Archive for the 'financial' Category
At its heart, the idea of planning for retirement is very straightforward. Like squirrels in the autumn, hopeful future retirees stash away some of the nuts they gather each day so they’ll be able to eat when the gathering season is past. Unfortunately, the problem is more complicated for us humans. Squirrels only need their stash to last for a few cold months of winter, while retirees depend on their stash for thirty, forty, or even fifty years. This difference can make the problem seem overwhelming, and can leave people frozen with indecision.
To make matters worse, we’re inundated with conflicting advice about how we should invest our savings to best accomplish our retirement goals. Should we hire an investment advisor? Should we use index funds or actively managed funds? What funds should we buy? How do we build the very best portfolio to get the highest returns?
While these questions are valid, they become inconsequential if the apprehension they produce causes us to do nothing. What matters most is whether we save enough money for a long enough period of time and whether we make reasonably good investment choices. Notice I said reasonably good investment choices. Too many people feel that successful financial planning is about scoring frequent Jim Cramer style “booya” home-runs on brilliant stock picks. The facts just don’t support this oft repeated lore. What really matters is that you have a good plan and stick to it. As a result, the focus of this guide is not on investing, but rather, it’s about how to get started in building a solid retirement plan.
When can I get off the treadmill?
To determine how much you need to retire, you must first decide how much you want to spend in retirement. What standard of living do you desire in retirement and how much will it cost to fund that lifestyle? This is by far the most important question in retirement planning.
Fundamentally, this is a question about tradeoffs. How much should we sacrifice during our working years, and for how long, so we can be happy during those golden retirement years. The tradeoffs get even more complicated when you consider other competing factors such as children’s education, the care of elderly parents, and concerns about one’s own health. Once again, it’s easy to get bogged down in the complexity of it all, but like any decision involving trade-offs, it becomes much simpler if we can understand what the costs and benefits of our various options are.
This is where a retirement planning tool can help. A retirement calculator can help you experiment with different levels of savings, different retirement ages, and different levels of retirement spending. By using a retirement calculator to run retirement “experiments”, you’ll be able to see the costs and benefits of choosing among the various paths. Retirement planning is deeply personal, and only you can decide what tradeoffs make sense for you and your family.
I’m ready to calculate. Now what?
Retirement calculators can provide you with information to help you make choices about various retirement options. But remember, these tools are not “smart” and they can’t weigh the options for you. Their role is to assist you by arming you with the information you need to make good choices.
Most retirement planning tools ask you to provide information about expected savings, desired retirement age, and the annual expenses you plan to incur during retirement. The tools use this information, along with assumptions about inflation, taxes, and portfolio performance, to estimate the likelihood that you’ll be able to fund your expenses for the duration of your retirement.
This likelihood of success is the tool’s way of indicating how solid of a plan you’ve constructed. If the likelihood (or probability) of success is low, say below 50%, then you have a less than 50/50 chance of having enough money in retirement. On the other hand, if the probability of success is above 90%, then your plan has a very high likelihood of being able to provide income you’re seeking during retirement.
Wait a minute you say, I simply want to know if my plan works. Why can’t the tool just tell me that?
Most advanced retirement planning tools use the concept of probability to report their results. This is because most tools work by running thousands “simulations” of your retirement. In each of these simulation runs, the software plugs through all of the calculations of your retirement year-by-year to see what happens. In the runs where the simulation reaches the end of the plan and still has money to spare, the run is called a success. Runs where the money is gone before the end of the plan are called failures. The ratio of successes over failures is your plan’s overall probability of success.
Still you say, why does the planner need to make thousands of simulation runs? Why doesn’t it just do it right the first time and give me the right answer? Well, it turns out that long-range planning, such as retirement planning is not an exact science. No one knows for sure how investments are likely to perform in the future, so the best anyone can do is try to make estimates of the future. The problem with making an estimate is that it could be wrong. So instead of making just one estimate, several thousand estimates are made. Most planners do this by considering how investments have performed in the past and then using this information to make guesses at what might happen in the future as your retirement plan unfolds. They do this over and over again and record the results of each “run”. Then they summarize the results by showing the overall probability of success for the plan.
Ok, I got it, let’s start simulating my retirement
Once you have a basic understanding of what a retirement planning tool does and how to interpret its output, you’re well on the way to being able to make use of this powerful helper. Although there are several good tools in this space, for the rest of this article, we’re going to focus on one particular tool that’s freely available on the Internet and runs inside your web browser.
The tool is called the flexibleRetirementPlanner. I created this tool for myself as I was evaluating my own retirement plan. I found that the other tools out there were either too simple, or didn’t shed enough light on how they worked for me to trust them. For this reason, I also published the source-code of this tool (see the website) so anyone can look at how the planner really computes its results. You’ll be glad to know that the tool is free to use and you don’t need to sign up for anything or give out any personal information to use it. Also, all the information that you enter into the planner stays on your own computer and nothing is transmitted back out onto the Internet, so you can be sure your information will stay private.
Follow the steps below to set up the retirement planner to evaluate your retirement plan’s chances for success.
1) Current Age - Enter your current age
2) Retirement Age - Enter your planned retirement age. This is the age when contributions will stop and you’ll begin withdrawing from your savings.
3) For now, leave the Life Expectancy, Inflation, and Tax rate info at their default values.
4) Current Taxable Investments - Enter the current total value of all invested assets that are NOT in a retirement account.
5) Current Tax Deferred Investments - Enter the current total value of all tax deferred investment accounts such as those in 401k or IRA accounts.
6) Current Tax Free Investments - Enter the total value of all tax free investment accounts such as Roth IRAs or Roth 401ks.
7) Leave the Min IRA Withdrawal age at its default value
The next three fields are where you enter your expected annual savings. If you’re not sure what to put here, start out by entering 15% of your annual household income in the “Tax Deferred Annual Savings” field. You can tweak this later. Also, please note that like most other values used in the calculator, the amounts you enter for annual retirement savings are automatically increased each year to keep up with inflation.
Taxable Annual Savings - Enter the amount that you plan to save each year in taxable accounts (not IRAs or 401ks).
9) Tax Deferred Annual Savings - Enter the amount that you plan to save each year in traditional IRAs and 401k accounts.
10) Tax Free Annual Savings - Enter the amount that you plan to save each year in Roth IRAs and Roth 401ks
11) Investing Style - Leave this input at its default value for now. Later you might want to experiment with other values for this field. After you’re done evaluating your plan, the next step will be to learn about investing to see how you can create an investment portfolio that will help you meet the goals of your plan.
12) Annual Retirement Income - Enter the amount of income you expect to receive each year while you’re retired. This should include social security and any pension income that you expect to receive. Please note that the value you enter in this field is assumed to increase each year to keep up with inflation. If you have a pension with fixed payments, use the “additional inputs” tab to enter it as a pension with “no cola” or no cost of living adjustment.
13) Retirement Income Start Age - Enter the age you expect to start receiving the income amount that you entered in item 12 above.
14) Annual Retirement Spending - Enter an estimate of how much you plan to spend in each year of your retirement. The amount you enter should be in today’s dollars. It will be automatically adjusted each year to keep up with inflation. If you don’t have any idea of what to put here, some suggest using 85% of your pre-retirement spending as a rough guide. This is one input that deserves a lot of thought in order to make as realistic of a guess as possible.
15) Spending Policy - Leave this value at its default setting for now. After you’ve experimented with the planner for a while, you may want to read the planner documentation about spending policies to learn more about what this means.
Alright already, now I’m really ready. Show me the money!
Once you’ve completed the steps above, you’re ready to run the planner. Click on the “Run Simulation” button and the software will run through your retirement 10,000 times to estimate the likelihood that you’ll have enough money to fund your retirement.
Once the computations are complete, the first thing to notice is the “Probability of Success”. If this value is above 90%, a green light is shown next to the value. If you’ve estimated all the inputs correctly and your plan has a probability of success greater than 90%, your plan is in great shape. If your probability of success is between 75% and 90%, the stoplight will show yellow. This is also a good probability of success, though this also means that your plan may have a 10-25% chance of failing. Finally, if your plan’s probability of success is less than 75%, that means you have at least a one in four chance of running out of money during your retirement.
Next, you may want to look at some of the other simulation outputs to further evaluate your plan. The ending portfolio balance shows how much money (in today’s dollars) you’ll have in savings at the end of your plan. Finally, you can select the “Detailed Output” tab to see the year-by-year information for your plan.
Once you get an idea of how to run the planner and how to interpret the results, you can try different scenarios to see what the results are. For example, try increasing your annual savings a bit to see how that affects your plan’s chances for success. Also, if you have a very high probability of success, try decreasing your retirement age little-by-little to see how that affects the results. The possibilities for experimentation are endless, but don’t get discouraged by this. You’re in command of the decision-making process, and now you’re armed with a tool that can help you make better choices.
After experimenting with the planner for a while, you should start to feel more in control of your personal retirement destiny. You’ll have a better understanding of the trade-offs in front of you, and you should be in a better position to make good choices about how much to save and how long you’ll need to keep working. If you’re new to financial planning and investing, this is a great time to dive in and learn more. Just don’t delay. The one thing this adventure in retirement planning should have shown you is that time is your most precious resource.
http://peachtreesettlements.org/
July 27 2011 | financial | No Comments »
I fully realize if it sounds too good to be true, it probably is and There Ain’t No Such Thing As A Free Lunch (TANSTAAFL) immediately jumped into your head when you read the title of this article. However, if you are 62 or over, you may have just found the goose that laid the golden egg.
A reverse mortgage is exactly what the name implies. Rather than you paying a monthly sum of money to a mortgage company, a mortgage company pays you. There are three types of reverse mortgages and all have the same eligibility requirements.
You must be at least 62, live in, and own, your home and sign a contract. You must also have equity in your home and the inherent interest rate is based on what the lender is currently charging (more about this later) on non-reverse mortgages. The lender, by the way, will also have your property appraised for which you may or may not be charged.
There are no income restrictions such as those imposed by Social Security and most are tax free since they do not involve additional features such as an attached annuity. They also do not affect your social security benefits nor your Medicare entitlements.
This article discusses only those mortgages without additional features. Should you wish to know more about reverse mortgages with additional features, consult with a competent tax professional to reduce the chances of running afoul of tax laws.
The FTC’s website, http://www.ftc.gov/bcp/online/pubs/homes/rms.htm has an excellent article on reverse mortgages but it also does not discuss mortgages with additional features. Another reason to consult with a tax professional.
This tool called reverse mortgage is actually a loan, hence an interest rate, which allows senior citizens, or as some say, the elderly, to convert part of their equity into cash without having to sell their home. Because it is a loan “in reverse” you are receiving a monthly sum and not paying a monthly amount while you live in your home.
However, this loan must be repaid and repaid with interest should you sell, die, no longer live their as your principal residence or reach the end of the pre-selected loan period. You remain responsible to pay real estate taxes, insurance and all attendant maintenance expenses which, of course, you would have to pay with, or without, a reverse mortgage.
With this explanation, the picture becomes more focused, right? You enjoy a monthly sum, tax free and non-repayable until a date sometime in the future, while remaining in your home. As close to a win-win situation as one can get in this day and age.
It doesn’t take a rocket scientist to realize anyone who is cash poor but house rich should at least investigate this tool. However, like any other instrument involving your signature on the dotted line involving financial obligation, you must have some preliminary information.
I mentioned there are three types of reverse mortgages. The first is the single purpose reverse mortgage. These are offered by some sate and local government agencies and nonprofit organizations.
They may not be available in your area. Call your county’s Department of Senior Services. Their phone number is in the white pages under the listing for your county.
Single purpose means exactly that. The proceeds may be used for only the purpose specified by the lender and generally are only made to people with low or moderate incomes. If you call your county, be sure to ask if their reverse mortgage is a single purpose and what are the limits.
The second type of reverse mortgage is called a Home Equity Conversion Mortgage (HECM). The federal government insures these mortgages and they are backed by the Department of Housing and Urban Development (HUD). The up front costs are generally high especially if you plan on staying in your home for a short period of time but they carry no income or medical restrictions and can be used for any purpose.
HECMs also require all applicants to meet with a counselor from an independent government approved housing counseling agency. The FTC says, “The counselor must explain the loan’s costs, financial implications, and alternatives. For example, counselors should tell you about government or nonprofit programs for which you may qualify, and any single-purpose or proprietary reverse mortgages available in your area.”
An additional benefit of an HECM mortgage is the nursing home clause. Should a borrower have to move out of her home and into a nursing home or other medical facility, she has up to 12 months before the loan becomes due. This enhances financial planning.
The third type is called a proprietary reverse mortgage. These are private loans backed by the companies offering them. In other words, they are NOT government insured. Like HECMs, the upfront cost could be high for a proprietary reverse mortgage.
A reverse mortgage, cost wise, is like a non-reverse mortgage. The lender usually charges loan origination fees, closing costs, insurance premiums (for insured loans) and service fees which are all set by the lender.
Fortunately, like non-reverse mortgages, the federal Truth In Lending Act (TILA) applies to reverse mortgages. This means the lender MUST disclose the costs and terms of the reverse mortgage you are considering.
The annual percentage rate (APR) and payment terms must be prominently displayed and not in the fine print. If you choose a credit line as your loan, lenders must tell you the charges related to not only opening but using this credit account.
Another word about the interest rate since it too mirrors the non-reverse mortgage. Just as with a non-reverse mortgage, an interest rate can be fixed or variable with variable rates tied to a financial index. This means the rate will change as the index changes.
TILA forces the lender to disclose this information. TILA does not force the lender to tell you the reverse mortgage may, or may not, use up all of your equity. If a “non-recourse” clause is included in the contract, and most have them, you must be told you will not owe more than the value of your home when the loan is repaid. This is a good thing.
Of the three, the HECM is the most flexible. It lets you select the way you receive your money. For example, you can receive fixed monthly cash advances for a specified period or for as long as you live in your home. Or, if you choose, you can receive a line of credit.
A line of credit allows you to draw on the loan proceeds when you want and how much you want. The HECM allows a combination of the two choices. You can receive a monthly payment plus a line of credit.
The key is to read and understand every clause in the contract before signing and do not be afraid to ask questions about what you don’t understand. Don’t let a huge monthly payment cloud your judgment and decision making ability.
Both HUD and the FTC have toll free numbers and websites to help you in making an informed decision. HUD can be called at 1-888-466-3487 with their web address at:
http://www.hud.gov/offices/hsg/sfh/hecm/rmtopen.cfm while the FTC can be called at 1-877-382-4357 with their web address at: http://www.ftc.gov/credit
After reading the above information you may have decided the goose with the golden eggs is really a vulture waiting to pounce on your carcass. Or, you may have decided the goose’s eggs are worth your time and attention. Either way, you are now a more informed consumer.
http://lifeinsurancesettlementreport.org/
July 27 2011 | financial | No Comments »
Many folks who plan ahead for their elder years have probably considered purchasing nursing home insurance. They wish to protect their assets from the high cost of nursing home care as they choose a facility that meets their needs and demands.
But many do not realize that the first step to managed care will likely involve moving into an assisted living facility. Assisted living facilities provide a valuable service of managed care that allow the elderly person to reside in a pleasant environment surrounded with a social atmosphere of fellow residents. Will your nursing home insurance pay for care at such a facility, and how much will they pay?
Most policies do provide benefits for folks who need to enter an assisted living facility, but the payments will be much less than if residing in a skilled nursing home. The amounts can be as low as fifty to sixty percent of the amount normally paid compared to residing in a nursing home. Also, because the person does not reside in a skilled nursing facility, the policyholder may have to continue insurance payments at the same time to keep the policy active.
Note that most insurance companies will very reluctantly begin paying on your nursing home insurance policy once you move into the assisted living facility. They will require doctor’s statements that the elderly person needs the services provided by the assisted living facility. They may also require personal inspection by their own nurses to confirm the need to enter such a facility, and statements that the person has no intention of leaving for home care.
If the policyholder ever requires more intense or specialized care, and needs to move into a facility that provides such care, the policy may still only pay at the assisted living level. This means that the checks you receive will not increase even though your own costs do, and you may still need to continue making payments to keep your nursing home insurance policy active.
These intermediate care facilities are quite common in most states, and many residents may never transfer to a full-fledged skilled nursing home. Unfortunately for the layman, while the policyholder may believe from reading the policy definitions that intermediate care facilities will benefit from full activation, in practice they may not.
If the insurance company decides against your claim, you will have little choice but to continue to pay the policy, or move into a full-fledged skilled nursing facility. The state will likely not side with you, and while you can obtain legal representation, you may not come out ahead financially even if you win.
So study the policy well before purchase, and try to understand all the ramifications. Look at the different types of facilities in your particular state, and understand how each applies to the policy that you are considering purchasing. You might even ask to get in writing which facilities will be covered, using the specific descriptions as used in your state. Of course, if you retire in another state and take the policy with you, you will again be back to using general definitions of how the policy pays.
Planning ahead for your high care years represents a wise course of action, and if you decide to purchase nursing home insurance, be sure to fully understand the policy and how it will benefit you.
http://oceansweepers.com/
July 27 2011 | financial | No Comments »
Let’s say you are getting a bit older in your years, you’ve been saving some money in retirement, but haven’t been paying too much attention to it. The big day finally comes around and you get the gold watch, a retirement party, and the like. You get to go home and spend more time with your family, and do all of the fund grandparent things such as spoiling your children’s children. Soon after you retire you take a look at your finances, and begin to realize that you won’t entirely have enough money to make it the rest of your life without some cutbacks. What do you do?
One thing you should consider is looking for a different job. Find one that’s not as strenuous as the one you had, even if it doesn’t pay quite as much. If you can find something that pays comparative to your previous job, you can prevent dipping into your IRA for a few years. This will also enable you to save more money while you still have the ability to work. If you can find a job that gives you health insurance, this is definitely a plus for the job, and you can postpone taking social security, so that when you do take it in a couple of years, you can get bigger payments from them.
If for whatever reason you can’t work a full time job or it would be very difficult to do so, try to at least work on a part-time basis. It might reduce your social security income if you work while retirement, but it’s still better than not working at all. In essence, if you cannot afford to retire fully, you need to find a way to keep working, even if it is on a part time basis.
Fortunately, there are a lot of advantages to working after you retire. You have the ability to get out of your home more and have a reason to get up in the morning. Most people retire without having something to retire to, and find themselves bored rather quickly. If you keep moving and working, you are more likely to live longer and have better health because you get more exercise.
If for whatever reason you are unable to work past your retirement (this does not mean unwilling) you will have to find a way to reduce your expenses. Perhaps sell your home and move to an affordable apartment, cut out any vacations you have planning. Just cut anywhere you can.
http://governmentretirement.com/
July 11 2011 | financial | No Comments »
Roy said Eddy Mata had also become a hoarder and would dig through other people’s trash. The family was planning to move him into a nursing home this weekend, but had not told Eddy, at the recommendation of staff at the home.
Family members and police searched the area where Eddy Mata disappeared without finding any sign of him.
West Covina police Sgt. Jerry Pearman said an alert has gone out to other area police departments, but there have been no reports of sightings.
Roy said he suspects his father may have gotten on a bus or hitched a ride in an attempt to get home. He may also have been trying to visit family members in Whittier or Cerritos.
Anyone who sees Eddy Mata can contact the West Covina Police Department at (626) 939-8500 or their local police department.
ALSO:
Diamond Bar fatal shooting victim identified
High school volunteer charged with having sex with student
– Abby Sewell
Photo: Eddy Mata. Credit: Family photo
Roy said Eddy Mata had also become a hoarder and would dig through other people’s trash. The family was planning to move him into a nursing home this weekend, but had not told Eddy, at the recommendation of staff at the home.
Family members and police searched the area where Eddy Mata disappeared without finding any sign of him.
West Covina police Sgt. Jerry Pearman said an alert has gone out to other area police departments, but there have been no reports of sightings.
Roy said he suspects his father may have gotten on a bus or hitched a ride in an attempt to get home. He may also have been trying to visit family members in Whittier or Cerritos.
Anyone who sees Eddy Mata can contact the West Covina Police Department at (626) 939-8500 or their local police department.
ALSO:
Diamond Bar fatal shooting victim identified
High school volunteer charged with having sex with student
– Abby Sewell
Photo: Eddy Mata. Credit: Family photo
http://topics-advice.com/family/?p=2409
May 04 2011 | financial | No Comments »