Planning for Retirement
Retirement accounts have been struck particularly hard in the last few decades. First you had the boom of the tech era followed by the crash that started after September 11th. As stocks were bottoming out, people took the money out of stocks and instead started investing it in real estate. Now real estate and stocks are both losing money hand over foot so what should you be doing?
Most employers no longer offer pensions and social security is not enough to live on so how can we prepare for retirement? So how much money will you need?
The first thing to do is to determine where you want to be for retirement. Are you content to live in a condo or small house in the middle of nowhere or do you want to spend your retired days on the beach in Florida or even traveling the world?
Once you know what you want to do during retirement, you need to realistically determine approximately how long you might live after retiring. People are living much longer now so you need to take that into account when determining how much money you will need for retirement.
The third thing you need to consider is whether you will fully retire or do you want to continue working part time while retired as this will affect the money you can expect.
Behind on your mortgage?
Many people today are falling behind on their mortgages. Thanks to legislation the Obama administration passed this year there is hope.
First you need to assess why you are falling behind on your mortgage. Did you or your spouse lose your job, did you have some unexpected medical expenses, were you or your spouse injured and unable to work? Any of these excuses is very sympathetic and bankers will be interested in working with you to find a way for you to keep the house and make payments more manageable. However, you have to tell the banker what is going on before they can help you.
Bankers are most willing to work with clients who have a previous good record of paying their mortgage on time. This helps to show that you are responsible with your credit and really do want to live up to your agreements but due to circumstances beyond your control, at the moment, you just can’t make the payments.
Don’t think of the bank as the enemy. They want you to keep paying for the house. If they had to foreclose, it would cost them an average of $50,000 per house to foreclose. In addition, many houses that are currently in trouble were purchased within the last three to eight years and the values have fallen since then so the bank would not be able to get as much for it as they are owed on the loan. Thus, the banks have just as much incentive as you to work out a plan to ensure that you can continue to make payments, either at a lower interest rate or for an extended period of time, as you have for wanting to keep your home.
If you are behind on your mortgage give your banker a call, you might be surprised.
Choosing a Realtor
Looking to sell your property? Finding the right realtor and listening and acting on that realtor’s advice can mean the difference between selling your property within a couple of months despite the down market or having your listing sit on the market for six months to a year.
When looking for a realtor you want to interview a few candidates before choosing one. I know a couple who didn’t do this when they sold some property in Florida a few years ago who ended up paying the realtor a 12% commission because they didn’t know what was reasonable and they hadn’t taken the time to check around.
In addition to checking out at least 3 realtors, you want to consider the realtors ties to your community. Does the person live in the community and have a reputation for honesty? Do they have a lot of contacts that will help them sell your house? Are they experienced? Do they have a website that will feature your house? The biggest issue I have with realtors is getting them to answer the phone or call back when you leave a message. If the realtor isn’t answering the phone for you then they likely aren’t answering the phone when a potential buyer calls either.
You may also want to consider whether the realtor is staying current on trends in housing. The big thing now is staging properties so that they appeal to buyers. This can mean decluttering the house and even doing a few cosmetic repairs before listing it. Is the realtor going to tell you what your house really needs to sell it at the price you want or are they too afraid of upsetting you. Remember, while the house was once your home, now that you are selling it, you should treat it like a business asset. Don’t get emotionally involved.
Using a reverse mortgage to supplement income
As IRAs, 401ks and other retirement accounts have lost value due to the financial decline of the recent years, many seniors have lost a chunk of their retirement income. Thus, their accounts and assets are worth less but their living expenses have not decreased. This is a problem.
Many retirees spend the winter in Florida and then summer in other areas. While this was great in the past, due to their loss of income, it might not be feasible for them to continue this lifestyle right now. They can try to rent out their properties in Florida to supplement their income. They can also try to sell the properties, but don’t expect to get much for them due to the glut of foreclosures on the market in Florida right now. The other option that seniors can take advantage of is a reverse mortgage.
For the last ten years or so banks in Florida have been touting the benefits of reverse mortgages for seniors. A reverse mortgage allows a senior citizen to take out a mortgage against the value of his home. Unlike a home equity loan, the senior doesn’t have to make monthly payments to pay off the mortgage. Instead, the mortgages are paid off when the senior dies or moves out of the house. At that time the house is sold and the bank is repaid for the mortgage and any remaining proceeds from the sale go to the senior or his estate. This gives the senior money now that he needs to live off and allows for it to be paid back at his death.
There is a concern that banks might not be interested in these types of loans right now as housing prices are falling. They might be worried that the house won’t cover the cost of the mortgage at the senior’s death. However, these mortgages are backed by the government. In addition, Congress increased the amount that can be borrowed from a house from $417,000 to $625,000 this year. Another great feature of these loans is that the fees banks can charge are capped by the government. All in all, these mortgages can offer seniors another option to supplement their income if they need additional help.
Start a Savings Plan but Beware the Small Print
People realize the importance of saving for a rainy day even more during these difficult times. To help you save, many banks are now offering plans that allow you to automatically save money each month. Sounds like a great idea, right. After all, many people don’t save because they just don’t think about it. I think anything that gets people saving at least a little money each month is great. However, before picking a savings program be sure that you read the small print and know exactly what you are getting yourself into.
In some of these programs you will end up spending more money in monthly and annual fees, withdrawal restrictions, fees for using a teller, etc, than you will make each month in interest. This means that while you are putting money into a savings account each month, the money isn’t making any interest. In fact, it is getting smaller each month as a result of the fees.
Thus, while it is great to start a savings program, consider starting you own savings account and setting up a free automatic transfer from your checking to savings or you can start an automatic program with your bank but make sure that you know about all the potential fees and restrictions first and you will be on your way to fixing your finances.
Small business finances
Many people laid off during these tough economic times have decided to follow their dreams and start their own business. I applaud you and want to give you some advice to help make life easier when tax day rolls around next year.
The first thing to do when starting a small business is to open a bank account for the business. Many small business owners that I know operate their business and personal transactions from the one account and this makes life very difficult at the end of the year when you are filing business and personal taxes. Many banks offer free checking for small businesses so there really is no excuse for not getting a separate account for the business.
In addition to opening a checking account, business owners need to keep documentation of their transactions. This includes keeping receipts for all purchases. Not only should you keep receipts, you also need to write on the back of the recipt where it will be charged to. For example, if you are purchasing office supplies from Wal-Mart you should write on the back on the receipt that they are office supplies. If you are taking a client out to dinner, write who attended the dinner as well as a brief description of what was discussed.
Another great option to get a small business up and running successfully is to get some business software. If you are starting out small you can find free versions to get started and move up as the business grows. One nice free option is Simple Start from Quickbooks.
Follow these simple steps and life will be much easier for you and your accountant when tax time rolls around next year.
Christmas Shopping Early
While there aren’t christmas trees, reindeer, or little santas in stores yet, now is the perfect time to start thinking about Christmas. This time of year there are some great bargains and if you have somewhere you can hide the gifts where the little ones won’t find them, it can be a great way to save some money.
This week the semi-annual clearance sales start for Victoria Secret and Bath & Body Works. These sales are great opportunities to stock up on their travel size items for stocking stuffers for the kids and adults in your life. I like using the larger bath items, bubble baths, and baskets to create gift baskets for people. Stock up on the stuff when they are cheap and then you have a quick gift available for whenever something unexpected comes up or even for birthdays.
By starting your Christmas shopping early, you can spread out the cost over a larger timeframe. This will allow you to get stuff you like and want without spending a lot of money because you can be checking the sales for the items you want over a larger timeframe. In addition, this is great because it helps prevent the rush of expense during December because you aren’t buying everything all at once.