Retirees Are Racking Up Credit Card Debt

Retirees Are Racking Up Credit Card Debt

New statistics point out an alarming financial problem.

Provided by Mike Fassi

 

$6,876. That is the average amount of credit card debt owed by an American household headed up by an individual aged 65-69.1

If you are newly retired or close to retiring, that figure may alarm you. It is more than twice the amount of Social Security’s maximum monthly income payment.2

Credit card use is surging, and seniors are taking on more revolving debt as part of the trend. That $6,876 figure comes from personal finance website ValuePenguin, which just published its latest yearly study on U.S. credit card debt. As ValuePenguin found, revolving debt shrinks little with age: in households headed up by those 75 and older, the mean credit card balance was $5,638.1 

In the second quarter of 2016, Americans charged $34.4 billion to their credit cards. According to research from WalletHub, that was the biggest second-quarter jump seen in 30 years. Undoubtedly, this was a byproduct of the quarter’s 4.4% boost in consumer spending. All this recently added consumer debt would seem less troubling were it not for two other statistics. One, Americans paid down just $27.5 billion in revolving debt in Q1 2016, the least in any first quarter since 2008. Two, U.S. consumers piled on $71 billion in credit card debt during 2015, representing the greatest annual increase since 2007.3,4

It seems Americans are returning to their pre-recession credit card habits. The question is: to what degree are households paying with plastic by choice? Retiree households saddled with mortgages and education debt may feel pressured to use their credit cards. The National Council on Aging recently identified credit card debt as a major financial worry among seniors.2

How can your household counter the trend? Here are some steps that might help you ease your debt burden. 

Try the snowball approach. This is the approach where you pay down the balance on the highest-interest card first, then the next highest-interest card, and so forth. You should always make the largest payment you can on your highest-interest debt.

Pay on time. Late fees are like an Achilles heel for many cardholders. They not only hurt your bank account, they hurt your credit score. (Conversely, improving your credit score may make your debt cheaper to pay off, and make it easier to refinance or arrange a consumer loan.)

Establish a budget. Most households do not live by a budget. Even retiree households can forget about the importance of budgeting. If you can rein in parts of your spending, you may find yourself a) using cash more often, and b) having cash left over to save, invest or pay down debt.

Use certain cards for certain things. If you have a large recurring debt, why not put it on your lowest-interest card for some savings? In fact, assigning as much debt as you can to a low-interest or zero-interest card positions you to pay down debt sooner, with smaller monthly payments.

Finally, consider ways to create more income. If you just cannot use credit cards less or live on less, then you must offset your credit card debt by a) earning more or b) selling assets or possessions to give you more cash, which can be used to attack the debt.

While you may always have some revolving debt, it is a potential strain on a comfortable retirement. See if you can buck the current trend in credit card use that seems to be driving mean credit card balances higher.

 

Mike Fassi, CLU, CHFC  is a Representative with Centaurus Financial Inc. and may be reached at Fassi Financial, 970-416-0088 or mike@fassifinancialnetwork.com.

 

 

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

 

Citations.

1 – valuepenguin.com/average-credit-card-debt [9/15/16]

2 – cnbc.com/2016/09/15/3-simple-ways-retirees-can-control-their-credit-card-debt.html [9/15/16]

3 – wallethub.com/edu/credit-card-debt-study/24400/ [9/12/16]

4 – reuters.com/article/us-usa-economy-idUSKCN1111FM [8/26/16]

Market-Linked CDs

Market-Linked CDs

These investments may yield more for you than the typical fixed rate of return.

   

Provided by Mike Fassi

 

You say you’re a conservative investor who wants more yield? Then you may want to consider market-linked CDs – certificates of deposit linked to the performance of a market index.

With yields on fixed-rate CDs so low right now, investors are turning to these indexed CDs because of their potential for comparatively greater returns.

These CDs credit you with a “participation rate” in return for your investment. For example, if the associated index rises 12% in a year and your participation rate is 50%, you get a 6% return. (That certainly beats a 1% return.) The linked index might be the S&P 500, the Dow Jones Industrial Average, a tech index, a global index – it varies per CD.1

A market-linked CD is usually a short-term investment. Most of these CDs have maturity dates of 3-5 years. The deposits typically range from $1,000-$20,000. You are guaranteed not to lose your principal if you hold the CD to maturity, for the Federal Deposit Insurance Corporation insures these investment vehicles.1

Indexed CDs do have some downsides. The interest on them is only paid when they mature, and before maturity, the CD might produce “phantom income” – that is, taxable interest you must report to the IRS. (These are not tax-deferred investments.) Some of these CDs are “callable” – if interest rates fall, the issuer has the option to execute a call and terminate the CD, paying you back your principal and accrued interest.1,2

If you decide to take money out of a market-linked CD before the end of its term, you will probably pay for that decision. You will likely be hit with a penalty as you redeem your principal. Some indexed CD contracts allow you to sell your CD before it matures, if you like – but if the linked index has performed poorly, there is the chance that you could sell at a loss since the value of the CD depends strongly on the performance of that index. These CDs can also be illiquid during their first year.1,2   

That said, there is much to like about these CDs. They offer you the principal protection guarantee of a standard certificate of deposit, plus the chance for notably better yield than a fixed-rate CD. You just have to recognize the necessity of holding the CD until maturity.   

 

Mike Fassi, CLU, CHFC  is a Representative with Centaurus Financial Inc. and may be reached at Fassi Financial, 970-416-0088 or mike@fassifinancialnetwork.com.

 

 

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

 

Citations.

1 – investopedia.com/articles/bonds/09/equity-index-cds.asp [8/25/16]

2 – finance.zacks.com/disadvantages-structured-cd-investment-11399.html [8/25/16]

 

Good Retirement Savings Habits Before Age 40

Good Retirement Savings Habits Before Age 40

 Some early financial behaviors that may promote a comfortable future.  

Provided by Mike Fassi

 

You know you should start saving for retirement before you turn 40. What can you start doing today to make that effort more productive, to improve your chances of ending up with more retirement money, rather than less?

Structure your budget with the future in mind. Live within your means and assign a portion of what you earn to retirement savings. How much? Well, any percentage is better than nothing – but, ideally, you pour 10% or more of what you earn into your retirement fund. If that seems excessive, consider this: you are at risk of living 25-30% of your lifetime with no paycheck except for Social Security. (That is, assuming Social Security is still around when you retire.)

Saving and investing 10-15% of what you earn for retirement can really make an impact over time. For example, say you set aside $4,000 for retirement in your thirtieth year, in an investment account that earns a consistent (albeit hypothetical) 6% a year. Even if you never made a contribution to that retirement account again, that $4,000 would grow to $30,744 by age 65. If you supplant that initial $4,000 with monthly contributions of $400, that retirement fund mushrooms to $565,631 at 65.1

Avoid cashing out workplace retirement plan accounts. Learn from the terrible retirement saving mistake too many baby boomers and Gen Xers have made. It may be tempting to just take the cash when you leave a job, especially when the account balance is small. Resist the temptation. One recent study (conducted by behavioral finance analytics firm Boston Research Technologies) found that 53% of baby boomers who had drained a workplace retirement plan account regretted their decision. So did 46% of the Gen Xers who had cashed out.2

Instead, arrange a rollover of that money to an IRA, or to your new employer’s retirement plan if that employer allows. That way, the money can stay invested and retain the opportunity for growth. If the money loses that opportunity, you will pay an opportunity cost when it comes to retirement savings. As an example, say you cash out a $5,000 balance in a retirement plan when you are 25. If that $5,000 stays invested and yields 5% interest a year, it becomes $35,200 some 40 years later. So today’s $5,000 retirement account drawdown could amount to robbing yourself of $35,000 (or more) for retirement.3

Save enough to get a match. Some employers will match your retirement contributions to some degree. You may have to work at least 2-3 years for an employer for this to apply, but the match may be offered to you sooner than that. The match is often 50 cents for every dollar the employee puts into the account, up to 6% of his or her salary. With the exception of an inheritance, an employer match is the closest thing to free money you will ever see as you save for the future. That is why you should strive to save at a level to get it, if at all possible.4

Saving enough to get the match in your workplace retirement plan may make your overall retirement savings effort a bit easier. Say your goal is to save 10% of your income for retirement. If the employer match is 50 cents to the dollar and you direct 6% of your income into that savings plan, your employer contributes the equivalent of 3% of your income. You are almost to that 10% goal right there.4

Think about going Roth. The younger you are, the more attractive Roth retirement accounts (such as Roth IRAs) may look. The downside of a Roth account? Contributions are not tax-deductible. On the other hand, there is plenty of upside. You get tax-deferred growth of the invested assets, you may withdraw account contributions tax-free, and you get to withdraw account earnings tax-free once you are 59½ or older and have owned the account for at least five years. Having a tax-free retirement fund is pretty nice.4

To have a Roth IRA in 2016, your modified adjusted gross income must be less than $132,000 (single taxpayer) or $194,000 (married and filing taxes jointly).4

Set it & forget it. Saving consistently becomes easier when you have an automated direct deposit or salary deferral arrangement set up for you. You can gradually increase the monthly amount that goes into your accounts with time, as you earn more.

Invest for growth. Much wealth has been built through long-term investment in equities. Wall Street has good years and bad years, but the good years have outnumbered the bad. Early investment in equities may assist your retirement savings effort more than any other factor, except time.

Time is of the essence. Start saving and investing for retirement today, and you may find yourself way ahead of your peers financially by the time you reach 40 or 50.

 

Mike Fassi, CLU, CHFC  is a Representative with Centaurus Financial Inc. and may be reached at Fassi Financial, 970-416-0088 or mike@fassifinancialnetwork.com.

 

 

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

 

«RepresentativeDisclosure»

 

Citations.

1 – investor.gov/tools/calculators/compound-interest-calculator [7/7/16]

2 – marketwatch.com/story/millennials-can-save-more-for-retirement-by-learning-from-baby-boomers-mistakes-2016-06-30 [6/30/16]

3 – thefiscaltimes.com/2015/11/20/7-Ways-Millennials-Are-Getting-Retirement-Saving-Wrong [11/20/15]

4 – kiplinger.com/article/retirement/T001-C006-S001-retire-rich-saving-for-retirement-in-your-20s-30s.html [2/4/16]

Investing During Retirement

THE REALITY OF INVESTING DURING RETIREMENT

As retirees live longer, their portfolios need to be stronger.

 

Provided by Mike Fassi

 

Decades ago, the “typical” retiree left work for good between age 60-65 and typically passed away at about 70-75. Retirement lasted 10-12 years for many Americans. Now the picture has changed: some of us will spend 30, 40, perhaps even 50 years in retirement. (Imagine retiring at 55 and living to be 105 … it is possible.) We may live much longer than our parents, and if we do, we will need a lot more money.

A slight shift in outlook. Years ago, retirees were urged to invest conservatively – often, very conservatively. The idea was to build up your savings and net worth aggressively across two or three decades, and then adopt a risk-averse investment strategy for the “golden years.” But the reality of a 20- or 30-year retirement has changed that mentality.

The new presumption is that today’s retirees should never retire from accumulating wealth. Most Americans will not walk away from their careers with assets equivalent to 20 or 30 years worth of income. If you have $3 million in assets today, you may think you’ll have $100,000 a year to live on for 30 years. Sounds great, right? But that may not be enough. Questions of liquidity and taxes aside, what about the runaway costs of healthcare and eldercare? What about the effect of inflation across 30 years – do you remember what a gallon of gas or milk cost 30 years ago?

A new reality. You’re now seeing people in their sixties with the kind of portfolios that people used to have in their forties – portfolios with stocks, mutual funds, and other investments with appreciable risk. Sometimes they have to invest this way because they haven’t accumulated sufficient wealth for retirement. Or, they are simply being pragmatic about their long-term need to sustain wealth and keep their retirement assets growing.

What kinds of investments should you retire with? The answer to that question can only be determined after you carefully consider some variables, such as the age at which you retire, the assets you have saved up, the lifestyle you want to enjoy, family and health considerations, and how comfortable you are with certain types of investment. Be sure that you speak with a financial advisor who specializes in retirement planning before you make a decision to revise your investment portfolio. Even if you are ten or more years from retirement or plan to keep working into your seventies, I think you will find it eye-opening and useful. Most people underestimate their retirement income needs.

 

Mike Fassi, CLU, CHFC  is a Representative with Centaurus Financial Inc. and may be reached at Fassi Financial, 970-416-0088 or mike@fassifinancialnetwork.com.

 

These are the views of Peter Montoya, Inc., not the named Representative or Broker/Dealer, and should not be construed as investment advice. Neither the named Representative or Broker/Dealer give tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your Financial Advisor for further information.

 

Alternative Approaches to Retirement Planning

Alternative Approaches to Retirement Planning

Is the conventional wisdom for everyone?

 

Provided by Mike Fassi

    

Questioning traditional assumptions about retirement planning can be illuminating. Some retirement planners and economists argue that they need to be reexamined.

Does most retirement planning focus on the future at the expense of the present? One noted economist makes that case. Laurence Kotlikoff, the former White House economic advisor who writes for PBS NewsHour, contends that your retirement savings effort should be structured in a way that allows you to protect your standard of living today and tomorrow.1

A key question in retirement planning is “How much will you need to spend in the future?” Kotlikoff thinks the appropriate question should be “How should you gradually adjust your household spending as you grow older?” He argues that basing your retirement planning on a projected retirement income target is faulty.1

As an illustration, he references the example of what you do when you have errands to run before you catch a flight. The wisest thing to do is to start with your departure time and think backward. (How early do you have to be at the airport? How much time will you need to complete errand A and errand B? How much time should you allow for travel between A & B and after B?) This is what we usually do, and how we figure out when to leave home with enough time to accomplish everything. You plan by looking backward from the future.1

Kotlikoff thinks that typical retirement planning only looks forward. It projects an income target and implies that you have to save $X per year or per paycheck for X years to build a sufficient nest egg to generate that income. This amounts to mere guesswork, he believes, and invites two potential problems. One, if the retirement income target is set too high, you can end up saving more for retirement than you really need and injure your standard of living before retiring. Two, if the retirement income target is set too low, you can end up spending more than you should before you retire and saving less than you need. (And there’s another question. Will your household spending in retirement match what it was years before? Maybe, maybe not.) Kotlikoff thinks that lifetime spending and saving plans have more merit – again, planning by looking backward from the future.1

Is saving overrated? It is pounded home that Americans aren’t saving enough for retirement, but some people don’t think saving is the only step to retiring well. In 2013, retirement planner Joe Hearn (one of MarketWatch’s RetireMentors) posted a column noting several other tips to entering retirement in better financial shape. One, retire without debt. Two, retire with a paycheck (start a small business or work part-time). Three, don’t claim Social Security at 62. There were other pointers, such as retiring to a cheaper part of the country (or world) and going overseas for major surgeries. (As an example, the largest cardiac hospital in the world is India’s Narayana Hrudayalaya Health Center, which is highly regarded and charges about $2,000 for open heart surgery.) If you haven’t saved much for retirement, alternative financial moves like these (and others) could conceivably leave you with lower expenses and more money to live on or invest.2

Should you borrow money & invest it for retirement? This idea definitely isn’t for everyone; it was championed in 2010 by Yale University economists Ian Ayres and Barry Nalebuff. As twenty-somethings have time on their side but not usually a lot of money, Ayres and Nalebuff contended that young people would do well to borrow money and invest it in equities. You don’t need to see a loan officer to make this happen, as there are ways to do it through brokerages; a family loan could also be made pursuant to the same goal. As the risks are potentially major for borrower and lender, you don’t see many such arrangements.3

How about asking your employer for a second retirement plan? Some people have the leverage to pull this off. In particular, doctors and executives without much in the way of savings can make a valid argument that they need (and should have) a deferred compensation plan in addition to the usual qualified retirement plan, as Social Security payments won’t seem large enough when retirement comes. It helps, of course, if they have worked for the employer for quite some time. A reasonable benefit from such a plan would = number of years that the executive or doctor has worked for the employer x 2.0%.

With many people finding it a challenge to save for their futures, it isn’t surprising that these unconventional moves are getting a look.

 

Mike Fassi, CLU, CHFC  is a Representative with Centaurus Financial Inc. and may be reached at Fassi Financial, 970-416-0088 or mike@fassifinancialnetwork.com.

 

 

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

 

Citations.

1 – pbs.org/newshour/making-sense/make-your-standard-of-living-the-basis-for-all-financial-planning/ [3/31/14]

2 – marketwatch.com/story/7-alternatives-to-saving-for-retirement-2013-09-27 [9/27/13]

3 – money.usnews.com/money/retirement/articles/2010/07/06/3-unconventional-retirement-investing-strategies [7/6/10]

In-Kind Distributions from IRAs

In-Kind Distributions from IRAs

Yes, you can take an IRA distribution in the form of an investment.

 

Provided by Mike Fassi

 

This may surprise you: you can take an IRA distribution in a form other than cash. This may seem unorthodox, but it can make financial sense for some older IRA owners as well as IRA heirs.

An in-kind distribution from a traditional IRA is fully taxable, just as a cash distribution from a traditional IRA becomes taxable income. Just how is the cash value of the in-kind withdrawal determined? The fair market value of the asset is reported to the IRS as a step in the distribution.1,2

Why would you want to make this type of IRA withdrawal? In certain cases, it may be preferable to withdrawing cash, especially when it comes to Required Minimum Distributions (RMDs) for traditional IRAs. 

Maybe you want to keep shares instead of selling them. There are times when you may be reluctant to sell some or all of an investment to satisfy an RMD, because the investment is really performing well. An in-kind withdrawal is an alternative. The amount of the distribution will be treated just like taxable income, but you will still own that asset once it is outside of the IRA. Those shares now have a chance to appreciate further, and you can also elect to donate them to charity.2,3

Maybe you have a cashless IRA. If 0% of your IRA assets are sitting in cash, then one option is to take either a partial or full in-kind withdrawal to satisfy the RMD requirement. You will still retain ownership of the asset(s) distributed in-kind.2

Maybe you see a loser turning into a winner. You hold a poorly performing investment in your IRA, but you sense it will turn around, you suspect its value will soon rise. Rather than liquidate it, shares of it could be withdrawn from the IRA as an in-kind distribution. They will be taxed at their current value when distributed from the IRA as in-kind distributions are treated like taxable income, but in future years, they will only be subject to capital gains tax rates rather than (higher) income tax rates.4

Maybe the IRA has little value. Some “stray” IRAs are not worth very much. If an IRA holds an investment that has so little worth that it seems pointless to have the IRA in the first place, an in-kind distribution may offer a solution. If you own a traditional (or Roth) IRA and make this move before age 59½, you are likely looking at an early-withdrawal penalty as well as taxes. Even so, you may prefer that to keeping up the IRA for years, or carrying a loser investment in the IRA for any number of years while paying attached account fees.2

In-kind IRA distributions can be tricky, as they often involve shares. Share prices fluctuate, and if you are trying to precisely meet your RMD amount with a distribution of shares, there is the risk of coming up short or long. If you come up short, you will need another transaction to satisfy the RMD. If you come out long, that could increase the income tax attached to the RMD. This is the risk you take.5

 

Mike Fassi, CLU, CHFC  is a Representative with Centaurus Financial Inc. and may be reached at Fassi Financial, 970-416-0088 or mike@fassifinancialnetwork.com.

 

 

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

 

Citations.

1 – tinyurl.com/hsdkwgn [1/19/14]

2 – newdirectionira.com/ira-info/distributions/what-is-a-distribution [2/3/16]

3 – azcentral.com/story/money/business/consumers/2015/12/22/right-size-your-portfolio-coming-year-nancy-tengler/77780344/ [12/22/15]

4 – time.com/money/2791159/how-are-stocks-taxed/ [2/3/16]

5 – marketwatch.com/story/should-you-take-stock-to-meet-required-minimum-distributions-2014-11-03 [11/3/14]

Is America Prepared to Retire

Is America Prepared to Retire?

Two-thirds of us have no financial plan.

 

Provided by Mike Fassi

 

Only 48% of Americans say they think they are saving enough. And 30% feel that they are not even slightly confident that they are saving enough for retirement. That finding comes from the 2015 Consumer Financial Literacy Survey conducted by the National Foundation for Credit Counseling. (The survey collected data from 2,017 U.S. adults.)1

Only 40% of us keep a regular budget. If you are one of those two out of five Americans, you’re on the right track. While this percentage is on par with findings going back to 2007, the study also finds that only 29% of Americans are saving any part of their annual income towards retirement.1

Relatively few seek the help of a financial professional. When asked “Considering what I already know about personal finance, I could still benefit from some advice and answers to everyday financial questions from a professional,” 75% of respondents agreed with the statement. Yet only 12% indicated that they would seek out the help of some sort of financial professional if they had “financial problems related to debt.” While it isn’t surprising to think that 25% of respondents would turn to friends and family, it may be alarming to learn that 18% would choose to turn to no one at all.1

Why don’t more people seek help? After all, Americans of all incomes and savings levels certainly are free to set financial goals. They may feel embarrassed about speaking to a stranger about personal financial issues. It may also be the case that they feel that they don’t make enough money to speak to a professional, that a financial professional is something that millionaires and billionaires have, not the average American worker. Another possibility is that they feel that they have a good handle on their financial future; they have a budget and stick to it, they save in an IRA (like a quarter of Americans), or a 401(k) (nearly three out of ten Americans), and many use other investments (30%, according to the survey). But that 75% admission above indicates that a vast majority of Americans are not as confident.1

Defined goals lead to definite plans. If you set financial objectives and plan for them, you vault ahead of most Americans – at least according to these findings. A written financial plan does not imply or guarantee wealth, of course; nor does it ensure that you will reach your goals. Yet that financial plan does give you an understanding of the distance between your current financial situation (where you are) and where you want to be.

How much planning have you done? Retiring without a financial plan is an enormous risk; retiring with a financial plan that hasn’t been reviewed in several years is also chancy. A relationship with a financial advisor can help to bring you up to date about what you need to do, and provide you with more clarity and confidence when it comes to the financial future.

Mike Fassi, CLU, CHFC  is a Representative with Centaurus Financial Inc. and may be reached at Fassi Financial, 970-416-0088 or mike@fassifinancialnetwork.com.

 

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

 

Citations.

1 – nfcc.org/wp-content/uploads/2015/04/NFCC_2015_Financial_Literacy_Survey_FINAL.pdf [4/15]

 

 

Other Ways to Save for Retirement

OTHER WAYS TO SAVE FOR RETIREMENT

 

Direct & indirect opportunities than don’t get enough ink.

Provided by Mike Fassi

 

Besides periodic IRA contributions and elective salary deferrals into 401(k) and 403(b) plans, there are other ways to amass retirement savings, some of them often overlooked.

Put tax refunds & tax savings to work. If you get a few hundred back from the IRS, that is not an insignificant sum. You could save it or you could invest it with the potential to compound that money. The same goes for the dollars you save as a result of tax credits or tax breaks.

Relocation. Ever thought about living where lifestyle costs are less? Moving to a cheaper part of the country might cost you a few thousand dollars, but the long-run savings could end up dwarfing that expense; you could free up thousands of dollars annually toward your retirement savings effort.

As an example, Zillow’s Q3 2012 Home Value Index showed the median home value in San Jose as $525,000 and the median home value at $356,100 in Boston. A San Jose resident could move to Reno (Q3 median home value: $145,700) and a Boston resident could move to Nashua (Q3 median home value: $186,300).1,2,3,4

You could also downsize as you relocate; moving into a smaller residence could free up even more cash.

Rental income. While property management means occasional headaches even when a third party assumes the duty, a steady stream of income from a rental home or condo may give you another solid way to ramp up your savings efforts.

Redirecting some of your inheritance. If you receive any kind of wealth, think about assigning part of it to your retirement strategy. In fact, this is a good idea for any kind of sudden wealth you come into, whether it comes from a relative, a settlement, a casino, or simply your own talent and initiative.

Sell products or services, not simply your time. Most people sell their time for money. One of the characteristics of the wealthy is the entrepreneurial ability to sell products and services with a value indirectly related or unrelated to a time investment. Consider what products or services you could sell to make more money and build greater retirement savings, with the possibility of positively altering the way you work and live. The start-up costs of such a move may be less than you think.

Stay healthy. Hospitalization costs can be a real setback for retirement savers. Good health (indirectly) pays off as we age. Reasonable daily exercise and smart eating may help to reduce the risk of major hospital, drug, and therapy expenses between now and retirement.

Halt or modify some recurring discretionary expenses. Do you really need cable? Do you have to belong to the most opulent health club in town? Must you have season tickets? Fewer such expenses today can translate to additional money you can invest and save for your future.

Refrain from picking up your child’s college costs. If you started a college savings account long ago, that’s a different story; you have already dedicated money for this purpose. If you haven’t, remember that no one offers “retirement loans” or “retirement financial aid”. Your son or daughter may have a decade or longer to repay a college loan, and their incomes may rise significantly during that time. If you elect to pay some of their tuition or housing costs, you have comparatively fewer years to recover from the impact of those expenses. Encouraging self-reliance can lead to you retaining more of your savings for the third act of your life.

Mike Fassi, CLU, CHFC  is a Representative with Centaurus Financial Inc. and may be reached at Fassi Financial, 970-416-0088 or mike@fassifinancialnetwork.com.

 

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.

1 – www.zillow.com/local-info/CA-San-Jose-home-value/r_33839/ [11/20/12]

2 – www.zillow.com/local-info/MA-Boston-home-value/r_44269/ [11/20/12]

3 – www.zillow.com/local-info/NV-Reno-home-value/r_13478/ [11/20/12]

4 – www.zillow.com/local-info/NH-Nashua-home-value/r_33031/ [11/20/12]

 

 

How Could a Fed Rate Hike Affect Retirees

How Could a Fed Rate Hike Affect Retirees?

As the central bank starts tightening, some positives & negatives may emerge.

 

Provided by Mike Fassi

  

Economists widely expect the Federal Reserve to raise interest  rates this month. Additional incremental rate hikes may follow in 2016. If you are retired (or soon will be), you will want to consider what gradually higher interest rates could mean for you financially.

Some of the effects are already being felt. Glancing at Freddie Mac’s weekly surveys, average interest rates for fixed-rate home loans climbed about 0.2% between October 8 and December 10 on assumptions of the federal funds rate rising. (Bond market behavior influences these rates as much as the yield on the 10-year Treasury.) Interest rates on other types of home loans increased less in that interval, but any upward move by the Fed could quickly send them north.1

As the price of money rises, it will cost more to use a credit card. When the federal funds rate rises, credit card issuers quickly adjust their interest rates upward. Retirees who routinely pay down the whole balance on their cards every month will be less impacted than those who let outstanding balances linger.2

Yields on fixed-rate investments are poised to improve. Risk-averse retirees may finally start to see appreciable rewards on such vehicles with a higher federal funds rate, especially if the Fed makes two or three more upward moves in 2016.

Retirees may see a great chance to exploit a laddered approach with fixed-income investments. By spreading their money over a few such investments with overlapping maturity dates, they can take advantage of the resulting liquidity and flexibility and reinvest money at the end of a maturity term into a subsequent fixed-income vehicle with a higher interest rate.

Long-term bond values are poised to fall. This is a basic outcome of a rising interest rate environment, and warnings about major oncoming losses in the bond market have been sounded for years. Retirees with an eye on the Barclays U.S. Aggregate Bond Index can take heart in the knowledge that historically, deteriorations in bond prices have been more than offset by the Index’s increases in yield.3

Bond yields, on the other hand, are poised to rise. Total returns on the Barclays U.S. Aggregate Bond Index have indeed diminished this year, although they are not yet in the red. In 2014, the index’s total return was 5.97%; as of December 9, it was 0.95% YTD. That could improve in the near term, for the index will be adding newer bonds over time with presumably higher yields to replace maturing bonds, thereby improving the average yield of the overall index.3,4

  

How will Wall Street react? One school of thought believes that higher rates will amount to a powerful headwind; another says the market has largely priced a December rate hike in, and will handle successive adjustments calmly. Opinions of equity strategists and fund managers meeting for USA TODAY’s December roundtable varied greatly – some saw the S&P 500 making no progress at all in 2016, others felt that a double-digit advance could happen.5

Bearish analysts note two factors that may slow the bulls to a trot. Rising borrowing costs for public companies could cut into their profits and thereby hurt their share prices, and if Treasury yields grow more attractive, appetite for risk might lessen. Bullish analysts are countering with the opinion that rising rates go hand in hand with an improving economy, one characterized by better cash flows, higher revenues, and higher corporate profits. As long as the Fed refrains from tightening too abruptly, they argue, 2016 could be a good year on Wall Street.2,5,6

A federal funds increase may affect retirees in other ways. Those retirees who are paying off private student loans (either those of their children, or their own) will contend with higher interest rates on those loans, as those rates ride on movements in the prime rate. The same goes for auto loans and other forms of short-term consumer borrowing.2

They may also affect your community, the goods and services going into and out of it, and your travel plans. Retirees that invest conservatively with a large cash position may have more money to spend, translating to an economic bump in retiree-heavy towns and regions. Imports to the U.S. will become cheaper. Also, retirees may find overseas travel less costly in the near future. Once Treasuries yield more, more foreign investment dollars will start to pour into the U.S.; that makes for a stronger dollar, to the benefit of Americans vacationing abroad.2,6

So, there are upsides & downsides to higher interest rates for  retirees. One thing is for certain: interest rates cannot stay at historic lows forever. When the Fed adjusts them upward, investors and economists across the world will react – and then move on.

Mike Fassi, CLU, CHFC  is a Representative with Centaurus Financial Inc. and may be reached at Fassi Financial, 970-416-0088 or mike@fassifinancialnetwork.com.

 

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

 

Citations.

1 – freddiemac.com/pmms/archive.html [12/10/15]

2 – thefiscaltimes.com/2015/11/09/10-Ways-Fed-s-Looming-Rate-Hike-Touches-You [11/9/15]

3 – marketwatch.com/story/how-your-bond-portfolio-can-survive-higher-rates-2015-04-23 [4/23/15]

4 – news.morningstar.com/index/indexReturn.html [12/10/15]

5 – usatoday.com/story/money/markets/2015/12/05/all-nothing-2016-top-stock-pros-say/76802904/ [12/5/15]

6 – theconversation.com/fed-interest-rate-hike-may-have-less-of-an-impact-than-you-think-51970 [12/9/15]

Wise Decisions with Retirement in Mind

Wise Decisions with Retirement in Mind

Certain financial & lifestyle choices may lead you toward a better future.

 

Provided by Mike Fassi

  

Some retirees succeed at realizing the life they want, others don’t. Fate aside, it isn’t merely a matter of stock market performance or investment selection that makes the difference. There are certain dos and don’ts – some less apparent than others – that tend to encourage retirement happiness and comfort.

Retire financially literate. Some retirees don’t know how much they don’t know. They end their careers with inadequate financial knowledge, and yet feel that they can plan retirement on their own. They mistake retirement income planning for the whole of retirement planning, and gloss over longevity risk, risks to their estate, and potential health care expenses. The more you know, the more your retirement readiness improves.

Retire knowing that you’ll have to assume some risk. Growth investing is increasingly seen as a necessity for retirees who want to keep ahead of inflation.

According to data and research compiled by the Social Security Administration, the average 65-year-old man will live to be 84 and the average 65-year-old woman will live to be 86. So that’s a 20-year retirement. The SSA also notes that roughly a quarter of today’s 65-year-olds will live past 90, and about 10% of them will live beyond age 95.1

If these seniors rely on fixed-income investments for the balance of their lives, they may end up with reduced retirement income potential, and in turn a reduced standard of living. Look at the Rule of 72: if an investment is yielding 2%, it will take about 36 years to double your money. Yes, interest rates are rising – but inflation should rise with them.2

A generation ago, mature Americans were urged to gradually shift their portfolio assets out of stocks and into fixed-income investments. One old rule of thumb was to subtract your age from 100, with the resulting number being the percentage of your portfolio you should assign to equities.3

Today, retirees and retirement planners are reconsidering this thinking. As the Wall Street Journal reported recently, one study of retirement money and longevity risk concluded that retirement funds may last longer if a retiree gradually increases the stock allocation within a portfolio about 1% per year from an initial range of between 20-50% to between 40-80%. The concept here is that a retiree’s stock allocation should be lowest when their retirement nest egg is largest.3

Retire debt-free, or close to debt-free. Who wants to retire with 10 years of mortgage payments ahead or a couple of car loans to pay off? Even if your retirement savings are substantial, what will big debts do to your retirement morale and the possibilities on your retirement horizon? On that note, refrain from loaning money to family members and friends who seem quite capable of standing on their own two feet.

If the thought of using some of your retirement money to pay outstanding debts hits you, set that thought aside. You have dedicated that money to your future, not to bill paying. On second or third thought, other sources for the cash may be apparent.

Retire with purpose. There’s a difference between retiring and quitting. Some people can’t wait to quit their job at 62 or 65 – their work is “killing” them, or boring them senseless. If only they could escape and just relax and do nothing for a few years – wouldn’t that be a nice reward? Relaxation can lead to inertia, however – and inertia can lead to restlessness, even depression. You want to retire to a dream, not away from a problem.

A retirement dream can become even more captivating when it is shared. Spouses who retire with a shared dream or with utmost respect for each other’s dreams are in a good place.

The bottom line? Retirees who know what they want to do – and go out and do it – are contributing to their mental health and possibly their physical health. If they do something that is not only vital to them but important to others, their community can benefit as well.

    

Retire healthy. Smoking, drinking, overeating, a dearth of physical activity – all these can take a toll on your capacity to live fully and enjoy retirement. It is never “too late” to quit smoking, quit drinking or slim down.

Retire in a community where you feel at home. It could be where you live now; it could be a place hundreds or thousands of miles away where the scenery and people are uplifting. It could be the place where your children live. If you find yourself lonely in retirement, then “find your tribe” – look for ways to connect with people who share your experiences, interests and passions, and who encourage you and welcome you. This social interaction is one of the great intangible retirement benefits.

 

Mike Fassi, CLU, CHFC  is a Representative with Centaurus Financial Inc. and may be reached at Fassi Financial, 970-416-0088 or mike@fassifinancialnetwork.com.

 

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

 

Citations.

1 – ssa.gov/planners/lifeexpectancy.htm [2/6/14]

2 – investopedia.com/terms/r/ruleof72.asp [2/6/14]

3 – tinyurl.com/m8akefj [2/3/14]