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Retirement accounts pounded as stocks sink

Posted on September 17, 2008 by admin

Post Crescent - September 16, 2008


A day after stocks tumbled farther than they had since after the terrorist attacks of Sept. 11, 2001, consumers were left to wonder about the effects, particularly on 401(k) retirement accounts.


The fall of two New York-based financial giants generated the shockwaves Monday that sent indexes plummeting and burned up billions of investors’ dollars.

Stocks pulled well off their lows early today as the financial sector partially recovered — a sign investors were hopeful about a Federal Reserve interest rate cut.

In the long run, experts say, investments will bounce back, which should help the masses quickly forget about a single day’s losses.

“We’re talking about investment banks, so it’s really only other financial institutions that may feel the direct impact,” said David Francis, head of equities for Appleton-based Thrivent Financial for Lutherans, a financial and insurance services company.

The Dow Jones Industrial Average dropped 504.48 points, closing at 10,917.51 on Monday, the first time since July the index finished under 11,000. It was the sixth-largest point drop ever and the worst since Sept. 17, 2001, when the average fell 684.81 points on the first day of trading after the Sept. 11 terror attacks.

Broader stock indicators also fell. The Standard & Poor’s 500 index lost more than 4.5 percent, and the Nasdaq composite index lost more than 3.5 percent.

The tumbling financial markets meant about $700 billion evaporated from retirement plans, government pension funds and other investment portfolios.

This is where consumers likely felt it the most, Francis said.

“The markets certainly were shaken by what happened. People who already have seen their investments take hits this year certainly are feeling more pain now.”

Though Francis noted there could be indirect effects, including increased pressure on the credit market, which may make it more difficult for people, even those with good credit, to get loans.

On Monday, Lehman Brothers, an investment bank that predates the Civil War and weathered the Great Depression, filed for Chapter 11 bankruptcy protection. That was followed by Merrill Lynch’s announcement that Bank of America was acquiring it for $50 billion.

It was by far the most stomach-churning single day since a financial crisis began to bubble up from billions of dollars in rotten mortgage loans that have crippled the balance sheets of one bank after another and landed mortgage giants Fannie Mae and Freddie Mac under the control of the federal government.

“We are in the middle of a deep, dark recession, and it won’t end soon. Here it is, and it is pretty nasty,” said Barry Ritholtz, who writes the financial blog The Big Picture and is CEO of research firm FusionIQ.


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Professional Financial Advisors:  Find out what a financial advisor can do for you at NewRetirement.com.

Annuity Advice for Retirement:   Evaluate and compare annuities at NewRetirement.com


About Reverse Mortgages:  Learn all about reverse mortgages at NewRetirement.com


NewRetirement Retirement Calculator:   Assess your retirement plan with the NewRetirement Retirement Calculator

Perhaps, It’s Time to Play Offense

Posted on September 17, 2008 by admin

The New York Times – September 16, 2008


WASHINGTON — Late last week, as Lehman Brothers was collapsing, an all-star group of economists was meeting here to ponder the lessons of the financial crisis. The group included Donald Kohn, the vice chairman of the Fed, and Edward Lazear, the top White House economist, as well as Lawrence Summers the former Treasury secretary, and a few dozen others.


The discussion revolved around a handful of academic research papers, but it really boiled down to this: How do we get out of this mess?


At one point, Benjamin Friedman of Harvard raised his placard to inject a little sunshine into the room. If somebody had told the economists a year and a half ago what was about to befall Wall Street and then asked them to predict the economic impact, Mr. Friedman said, they almost certainly would have forecast a steeper downturn, with many more layoffs, than has occurred.


The fact that it hasn’t, so far, should be considered a victory for Ben Bernanke and Henry Paulson, the point men on the crisis. After some early missteps, they have acted aggressively to keep the financial system functioning — including Tuesday’s stunning takeover of A.I.G. — while still forcing Wall Street to suffer for its sins. The problem, unfortunately, is that neither man has done much to deal with the problems that caused the crisis in the first place.


For the past two and a half months, I’ve been on a break from column writing, and I’m struck by how much has changed during that time — and yet how little the big picture has changed. Lehman Brothers, Merrill Lynch, Fannie Mae and Freddie Mac have all essentially collapsed. But just as at the start of the summer, economists can’t even agree whether the country is in a recession.


The Bush administration, the Fed and Congress, meanwhile, continue to focus on the immediate crises, with little attention to the underlying reasons that the economy has gotten into this mess — a stagnation of incomes, an explosion of debt and a decidedly outdated, and limp, approach to government oversight. Remarkably, the presidential campaign has gotten less serious, while the economy’s problems have become more so.


So, yes, Mr. Bernanke and Mr. Paulson have done a nice job of playing defense. But when will someone start playing offense?


•


A good way to see the problems with a fingers-in-the-dikes strategy is to look back to the first big bailout of modern times. Before A.I.G., before Fannie and Freddie, before Bear Stearns, there was Chrysler.


In 1979, when it was still the 10th largest company in the country, Chrysler found itself on the verge of collapse, largely because high oil prices had made its gas guzzlers unappealing. Company executives and union leaders came to Washington, hat in hand, arguing that Chrysler’s demise would wreak unacceptable damage on the American economy. Congress and the Carter administration responded by arranging for $1.2 billion in subsidized loans. The Reagan administration helped further in 1981 by restricting Japanese imports.


On its face, the Chrysler rescue was a huge success. Under Lee Iacocca, the company came out with the K-car line of smaller vehicles, like the Dodge Aries, as well as the original minivan. By the mid-’80s, Chrysler had repaid the loans. Mr. Iacocca appeared on the cover of Time magazine as “Detroit’s comeback kid,” and his autobiography became a No. 1 best seller.


You can draw a clear line from the Chrysler bailout to the recent attempts to steady Wall Street. Back then, Washington insisted on a few pounds of flesh, like a wage freeze for Chrysler workers, in exchange for aid. Mr. Paulson has done something similar by insisting that shareholders of the Wall Street firms benefit little from any bailout.


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Professional Financial Advisors:  Find out what a financial advisor can do for you at NewRetirement.com.

Annuity Advice for Retirement:   Evaluate and compare annuities at NewRetirement.com


About Reverse Mortgages:  Learn all about reverse mortgages at NewRetirement.com


NewRetirement Retirement Calculator:   Assess your retirement plan with the NewRetirement Retirement Calculator

These Home-Equity Loans Come With Big Risks

Posted on September 16, 2008 by admin

The Washington Post - September 13, 2008


When an investor offers you $50,000 or $100,000 in exchange for 30 percent to 50 percent of your home’s future appreciation, is it a good deal?



That’s what some investment firms are promoting as an alternative to traditional home equity loans, lines of credit and reverse mortgages. The companies argue that sharing future increases in value is a superior way to convert current equity into spendable money now because there are no monthly payments or interest charges, fees are comparatively low, and investors agree to participate in losses in a home’s value as well as in gains.


Two of the investment companies — REX and Grander Financial — are specifically targeting homeowners in their 50s and younger, who are ineligible for reverse mortgage programs, which are restricted to individuals 62 and older.


But are there drawbacks in the details that homeowners need to consider? Absolutely. Start with the core concept of “no interest” being charged on the lump-sum amounts of money homeowners receive. Is $50,000 today in exchange for half of all future appreciation on a hypothetical $500,000 house worth it?


Maybe — especially if values are likely to remain flat, decline or increase minimally. But consider this scenario over an extended period, say eight to 10 years. Assume your house increases in value by $250,000 — 50 percent — and is worth $750,000 when you want to terminate the agreement and sell. You’ve had full use of the $50,000 during the years without paying a dollar of interest. Now you must pay back the $50,000 plus 50 percent of the appreciation — $125,000 — to the investor from the proceeds.


That may suit you just fine. Ignoring selling expenses and any existing mortgage debt, you net $575,000 because you owe $175,000 to the investor ($50,000 plus $125,000). For a $50,000 cash advance, you’ve given up $125,000. Your house increased in value by 50 percent, but look at the investor’s return: The $50,000 advance has leveraged $125,000 — well over double.


This may not be “interest” in the terminology preferred by the investors, but it’s definitely a “yield” on their capital — and a good one at that. The investors’ return on a relatively small advance of money is magnified over extended periods because it’s tied to the value changes of a far larger asset — the entire house.


In fairness, there’s risk to the investor as well. If your home value drops during that extended period, the investors suffer a loss proportional to their stake in the home’s change in value.


There are some other considerations. Poke around the offering documents of these programs and you find restrictions that shouldn’t be ignored, including the equivalent of a prepayment penalty for sales of properties within the first five years. In the REX and Grander Financial contracts, the penalty is 25 percent of the amount of the original advance in year one, 20 percent in year two, 15 percent during year three, 10 percent in year four and 5 percent in year five.


After that, there’s no penalty for selling the house or terminating the agreement. On a $100,000 advance when the house is sold in year one, the homeowners would owe $125,000 plus any appreciation gain.


There’s a potentially troublesome “deferred maintenance adjustment” clause in the agreements. The investors have the legal right, based on an “independent, third-party” appraisal or inspection, to claim additional payments at sale “to reflect any maintenance that should have been performed when the agreement was in effect.” The words “should have” are subjective enough to cause some serious disagreements between owners and investors.


Read more of this article…


Home Equity Conversions:  Find out if a HEC is the solution for you at NewRetirement.com

Unlock your Home’s Equity:  More ways to tap into your home’s equity at NewRetirement.com.

About Reverse Mortgages:  Learn all about reverse mortgages at NewRetirement.com


NewRetirement Retirement Calculator:   Assess your retirement plan with the NewRetirement Retirement Calculator


Professional Financial Advisors:  Find out what a financial advisor can do for you at NewRetirement.com.


Annuity Advice for Retirement:   Evaluate and compare annuities at NewRetirement.com

Reverse mortgages can be good deal for elderly

Posted on September 16, 2008 by admin

Newsday – September 13, 2008


This week’s column is devoted to the details of recently passed legislation that most of the press missed or ignored. For there is good stuff of special importance for aging Americans.

For example, the press gave good coverage to the Housing Recovery Act of 2008, which was passed in July and signed by the president, and was intended to rescue big mortgage lenders and besieged homeowners from their own folly. But it also contained some important new provisions for homeowners who may be considering an FHA-guaranteed reverse mortgage.

As a fan of such reverse mortgages, called the Home Equity Conversion Mortgage (HECM), I should note that this is one of the few home loans that banks are eager to make, for they (and the homeowners) are guaranteed against loss by the Federal Housing Administration, should the loan balance exceed the value of the home. That’s the big reason the HECM is the safest and most popular reverse mortgage (I have one).

When the law is implemented in 60 to 90 days (or maybe more), the HECM should become even more popular as a financial planning tool and a source of cash for Americans over 62, who have considerable equity in their homes and can use the money as extra income, or to invest, fix up the house, pay for long-term care policies or keep as a cushion against unforeseen problems.


Because it’s a loan, the proceeds of a reverse mortgage are tax-free, and while the closing costs may be high and the interest piles up, the loan is not repaid until the borrower leaves the home or dies. In the latter case, heirs may sell the property and repay the loan. In most cases, even with the accrued interest, the value of the home generally remains high enough so that the heirs will benefit by paying off the loan and, if they wish, selling the home. The interest paid and closing costs will be tax deductible.

Under the new law, according to readers who have been my guides on reverse mortgages and Peter Bell of the National Reverse Mortgage Lenders Association, it provides for higher loan limits, which should be welcome in high-cost areas like New York and Long Island.

Current loan limits, which vary by county and range from around $200,000 to $363,000, are much too low for cities like New York, Chicago or Los Angeles. Now there will be a single national limit of $417,000 that may increase to as much as $625,500 in high-priced areas.

Also of great importance to city dwellers, for the first time, co-op owners will be eligible for a reverse mortgage. Until now, a limited number of reverse mortgages were available to co-op owners from private lenders such as Financial Freedom. Under the new law, FHA will approve HECMs for co-op owners, if there are no complications from co-op boards. This is good news for co-op owners in places like Manhattan, where apartment values have soared but where many of the elderly, mostly widows, barely make it on fixed incomes.

As I predicted last February, the new law also allows the use of reverse mortgage proceeds to purchase a retirement home as a primary residence. Of course, the mortgage on the first home would have to be paid off. But Northerners who want to move south, or couples who want to downsize, can do so with the proceeds of a reverse mortgage. Or they can spend it cruising the world.

HECMs will become a little cheaper, for the legislation reduced and capped the origination fees and strengthened the independence of counseling that’s required by FHA when one applies for a loan. Although a reverse mortgage is available to boomers who have reached 62, it’s not necessarily a good idea for a relatively young person. Many boomers have gotten in mortgage trouble by buying their homes as an investment rather than as a place to live.

Similarly, taking out a reverse mortgage at a young age, then moving out in a year or so, would be a loser because of the closing costs. A typical reverse mortgage applicant is over 70, and the older the applicant, the higher will be the mortgage proceeds.

Finally, the legislation establishes restrictions on lenders and others who pressure reverse mortgage borrowers to spend the proceeds on dubious investments, such as annuities, that might not be appropriate. Thus, the new law prohibits lenders or their agents from requiring or persuading reverse mortgage borrowers to use part or all of their proceeds to buy annuities. Among other organizations, AARP has warned seniors to beware of sales pitches at “luncheon” or “dinner” seminars where financial advisers suggest that reverse mortgages should be used to purchase annuities or other investments. Better to confer with your own financial adviser or family on how best to use or save the reverse mortgage proceeds or line of credit.

You may find out more about HECMs and how much you can expect by visiting reversemortgage.org, aarp.org or hud.gov If you don’t have a computer, I can send you a pamphlet; send me a stamp, for I will be using a large envelope.


Read more of this article…


Home Equity Conversions:  Find out if a HEC is the solution for you at NewRetirement.com

Unlock your Home’s Equity:  More ways to tap into your home’s equity at NewRetirement.com.

About Reverse Mortgages:  Learn all about reverse mortgages at NewRetirement.com


NewRetirement Retirement Calculator:   Assess your retirement plan with the NewRetirement Retirement Calculator


Professional Financial Advisors:  Find out what a financial advisor can do for you at NewRetirement.com.


Annuity Advice for Retirement:   Evaluate and compare annuities at NewRetirement.com

Retirement saving is no gamble

Posted on September 16, 2008 by admin

CNN Money – September 15, 2008


Question: I’m a 50-year-old woman who has yet to set up any retirement fund. I have $5,000 that I can invest now to get started, and I may be able to invest another $1,000 to $2,000 every quarter. But I wonder whether this is just a high-risk gamble considering that I have such a short time until retirement. Besides, I’m not even sure where to put the money if I do start saving – in a 401(k), a Roth IRA, a CD or some other option? - A. Gonzalez


Answer: Saving for retirement a high-risk gamble? Hardly. The real risky bet for you would be to continue putting off saving for retirement until a even later date or, worse yet, forgo saving entirely. In fact, that wouldn’t be much of a gamble. Barring a huge inheritance or hitting the lottery, you would be virtually guaranteeing yourself a meager retirement at best.


But if you start saving now – and keep it up over the next 15 years or so – you still have a shot at accumulating a decent nest egg. I’m not saying you’ll be as well off as you would had you started saving 20 years ago. It’s not likely you’ll be able to squeeze a career’s worth of saving into 15 years. But if you really bear down in this home stretch to retirement, you still have a good shot at dramatically improving your retirement prospects. And you will definitely be better off than if you procrastinate further or save nothing at all.


So let’s outline exactly what you must do. Basically, you’ve got to deal with three questions: how to save, where to save and how to invest your savings? Let’s take them one by one.


How to save


It’s relatively simple to get a ballpark estimate of how much you must put away each year to have a shot at a comfortable retirement. Just go to our What You Need to Save calculator, plug in your age, income and the amount you’ve saved to date (which I gather for you is zilch), and you’ll get an immediate estimate of the dollar amount and percentage of salary you should save each year between now and age 65 to achieve a decent retirement.


Don’t be surprised if the savings target you get is daunting. That’s what happens when you put off saving until the end of your career. You’ve got to really sock it away to make up for all the years of saving and compounded returns you missed out on.


But at this point, the important thing isn’t to focus on what you didn’t do, but what you must do. So just try to get as close to the recommended savings level as you can so you can at least start making some progress. And, in fact, if you follow through with your plan and put away the $5,000 you mentioned and then another $2,000 a quarter as you say you may be able to do, by age 65, you would have roughly $340,000, assuming an 8% return. That’s a pretty good-sized nest egg starting from scratch at age 50.


Where to save


Let’s start with that $5,000 you mentioned. To get the biggest savings bang for those bucks, you want to put it into a vehicle that has some tax advantages. Basically, you have two choices: a traditional deductible IRA or a Roth IRA. With a deductible IRA, you get a tax deduction for your contribution and the investment gains on that contribution grow free of taxes, although you are eventually taxed when you withdraw the money. With a Roth IRA, you get not upfront tax break, but you can eventually withdraw your contributions and earnings free of taxes in retirement.


As I explained in a feature I wrote on Roth accounts in Money Magazine’s October issue, you’re generally better off in a deductible IRA if you think you’ll be in a lower tax bracket after you retire, while a Roth is the better deal if you think you’ll face the same or higher tax rate. People who are diligent savers and build up sizable balances in retirement accounts tend to be better candidates for a Roth IRA. Given your lack of savings to date, I expect you’re more likely to move into a lower tax bracket in retirement, which would make the deductible IRA a better choice. But you can check out this calculator to compare the two.


This assumes that you qualify for either or both types of IRAs, which I expect will be the case, although you can find out here. If you don’t qualify for either, you can put this five grand into a nondeductible IRA – which anyone under age 70 1/2 with earned income can open – and then later convert it to a Roth IRA.


As for the $1,000 to $2,000 you think you can save on an ongoing basis, your best bet for that money is to get it into a 401(k), which I assume is a possibility for you since you specifically referred to a 401(k) as an option in your question. There are lots of advantages to 401(k)s. But for someone like you who obviously has some trouble saving, the main selling point is convenience. Your savings go directly from your paycheck into your 401(k) account before you have a chance to get your hands on the money and spend it. That’s a huge, huge plus when you’re trying to build a nest egg in a hurry.


The other possible advantage is an employer match. If your employer offers one – and most do, typically 50 cents on the dollar up to the first 6% of salary you contribute – contributing to the 401(k) leverages your savings effort and makes it more likely you’ll be able to meet your annual savings target, or at least get closer to it. So at the very least, you want to be sure to put enough in your 401(k) to take full advantage of any employer match.


Where to invest your savings


You need the long-term growth potential of stock funds so that you have a chance to boost the value of your savings over the next 15 years. But you also need some bonds so your nest egg isn’t totally devastated by market setbacks. There’s no single “correct” mix of stocks and bonds for someone in your position. But if you invest roughly 70% to 75% of your savings in stocks and the rest in bonds, that should give you the long-term growth you need while affording a bit of downside protection.


One caveat: Some people who are getting a late start on retirement planning are tempted to invest much more aggressively because they figure higher investment returns can compensate for their lack of savings and boost the value of their nest egg. Remember, though, that higher returns come with higher risk – and there’s no guarantee the higher risk will pay off. You could end up with lower returns and a smaller nest egg. So I’d be wary of dialing up your stock exposure much beyond the range I’ve indicated. (As I’d be wary of scaling back stock exposure, unless you’re willing to really ramp up the amount you save.)


Read more of this article…




Professional Financial Advisors:  Find out what a financial advisor can do for you at NewRetirement.com.

Annuity Advice for Retirement:   Evaluate and compare annuities at NewRetirement.com


Unlock your Home’s Equity:  More ways to tap into your home’s equity at NewRetirement.com.

About Reverse Mortgages:  Learn all about reverse mortgages at NewRetirement.com


NewRetirement Retirement Calculator:   Assess your retirement plan with the NewRetirement Retirement Calculator

What Market Tumult Means For Average Stakeholders

Posted on September 16, 2008 by admin

The Washington Post – September 16, 2008


The stunning events rattling the financial markets are raising a lot of questions about the average person’s finances. We talked to several experts to find some answers.


Q What if I have a life insurance policy or annuity with AIG, which is struggling financially?


ALife insurance policies are covered by each state’s guaranty association. The amount of coverage you get if the company fails varies from state to state, but typically, you will be able to recoup up to $300,000 in life insurance death benefits, $100,000 in cash surrender or withdrawal value for life insurance, and $100,000 in withdrawal and cash values for annuities. Check with your state’s guaranty association or the National Organization of Life and Health Insurance Guaranty Associations, which oversees the state associations. Its web site, http://www.nolhga.com, has a list of state rules.


One caveat: State guaranty associations do not extend coverage to any policy or annuity in which the policyholder bears investment risk. This would include an annuity that is invested in stocks.


What if I own Lehman Brothers stock or have a mutual fund that has shares of Lehman? How would Lehman’s collapse affect my investments?


You will probably have to write off the stock, but don’t make any drastic market moves, said Kelly Campbell, president of Campbell Wealth Management in Fairfax. “Right now, I would sit back and wait until the dust settles,” he said.


If you have shares of Lehman in a mutual fund, all you can do is hope that it is a very small piece of the portfolio. A mutual fund should be diversified enough to withstand one bad investment.


What if I have a brokerage account with Lehman or its subsidiaries?


The Securities Investor Protection Corp. covers investors in the event of a brokerage failure, guaranteeing up to $500,000 of assets. However, yesterday SIPC President Stephen Harbeck said no liquidation proceeding against Lehman was in progress and all customer cash, stocks and other securities were accounted for.


“Should the situation at Lehman Brothers Inc. change in some material way not now anticipated by SIPC and regulators, we will, of course, intervene as necessary to protect the cash and securities of customers,” he said. “However, I want to underscore that such an action is considered unlikely at this time.”


What if I have a brokerage account with Merrill Lynch? How will it be protected from any of the massive changes that might come to that company?


Bank of America‘s takeover of Merrill Lynch should not affect brokerage accounts. In fact, in a press conference yesterday, Bank of America chief executive Kenneth D. Lewis said his bank intends to keep Merrill’s name and organization intact. So, it’s business as usual.


Read more of this article…


About Reverse Mortgages:  Learn all about reverse mortgages at NewRetirement.com


NewRetirement Retirement Calculator:   Assess your retirement plan with the NewRetirement Retirement Calculator


Professional Financial Advisors:  Find out what a financial advisor can do for you at NewRetirement.com.


Annuity Advice for Retirement:   Evaluate and compare annuities at NewRetirement.com

Jumbo Reverse Mortgages: The Great Disappearing Act of 2008

Posted on September 11, 2008 by admin

Market Watch – September 11, 2008


The REX(TM) Agreement is a safe, debt-free alternative that allows homeowners in high-value markets to tap their home equity without interest charges or monthly payments


For anyone keeping score, the list of mortgage products that have disappeared over the past 24 months is long indeed. That trend has showed few signs of abating in 2008, with jumbo reverse mortgages among the latest casualties to face Wall Street’s waning appetite for mortgage-related products, particularly in high-value states with declining markets like California, Florida, Massachusetts and more.

 

REX & Co., a real estate investment company dedicated to creating safe alternatives to debt financing, announced today a toll-free phone line to help homeowners in high home value markets discover the benefits of accessing their home equity with a REX(TM) Agreement. Homeowners considering a reverse mortgage — especially those homeowners exceeding the new Federal Housing Administration (FHA) defined HECM reverse home value limit of $417,000 and greater — are invited to call 866-722-3910 to learn more.

 

The REX Agreement, available in 13 states nationwide, allows homeowners to access their equity without ever incurring debt, interest or monthly payments. With the REX Agreement, homeowners can convert a portion of their home’s value into cash now in exchange for granting REX & Co. a portion of the future increase or decrease in the home’s value when they sell or decide to end the Agreement. The arrangement applies only to the future change in value. Homeowners retain 100% of the equity they have already built up in the home.

“Responsible homeowners have worked hard to build equity in their homes. Now, homeowners have a choice when it comes to accessing that equity to reduce debts, make home improvements, supplement their retirement needs, buy long-term care insurance or for any other use,” said Tjarko Leifer, managing director at REX & Co. “The REX Agreement gives homeowners a large, lump-sum cash advance to use anyway they wish with no interest charges to erode their existing equity and no monthly payments to burden their budget.”

 

To qualify for a REX Agreement, homeowners must reside in an owner-occupied, single-family detached home and have a history of financial responsibility, good credit, and at least 25 percent equity in their home. There are no restrictions on how the money can be used and, unlike reverse mortgages, no age restrictions to qualify.

“As jumbo reverse products like Financial Freedom’s Cash Account and others are being suspended due to secondary market conditions, the REX Agreement has emerged as a reliable, alternative way for mature homeowners with high home values to access cash,” commented John Yedinak, publisher of the widely respected website Reverse Mortgage Daily.

 

While both products allow homeowners to tap their equity without having to make monthly payments, the REX Agreement doesn’t cap the home’s market value when determining the cash advance potential or face the short-term guideline changes that can adversely limit how homeowners qualify one day to the next for the few jumbo products still available in the market.

 

“As health care and other costs continue to escalate, there is little doubt that ‘house-rich’ homeowners heading into retirement will choose to tap the equity in their home as part of a well-thought-out financial plan,” continued Mr. Leifer. “An interest-free, monthly payment-free REX Agreement that preserves the homeowner’s existing equity can often play an important role in that financial plan. At REX & Co., we’re working hard to bring our fresh approach and innovative debt-free alternative to millions of responsible homeowners nationwide.”

 

See the full article…

 


Home Equity Conversions:  Find out if a HEC is the solution for you at NewRetirement.com

Unlock your Home’s Equity:  More ways to tap into your home’s equity at NewRetirement.com.

About Reverse Mortgages:  Learn all about reverse mortgages at NewRetirement.com


NewRetirement Retirement Calculator:   Assess your retirement plan with the NewRetirement Retirement Calculator


Professional Financial Advisors:  Find out what a financial advisor can do for you at NewRetirement.com.


Annuity Advice for Retirement:   Evaluate and compare annuities at NewRetirement.com

US Government Takes on Big Role in Mortgage Market

Posted on September 10, 2008 by admin

ABC News – September 8, 2008


Uncle Sam has just become the 800 pound gorilla in the U.S. mortgage market. The Bush administration is seizing troubled mortgage giants Fannie Mae and Freddie Mac in a bid to help reverse a prolonged housing and credit crisis.


But private analysts worried that it may not be enough to stabilize the slumping housing market given the glut of vacant homes for sale, rising foreclosures, rising unemployment and weak consumer confidence.


Mark Zandi, chief economist at Moody’s Economy.com predicted that 30-year mortgage rates, currently averaging 6.35 percent nationwide, could dip to close to 5.5 percent. That’s because investors will be more willing to buy the debt issued by Fannie and Freddie — and at lower rates — since the federal government is now explicitly standing behind that debt.


“Effectively, the federal government has now become the nation’s mortgage lender,” he said. “This takes a major financial threat off the table.”


Officials announced Sunday that both Fannie Mae and Freddie Mac were being placed in a government conservatorship, a move that could end up costing taxpayers billions of dollars.


Treasury Secretary Henry Paulson refused to estimate how much the takeover of the two companies will cost the government, but he insisted that taxpayers will get paid back first.


“We structured this facility to protect the taxpayer,” Paulson said Monday in an interview on the CBS Early Show. “The government will be repaid … before the shareholders of these companies get a penny.”


In a separate appearance on CNBC, Paulson said “we obviously don’t know” when asked how much the takeover could end up costing taxpayers. He said that will depend on how quickly the housing market turns around.


Wall Street posted a huge rally Monday as investors reacted with enthusiasm to the government’s actions. The Dow Jones industrial average was up nearly 280 points in late morning trading.


The plan also touched off a global stock rally. Japan’s Nikkei stock average jumped 3.4 percent and Hong Kong’s Hang Seng index surged 4.3 percent. In morning trading, Britain’s FTSE 100 jumped 3.81 percent, Germany’s DAX index rose 3.21 percent, and France’s CAC-40 surged 4.44 percent.


Read more of this article…


About Reverse Mortgages:  Learn all about reverse mortgages at NewRetirement.com


NewRetirement Retirement Calculator:   Assess your retirement plan with the NewRetirement Retirement Calculator


Professional Financial Advisors:  Find out what a financial advisor can do for you at NewRetirement.com.


Annuity Advice for Retirement:   Evaluate and compare annuities at NewRetirement.com

Retirement: Win the game of risk

Posted on September 10, 2008 by admin

CNN Money – September 10, 2008


Moshe A. Milevsky is a math whiz who trains his brainpower on retirement planning. His view: Success comes to those who hedge their bets.


Money Magazine) — The classic vision of retirement planning goes something like this: You start broke. You invest as best you can, and if nothing goes too terribly wrong, you finish with enough money to support yourself.


Retirement expert Moshe A. Milevsky, an associate professor at York University’s business school in Toronto, sees it a bit differently. In his view, you start with all the wealth you need in the form of your lifetime earning power. Your job is to convert that personal asset as efficiently as possible into financial assets you can live off once your earning power runs out.


As for things going terribly wrong: Well, odds are that at some point in your life they will. So the key to retirement success, he says, is to identify and ensure against the risks that could knock you off track.


Milevsky’s own life offers a prime lesson in how a chance event can derail the best-laid plans. He was studying graduate-level math and physics at Toronto’s York University – envisioning a career “smashing atoms together,” as he puts it – when his father died of cancer at age 50. The oldest of five children, Milevsky was forced to become a quick expert on his family’s money.


The experience shifted his focus from academic physics to the practical math of personal finance and risk management. That unusual angle has defined his career and inspired the Individual Finance and Insurance Decisions Centre, the think tank that he founded eight years ago.


It’s also the subject of the latest of his five books, “Are You a Stock or a Bond?”, which lays out his views on retirement planning. In late August he spoke with managing editor Eric Schurenberg.


Question: Most advisers say the way to handle risk in retirement planning is to start out investing aggressively, with a lot of stocks in your portfolio, then gradually shift into safer assets like bonds as you get older. What’s wrong with that?


Answer: It’s an oversimplification. How long you have until retirement is one thing to consider when deciding how much risk to take. But there are many other variables.


Q. Like what?


A. The key is what economists call your human capital. Early in life, you tend to have very few financial assets – investments you can sell for money – but you do have a lot of time in the labor force in front of you, and that is your most valuable asset. As your career goes on, you earn a salary and devote some of it to acquiring investments. So the goal of investment management during your working life is to efficiently convert your human capital into financial capital.


Q. What does that mean other than saving adequately and investing wisely?


A. You also need to look at the risk inherent in your human capital: How stable is your job, how dependent is it on financial markets, how related is it to the economy as a whole? If you have a stable income that doesn’t rise or fall with the stock market, you should have more money in stocks than the usual investment model for someone your age says you should. Otherwise – if, say, you work in the securities industry, where your income is likely to hinge a lot on the stock market – you need to invest more heavily than you might think in safe and secure bonds.


Q. Most advisers would say you also have to consider whether you have the nerve to handle a higher or lower level of risk.


A. I think advisers tend to take the mental aspect a little too far. People’s risk tolerance changes every day. Yesterday the market is up: People are risk tolerant. Today the market plummets: They’re no longer risk tolerant. You should build your retirement portfolios on something more stable than just your mood this morning.


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Study: Impact of housing bubble on retirement

Posted on September 10, 2008 by admin

 Forbes – September 9, 2008

What did the rise and fall of home values do to retirement security for people in their 50s and early 60s?


The Center for Retirement Research at Boston College studied the issue and found that homeowners tended to act on their short-term interests. Here are some of the key findings of their report, released this month:


_ Many households reacted to the gain in housing prices by taking money out, thus increasing their debt. The center estimates that households extracted about $1.2 trillion of their home equity during the boom from 2001-06.


_ Total debt rose to 120 percent of disposable personal income in 2007 from about 80 percent in the early 1990s, according to government data.


_ With most of their family responsibilities out of the way, households headed by homeowners over age 50 were more likely to take out home equity. All told, homeowners aged 50-62 took out an estimated $380 billion from their primary residences and posted expenses of $149 billion, based on government data from the Federal Reserve System and the Case-Shiller Home Price Index.


_ Homeowners with children were more likely to tap into their home equity, possibly to pay education and other expenses.


_ Homeowners said they spent 10.5 percent of what they took out from their primary homes on expenses, including personal spending and repayment of credit-card debt; 23.5 percent to pay off past debts, 32.2 percent for home improvement and 33.8 percent for investment in the stock market, real estate or business.


_ For the typical homeowner nearing retirement (aged 50-62 in 2004), the gains in housing equity were nearly offset by additional spending. Their household net worth declined by an estimated $6,900 or 14 percent.


See the article in full…


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