Tag Archives: investment advice

A Reverse Mortgage Can Save Your Retirement!

real estateMy Comments: Many of you may react negatively when you hear the term ‘reverse mortgage’. At one time that reaction was a reasonable response, but not any longer.

Reverse mortgages are now a legitimate financial planning tool that advisors like me employ when the circumstances are appropriate. As you will read below, they can be a life saver when cash flow is limited or we’re in the middle of a market crisis and you don’t want to sell your stocks and bonds and lose a ton of money.

They can be a critical element in your efforts to find find financial freedom.

07/31/2016 Robert Mauterstock

Reverse mortgages have been around for a long time. It’s a method that an individual can use to convert the equity built up in their home to a credit line or an income for as long as they remain in the home as their primary residence, without the burden of monthly mortgage payments. But up until recently the fees to establish one were very high. As a result, financial planners (including myself) did not recommend them to clients. In many cases our broker/dealer firms prohibited us from even talking about them.

But recently I met with Bob Tranchell, a senior VP at the Federal Savings Bank. Bob is a specialist in reverse mortgages. He explained to me all the changes that have occurred with reverse mortgages in the last few years. In 2010 and 2013 the federal govt. revised the Home Equity Conversion program (HECM) reduced its costs and made it more secure. Bob showed me how the reverse mortgage could become a very effective tool for aging baby boomers to give them security during their retirement years.

It is estimated that 87 percent of baby boomers will own a home in retirement, but 68 percent of them will still carry a mortgage. Research shows that the foreclosure rate for individuals between ages 65-74 increases by 920 percent. Often seniors who have a reduced income after retirement cannot maintain the payments they made while they were working.

In addition boomers may face the dangers of being in the sandwich generation. They might have to help their aging parents financially at the same time they have to support their children with student loans and no job. A Merrill Lynch survey indicated that more than 60 percent of boomers are considered the family bank, handing out funds to their parents or adult children.

Let’s look at an example of how a reverse mortgage can help a retired boomer. If he or she is at least 62 years old he can take out a reverse mortgage on the value of his home up to $625,000. The percentage available is based on his age, the appraised home value, the lender’s margin and the 10 year LIBOR rate (an interest rate index established by the Fed. Govt.). The 62-year-old will have access to 52.4 percent of the home value or $327,500.

He can take these funds as a lump sum, a fixed income for the rest of his life (Tenure), a term payment (fixed payment for a fixed period) or a credit line. The cost of the reverse mortgage is a 0.5 percent mortgage insurance premium, the loan origination fees and any closing costs. For the $327,500 amount the total costs would be between $6000-$14000 dollars. This can be wrapped into the mortgage. No loan payments are due as long as the individual keeps the home.

Payments that come from the reverse mortgage are received income tax free. If the individual does not tap into the mortgage the credit line increases each year based upon the lender’s margin, a 1.25 percent mortgage insurance premium and the value of the 1 year LIBOR rate. Currently it increases at more than 5 percent a year! Eventually the credit line can exceed the actual value of the home but the heirs of the borrower are only responsible for the value equal to 95 percent of the appraised value of the home. The rest is forgiven! They can chose to sell the home or take out a new mortgage and pay back the reverse mortgage.

Let’s assume the 62-year-old took out a reverse mortgage for $320,000 and didn’t touch it for 20 years. Based on current rates his credit line will have grown to $1,200,000 regardless of the value of the home. Assuming he wants to convert the loan into an income at age 82, he’d receive $10,103 per month for ten years and could still keep $300,000 in reserve as a line of credit (which will grow to $569,391 in another 10 years).

The reverse mortgage can also be used to pay off an existing mortgage and eliminate mortgage payments, pay for long term care or a long term care policy or assist children or parents with financial needs. It cannot be used to purchase an annuity or buy stock. If the borrower is concerned about leaving a legacy to his or her children he and his spouse can buy a second to die life insurance policy and pay the premium with some of the proceeds from the reverse mortgage. When the second spouse dies the kids will receive a tax free death benefit which they can use to pay off the reverse mortgage and own the home debt free.

The possibilities are endless. I have only touched on a few. Key to the program is that payments are received tax free, the loan is unsecured and the heirs are only responsible to pay back a maximum of 95 percent of the home’s value regardless of how much was taken out. It’s a win-win.

The Stock Market Is About To Have A ‘Final Melt Up’

roller coaster2My Comments: Anyone who suggests they know what is likely to happen to the markets in the coming days is probably just hoping they will be right. And that includes me.

A high percentage of significant market downturns have happened in August and September. This article suggests there is an event planned for the end of August that might be the trigger that starts the next one. Obviously we are now in September but the danger level is still high.

My suggestion is to either be in cash, or in a program designed to make money when the markets tump.

Bob Bryan – August 16, 2016

The market has one last run left.

Stocks could get a huge boost as investors worry about missing gains, according to Michael Hartnett, the chief investment strategist at Bank of America Merrill Lynch.

According to a note from Hartnett titled “The Final Melt Up,” the shift of investors from defensive stocks (such as industrials and telecoms) to more cyclical companies (retail, tech, and consumer goods) shows that investors’ appetite for risk is growing.

This will create demand for stocks and drive the market upward.

“Likelihood of melt up in risk assets into Jackson Hole growing … likely followed by jump in yields,” he wrote.

The chart below illustrates the rotation that Hartnett is noticing:

Essentially, a melt up by definition is a sudden leap in the market caused by investors rushing in because they fear missing out. It’s not a sign of improved fundamentals.

In other words, these companies and markets may not have higher earnings or be stronger investment opportunities.

Hartnett doesn’t go into the details of the end of the melt up, but the speech by Federal Reserve Chair Janet Yellen at the Jackson Hole conference at the end of the month appears to be the catalyst that will stop the stampede.

ThrowBack Thursday: My College Days

33 60-62 CavingClub copyAbout this time some 57 years ago I arrived in Gainesville, Florida. I was a freshman with no clue yet what to study and no meaningful focus other than survive on my own with a vague sense of taking the next steps. I found myself enveloped in a group of non-conformists whose extra-curricular avocation was caving. If you were a sophisticate, you would have said spelunking, as performed by speleologists. At the time, we cavers were mostly sober and were prepared to spend much of the night in underground, sometimes muddy, bat infested caves, climbing walls and crawling through narrow passages. Never mind that you missed classes the next day. And on weekends, there were parties with purloined grain alcohol and folksongs. Some of us managed to graduate, despite having no real clue what we were going to do with the rest of our lives.

The link below will take you to a site where I have uploaded images of those days, along with comments that my now 75 year old brain thinks are relevant. Unfortunately, too many of the people shown have passed and exist only in our memories. Perhaps some of you will recognize these folks, or others with similar tastes whose lives touched yours. Good times were had and enjoyed.

Go HERE to see it all: https://goo.gl/09cPIv

Alternatively, I’ve created a PowerPoint slide show and uploaded it to dropbox.com  If you have problems with either of these let me know and I’ll try a new way to get you the stories and pictures.

Don’t Expect To Make Any Money In The Market For The Next 7 Years

InvestMy Comments: I have no idea whether this will prove to be true or not. But it sure enters my thinking whenever I talk about money with clients and how they are going to pay their future bills. And how I’m going to pay my bills.

John Mauldin,  Economics,  Jul. 28, 2016

The next recession is coming, and it will be severe.

My friend Ed Easterling of Crestmont Research just updated his Economic Cycle Dashboard and sent me a personal email with some of his thoughts.

The current expansion is the fourth longest since 1954… but also the weakest. Since 1950, average annual GDP growth in recovery periods has been 4.3%.

This time, average GDP growth has been only 2.1% for the seven years following the Great Recession. That means the economy has grown a mere 16% during this so-called “recovery.”

If this were an average recovery, total GDP growth would have been 34% by now… instead of 16%. So, it’s no wonder that wage growth, job creation, household income, and all kinds of other stats look so meager.

I think the next recovery will be even weaker than this one (the weakest in the last 60 years) because monetary policy is hindering growth.

Now, combine a weak recovery with Negative Interest Rate Policy or NIRP. Asset prices are a reflection of interest rates and economic growth. And both are just slightly above or below zero. So, how can we really expect stocks, commodities, and other assets to gain value?

The upshot is that traditional investment strategies will stop working soon. Ask European pension income recipients about their fears.

Welcome to 0% returns for the next 7 years

All bets may be off if the latest long-term return forecasts are correct. Here’s a chart from my friends at GMO showing the latest 7-year asset class forecast.


See that dotted line, the one that not a single asset class gets anywhere near? That’s the 6.5% long-term stock return that many supposedly wise investors tell us is reasonable to expect.

GMO doesn’t think it’s reasonable at all, at least not for the next seven years.

If GMO is right—and they usually are—and you’re a devotee of passive or semi-passive asset allocation strategy, you can expect somewhere around 0% returns over the next seven years… if you’re lucky.

See that nearly invisible -0.2% yellow bar for “U.S. Cash?” It’s not your eyes. Welcome to NIRP, American-style.

The Fed’s fantasies notwithstanding, NIRP is not conducive to “normal” returns in any asset class. GMO says the best bets are emerging-market stocks and timber.

Those also happen to be thin markets. Not everyone can hold them at once.

Prepare to be stuck.

10 Retirement Decisions You Will Regret Forever

My Comments: This list comes from Kiplinger, and is relevant to many of the people I talk with daily. I’ve only include two of the ten here. To to find the rest you’ll need to click on any of the images which will take you to the Kiplinger site. If for any reason, they block you out, let me know and I’ll figure out a work around for you.

By Bob Niedt

As more and more baby boomers start eyeing the coastline of retirement, thoughts turn from the daily worry over the Monday-through-Friday commute to concerns about how to fund the golden years.

How prepared are you? Do you know the ins and outs of your pension (if you’re lucky enough to have one)? How about your 401(k), IRA and other retirement accounts that make up your nest egg? Do you have a good handle on when to claim Social Security benefits? These are some of the questions you will have to contemplate as the work days wind down. But long before you punch out, make sure you are making the right choices.
To help you out, we’ve compiled a list of retirement decisions some of you may regret forever. Take a look to see if any sound familiar.

Planning to work indefinitely
Many baby boomers like me have every intention of staying on the job until 70, either because we want to, we have to, or we desire to maximize our Social Security checks. But that plan could backfire. You could be forced to retire early for any number of reasons.

Consider this: One in four U.S. workers expects to work beyond age 70 to make ends meet, according to a recent Willis Towers Watson survey. Yet, you can’t count on being able to bring in a paycheck if you need it. While 51% of workers expect to continue working some in retirement, found a separate 2015 survey from the Transamerica Center for Retirement Studies, only 6% of actual retirees report working in retirement as a source of income.

Whether you work is not always up to you. Three out of five retirees left the workforce earlier than planned, according to Transamerica. Of those, 66% did so because of employment-related issues, including organizational changes at their companies, losing their jobs and taking buyouts. Health-related issues—either their own ill health or that of a loved one—was cited by 37%.

The actionable advice: Assume the worst, and save early and often.

Putting off saving for retirement

The single biggest financial regret of Americans surveyed by Bankrate was waiting too long to start saving for retirement. Not surprisingly, respondents 50 and older expressed this regret at a much higher rate than younger respondents.

“Many people do not start to aggressively save for retirement until they reach their 40s or 50s,’’ says Ajay Kaisth, a certified financial planner with KAI Advisors in Princeton Junction, N.J. “The good news for these investors is that they may still have enough time to change their savings behavior and achieve their goals, but they will need to take action quickly and be extremely disciplined about their savings.”

Morningstar calculated how much you need to sock away monthly to reach the magic number of $1 million saved by age 65. Assuming a 7% annual rate of return, you’d need to save $381 a month if you start at age 25; $820 monthly, starting at 35; $1,920, starting at 45; and $5,778, starting at 55.

Uncle Sam offers incentives to procrastinators. Once you turn 50, you can start making catch-up contributions to your retirement accounts. In 2016, that means older savers can contribute an extra $6,000 to a 401(k) on top of the standard $18,000. The catch-up amount for IRAs is $1,000 on top of the standard $5,500.

CONTINUE-READING

A DIVIDED AMERICA: Rural vs. Urban

My Comments: Economic reality drives most lives today. It shapes our ideas about politics, about family, about national security, and our fears. Almost all of us agree that life is better with more money than with less money.

So where you live has a huge influence on your economic reality, and as a result, how you expect and hope your life and that of your loved ones will play out. What follows does not provide a definitive insight for us, but it does help explain a lot of the conflict we are experiencing.

By NICHOLAS RICCARDI , July 5, 2016

ROCKY FORD, Colo. (AP) — Peggy Sheahan’s rural Otero County is steadily losing population. Middle-class jobs vanished years ago as pickling and packing plants closed. She’s had to cut back on her business repairing broken windshields to help nurse her husband after a series of farm accidents, culminating in his breaking his neck falling from a bale of hay.

She collects newspaper clippings on stabbings and killings in the area — one woman’s body was found in a field near Sheahan’s farm — as heroin use rises. “We are so worse off, it’s unbelievable,” said Sheahan, 65, who plans to vote for Donald Trump.

In Denver, 175 miles to the northwest, things are going better for Andrea Pacheco. Thanks to the Supreme Court, the 36-year-old could finally marry her partner, Jen Winters, in June. After months navigating Denver’s superheated housing market, they snapped up a bungalow at the edge of town. Pacheco supports Hillary Clinton to build on President Barack Obama’s legacy.

“There’s a lot of positive things that happened — obviously the upswing in the economy,” said Pacheco, a 36-year-old fundraiser for nonprofits. “We were in a pretty rough place when he started out and I don’t know anyone who isn’t better off eight years later.”

There are few divides in the United States greater than that between rural and urban places. Town and country represent not just the poles of the nation’s two political parties, but different economic realities that are transforming the 2016 presidential election.

Cities are trending Democratic and are on an upward economic shift, with growing populations and rising property values. Rural areas are increasingly Republican, shedding population and suffering economically as commodity and energy prices drop.

“The urban-rural split this year is larger than anything we’ve ever seen,” said Scott Reed, a political strategist for the U.S. Chamber of Commerce who has advised previous GOP campaigns.

While plenty of cities still struggle with endemic poverty and joblessness, a report from the Washington-based Economic Innovation Group found that half of new business growth in the past four years has been concentrated in 20 populous counties.

“More and more economic activity is happening in cities as we move to higher-value services playing a bigger role in the economy,” said Ross Devol, chief researcher at the Milken Institute, an independent economic think tank. “As economies advance, economic activity just tends to concentrate in fewer and fewer places.”

That concentration has brought a whole host of new urban problems — rising inequality, traffic and worries that the basics of city life are increasingly out of the reach of the middle class. Those fears inform Democrats’ emphasis on income inequality, wages and pay equity in contrast to the general anxiety about economic collapse that comes from Republicans who represent an increasingly desperate rural America.

These two different economic worlds are writ large in Colorado. It is among the states with the greatest economic gap between urban and rural areas, according to an Associated Press review of EIG data.

The state’s sprawling metropolitan areas from Denver to Colorado Springs is known as the Front Range. As it has grown to include nearly 90 percent of the state’s population, it has trended Democratic. Rural areas, which have become more Republican, resent Denver’s clout. In 2013, a rural swath of the state unsuccessfully tried to secede to create its own state of Northern Colorado after the Democratic-controlled statehouse passed new gun control measures and required rural areas to use renewably generated electricity.

In Denver, City Councilman Rafael Espinoza elected to Denver’s last year as part of a group of candidates questioning the value of Denver’s runaway growth. Espinoza has seen his neighborhood of modest bungalows occupied by largely Latino families transformed into a collection of condominiums housing affluent professionals.

“Money just drives the discussion. In the presidential, Bernie Sanders was my guy for that one reason,” Espinoza said.

In contrast, Bill Hendren is desperate for money. He has about $4 in coins in a plastic cup he keeps in the cottage on a small farm where he lives, rent-free. Hendren’s truck was stolen 18 months ago and he was unable to travel to perform the odd jobs in Otero County that kept him afloat. He’s now functionally homeless and a Trump backer.

“I don’t ever see a president caring about anyone who’s living paycheck to paycheck — if they did they’d have put the construction people back to work,” Hendren said. “Trump’s got the elite scared because he doesn’t belong to them.”

If bad luck and geography conspired to impoverish Bill Hendren, it’s an excess of money that’s to blame for Robin Sam’s plight. Sam, 62, left one apartment counting on moving into another one being built in the rapidly-gentrifying and historically black neighborhood where he grew up. But that facility raised its rent over the threshold of Sam’s $1,055 Section 8 voucher, and he’s been living in a homeless shelter all year, unable to find a new place in Denver’s fiercely competitive housing market.

“I feel like I’m being pushed out,” said Sam, who is black. He recalls houses and apartments being barred to blacks in his youth decades ago, but senses something else at play now.

“It’s money — and money changes everything,” he said

Growth Stocks vs. Value Stocks

bear-market--My Comments: If you believe, as I do, that some of your money needs to be working harder than, say a Certificate of Deposit, then your likely solution is some kind of mutual fund or brokerage account. Most of us are not sufficiently sophisticated financially to explore other options, so for new, let’s assume you decide to own a stock portfolio of some kind.

One point on the decision tree is to choose between growth stocks and value stocks. If I’ve now confused you to the point of paralysis, then read the rest of this and see if it makes any sense.

by Sean Williams June 19, 2016

You can make a solid argument that the stock market is the greatest creator of wealth over the long term.

We’ve definitely witnessed a surge in home values since the 1990s, but the previous 100 years (1890-1990) saw home prices outpace the inflation rate by a paltry 0.21% per year, based on estimates from Robert Schiller via Irrational Exuberance. By comparison, inclusive of dividend reinvestment, the stock market tends to rise by about 7% per year, which is roughly double the rate of inflation between 1914 and 2014. Investing in the stock market arguably gives Americans their best chance of reaching their retirement goal and leaving the workforce at a time of their choosing.

The age-old debate: growth stocks vs. value stocks

However, the path by which an investor gets from Point A to Point B in the stock market has long been up for debate. There are easily more than a half-dozen investing strategies to choose from, but few get more credence than growth investing and value investing.

Growth investors are typically seeking companies that offer a superior growth rate relative to the overall stock market and perhaps their peers. Companies that are growing faster are often trendsetters, and presumably they should be able to keep up their superior growth for a long time to come. Companies with a high growth rate also have the potential to see their stock prices soar. The downside, as you might imagine, is that growth stocks aren’t always making money, and the valuations of growth stocks can be prone to getting ahead of themselves because of emotional investing.

By comparison, value investors are seeking investments trading at a discount to the overall market or a sector in question. Value stocks usually have mature business models that seek to maintain strong pricing power, modest growth, and typically reward long-term shareholders with a dividend or stock repurchases. On the downside, value stocks can always get cheaper, because trying to time a low is a fruitless practice. Additionally, since value stocks usually have mature business, they don’t offer the same eye-popping returns that can occasionally be seen with growth stocks.

“So which method is best over the long haul?” you wonder? That’s exactly what Bank of America/Merrill Lynch sought to find out.

Based on the study findings from Bank of America/Merrill Lynch over a 90-year period, growth stocks returned an average of 12.6% annually since 1926. However, value stocks generated an average return of 17% per year over the same timeframe. Said Bank of America/Merrill Lynch chief investment strategist Michael Hartnett, “Value has outperformed Growth in roughly three out of every five years over this period.”

Perhaps more interesting is that value stocks have tended to outperform during periods of economic growth, while growth stocks have proved better when the economic weakens or contracts. This would certainly help to explain why value stocks have left growth stocks in the dust, since the economy is expanding for a much longer period of time than it’s contracting or stagnating.

Also worth noting is that we’ve seen a bit of a reversal to this trend since the end of the Great Recession. In other words, growth stocks have substantially outperformed value stocks despite the U.S. economy returning to growth. However, we’ve also witnessed historically low lending rates during this seven-year period, which has made access to capital cheaper than ever for growth stocks looking to hire, expand, and acquire competitors. As lending rates normalize in the years ahead, we’re liable to see this divergence from the historic trend wane.

Source article: http://goo.gl/f0bCjz