you would have accumulated with an earlier start. That means saving 15% to 20% if you start in your 30s, 25% to 30% if you start in your 40s, and 40% of your income, or more, if you don’t start until your 50s.

Clearly, the wind is at your back when you start saving young. It starts blowing pretty hard in your face if you wait.

If you can’t carve out a huge chunk of your income for retirement, though, you shouldn’t despair. Save what you can, as anything you put aside will help supplement your Social Security checks. You may find that your expenses drop substantially in retirement, particularly if you have a mortgage paid off by then, so you won’t need to replace as much income as you think.

Another technique for coping with a late start is to work longer. That gives you longer to save, but it also allows your savings — and your Social Security benefits — more time to grow. You will be able to claim early Social Security benefits at 62, but you’ll be locking in a smaller check for life. It’s usually better to wait until your full retirement age, which will be 67, to begin benefits, since each year you wait adds nearly 7% to your check. If you wait three more years, until age 70, your check would grow by 8% each year. That’s a guaranteed return unavailable anywhere else.

Monday’s need-to-know money news

Today’s top story: Mistakes to avoid while holiday shopping. Also in the news: Maximizing your retirement goals, conversations to avoid during the holidays, and five store credit cards that are worth applying for.

5 Holiday Money Mistakes
Don’t let your purchases be driven by guilt.

Three must-dos to maximize retirement goals
Getting the most from your retirement planning.

5 Money Conversations You Should Never Have During the Holidays
AKA How to avoid a food fight.

5 Store Credit Cards That Are Worth It
Finding the cards with the most benefits.

Roth or Regular: Which IRA Should You Choose
Solving the IRA puzzle.