DACA home loans — FHA will now approve home loans for ‘Dreamers.’ Here’s how to get approved

‘Dreamers’ can now get approved for FHA home loans

‘Dreamers’ — U.S. residents with DACA status — just got a huge boost to their homeownership dreams. The Federal Housing Administration (FHA) announced it had changed its policy on DACA home loans.

From this day forward, FHA is willing to approve home loans for DACA recipients — meaning they’ll get access to the low-down-payment FHA mortgage program that’s so popular with U.S. home buyers.

This new rule opens up the field of mortgage options for Dreamers, giving them access to a wider variety of affordable, accessible paths to homeownership.

Check your home loan options (Jan 25th, 2021)

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FHA’s new stance on DACA home loans

In a statement, U.S. Sen. Sherrod Brown (D-OH), who’s expected to soon chair the Senate Committee on Banking, Housing, and Urban Affairs, summed up what the change means: “DACA recipients are fully eligible for FHA loans.”

FHA’s new policy should make it easier for many Dreamers to buy real estate in the United States.

You might assume that this change was one of the first acts of the Biden administration. But, actually, it was one of the last of the outgoing Trump administration.

Previous FHA rules for DACA recipients

Official policy before January 19 (it was changed the day before it was announced) was that DACA recipients were ineligible for FHA loans.

According to the FHA Single Family Housing Handbook, “Non-US citizens without lawful residency in the U.S. are not eligible for FHA-insured mortgages.”

And up until January 19, those classified under the Deferred Action for Childhood Arrivals program (DACA) did not count as lawful residents according to HUD (the agency that manages the FHA).

FHA loans are one of the easiest mortgage programs to qualify for, having more lenient guidelines than many other home loans.

So for many Dreamers, the reversal of this policy is a significant change.

New FHA rules for Dreamers

Of course, the new rule only levels the playing field for DACA recipients.

Applicants still need to meet the same eligibility guidelines as every other lawful resident in order to get their FHA loan approved. More on those in a minute.

Note that Dreamers weren’t entirely locked out of homeownership even before the change.

They have always been eligible for some conventional loans, subject to lenders’ policies, including conforming ones that are offered by Fannie Mae.

Check your home loan options (Jan 25th, 2021)

FHA loan benefits

If Dreamers have been able to get some mortgage loans all along, what difference will access to FHA loans make?

Well, they’ll be able to access the same advantages that attracted more than 8 million borrowers who currently have single-family mortgages backed by the FHA.

Some of the biggest benefits of an FHA loan include:

  1. Small minimum down payment — Only 3.5% of the purchase price is required
  2. Lower credit score — Lenders approve applicants with FICO scores of just 580 and 3.5% down. You might even get a loan if yours is 500-579, if you can make a 10% down payment (though it will be harder to find a lender)
  3. More flexibility with existing debts — FHA loans typically allow higher debt-to-income ratios (DTIs) than other types of mortgages. So if you have a lot of existing debt, it could be easier to qualify

No wonder FHA loans are popular among first-time buyers and those who’ve been through difficult financial patches. And why they’re likely to appeal as DACA home loans.

One more thing. If you’re struggling to come up with a 3.5% down payment and cash for closing costs, explore the grants and loans (sometimes forgivable loans) that are open to homebuyers everywhere.

These down payment assistance programs are available in every state, and are often targeted toward first-time and lower-income home buyers who need a little extra help with their upfront housing costs.

FHA loan drawbacks

Inevitably, there’s a downside along with all those perks. FHA loans typically have higher borrowing costs than many other sorts of mortgage loans.

It’s not that FHA mortgage rates are higher. They’re actually pretty competitive.

Rather, the added cost comes from FHA loan mortgage insurance premiums (MIP).

MIP adds an upfront cost equal to 1.75% of your loan amount (most home buyers roll this into the mortgage balance). And it adds an annual cost equal to 0.85% of the loan balance (paid monthly).

Conventional loans charge mortgage insurance, too, if you put less than 20% down. But this can be canceled later on. With an FHA loan, by comparison, you have to refinance to get rid of MIP.

Mortgage insurance is not a bad thing if it helps you buy a home. But if you qualify for both an FHA loan and a conventional loan, be sure to compare the cost of mortgage insurance on each one so you understand which has higher long-term costs.

Which DACA recipients are eligible for an FHA mortgage?

If you’re a Dreamer, you may well find FHA loans appealing. And you’ll be anxious to know whether you personally are eligible.

So here, quoting extracts from the announcement, is what the FHA says borrowers will need:

  1. A valid Social Security Number (SSN), except for those employed by the World Bank, a foreign embassy, or equivalent employer identified by the Department of Housing and Urban Development (HUD)
  2. Eligibility to work in the U.S., as evidenced by the Employment Authorization Document issued by the USCIS
  3. To satisfy the same requirements, terms, and conditions as those for U.S. citizens

To the third point, those requirements include a credit score of at least 580; a down payment of at least 3.5%; and a debt-to-income ratio below 50%.

Your lender you apply with will require documents to verify credit, income, savings, and employment when you turn in your loan application.

You also need to make sure your loan amount (home price minus down payment) is within the FHA’s loan limits for your area.

FHA also requires that the property be your primary residence, meaning you must plan to live there full time.

Employment Authorization Document

That Employment Authorization Document is clearly central to your application succeeding. But suppose yours is due to expire within a year.

That shouldn’t be a problem. The FHA says:

“If the Employment Authorization Document will expire within one year and a prior history of residency status renewals exists, the lender may assume that continuation will be granted. If there are no prior renewals, the lender must determine the likelihood of renewal based on information from the USCIS.”

In other words, you should be fine if your status has already been renewed at least once. There’s an assumption it will be again.

If it hasn’t already been renewed, the lender will check with US Citizenship and Immigration Services (USCIS) to see how likely a renewal is.

Check your FHA loan eligibility (Jan 25th, 2021)

Other home loan options for Dreamers

We already mentioned that some lenders of “conventional loans” (meaning those that are not backed by the government) consider applications from Dreamers.

Fannie Mae’s conforming loans are also open to those in the DACA program.

Most mortgage lenders offer loans backed by Fannie Mae, and these include a wide variety of options like:

  • The 3% down Conventional 97 loan
  • The 3% down HomeReady loan for low-income buyers
  • Loans with less than 20% down WITH mortgage insurance (PMI)
  • Loans with 20% down payment or more and NO mortgage insurance

The situation is less clear for Freddie Mac (the other agency that backs “conforming” home loans).

Freddie’s guidance uses language that was similar to the FHA’s old wording. And those who lacked “lawful residency status” were ineligible. A search of its website on the day this was written revealed no hits for “DACA” or related terms.

But it may well be that Freddie will soon update or clarify its DACA policies now that the FHA has — and now that a new, more Dreamer-friendly administration is in place.

And it would be no surprise if other organizations (including the VA and USDA) similarly refined their policies in coming weeks to reflect those factors.

If you’re a DACA recipient in the market for a home loan in the coming year, keep an eye on the news and do periodic Google searches of these agencies to see whether any new loan programs have been added to your list of options.

Explore your home loan options (Jan 25th, 2021)

Which DACA home loans are best for you? 

On average, DACA recipients are younger than the US population as a whole, because they had to be under 31 years as of June 15, 2012. But, besides that, it may be a mistake to generalize about them.

Just as other American residents, some Dreamers will have stellar credit scores and others bad ones. Some will have plenty of savings and others won’t. And some will be laden with student loans and other debts, while others owe nothing.

So a DACA borrower needs to seek out the type of loan that best suits their personal financial circumstances — just like everyone else.

Those most attractive to lenders (high credit scores, 20% down payment, and small debts) will likely find a conventional loan to be their best bet.

Those with low scores, 3.5% down payment, and lots of debts may need to go for FHA loans.

And those between the two might find Fannie Mae offers their best deals. Better yet, Fannie requires a minimum down payment of just 3%.

Shop for loan options and mortgage rates

Whichever type of loan you choose, be aware that you’ll be borrowing from a private lender. The mortgage rates and overall deals you’ll be offered are likely to vary widely from one lender to the next.

So be sure to comparison shop for your mortgage, getting competitive quotes from several lenders and comparing them side by side.

That’s the best way to find a low interest rate and save money on your home loan, no matter which program you choose.

Verify your new rate (Jan 25th, 2021)

Source: themortgagereports.com

The 9 Best Retirement Plans Available

We have a lot of choices about where to invest our money, both before and after retirement.  Some options are clearly bad investments. Others seem like a good bet, but they probably aren’t. While we would all like to find a shortcut to massive wealth, a more steady approach is probably the best route to a secure retirement. Save early and regularly, and invest surely.

bad investments

You may know someone who has a friend who won the lottery, bought a Picasso at a garage sale, or who invested on the ground floor in an amazingly successful company.  However, those stories are the exception, not the rule.

The following advice came to us from Mr. Henry K. “Bud” Hebeler, a legendary retirement guru who developed his own special methods and gave numerous seminars on retirement until his death in 2017. Hebeler learned a lot of bad investment lessons from both his own and his associates’ experiences, and he put together a list of 13 truly “unlucky” investments that you should avoid. The following commonsense advice is in Bud’s own words.

When I was a kid, my father had a bad experience with an investment to raise animals. He told me frequently, “Don’t invest in anything that eats.”  One of my business associates told me his worst experience was investing in cattle, and he said he wished he had heard my father’s words.

I took my father’s advice when I was approached by a friend who had a great sales pitch. He wanted some seed money for a catfish farm.  The farm and his fish went belly-up, one in the water and the other in bankruptcy.

Another business associate got involved with options trading and speculated in eggs.  He was at the end of the chain of trades and ended up with a boxcar full of eggs that he had to distribute.

Once, I met with a member of the Chicago Board of Exchange.  His advice was, “Don’t invest in commodities.  I can make money from fees on every trade, but it’s very unlikely for the novice.”

My wife and her friends bought hundreds of Beanie Babies, jokingly speculating on their future price.   She and her friends still laugh about it, but the Beanie Babies wait in a chest for our great-grandchildren.

More seriously, an eye doctor of mine was an expert in ancient armor.  I believe he actually may have been successful at that, but he ended up leaving the country to avoid a large number of malpractice suits.  Investing in valuables –  from diamonds to art – requires real expertise and very close ties with buyers.

I personally have been in about a dozen of these. I’ve lost money on many, and I was very fortunate to make up for the losses with one of them.

Tax returns are much more complicated, especially with some oil and gas ventures.  I still have a real estate partnership that I have great difficulty selling.  It makes a good return but does not fit in at all with our estate plans.

And I haven’t been able to get the general partner to sell after almost 40 years.  Stick with public investments where the market prices are posted and you can easily sell a part.

The small print often exceeds the large print because explains how you are the responsible party.  By reading carefully, you’ll find how the seller makes its money.

You likely have seen some get-rich-quick ads on television, or financial articles written by shills of the company. Read the small print, whether it’s a life insurance product, specialized annuity, reverse mortgage, or any other investment contract. If you see the phrases,  “Ever upwards, never downwards” or “convert your …..,” they may be red flags.  Don’t understand the small print?  Consult with a certified financial planner (CFP).

You are making a big bet that you know what will happen in the future when you pick funds specializing in a market sector.

I had a lot of experience trying to predict the future when I was Boeing’s officer responsible for its strategic planning for six years.  Stick with broad-based index funds.  Over the long haul, you’ll do better and feel more comfortable. The major components of those specialized funds are likely components of the indexes anyway.

When Boeing had its big crash (and Seattle was going down with it), there was a large billboard that said, “Will the last person out of Seattle please turn off the lights.”  I was appointed by the governor to be on his Economic Development Council. We joined with a number of bank officers to try and promote some new businesses. 

Most of the choices we made were marginal at best; the one that most of the members thought had the least chance turned out best.  You need lots of money to really know what you are doing and succeed in this.

When I was a young man, and before I had a CFP help me with investments, I took the advice of a stockbroker and from several financial magazines. Supposedly, these were sure-winner stock picks.  I did horribly.

I know a number of people who have done extraordinarily well in various kinds of real estate, but it’s their full-time job.  They are good at it and are able to get low-interest financing.

Flipping houses has proved to be a disaster for most that try it. They often end up with bills they cannot afford.  Stick with low-cost diversified real estate investment trusts (REITs) index funds that have a daily market value. You can sell a small part when needed.

Vacation properties that offer points or certain periods of time are better lifestyle purchases (rather than investments).  They presuppose that you have the ability to know their use often a year in advance and that you will use them for many years.

They are difficult to sell and carry annual charges.  Heirs often do not like their obligations.

Always consider if investments are “liquid.”  These are purchases that have a published market value and generally are divisible so that you can sell only a part.

Antiques, art, collectibles, timeshares, most partnerships, and real estate are not liquid and make poor investments for those who are not otherwise wealthy. Think carefully about considering the total value of your home as a retirement investment.

There is a good reason that economic pundits finish their pitch with something like “On the other hand ….”

Even this Grandpa here can’t see the future and knows that predicting when the markets will fall or grow is futile.   I was lucky in many respects for our long stretch of personal investment successes during the six years I was responsible for Boeing’s strategic planning.  Furthermore, I was well-connected in the economic, academic, business, and government worlds, and I was paid to know what was happening.  Still, all that would not guarantee that I would be right.

Do not listen to financial advice from television ads, long internet infomercials, your beautician, or drinking buddies. Authentic-sounding financial and media pundits can be just as bad.  I read numerous financial publications and have written articles in them as well.

There is no harm in spending $1 or more on a lottery ticket so long as you know that it is for entertainment, not investment purposes.

The best advice comes from Warren Buffet: stick with low-cost broad-based index funds.

An index fund is a type of mutual fund.  Each index fund has a set of strict rules about the types of stocks in the fund and how they will be traded. When you buy an index fund, you are getting broad market exposure at a relatively low cost.

People like Warren Buffett, and other index fund managers, have expert staff that can do due diligence (with personal visits to the many components of a company).  You don’t.

If you want a do-it-yourself approach, then be sure to select information sources carefully. Know something about how the author earns money.  In fact, know a lot about that. Authors with good material are John Bogle, Jonathan Clements, and Larry Swedroe.

You should also invest time.  Spend time figuring out what you want to do in retirement with your carefully invested savings.  And, spend time creating and maintaining a complete retirement plan that ensures you have the means to achieve your goals.

The NewRetirement retirement planner is a detailed and personalized tool that makes it easy to track, update and improve your retirement over time.  You can even do “what-if” scenarios with investment returns.

If income is your goal, be sure to read NewRetirement’s piece “Retirement Income Strategies: 18 Ideas for Lifetime Wealth and Peace of Mind.” You will get tips on budgeting, how to handle required minimum distributions (RMDs), and how to create your own pension.

Source: newretirement.com

8 Tips for Surviving a Volatile Stock Market

Man worrying about a volatile stock market
Antonio Guillem / Shutterstock.com

Pandemic. Presidential election. Trade war. Economic recession. Yikes.

The stock market dislikes uncertainty. When Google searches for “COVID” increase, for example, the S&P 500 stock market index tends to lose value.

These days, there’s plenty of uncertainty. It’s understandable if retirement investors are feeling skittish and anxious. But market peaks and dips — and the sugar highs and pit-in-the stomach lows — have happened before, and they’ll happen again.

Instead of letting anxiety steer, arm yourself now with these tried-and-true tips for staying calm and managing risk.

1. Know your comfort level

A worried woman in a mask and gloves protects a piggy bank
Alliance Images / Shutterstock.com

Pay attention to your stress level as you consider any investing options. Listen to yourself. Choose options that let your money grow while you feel confident and safe without courting more risk than is tolerable or wise.

Money Talks News founder Stacy Johnson, in “7 Ways to Slay Your Fear of the Stock Market,” advises against:

  • Investing money you think you’ll need soon
  • Investing more than makes you comfortable
  • Putting money in speculative stocks — they’re more like gambling than investing

2. Spend less than you earn

Woman with piggy bank
Jason Stitt / Shutterstock.com

If the word “sensible” sounds outdated to you, think again. It embodies solid wisdom for this unsteady time — and for any time.

It’s sensible to spend less than you make, then save or invest the rest. No matter how much you do or do not earn, this is key to financial security.

Not that it’s always easy or doable. But aim there and, eventually, get there. This way, when problems arise, you’re not on a financial edge, easily tipped into crisis.

3. Use a budget

Couple sitting down to budget
Rido / Shutterstock.com

It’s hard to save money if you don’t know what you’re spending.

A budget helps calm anxiety and gives a much-needed feeling of control. That’s because it helps you anticipate and plan for what’s coming, and it dashes cold water on dangerous magical money thinking.

Money Talks News partner YNAB (short for “You Need A Budget”) is an app that offers an easy way to track your spending and build your savings.

4. Approach marriage with eyes open

marriage and taxes
Sherry Yates Young / Shutterstock.com

At its best, marriage can pay big dividends, financially speaking. Couples can pool resources, balance each other’s financial strengths and weaknesses, reduce the cost of overhead, and support each other to advance in the workplace — to name just a few benefits.

Divorce can undo all that and worse. It’s particularly devastating to the finances of people in middle age.

“If you get divorced after age 50, expect your wealth to drop by about 50%,” writes Bloomberg, citing an analysis of a survey of 20,000 Americans who were born before 1960. Among that age group, divorce reduces a woman’s standard of living (income adjusted for household size) by 45% and a man’s by 21%, Bloomberg says.

Enter a new union with eyes wide open about a partner’s financial life, especially spending habits, debt and use of credit. Communicating, financial planning and counseling can strengthen your union to avoid financial stress, especially from problems handling money.

If you are thinking of splitting up, here’s how to keep down the cost of divorce.

5. Have a plan and follow it

Older couple thinking about their long-term investments
ESB Professional / Shutterstock.com

Your chance of weathering a market downturn successfully will be vastly improved by having or making a plan and sticking with it. Money Talks News founder Stacy Johnson explains how to think ahead so you’ll be ready in “Take These 5 Lessons From the 1987 Stock Market Crash.”

Finding it difficult to create or stick to a plan? Stop by Money Talks News’ Solutions Center and look for the perfect financial adviser.

6. Don’t leave money on the table

401(k) retirement nest egg
Andrey_Popov / Shutterstock.com

Are you lucky enough to have a retirement plan with contributions matched by your employer? If so, invest enough from your paycheck to claim all of the employer’s matching money due to you.

Ignoring this free money is a bonehead mistake made by about 1 in 3 workers. Sometimes it can’t be helped, such as when money is so tight that you simply cannot make your full contribution.

In that case, pare back contributions temporarily — from 3% to 2%, for instance. Or take a brief break. But, get back on track as quickly as possible with at least the minimum investment needed to get all of your free money.

7. Keep a sharp eye on fees

Madcat_Madlove / Shutterstock.com

Expense ratios can put a damper on a portfolio’s growth, costing you as much as $400,000 — or even more — over a lifetime.

Check the fees you’re paying by looking at a fund’s disclosure statement, where fees are listed as a percentage. Over time, charged repeatedly, even small percentages add up to real money drained from investments.

“Are You Paying Too Much in Investment Fees? Here’s One Way to Tell” explains what to look for.

However you invest, there often is a lower-cost way to do it. Index funds are a great choice for those seeking low-cost investments.

8. Take advantage of pandemic savings

saving money
Licvin / Shutterstock.com

When you review your budget, look for pandemic savings you may have captured from spending less on going out, eating in restaurants, commuting to work or dressing for working in an office.

And there might be pandemic savings you may have missed. Can you make these cost reductions permanent features of your budget and direct the money to savings?

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.

Source: moneytalksnews.com

10 Retirement Investments That Don’t Involve Stocks, Bonds or Other Financial Products

Investing in ourselves doesn’t need to involve money. In fact, many of the best retirement investments do not involve greenbacks at all. Instead, they are investments that make the fullest use of our time, allow us to spend precious moments with the people we love, and enable us to focus on those things that make us happy.
retirement investments
Investments in ourselves are more important than our finances; they are much more primal, and they touch on our most basic human needs of emotion, happiness, and a feeling that we belong. While monetary investments are important for retirement, here are ten awesome investments for retirement that don’t involve stocks, bonds, mutual funds, savings accounts, or any other financial product.

Scientific research (and some level of common sense) suggests that time is a more popular commodity than money. While money comes and goes, time just goes. It’s fleeting, and we tend to feel the passage of time more than we do the passage of money.

Ashley Whillans, a professor at Harvard Business School, advocates for spending money to buy time as a way of increasing happiness and achieving greater life satisfaction.

For example, you could begrudgingly spend several hours a week mowing your own lawn and maintaining the landscape around your house. Or, you could pay a landscaping crew whose job it is to make a maximum impact as quickly as possible.

Buying extra time adds additional productive hours to our day. This time can be used to do anything, from catching up on the news, to managing a small business. or spending time with your family or friends. In other words, time well spent.

Buying time is an investment in ourselves.

At virtually any age, our friendships with other people are a huge component of our happiness. As living, organic creatures, we naturally crave human companionship. It has been bred into us for centuries; isolation kills us. Friendships make us stronger and healthier people.

The researcher William Chopik has found that “people who placed more importance on friendship and family tended to say they were happier, more satisfied, and healthier than those who didn’t.” Chopnik’s research has also found that the older participants got, the more meaningful and influential friendships became in their lives.

Other research has found that loneliness is actually as dangerous for your health as smoking and stress.

Friendships give us a reason to get up in the morning: to meet at the local coffee shop, to talk and learn, and to socialize. Friendships are a crucial part of making us well-rounded and productive individuals.

There is wisdom in living in the moment. But, there’s also wisdom in thinking ahead and in planning for where life might take us in five or ten years. Our future plans not only give us purpose, but they also provide us with something to look forward to; a light at the end of the tunnel.

As we plan, we focus on our strengths as individuals and consciously think about our hopes and dreams. Remember that our future selves will one day become our present selves. Thinking ahead helps to ensure that we will like the people that we become. And, it puts into motion small habits and activities that we can do now to help ensure we reach our future goals. These goals might include saving money or practicing a skill.

Or, moving into our dream house by the ocean. Without an eye to our future, it’s tough to know what we should be doing today.

Explore interesting ways to imagine your future.

Setting priorities can help you alleviate stress and ensure that you get what you really want.  Sure, sometimes you might approach like with the idea that you want it all and you want it right now.  But that is not a very realistic goal, especially in retirement when you are dealing with a limited set of resources to last the rest of your life.

Priorities keep us focused on meaningful elements in our lives and help to ensure that the time we spend each and every day is efficient.

It is especially important for you to think about how you want to spend your time.  If your family is your priority, make sure your lifestyle reflects this.  Do you live near family? Do you communicate with them on a regular basis?  (Try texting to keep up with the grandkids if you have some!) How else can you foster close relationships?

Of course, going hand in hand with prioritizing how you spend your time, is also setting priorities for your finances: how you spend money.  This might involve making trade-offs like retiring early but spending less each month.  Try different scenarios in a retirement calculator.

Staying healthy not only keeps us looking and feeling better, but it helps stave off expensive and painful illnesses throughout life. Fitness and exercise routines keep us active and energetic.

In fact, studies have shown that exercise can save you thousands of dollars a year. It is recommended that you exercise moderately for about 30 minutes, five times a week.

When they are added up, the costs associated with living a sedentary lifestyle are enormous.

To feel more productive and energetic (not to mention save a couple thousand dollars every year), consider routine exercise to be an investment in yourself.

Retirement is no fun if you’re without anything that makes you feel alive. A purpose not only gives us direction, but it also provides us with an incredible sense of accomplishment and confidence. Like our daily schedules at work, purpose helps us to tick the boxes in life, steadily heading in a healthy and deliberate direction that fills our lives with happiness.

Having a purpose also prevents us from slipping into depression, a phenomenon that plagues too many people in the world. When we get depressed, refocusing on our purpose rejuvenates us, gives us renewed hope, strength, and a reason to grow.

Setting goals and celebrating when those goals have been accomplished is a huge key to success.

However, celebrating small victories along the way is critically important to achieving your bigger goals.  Teresa Amabile, Director of Research at Harvard Business School, conducts research that shows that tracking small achievements enhances motivation to keep going.

While your big goals can take weeks, months, and years to achieve, celebrating a daily accomplishment can give you the motivation – a little jolt of energy – to keep going toward your big dreams. Celebrations give us a reason to smile and, yes, maybe even dance or toast. They also help drive momentum and build confidence deep within us along the way.

Things are not going to get easier as we get older.  It is therefore that much more important that we are able to see the bright side of things and be grateful for whatever it is we have and not focus on what we don’t have.

Research on gratitude has found that it increases your well being.  In one study, participants who wrote about what they are grateful for each day were more optimistic and felt better about their lives.  They also exercised more and had fewer visits to physicians.

Dr. P. Murali Doraiswamy, head of the division of biologic psychology at Duke University Medical Center, says that gratitude has a positive impact on a wide range of mental and physical systems, including: mood neurotransmitters (serotonin, norepinephrine), reproductive hormones (testosterone), social bonding hormones (oxytocin), cognitive and pleasure related neurotransmitters (dopamine), inflammatory and immune systems (cytokines), stress hormones (cortisol), cardiac and EEG rhythms, blood pressure, and blood sugar.

Learn about ways to increase gratitude.

Some people call it religion.  Others refer to spirituality.  Many psychologists refer to it as meaning.

Viktor Frankl, the author of the book Man’s Search for Meaning,  says: “Everything can be taken from a man but one thing: the last of the human freedoms—to choose one’s attitude in any given set of circumstances, to choose one’s own way.”

Psychologists say that an important metric of well being in older people is how they feel about their lives.  Can you feel good about the life you led?  Can you find meaning in the choices you made and continue to make?

Focusing on your future is important and, for people near or of retirement age, the best retirement investment is creating and maintaining a detailed retirement plan.

Retirement planning goes way beyond savings and investments.  A good retirement plan takes into account where you live, how much you spend, how you spend your time and so much more.

Use a great retirement planning calculator to keep your plans up to date.

Source: newretirement.com

15 Lessons From Regular People Who Achieved Financial Independence

To gain financial independence for retirement, use the lessons of those who have retired early.

total financial independence

The Big Takeaways…

    • Financial independence can be achieved, but it’s about combining lifestyle ambitions with reasonable financial strategies.
    • Financial independence comes with some sacrifice, so it’s important to consider the consequences before committing yourself to an early retirement.

Most people struggle and worry about being able to retire in their mid to late 60s. At that point, you are expected to have hundreds of thousands (maybe even millions) of dollars in your retirement accounts, get additional money from Social Security, and also get some government assistance with healthcare insurance. Even then, retiring securely can feel impossibly hard. What you really want is total financial independence – forever.

Maybe you are already retired and have a dreadful feeling that you simply don’t have enough.

Many people have been there, done that, and retired. Some even have a passion to teach others how they did it via their writings in books, blogs, and online courses.

This past week, I read through hundreds of articles from dozens of blogs to discover 15 of the top lessons from regular people who have achieved total financial independence.

If you save 50% on an item, that sounds pretty impressive. But if that item was a bottle of $1 shampoo, you really only kept 50 cents in your pocket.

J.D. Roth from Get Rich Slowly explains that if you want to retire early, you’ve got to focus on your high-cost items. Namely, your:

  • Home
  • Car
  • Food

The average person will spend over $2,000 a month on these categories alone. If you want to retire or retire early, the solution is simple: spend less. And, you can do it easily by focusing all your efforts on reducing the big dogs – home, car, and food expenses.

Need more inspiration? Here are 8 ways to save BIG. Or, listen to the podcast interview with J.D. Roth.

When do you want to retire? In 5, 15, 25 years? The math behind how much you need to save to achieve these targets is shockingly simple. Just ask Mr. Money Mustache – an engineer that retired when he was only 30.

Even though the math is supposedly simple, MMM made it even simpler by putting together a target savings rate table.

If you currently have zero and want to retire in:

  • 5 years, you’ll need to save 80% of your income
  • 15 years, save 55% of your income
  • 25 years, put away 35% of your income

Most of you have already been working for a few decades, so these numbers might not mean as much as it does for those that are just starting out (especially if you haven’t been putting 80% of your income away all your life). So, what numbers are relevant for you?

If you have consistently put away:

  • 10% of your income, you’ll likely have to work for 51 years before you retire
  • 15% of your income, your time in the workforce is 43 years
  • 20% of your income, you’ll probably have enough money to retire after 37 years in the workforce

Want to retire sooner? Simple. Just up your savings rate.

Try different scenarios in the top rated NewRetirement retirement planning calculator.

When most people retire, they assume they’ll never work another day in their lives, and, if they have to, they consider themselves a failure in retirement.

Jonathan Clements, from HumbleDollar, disagrees.

According to Jonathan, “Working a few days each week could greatly ease any financial strain, while adding richness to your retirement.”

So if you have to (or want to) work in retirement, don’t sweat it. There are countless others that do the same.

Explore 14 reasons retirement jobs are the best and listen to our interview with him on the NewRetirement podcast where Clements discusses money, behavior, and happiness.

Before putting together a complex assortment of facts and figures, Darrow Kirkpatrick (retired at 50 years old) champions the idea of keeping things simple.

“The best way to get a useful model going is to input a small number of initial assumptions, then calculate and check the results carefully, year by year. Once you are certain those initial numbers are behaving as expected, you can begin adding more data, more financial events, and refining your model.”

He compares retirement planning to constructing a puzzle. You don’t try to put all the pieces together at once. You start with a corner, add a piece, add another, and then slowly put together the entire puzzle one piece at a time. The same should be true with your retirement planning.

Instead of putting all your numbers into a complex tool right off the bat, put in only a few, confirm the number, and then go back and model in other likely scenarios. In the end, you’ll be much more confident in your number and you’ll understand it completely.

This approach is fully supported by the NewRetirement retirement planning calculator. Users start by inputting a relatively simple set of data – estimates are okay. You can view results and start building a more complete plan. Or, simply run different scenarios and keep your information updated over time, making adjustments as necessary.

When was the last time you updated your numbers? We recommend quarterly at least. Want ideas for scenarios to run? Try these.

There are tons of people today that have absolutely no idea how much they spend from month to month. And, not only do they not know the amount that they’re spending, they probably couldn’t even tell you where half of it is going.

If you have absolutely no idea where your money is going today, you have little chance of grasping where it will go ten to thirty years from now.

In Darrow Kirkpatrick’s book, “Retiring Sooner,” he discusses several ways to assess your living expenses quickly and easily. So if you’re one of the people who doesn’t know where your money is going, take some notes from DK and get a handle on your spend today so that you can have a blissful, easy retirement.

When you think of regrets in retirement, you might only consider the regret of retiring too early and running out of money, but that’s not the only outcome you should fear.

Physician on FIRE (retired at age 39) warns us also of retiring too late.

If you run all the scenarios in all of the models and you’re safe in every one, then you waited far too long to retire. You’re not going to:

  • Get cancer
  • Have Alzheimer’s
  • Get into a car accident
  • Experience 3 stock market crashes
  • Lose your pension, and
  • Get sued

If all of those things happened to you, it honestly doesn’t matter if you can cover all the expenses. Your life is going to be difficult regardless.

The point of modeling is to protect yourself against the likely fears, not every one. Wait too long to retire, and you’re going to regret it for the rest of your life. Sure, your kids might enjoy the millions that you’ll never be able to spend, but I bet they’d much rather have your time instead.

The Wealthy Accountant, Keith “Taxguy,” is certainly a guy you want to listen to. He’s worth over $12 million and hasn’t held a conventional job since he was 22 years old…

He says it plain and simple:

“When you are in debt the clock works against you. Every morning when you wake—weekends, holidays, sick days, birthdays and work days—you are already behind. The mortgage, credit card, car loan, et cetera, all tacked on interest the second after midnight. Long before you rolled out of bed and poured your first cup of coffee you need to work to pay the interest before you have money for food, clothing, shelter or entertainment.”

The takeaway is that debt is just adding to your expenses. Pay your debt off as fast as possible and invest heavily once they’re gone. It’s easy to do once you don’t have a payment in the world.

Most people go to the bank and ask the question, “How much will you lend me?” The bank tells them the maximum that they’d be comfortable forking over, then the borrowers go out and find the best house for that amount of money.

Without realizing it, these folks just became house poor. Hopefully, they really love the house, because they won’t have enough money to do anything outside of those four walls for many years to come.

Passive Income MD gives us a great rule of thumb when it comes to getting a mortgage – never exceed 3 times your annual income.

If you are currently in over your head, downsize. You won’t regret minimizing your debt down the road.

You hear this all the time, but are you actually doing it? Are you putting the maximum amount allowed into your 401(k) each year? Joe Udo, from Retire by 40, admits that he didn’t max it out every year, but he only missed his first couple when he relented to his high-performance, stock chasing mentality got the better of him.

By maxing out his retirement nearly every year, he was able to build up a $640,000 nest egg before his 40th birthday. Not too shabby.

If you still haven’t started to max out your contributions, it’s better late than never. Do nothing and you’ll have way more regrets than if you get started today.

If you’re over age 50, be sure to use catch up contributions (whether or not your employer offers a program or not).

In 2012, Justin, from Root of Good, earned $140,000 and paid just $600 in taxes. In 2013, he did even better. He earned $150,000 and paid $150.

“We didn’t go anything sneaky or illegal,” Justin explained. He and his wife simply invested in all the tax-advantaged accounts:

  • 401(k)s
  • Traditional IRAs
  • Health Savings Accounts
  • 457
  • And a 529 College Savings Account

That, and they paid for childcare with a Flexible Spending Account through his wife’s work.

His motto is to keep things simple, but also to keep the government’s hands off his money. If you can do this just half as well as Justin, you’ll be well on your way to total financial independence.

“Saving a high percentage of income is only half the battle. You can’t just put fat stacks of cash under your mattress and expect to get rich.” – Go Curry Cracker

If you can earn 10% a year, it takes approximately seven years for your money to double. In another seven years, it would double again. Wait another seven, and it doubles again.

You’ve actually got $800,000. ($100,000 becomes $200,000 which doubles to $400,000, and then doubles one more time to make $800,000). If you could hold off another seven years, you could have yourself a cool $1.6 million. Not too shabby when you consider that you only had $100,000 28 years ago. That’s the power of compounding.

Put that money under your mattress and you’d have just $100,000. That is, unless you had a house fire.

As Bill Bernstein said in his NewRetirement podcast interview:

“I’m going to sound kind of insensitive and cruel, I suppose, but when someone tells you that [that they are not invested and are holding cash], what they’re effectively telling you is that they’re extremely undisciplined. And they can’t execute a strategy and that’s the kind of person who probably does need an advisor. If you sold out in 2007 or 2008 and you’ve been in cash ever since, you’ve got a very seriously flawed process and you’re probably managing your own money.”

You have got to be invested in order to get ahead.

If you retire at age 60, you could easily have 30 years or more of retirement life ahead of you. When you were 30, could you have predicted you’d be where you are at age 60?

Of course not.

The same is true for your retirement years, “And that’s okay!” explains Steve from Think, Save, Retire (retired at age 35). You can do all the planning and forecasting your want, but you’ll never be able to predict what will happen to you personally, professionally, relationship-wise, or financially over the next 30 or more years.

In early retirement, Steve thought he was going to:

  • Exercise more
  • Blog more
  • And read more

He doesn’t, and for good reason. All reasons he hadn’t thought of when he handed in his two weeks’ notice.

Be ready to be flexible and able to make updates to your overall financial plan.

Sam at Financial Samurai is a smart guy. After all, he worked as an investment banker for Goldman Sachs for 13 years. Very few have those credentials on their resume.

After all that experience and knowledge of the markets, his advice to achieve early retirement is not a stock tip and not even a sector analysis. His advice:

Keep it simple.

Spend less, earn more, and invest all you can. That’s it. There’s power in that message, especially considering the source.

ESI Money retired in his early 50s and has practiced exactly what he’s preaching today. His message:

“Invest for growth and then income.”

What does that mean? He goes on to explain and outlines the following:

  1. Max out your 401(k) and invest in index funds (growth)
  2. Invest in rental properties (a combination of growth and income)
  3. Consider person to person (P2P) investing (income)

Also, option three could include annuities – another tool that helps build up a consistent income for your retirement years.

Why growth, then income? Simple. You first want to get your nest egg going and grow your investments quickly out of the gate so you can capitalize on compound interest. Then, in order to retire early, it’s best if you invest in multiple income sources that can float you until you hit the magic age of 59 ½, when you can start withdrawing from your retirement accounts without penalty.

Try out his formula in your own plan with the retirement planning calculator.

Even if you hate your job and have a “countdown to retirement” clock on your desk at work, you’ll still likely have difficulty when you finally give them the old heave-ho.

Jacob, from Early Retirement Extreme, likens it to a long-term marriage. A break-up from your long-time spouse is sure to be difficult. You think the escape will be nothing but sunshine and rainbows, but it’s not always that easy.

The same is true of your job. Expect it.

Better yet, set up a future for yourself in other areas – self-employment, volunteering, or starting that part-time gig we mentioned above. When you’ve already moved on to the next thing mentally, letting go of the old boat anchor becomes that much easier to do.

As with almost anything, you dive into something expecting to find the hidden secret or the magical takeaway and the results are quite obvious and underwhelming.

This analysis was no different.

If you want to retire well and retire early, you should simply live modestly, get rid of all your debts, earn a solid income, forecast what you need (but be flexible) and invest heavily. That’s really all there is to it. Dig any deeper and you’re just wasting your time.

The most valuable information here were the items that hardly anyone talks about:

  • Being willing to work after retirement
  • Having an understanding that even the best-laid plans are futile – you’re never going to predict exactly what will happen over a 30-year span. It’s impossible.
  • Retirement is not all unicorns and angelic choirs. It’s just the next challenge in life worth conquering.

Go in with the right mindset, understand what happiness truly means for you, and never stop working toward the goals that will take you there.

We hope the NewRetirement retirement planning calculator can help you.

Source: newretirement.com

6 Simple Tips for Retirement Investing

We all know that we need to save for retirement, but that is hard. However, it might be even harder to figure out how to invest for retirement.
how to invest for retirementInvestments are important for your future.Investing requires some level of expertise and a way of thinking about money that is not innate for most people. Furthermore, the way you need to think about investing definitely changes as you age.

How to invest for retirement is a very complicated question to answer. However, we hope the following will help you feel prepared and comfortable to take on any of the unexpected events that life throws at you.

Here are six simple tips for how to invest money for retirement and set you up for success:

Outcomes are almost always better when you set a goal – retirement investing is no exception.

When you are deciding how to invest your money, you should think about the following:

  • Do you want to earn a specific rate of return?
  • Are you trying to guarantee that return?
  • Is it important for you to protect the original investment amount? Or, will you be okay if you lose some money?
  • What is your time horizon? Will the money stay invested for one year or 30?
  • Will you be withdrawing money from the account? How will those withdrawals impact your other goals?

When thinking about investing outside of an IRA or 401(k), you need to have a plan. “You need to recognize the strategy of getting rich vs. staying rich,” says Christopher Girbes-Pierce, founder and CEO of Enlightened Wealth Management, LLC.

This means that you need to evaluate where you are in life. When you are in your working years, you are building wealth by concentrated risks, like working a job or owning a business, but once you get into your retirement years, it’s all about diversifying your investments to keep your wealth, Girbes-Pierce explains.

Before setting a goal for your investments, you might want to first find out how much you need in retirement savings. The NewRetirement retirement calculator is an easy to use tool that gives you immediate detailed answers.

Depending on what your goals are, different investment types will be better or worse for you.

  • Stocks: Stocks can be risky. Investing in stocks can put your original investment amount at risk. However, stocks can offer the highest rates of return.
  • Mutual Funds: Mutual funds are a single investment into a range of different companies or investment types. Funds are considered less risky than stocks while still offering a better rate of return.
  • Bonds: Bonds can offer a guaranteed rate of return, making them appealing if you need or want security.
  • Annuities: Annuities guarantee your income. In most cases, you know exactly what the outcome will be with an annuity.

You can learn more about these traditional retirement investments, or explore additional options.

Investing can be like everything else in life – we want it all and we want it right now. Most of us want the best possible return on investment with the least possible risk.

Diversifying your portfolio is a great way to achieve that seemingly possible objective.

Diversification refers to the practice of investing some of your money one way and other parts in other ways to give you the possibility of growth while also protecting you from risk. Diversification could be defined as the practice of not putting all of your eggs in one basket. By spreading your investments, you reduce the chance of losing money.

Want more information? Explore asset allocation.

Once you have made the decision to diversify your retirement investments, Girbes-Pierce shares that it’s important to stay away from high-cost investments, such as certain types of annuities and actively managed mutual funds.

“The charges that you will incur from just one year of managing a portfolio with an expensive upkeep will eat away at your overall portfolio,” Girbes-Pierce says.

This also applies to investments that are in taxable accounts. If you aren’t maxed out on your IRA and have real estate investments, for example, Girbes-Pierce suggests keeping those funds in your IRA. This way, you won’t pay taxes on it like you would be if you put that investment into a taxable account.

If you aren’t sure what you are paying in investment fees, find out.

Another aspect to be aware of when figuring out how to invest for retirement is how much access you will have to your funds.

“You may get to a point where you want to go on a big vacation and need to take some of your funds out of an annuity, but then when you try to take it out you’re charged a penalty fee,” says Girbes-Pierce.

Many people aren’t aware of these charges when they sign the papers. Be sure to get an answer before you agree to anything. You have the right to know how much access you have to your funds without penalties at any given time, Girbes-Pierce reminds.

You may have a child or grandchild come to you with a brilliant business proposal asking for an investment, but it’s never a good idea to dip into your retirement account to fund these sort of projects, Girbes-Pierce explains.

“This kind of behavior is very speculative and I consider it gambling, which is fun and exciting, but most people probably don’t want to do that with their retirement money,” says Girbes-Pierce. “People can end up getting into a lot of trouble this way.”

Source: newretirement.com

7 Top Costly Mistakes Investors Made in 2020

Woman making investing mistakes
ESB Professional / Shutterstock.com

Warning: Big investing mistakes can be hazardous to your wealth.

One or two basic blunders can undermine years of diligent saving and crush your dreams of building life-changing wealth.

Financial professionals see investors make such errors all the time. Recently, they identified the most common of these mistakes as part of the 2020 Natixis Global Survey of Financial Professionals.

Following are some of the costliest mistakes investors likely made in 2020 — and how to avoid them going forward.

Emotional decisions

BlueSkyImages / Shutterstock.com

When the coronavirus swept into the U.S. this spring, it sent the economy into a tailspin. The S&P 500 index plunged 34%, likely taking much of your wealth with it.

Bear markets feel like a body blow. But throughout history, new bull markets always have followed downturns. That is why hitting the panic button and selling in bad times is usually a mistake.

During this spring’s plunge, the market fell to a low on March 23. But if fearful emotions caused you to sell on that day, you missed out on one heck of a party that followed.

From March 23 through April 9, the S&P rose a stunning 25%. The 100-trading-day period after March 23 marked the best S&P performance since 1933, with a rise of more than 50%. And stocks have continued to soar ever since.

As stocks tanked earlier this year, investors in the U.S. sold $327 billion in mutual fund positions, according to Strategic Insight. The lesson? In investing, emotions can be your enemy.

Timing the market

Man timing the market
G-Stock Studio / Shutterstock.com

Let’s return to the bear market of last spring. As stocks were falling, prognosticators everywhere were rising up, telling you exactly what to do with your money.

Chances are, a few of them were right. But likely, it was very few.

Timing the market — which requires knowing exactly when to buy, and precisely when to sell — is all but impossible. Numerous studies have shown that almost nobody consistently times the market well over the long haul.

In his book “Common Sense on Mutual Funds,” legendary investor John Bogle — creator of the world’s first index mutual fund — wrote:

“The idea that a bell rings to signal when investors should get into or out of the market is simply not credible. After nearly 50 years in this business, I do not know of anybody who has done it successfully and consistently. I don’t even know anybody who knows anybody who has done it successfully and consistently.”

Not recognizing risk tolerance

Walking a tightrope
Vaclav P3k / Shutterstock.com

There is no way around it: Investing is risky. Over time, the stock market rises. But there are periods — some of them long — when equities crater.

Just in the past 20 years, the S&P 500 has seen three large stock market declines, according to Investopedia:

  • Beginning in March 2000: -49%
  • Beginning in October 2007: -56%
  • Beginning in February 2020: -30%

In each case, markets recovered. Sometimes, the recovery was relatively quick. The bear market of 2020 was a blip, lasting just one month.

But in other cases, recovery was a slog. The bear that growled its way onto the stage in March 2000 stayed put for 31 months.

Natixis points out that 56% of investors say they are willing to take on risk to get ahead, yet more than three-quarters say they really prefer safety over investment performance.

So, before you invest, understand exactly how much risk you are willing to take — and what you will do if things do not work out as planned.

Unrealistic expectations

Woman with money, looking stupid
Liudmila P. Sundikova / Shutterstock.com

It’s a safe bet that if you are reading this article, you hope to get rich someday. Or, at least you hope to achieve some measure of financial security.

Here’s the good news: If you save diligently and invest wisely over time, you will almost certainly increase your wealth — possibly to levels that exceed your wildest dreams.

But doing so takes time. Trying to make a quick killing in the market is likely to leave you disappointed. So is expecting wildly high returns of 20% annually.

Be patient. Keep your short-term expectations modest, and let the long term take care of itself. As we wrote in “10 Characteristics of Wildly Successful People“:

“If you aren’t willing to put in the hours and make some sacrifices, you might as well get accustomed to mediocrity. The best things in life — whether that’s money in the bank or a great relationship with your spouse or child — typically come only with significant effort.”

Taking too much risk

Bull and bear
Bacho / Shutterstock.com

As we pointed out earlier, uncertainty is part of investing. It is difficult to get rich without taking on some risk. Money Talks News founder Stacy Johnson is fond of saying you can’t get a hit from the dugout.

However, taking on too much risk can lead to disaster. It’s important to strike a balance. As Stacy says, you never should invest money you will need in the next five years, and you should not invest everything you have into the market — ever. He writes:

“One rule of thumb I’ve been advocating for decades is to subtract your age from 100, then put the difference as a percentage of your money in stocks. So if you’re 20, you can invest up to 80% in stocks. If you’re 80, 20%. If you’re nervous, invest less. It’s just a rule of thumb.”

For more, check out “7 Ways to Slay Your Fear of the Stock Market.”

Not recognizing the euphoria of an up market

Excited woman at a computer
fizkes / Shutterstock.com

When times are good, it is easy to think sunny skies will stretch on forever.

Investors who see a 10% gain in stocks over a period of six months are much more likely to expect their investments to continue to rise in the future, according to research from the Natixis Center for Investor Insight and the Massachusetts Institute of Technology.

But while it may seem counterintuitive, the more stock prices rise, the greater the danger is that a fall is on the horizon. By contrast, when stocks have plummeted — and nobody wants them — they are likely to be a safer purchase.

Those truths are at the root of one of the stock market’s oldest maxims: “Buy low, sell high.” But instead of trying to figure out when to buy and sell, simply invest for the long haul.

As legendary investor Warren Buffett says, “consistently buy an S&P 500 low-cost index fund. Keep buying it through thick and thin, and especially through thin.”

Failing to think about taxes when selling

Uncle Sam and taxes
Sean Locke Photography / Shutterstock.com

Ah, taxes: They are preferable to that other famous “inevitable” in life (death), but they still stink.

Most of us try to keep our tax obligation small. But as the folks at Natixis point out, each time you sell stock shares, you are locking yourself into paying taxes on any gains you may have accumulated. According to Natixis:

“Three-quarters of investors may say they consider tax implications when making investment decisions, but their behavior in periods of stress may actually trigger unintended taxable events. For example, a big sell-off in your portfolio could lock in gains at a time when markets are declining rapidly.”

So, Natixis encourages you to think strategically before selling. Even carefully weighing which holding you should sell first can make a big difference to how much you will owe Uncle Sam on Tax Day.

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.

Source: moneytalksnews.com

6 Insider Tips for Getting the Most From Social Security

Mary Beth Franklin is a nationally recognized expert in Social Security claiming strategies, she is also a frequent public speaker. And, she literally wrote the book (Maximizing Your Clients’ Social Security Retirement Benefits) that retirement planning experts use to advise clients on Social Security.

Making the most of Social Security

She offers you her Social Security expertise with six insider tips for getting the most from Social Security. If you like following concepts, be sure to listen to Franklin’s interview with Steve Chen, founder of NewRetirement, for even more great ideas for maximizing your benefits.

Mary Beth does not mince words on this guidance, “It’s critical that people understand that although they can claim Social Security benefits as early as age 62, their benefits will be permanently reduced for the rest of their life if they do. For married couples, it also means a possible reduction in survivor benefits for the remaining spouse. And if you collect SS benefits early and continue to work, your benefits could be temporarily reduced or eliminated if you earn more than $15,720 in 2016. Benefits lost to the earnings cap are restored at full retirement age.”

Getting the most from Social Security means waiting to start benefits. The only true exception to this rule is if you know that you will not live very long.

It is surprising how many people start benefits without actively comparing the monthly income for starting early versus starting later. Mary Beth suggests that you, “know how much your benefits would be worth if you claimed now compared to waiting until your full retirement age (FRA), which is 66 for anyone born from 1943 through 1954.

“Consider whether you can afford to wait until age 70 to claim Social Security when benefits are worth the maximum amount. For every year you postpone claiming beyond FRA up to age 70, your benefits would grow by 8% per year, possibly boosting your retirement benefit to 132% of your FRA amount.”

In response to the question, “What are the biggest regrets you hear from people who have already claimed Social Security?” Mary Beth says, “Many retirees regret that they claimed reduced Social Security benefits as soon as they could at age 62 but often it was unavoidable because of health issues or job loss.”

Not everyone knows this and the rules are tricky, but Mary Beth says that, “anyone can change their mind and withdraw their application for benefits within 12 months of first claiming. Although they must repay any benefits they have received, as well as any benefits collected on their earning record by a spouse or minor dependent child, it would allow them to collect a bigger benefit in the future.

“If they miss the 12-month widow, they can wait until 66 to suspend their benefits. Although they would not be able to collect any benefits during the suspension period – and no family members such as a spouse or dependent child could collect any benefits on their earnings record during that time – they would be able to earn delayed retirement credits worth 8% per year up to age 70.”

The Government Accountably Office (GAO) did a study showing that Social Security representatives do not fully understand all the rules and all too often give incorrect guidance to people who have questions about their benefits.

Mary Beth says, “With more than 2,700 rules that govern Social Security benefits, it’s not surprising that some Social Security Administration reps don’t always get it right. The best solution is to know your rights before you apply for benefits, including the possibility that you may be able to switch between collecting spousal benefits first and retirement benefits later or to be able to choose when you claim survivor benefits vs your own retirement benefit.”

If getting the most from Social Security is important to you, you might not want to only trust what the SSA has to say.

“A maximum retirement benefit also translates into a maximum survivor benefit for surviving spouses or eligible ex-spouses who were married at least 10 years before divorcing.”

Do any of these ideas appeal to you? Try out these strategies on your own retirement plan. The NewRetirement retirement planning calculator makes it easy to test different what if scenarios. You can immediately find out how your finances improve or worsen by delaying you or your spouse’s or both of your benefits and more.

Mary Beth Franklin, CFP, Contributing Editor, Investment News

Questions about Social Security? Find answers in her ebook Maximizing Social Security Retirement Benefits.

Source: newretirement.com

6 Competing Retirement Investing Goals and How to Balance Them

Saving for retirement is hard.  However, when you are still working, creating a retirement investment plan can be relatively straightforward.  The goal is to simply grow the money.

But, when you retire, your investment goals become multi-faceted, layered, and downright complicated.

You still want your money to grow, but you have a whole lot of other factors to consider.

Just like when you were working, a decent return on investment is important after you retire. However, here is a look at six competing priorities you need to balance for a solid retirement investment plan.

So, let’s say that as you retire, you want to minimize the risks to your savings.  If you have saved up enough money, why not just convert the assets to cash and sit pretty?

There are many reasons, but the most important is: Inflation.

To retain your buying power, you need your money to earn a rate of return that is at least equal to the rate of inflation. 

For example: if you are earning a 3% rate of return on your savings and inflation is at 3%, then your real rate of return is 0%. The purchasing power of your money has remained flat. Even though you earned money, you can not buy more now than before.

(Note: the average inflation rate from 1983 to 2019 is 2.63%, and the average from 2010 to 2020 is 1.83%.)

In retirement, you are likely withdrawing from savings and investments to help fund your expenses. So, you probably don’t want that money in risky investments that might lose value just when you need to make a withdrawal. However, you do need and want your money to earn returns.

That is why many retirees turn to a bucket investment strategy — invest different buckets of money each with more or less risk associated with them. Keep money you need for short term spending in low risk vehicles and money for long term growth can be invested for more risk.

You may also want to explore 28 retirement investing tips from today’s financial geniuses.

It is not just a matter of investing your money, you will also be withdrawing funds and you need your money to last as long as you do — no matter how long that turns out to be.

According to the Social Security Administration: A man aged 65 today can expect to live on average to age 84.2 and a woman aged 65 can expect to live on average to age 86.7.

Planning for these longer life expectancies can put a strain on your retirement financial resources, especially your investment accounts, such as IRAs and taxable brokerage accounts.  And, it can be confusing to know how much you can safely spend.  If you live longer, you can use less of your savings every year.  If you won’t live for very long, you can spend a lot more each year.

The amount you can safely withdraw from savings, while ensuring that you won’t run out of savings, will vary depending on your investment returns, inflation, how long you will live, and much more.

The NewRetirement planner lets you easily see when you might run out of savings.  And, every change you make to your financial profile will tell you exactly how you impacted that out of savings age.

Plus, NewRetirement Planner’s Monte Carlo simulation enables you see the probability that your money will last.

The shaded blue area is the result of running your optimistic and pessimistic inflation assumptions a thousand times through a set of variables that can change the outcome. The result is the likelihood that your inflation-adjusted savings will reach your goals at the right time. In this scenario above, the most likely pessimistic assumption may put your savings below the baseline necessary to support your lifestyle in retirement.

HOW TO ACCESS MONTE CARLO SIMULATIONS: To run Monte Carlo simulations on your plan, start by becoming a PlannerPlus subscriber. PlannerPlus gives you access to advanced planning tools and more comprehensive inputs for more wealth and security. You can sign up with NO RISK for a 14 day FREE trial — no charges until after that time.

RETIREMENT WITHDRAWALS: You will also benefit from using the retirement withdrawals tool inside of the Planner. You will be able to 1) Analyze how much you need to withdraw from savings each year to meet expenses 2) Specify a fixed percentage withdrawal and 3) See your maximum withdrawals.

Taxes can be a major expense during retirement. Withdrawals from traditional IRAs, 401(k)s, and other retirement accounts will be subject to income taxes at your highest marginal rate.

For example, if you have $1 million in a traditional IRA, your actual spendable cash from that account might only be $700,000 or so depending upon your tax bracket.

At age 72, you are required to take distributions from your various retirement accounts (except for a Roth IRA) called required minimum distributions (RMDs). This is an effort by the government to recoup the taxes that you didn’t pay on the contributions to these accounts over your working life.

Add to this taxes on most pensions for those who have them, annuity distributions or monthly payments and potentially on a portion of your social security, it’s conceivable that your tax rate may be as high during retirement as when you were working.

One of the biggest decisions that retirees need to make concerning their investments is when to take withdrawals, form which accounts, and in what order. This has implications across a wide range of investment issues, perhaps the biggest being taxes. It can make sense to consider a Roth conversion with some or all of your IRA assets prior to the onset of RMDs, especially if your income has dropped in your 60s. For those still working, who have a pension or other income distribution planning is vital.

The NewRetirement Planner plan inspector lets you estimate your tax burden year-over-year to see where you can expect the biggest tax hits and how to avoid them.

Some retirees feel that leaving an estate is a priority. Perhaps you want to benefit heirs such as a spouse, children, or grandchildren. Or perhaps your intentions are charitable.

Leaving a financial legacy can be a valid investing goal. Note that an estate can come in many forms, not just cash or investments. Your estate might include real estate such as your home, other property, or items of value.

Make sure your estate plans are up to date, consult Estate Planning: 11 Documents You Need for Coronavirus and Always.

Besides funding retirement, many retirees also want their money to fund children’s or grandchildren’s education or charitable causes.

Using money to reflect your values can help lend meaning to your year’s of saving and investing and to your life in retirement.

These priorities can be balanced, but you should first make sure that your own spending needs (if not wants) are covered first.

Here are a few tips for a solid retirement investment plan that can help you achieve all of your retirement investment goals:

While retirees need to be mindful of the level of risk they are taking with their investments, they need growth to stay ahead of inflation and to help ensure they don’t outlive their money. This means an allocation to stocks that balances this need for growth with minimizing downside risk. Regarding risk, retirees just don’t have the time to make up for out-sized losses as would someone in their 30s or 40s.

The days of a portfolio of bonds and CDs only are long-gone. Dividend-paying stocks can be a means to produce a consistent stream of income, but investors need to understand that these are still stocks and carry the risks inherent in investing in stocks.

Investors should consider a “bucket approach,” which means having certain portions of their portfolio set aside for cash needs for a set period of time (perhaps 1-3 years-worth of cash needs), and then buckets for intermediate growth and income as well as one for longer-term growth. The latter bucket would largely consist of stocks, the middle bucket might consist of a combination of fixed income and income procuring stocks. Everyone’s situation will be a bit different, however. 

Explore different types of bucket strategies and use the NewRetirement Planner to help you assess whether or not one would be right for you.

“The most important thing you can do for your retirement is have a plan, specifically a retirement income plan. A plan covers far more than what investments to pick. Investments are the last part of the plan; the icing on the cake. They should come only after you have the main meal menu in place, and the cake baked,” says Dana Anspach, founder and CEO of Sensible Money LLC (and one of MarketWatch’s RetireMentors).

To learn more, read “How to Build a Retirement Income Plan” for insightful tips.

Investing during retirement is complicated and is a juggling act between achieving enough growth to ensure your money lasts, managing your tax hit and controlling downside risk. Planning and regular reviews of your portfolio and your overall situation are a must to help ensure financial success in retirement.

A good online retirement planner can also help you set up a good initial retirement investment plan as well as keep tabs on how well you are managing your resources.

Many of us struggle to keep up with our investments when the only goal is to grow the money.  Because things get so much more complicated in retirement, you may want to seriously consider using a financial advisor.  NewRetirement can match you to a prescreened licensed professional that has expertise in post-retirement investing and balancing these competing priorities.

Years ago talking to a financial planner could be intimidating and confusing. But since the coming of digital technology and communications, getting quality, dependable advice without sales pitches has become easy and inexpensive.

Source: newretirement.com

Mortgage mayhem: Lenders pull gov’t loans, refuse to lock, and raise credit score minimums

Wait — what’s going on in the mortgage market right now?

Last week, the Federal Reserve offered assurance to lenders who were struggling to price mortgage rates.

There’s no question this was helpful. 30-year mortgage rates responded by dropping to just 3.33% average for the week, nearing the all-time low from a few weeks ago.

In any other environment, that would be great news for home buyers and refinancers.

But right now? Not so much.

Lenders are acting unpredictably as they face challenges they’ve never experienced before. It’s getting harder for them to make good loans and stay profitable.

In turn, borrowers are facing bigger and bigger hurdles.

Entire loan programs are disappearing, lenders are raising credit score minimums, and some won’t even lock your rate.

Here’s how to make sense of it all.

Verify your new rate (Jan 19th, 2021)

Lenders are tightening credit standards

As the economy continues to act erratically, many lenders are forced to take their own actions to help sustain themselves.

Lenders are making significant changes to FHA, VA and USDA loans. These changes could make home loans unavailable for mortgage borrowers who could have qualified just weeks earlier.

Some lenders have completely withdrawn government-backed loans — refusing to offer them at all for the time being.

And lenders that are still in the game have upped their minimum credit score requirements by as much as 100 points. To give just a few examples:

  • Wells Fargo has adjusted its minimum score requirement to 680 for all government loans (FHA, VA, and USDA)
  • US Bank also requires a 680 credit score for FHA, VA, and USDA loans, and 640 for conventional loans
  • loanDepot is requiring a 620 minimum FICO score for VA and FHA loans with a higher score (660+) for cash-out or streamline refinancing
  • Flagstar is requiring a 640 score for both purchase transactions and non-cash out refinances

Many other lenders are at 660 minimum for these types of loans.

While some lenders are still offering mortgage loans with scores as low as 620, many are setting standards so high that very few fit into the small window of eligibility.

For example, many lenders advertising a 620 credit score are doing so only if you can meet certain requirements.  For example, you might need:

  • At least two month’s worth of payments in the bank
  • No gift funds allowed for down payment or closing costs
  • No non-owner occupants without a 680 credit score

For many people who choose government-backed loans like FHA or VA, the looser qualification guidelines are a big draw.

The more stringent requirements lenders are putting in place could make home loans inaccessible for many until coronavirus fears calm down.

Some mortgage companies won’t let you lock at today’s rates

Mortgage lenders are tightening their rate lock requirements too.

Many won’t allow mortgage borrowers to lock until their loan is clear to close.

Effectively, that means you might not know what your mortgage rate is until you’re ready to sign your final papers days before the loan is completed and potentially week or months after you applied.

You might not know what your mortgage rate is until you’re ready to sign your final papers.

For many refinancers, that could make the point of refinancing moot, if their rate isn’t low enough to justify the closing costs.

And for buyers, a high rate could mean starting the loan shopping process again from ground zero.

Other lenders refusing to lock rates at all until the volatility slows down.

How the bailout could cripple the mortgage industry

You might wonder why lenders are cracking down so much on new borrowers.

Isn’t the Fed offering mortgage bankers huge bailouts? And wouldn’t lenders want more business in a time when many industries are going under?

Well, it’s not quite that simple.

The Fed’s unprecedented $183 billion purchase of mortgage-backed securities recently was meant to drive down mortgage rates. And, it worked.

However, mortgage servicers are now facing a difficult position as more homeowners elect to suspend payments during the crisis.

When a homeowner misses a payment, servicing companies are contractually obligated to advance payments to investors in securities markets.

The Mortgage Bankers Association warns that the U.S. housing market is “in danger of large-scale disruption,” due to efforts by the Federal Reserve that were intended to help rescue the mortgage market.

In other words, you’re not paying your mortgage company, but it still has to pay its own creditors.

A flood of missed mortgage payments is threatening to bankrupt U.S. mortgage lenders, deepening the economic toll of the pandemic.

The Mortgage Bankers Association (MBA), in a dismal letter to regulators, warned that the U.S. housing market is “in danger of large-scale disruption,” due to efforts by the Federal Reserve that were intended to help rescue the mortgage market.

>> Related: How to pause mortgage payments if you lost your job due to COVID-19

What’s happening to mortgage companies behind the scenes

This is where it gets technical.

The Feds forcefully entered the mortgage market a couple of weeks ago — in part, to combat rising rates. And in part, because of a fear that borrowers wouldn’t be able to pay their loans.

All told, the Fed has purchased $250 billion in mortgages over the past two weeks.

That’s $84 billion more than the Fed had bought over any four-week period during the financial crisis in 2009.

While the Fed helped drive rates down, they also blew up a widespread “hedge” that mortgage lenders use to protect themselves against rate increases.

Hedging pays lenders if the prevailing rate in the market is higher than the mortgage rate they locked in with the customer.

Normally, hedging is considered to be a safe trade. The hedge simply protects the lender against higher rates until the mortgage closes.

This system works well, most of the time.

But when mortgage rates are highly volatile — as they’ve been these past weeks — it’s difficult for lenders to use the same hedging strategy.

And, compounding the problem, many would-be homeowners couldn’t close on their loans because of quarantines.

Locking lots of loans that didn’t close left mortgage lenders with only the cost of the hedge and no income from the loan closing.

The huge volatility in mortgage bonds created massive margin calls from the broker-dealers, who wrote the hedges, to their mortgage bankers.

According to Barry Habib, founder of MBS Highway, “Some of these mortgage bankers are now facing margin calls of tens of millions of dollars that could drive them out of business.”

In its letter to regulators, the MBA said:  “The dramatic price volatility in the market for agency mortgage-backed securities [MBS] over the past week is leading to broker-dealer margin calls on mortgage lenders’ hedge positions that are unsustainable for many such lenders.”

The letter went on to say, “Margin calls on mortgage lenders reached staggering and unprecedented levels by the end of the week. For a significant number of lenders, many of which are well-capitalized, these margin calls are eroding their working capital and threatening their ability to continue to operate.”

While the stock market is playing a game of Chutes and Ladders, lenders are scurrying to find ways to continue to successfully operate in foreign territory.

What should you do if you’re trying to get a mortgage?

The roller coaster ride that mortgage lenders are experiencing isn’t all doom and gloom for you.

In fact, there is a bit of a silver lining for mortgage borrowers. Until the economy settles down, mortgage lenders are trying to balance how much to pull back vs making good loans.

Not all lenders are reacting the same way.

This means some lenders have not instituted minimum score requirements as low as their competitors. Some lenders may not be hedging as much as others, which means lower rates.

Now more than ever before, mortgage borrowers should shop around until they find a lender that can fit your needs.

>> Related: How to shop for a mortgage and compare rates

Questions you should ask a mortgage lender right now

If you’re currently in the market for a loan, you’ll want to make sure you’re asking your lender plenty of questions:

  • What are your minimum credit score requirements?
  • How long do you expect it to take from application to closing?
  • At what point can I lock my rate and for how long?
  • What happens if my loan doesn’t close within the allotted rate lock period?
  • Who will be responsible for rate extension fees if my loan doesn’t close on time?
  • Do you have a float-down policy if rates drop significantly after locking?
  • Is the rate you’re quoting me include any discount points?

Unlike the housing crash a decade ago, the housing and mortgage markets are much healthier now.

Homeowners have a record amount of equity, so there’s less risk of home values dropping far enough to put many homeowners underwater (like what happened during the subprime mortgage crisis).

Is it a good time to act on low rates?

Say you find a low rate, and a lender that’s still offering favorable loan terms.

Even then, you should weigh the decision of taking out a new loan carefully.

How stable is your job looking right now? How much do you have in savings? And if you were to become unemployed, could you still make the mortgage payment?

Some borrowers might stand to benefit from today’s low rates, but it’s certainly not the right time for everyone.

Rates will likely stay low even after this crisis is over, so don’t think staying on the safe side will backfire. Make the decision that’s best for you.

Verify your new rate (Jan 19th, 2021)

Source: themortgagereports.com