Archive for December, 2008

When and How to Pay Off Mortgages

Posted on December 29, 2008 by admin

The Washington Post - December 27, 2008


The financial crisis has torpedoed the retirement planning of many seniors.



Those foolish enough to have followed the advice of investment advisers who preached that homeowners should convert all their home equity into investments now find that their home equity is negative because of declining home prices. At the same time, the value of common stock they purchased by mortgaging their houses to the hilt is probably way down because of the sharp decline in stock prices.


We can’t undo the past, but we can make better decisions in the future. Here are some guidelines on how to make decisions about mortgage repayment.


· The core principle is that repaying a mortgage is an investment: The yield on mortgage repayment is the mortgage interest rate. Repaying a 6 percent mortgage yields 6 percent, the same return as acquiring a 6 percent bond. Note: Bonds and mortgages have different interest compounding periods, which affects their “effective return,” but not by enough to worry about.


· Before-tax and after-tax returns: In comparing the return on mortgage repayment with the return on alternative investments that are taxable, it doesn’t matter whether the comparison is made before-tax or after-tax. If you are comparing repayment of a 6 percent mortgage with acquisition of a 5 percent bond, for example, the before-tax comparison is 6 percent vs. 5 percent. The after-tax comparison, assuming the borrower is in the 40 percent tax bracket, is 3.6 percent vs. 3 percent. If mortgage repayment earns the higher return before-tax, it also earns the higher return after-tax. If income on the alternative investment is not taxable, however, returns should be compared after-tax.


· The investment decision: In general, borrowers should repay their mortgage when their mortgage rate is higher than the return on alternative investments of comparable risk. Because mortgage repayment carries no risk, the safest application of this rule would limit alternative investments to government securities, insured deposits and other federally guaranteed assets. The returns available on such assets would usually be below the mortgage rate.


Borrowers also can compare the mortgage rate with returns on assets that do carry risk. To justify selecting such assets, they should carry a return above the mortgage rate large enough to justify the greater risk. But that is a difficult judgment to make, and it should reflect the capacity of the borrower to take the risk, which varies with the borrower’s age, among other things.


I usually recommend that seniors involved in this exercise limit their selections to fixed-income assets. Over long periods, investment in a diversified portfolio of common stock yields a significantly higher return than mortgage repayment, but the volatility of returns on stocks is high and includes episodes of negative returns, such as the one we are in now. Seniors may not have the time to wait for such episodes to run their course.


· Allocating excess cash flows: Borrowers are faced with two types of mortgage repayment decisions. In one, they invest excess cash each month over an indefinite future period. They should allocate excess cash flow to mortgage repayment if the mortgage rate is higher than the return, adjusted for risk that can be earned that month on newly acquired financial assets. The owner confronts a new investment decision every month.


· Liquidating assets to repay the mortgage: Many seniors are faced with a different type of decision — whether to liquidate financial assets to repay the entire mortgage loan balance. In making a one-time investment decision that is irrevocable, the borrower can’t adjust to future changes in the investment rate. He has to look ahead and anticipate what these changes might be and how long he will be around.


To help deal with this problem, I developed a spreadsheet that allows a borrower to enter any scenario for future interest rates, and compare his wealth in every future month in the two cases: where he liquidates his assets to repay the mortgage at the outset, and where he retains the mortgage and the assets. The spreadsheet is on my Web site and is titled Loan Repayment Versus Investment (http://www.mtgprofessor.com/Spreadsheets/Pay off vs hold.xls). Seniors confronting this decision may find it instructive to play with the spreadsheet.


· Anticipating a reverse mortgage: Seniors in modest circumstances who have no interest in leaving an estate may have a special reason to prefer mortgage repayment to asset accumulation as a way to increase their wealth. After age 62, the equity in their house can be converted into income by taking out a reverse mortgage, also known as a home equity conversion mortgage, while they continue living in the house. If there is a mortgage balance at the time, it must be paid off with proceeds from the reverse mortgage, which reduces the income the owner can draw.


Jack Guttentag is professor of finance emeritus at the Wharton School of the University of Pennsylvania. He can be contacted through his Web site, http://www.mtgprofessor.com.


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Older Investors Should Examine the Risks in Bonds

Posted on December 28, 2008 by admin

The New York Times - December 26,2008


For people in or near retirement, bonds were supposed to provide a sense of security.


But for some investors, they did precisely the opposite. Bonds of all stripes have taken sizable hits this year. The losses have not been as agonizing as the 40 percent decline in the stock market, of course, but any loss is particularly painful for people who count on these investments as a safety net.


“There haven’t been any safe places to hide, with the exception of Treasuries,” said Miriam Sjoblom, a mutual fund analyst at Morningstar. “That has been a surprise to some investors.”


Several diversified bond funds have held their own — largely because they contained a healthy helping of Treasuries — which underscores the importance of diversification.


But for some older Americans, even that relative safety is not enough to allay their concerns. Lehman Brothers and Washington Mutual were top-rated bonds — until they were not. Even some money-market funds have run into trouble.


“Fixed income should be ultrasafe,” said Steve Podnos, a financial planner in Merritt Island, Fla. “The return of principal is more important than the return on principal.”


That is a popular mantra, especially now. Ultrasafe comes at a cost, however, and there are not many bulletproof investments that yield more than 2 or 3 percent, experts said. For the risk-averse, that might be plenty when you just do not know what might lurk around the corner.


And because conditions may worsen before they improve, older investors should check that their bond investments are indeed what they thought they were — and that they fit their tolerance for risk. “We are in a 2 to 3 percent world, and if they want to earn more than that they need to proceed cautiously,” said Gary Cloud, a bond manager at Financial Counselors in Kansas City, Mo.


Several advisers and bond experts recommended that investors maintain higher cash reserves than they might in more normal times. Keeping two to three of years of living expenses in extremely safe investments, like a certificate of deposit or a money market account at a large financial institution, can provide some breathing room. That way, investors will not be forced to sell investments at an inopportune time.


Investors also need to remember that bond funds and individual bonds work a bit differently. With an individual bond, investors are guaranteed to receive their original investment back after it matures, as long as the company does not implode. With bond funds, there is no such guarantee because the value of the bonds inside will fluctuate with market conditions. That means the value of the investment will vary, too.


Of course, a sizable pile of money is needed to build a portfolio of individual bonds as opposed to simply purchasing a bond fund. Opinions vary widely — from $50,000 to $500,000 — on the amount needed to be properly diversified, though several experts agree it can be done with about $100,000 to $200,000. It is probably best to sit down with an adviser, preferably a fee-only adviser or one that charges by the hour, to go through the pros, cons and costs of each.


Some advisers have strong feelings about both instruments. Some refuse to use bond funds because they say they do not know what they own, though that problem can be addressed by using index funds, whose investments remain relatively static. Other advisers say they cannot attain the level of diversification with individual issues. Whatever you decide, knowing what you own and understanding the risks involved are what really matters. And if a bond investment promises high returns, a little mental bell should go off as a warning signal.


“We see a lot of retirees come in and they have a lot of their fixed-income investments in aggressive funds,” said Richard Rosso, a financial planner with Charles Schwab in Houston. “They have gotten seduced by the yield of the fund and didn’t look at how that yield was being derived.”


Instead, investors should anchor their portfolios with a fund, or combination of funds, that hold wide swaths of high-quality government-backed, corporate and mortgage-backed bonds — with short- to intermediate-term maturities, experts said. (Shorter-term securities are less sensitive to changes in interest rates; when rates rise, bond prices fall). Low expenses are extremely important because bond funds do not yield much to begin with. The Vanguard Total Bond Market Index fund fits that bill. It is up nearly 5 percent this year and charges a rock-bottom 0.07 percent of assets. Two actively managed options, Harbor Bond, managed by Bill Gross of Pimco, and FPA New Income — up 2.2 percent and 4.03 percent, respectively — are considered strong choices where capital preservation is a top priority, Ms. Sjoblom of Morningstar said. But, of course, they are more expensive.


See more of this article…


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The Fed: Dodging Deflation

Posted on December 21, 2008 by admin

Business Week – December 18, 2008


The Federal Reserve’s increasingly unconventional efforts to mend the financial markets and restore economic growth are starting to take on a new urgency. Recent data indicate the economy’s descent into recession is accelerating, and the risk of a debilitating bout with deflation is rising. Given severely weak demand by U.S. consumers and businesses, along with an unexpectedly large drop in October exports, many economists now believe fourth-quarter gross domestic product could fall at a 6% annual rate. Policymakers face an uncomfortable mix of slumping demand, rising unemployment, and frozen credit. That combination, as seen in the U.S. in the 1930s and in Japan in the 1990s, is fuel for deflation.


Aiming to avert such an outcome, the Fed is pulling out all the stops. In a radical move at its Dec. 15-16 meeting, policymakers cut the target rate from 1% to a range of zero to 0.25% and committed to keep it there “for some time.” The action means the Fed has all but abandoned interest rate targeting. The Fed will now concentrate on pumping money directly into the economy by purchasing “large quantities” of mortgage- and other asset-backed securities and maybe even longer-term Treasuries. The efforts are meant to cut borrowing costs and kick-start demand.


Deflation is sure to be a hot topic in the coming months. The overall inflation rate, as commonly measured by the 12-month change in the consumer price index, is bound to fall to below zero by early 2009 because of the steep drop in energy prices from last spring’s high levels. But that alone would not be deflation in the true sense, which is a broad decline in prices amid falling demand that feeds further price cutting. Because true deflation casts a broader net, it would have to be evident in core inflation, which excludes energy and food.


The energy-related plunge is already showing up in month-to-month changes in the CPI, which dove a record 1.7% in November from October, the fourth monthly decline in a row. Since July the 12-month rate has dropped from 5.6% to 1.1%. Core inflation slowed from 2.5% to 2% in November, but the weakening in prices since August has been unusually sharp.


Deflation is the inflation process in reverse. That is, wages and prices spiral downward in tandem, as a deflationary psychology sets in among businesses and consumers. Wage growth always slows in a recession, and the longer unemployment stays high, the greater the slowdown. Likewise, core inflation also falls in a downturn and continues to decline until stronger growth generates more pricing power by taking up the slack in the economy.


In fact, most U.S. inflation models, which are based on the degree to which the economy is utilizing its available labor and capital, would predict deflation if slack demand were to push the jobless rate to around 9%. Right now, economists believe the unemployment rate will exceed 8% in the coming year, and not-so-idle talk of 10% joblessness is starting to crop up.


Plus, core inflation in this recession will be starting its decline from a very low level compared with past slumps. After the 1990-91 downturn, core inflation fell from a peak of 5.7% to 2.6%, and after the 2001 recession, it dropped from 3.8% to 1.1%.


Compounding matters, weak labor markets and tight credit aren’t the only factors depressing demand. Using a new measure of house prices, the Fed now says consumers have lost a staggering $7.1 trillion in net worth since the third quarter of 2007. That drop exceeds the $4.2 trillion decline after the 2000 stock market collapse, and more losses in the fourth quarter could lift that total to more than $10 trillion.


As falling energy prices push inflation below zero in 2009, news reports are sure to feed deflationary psychology the same way energy’s influence on inflation in 2008 prompted expectations of rising prices. But back then the economy was too weak to support broadly higher inflation. Now, the Fed is trying to ensure it will be strong enough to avoid deflation.


See the full article…


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


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Treasury: Seniors Must Take Retirement Account Withdrawals This Year

Posted on December 21, 2008 by admin

US News & World Report - December 19, 2008


Retirees older than 70 ½ will not be required to take withdrawals from their retirement accounts in 2009. But the Treasury Department and Internal Revenue Service decided seniors will not get the same tax relief this year.


Those over age 70 ½ must take a required minimum distribution from their IRAs, 401(k)s, and 403(b)s by December 31, or pay a tax penalty of 50 percent of that amount plus income tax. Seniors who turn 70 ½ this year have until April 1 to make the required withdrawal.


The amount retirees must withdraw is based on the December 31, 2007 account balance divided by life expectancy as determined by the IRS. Most American’s retirement accounts have significantly declined in value since then. So, retirees must take withdrawals from severely depleted portfolios.


Congress passed a bill last week that temporarily suspends the required distribution rule for 2009, but the legislation did not address mandatory withdrawals for this year.


Kevin Fromer, the Treasury’s assistant secretary for legislative affairs, wrote in a letter to Congress:



“Any steps Treasury could take would be substantially more limited than the relief enacted by Congress and could not be made available uniformly to all individuals subject to required minimum distributions. In addition, implementation of such changes would be complicated and confusing for individuals and plan sponsors. Thus, all individuals who are subject to required minimum distributions for 2008 should take their distribution under the existing rules and, as a result of relief provided by Congress, they will be entitled to a complete wavier of the requirement to take any distributions for 2009.”


See the full article…


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


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The American Dream—Only This Time in Reverse

Posted on December 21, 2008 by admin

Newsweek - December 20, 2008


When you walk through a FOR SALE house with a real-estate agent, you expect to hear gushing about the “solid bones” or the “great potential.” But as I toured listings this year while covering the deepening housing crisis, I heard a different line of patter. “Hold your breath,” advised one agent, taking me into a basement with a mold-infested indoor pool that left my sinuses burning. Graffiti on bedroom walls, missing appliances, boarded windows, even crime-scene tape—they’re becoming the norm as foreclosed houses swamp the market. By some estimates, there are now more than 1 million foreclosed homes for sale, and with prices still falling, more homeowners are going “underwater”— owing more on their mortgage than their home is worth—every month.


Touring a foreclosed home is like watching an episode of “Extreme Makeover: Home Edition” in reverse. You can imagine the heartwarming scenes of family life that once played out inside, but now you’re left with only a dwelling that’s been trashed by an angry foreclosure victim. Prospective owners usually need to do a major face-lift, which makes them want a dramatic price reduction before they buy. “If you got into real estate because you wanted to help people buy their dream home, [selling foreclosures] does not give you that fulfillment,” says one agent who goes through a lot of Purell during long days inside grimy properties.


Alongside these boarded-up houses there are often homes occupied by people living on the edge of foreclosure themselves. Many of their stories involve illness, job loss or divorce—the triple whammies that fuel most financial tragedies. There’s often another complicating factor: many of these families signed up for exotic mortgages they didn’t really understand. “I just listened to people I shouldn’t have listened to,” says Kathleen Annese, a Massachusetts woman with a sick son. She and her husband pay more than 50 percent of their monthly income on an option ARM mortgage, a form of financing that never existed before the boom—and, God willing, will never be used again.


How best to help these homeowners and stabilize the overall housing market remains a matter of debate. One proposal would let new home buyers obtain mortgages at 4.5 percent; existing borrowers might be allowed to refinance at that rate as well. For delinquent borrowers, federal officials have discussed ways to make it easier to obtain loan modifications that would make payments more affordable. With luck, the new administration will implement these proposals. And if there is any silver lining to the housing crisis, it’s that we’re all receiving a harsh lesson that when it comes to financing our homes, “keep it simple, stupid” is a good maxim—and that as job losses continue to rise, the best kind of mortgage is ultimately the smallest one possible.


See the full article…


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


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When to collect Social Security

Posted on December 16, 2008 by admin

CNN Money - December 2008


If you can afford to put off collecting your checks for a few more years, you probably should.


Question: I’m 60 years old and in good health. I can afford to put off drawing Social Security until after age 62 to get a higher monthly check, but I’m not sure if I should. What factors should I consider when deciding whether I should hold off collecting Social Security?  Robert Walker, Austin, Texas


Answer: Figuring out whether to take Social Security at 62 — the earliest age you can collect — or waiting until you’re older has always been one of the most important questions retirees and wanna-be retirees face.


But making this call is even more critical today. The reason: working and saving a few extra years combined with the larger check you would receive by postponing Social Security can help you rebuild retirement accounts that have been devastated by the bear market.


Of course, some people may have no choice but to collect as soon as they can. If you’re forced into early retirement by a layoff or health problems before you have a chance to build an adequate nest egg, taking Social Security benefits ASAP may be the only option you have.


But if you’re approaching age 62 in good health and you’re in reasonable financial shape as well, waiting a few years can significantly boost the size of your monthly check for the rest of your life, not to mention pass on a larger payment to your spouse, if he or she receives a survivor benefit based on your work record.


So the take-it-now-or-later question essentially comes down to this: Will you (and your spouse, if you’re married) be financially better off collecting payments for more years even if they’re smaller? Or will you come out ahead with payments that may be larger by 25% or more even if you don’t start getting them until you’re a bit older?


The answer largely depends on how long you expect to live. If you think you’ll be around long enough so that the total amount you collect from the bigger but later payments will be larger, then you’re better off postponing.


If, on the other hand, you don’t think you’ll live long enough to overcome the late start in collecting benefits, then you’re better off claiming Social Security sooner.


You can get a rough sense what size benefit you would qualify for at three different ages — 62, your full retirement age and age 70 — by going to the Quick Benefit Calculator on the Social Security site. For a more accurate estimate that calculates the size of your check using your actual work history, you can check out Social Security’s new Retirement Estimator.


By comparing the size of the total amount you would receive year by year by claiming benefits at different ages, you can see how long it would take for you to break even under different scenarios.


Or you can get a very quick and easy estimate of whether you’re better off starting at age 62 or your full retirement age by going to Met Life’s Social Security Decision Tool.


Just plug in your age, gender and your most recent annual salary, and a neat little graph will pop up that shows your break-even age (76 in the 62 vs. full retirement age scenario), your odds of reaching that age and how much more you’ll receive in total benefits if you live until 85 or 92.


This tool doesn’t factor in any investment value for your Social Security benefits, however. Why, you may ask, does that matter if you just plan on spending the money anyway? Well, think of it this way. If you receive, say, $1,000 a month in Social Security benefits, that’s $1,000 you don’t have to withdraw from your retirement investments. Which means that $1,000 can continue to earn a return. If you assume a conservative rate of return on your retirement savings — say, 4% to 5% after taxes each year — your break-even period increases by roughly three years. For most people, especially someone in decent health — that still usually makes postponing a good deal.


Married couples
The analysis gets more complicated for married couples. The idea is to maximize the amount a couple will collect as long as at least one of them is living. Recent research shows that the best strategy for many couples is for the wife to take Social Security at 62 and the husband to wait until he’s 66 or older.


The reasoning is that husbands usually earn more than their wives — which gives them a larger check — but they die sooner. By having the wife start at an earlier age, the couple can collect more of her benefits while they’re both living. And by the husband holding off to a later age for a larger check, the wife can then qualify for a larger survivor’s benefit after her husband dies.


The best age for a husband and wife to begin collecting their respective benefits depends on the difference in their ages and earnings. To see what the ideal ages would be in your situation, check out Table 4 in a Boston College Center For Retirement Research paper titled “Why Do Women Claim Social Security Benefits So Early?”. Or you can crunch the numbers on your own by downloading the “Start Social Security at 62, 66 or 70″ program at the Analyze Now! site.


One final note: Recent research by T. Rowe Price shows that working, saving more and collecting Social Security later can be an especially powerful combination for increasing your income in retirement. For example, if you retire at 65 instead of 62 and save 15% of salary during those three years, you may be able to increase your combined income from investments and Social Security by more than 20%.


Bottom line: If your retirement accounts have taken a big hit in this crisis, you’ve probably already begun taking a closer look at your investing strategy. That’s fine. But since you have little control over the financial markets, you may be able to improve your retirement prospects a lot more by re-thinking when you plan to retire and at what age you’ll begin collecting Social Security.


See the full article…


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


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


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

Congress OKs bill to help retirees protect savings plans

Posted on December 16, 2008 by admin

USA Today – December 12, 2008


Congress approved legislation that would provide relief to retirees who want to avoid inflicting further damage on their battered retirement savings plans.

The bill, which President Bush is expected to sign, allows retirees to defer withdrawals from their 401(k) plans and individual retirement accounts in 2009 without triggering a penalty. Separately, it would temporarily ease funding rules for traditional pension plans.


Ordinarily, seniors age 70½ and older are required to withdraw a minimum amount from their tax-deferred retirement savings plans every year and pay taxes on the money. The amount is based on a life expectancy factor calculated by the IRS and the value of their retirement plans at the end of the previous year. Seniors who ignore the requirement face a penalty equal to 50% of the amount they should have withdrawn.



This year, the rule has created considerable angst among retirees who have seen the value of their retirement plans shrink dramatically since Dec. 31, 2007. Unlike younger retirees, they don’t have the option of postponing their withdrawals until their investments recover. Many have postponed taking minimum withdrawals in hopes that Congress or the Treasury Department will provide some relief.


The legislation won’t help seniors who were hoping to avoid taking a withdrawal this year, or have already taken a withdrawal. But it will give seniors more time to recoup some of the losses in their retirement plans, says David Certner, legislative policy director of the AARP.


There’s still a chance that the Treasury could use its regulatory authority to help retirees this year, says Clint Stretch, managing principal of tax policy for Deloitte Tax. One possibility, he says, is that the Treasury could allow retirees to calculate their withdrawals based on the value of their IRAs at the end of 2008, instead of the end of 2007. For most seniors, that would result in smaller withdrawals.


The Treasury is studying its regulatory options, spokesman Andrew DeSouza said in an e-mail.


Also, the pension provisions in the legislation would roll back funding requirements contained in the 2006 Pension Protection Act, which was designed to strengthen the financial security of traditional pension plans. Stock market volatility has increased pension funding obligations at a time when companies need money to maintain their business operations, James Klein, president of the American Benefits Council, said in a statement.


The Center for Retirement Research at Boston College estimates that investments held by pension plans lost about $900 billion in the 12-month period ended Oct. 9.


See the full article…


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Hard move made harder: Downturn takes toll on seniors, homes

Posted on December 16, 2008 by admin

The Arizona Star – December 14, 2008


Francesca Jarvis has lived in her university-area home since 1968, and it shows.

 

The home is cluttered with a lifetime of stuff: Stacks of magazines, keepsakes, loose ends and old videos have spread across tabletops and spilled onto the floor.

 

When she talks about her home, Jarvis’ love for it comes through clearly, but in recent years the home has become a burden. It needs a new roof and wiring. There might be termites, and water damage has peeled away at the walls and ceilings. Jarvis and her husband, Clint, 83, keep towels on a mantle to catch dripping water from the roof.

 


“It was in really good shape,” said Jarvis, 76, an acclaimed actress who has appeared in numerous films, TV shows and theater productions. “One of the sad things is, we are really not poor, but we could very easily slide down if the economy worsens.”

 

For many of the more than 135,000 senior citizens in Pima County, and millions more across the country, the plunging economy has taken a heavy toll. Not only have fixed incomes been stretched thin, but many elderly people have lost savings or were relying on the sale of their homes to move to assisted living or cover medical expenses. In a down market, they are suddenly stuck at home.

 

“We have been getting increased calls for assistance for more than a year,” said Diana Edwards of the Pima Council on Aging. “When it comes to our seniors, I would say that this is the second year of a recession.”

 

Pima Council on Aging has had more than 1,000 calls for assistance with major home repairs in the last fiscal year, but there are only enough funds for 40 homeowners, Edwards said.

Putting off maintenance can lead to a disastrous situation where homes and their elderly owners both fall into neglect, say real estate agents and those who work with older people.

 

“Often someone has just been subsisting for years, existing for years. You’ve got the carpet that is filthy. The windows are cracked. You’ve got all this maintenance that is needed,” said Suzy Bourque, a caregiver specialist with Pima Council on Aging. “Maybe someone falls and breaks their hip; they end up not being able to return to their home. It takes several months to clean up the house. Who pays for that to prepare for the sale?”

 

Jarvis and her husband looked into a reverse mortgage to meet their needs, but it didn’t work out for them. They have now begun to talk about selling their home, a spacious and cheerful place built in 1910 with maple beams and wide, towering windows but also asbestos shingles.

 

But they don’t know where to begin in terms of getting the house repaired and ready for sale, nor do they have a clear vision of where they would go if they did sell.

“My husband has not been able to talk about it until now,” Jarvis said. “It’s a beautiful house.”

 

The price is wrong

Real estate agents often say the market varies from neighborhood to neighborhood, so the issues and challenges that come with selling homes change with geography and income levels.

Glenda Grow, an agent with Long Realty who specializes in listing homes in retirement communities, doesn’t usually deal with homes in need of major repairs like Jarvis’, but she is still seeing the effects of the economy on sellers living in newer homes.

 

Because of high inventory levels and falling prices, selling homes in retirement communities in the current market has proved challenging — perhaps harder than selling a fixer-upper like Jarvis’ home.

 

It’s not that homes aren’t selling in retirement communities, it’s just that it takes some hard work getting people to price their homes correctly, Grow said. And with the average cost of assisted living at about $3,000 a month, according to a recent MetLife survey, many seniors need a minimum price on their homes to make the move.

 

Grow said she has two clients now who are putting up homes for sale because they could no longer live as independently as they wished, and in their own ways they have faced difficulties selling.

 

One couple, who declined an interview, is moving from Tucson’s North Side to La Posada, a retirement community that provides somewhat independent and assisted living in Green Valley. The couple originally put their high-end home in Heritage Highlands at Dove Mountain on the market last year, but no one bought it. They took it off the market, but health complications arose a short time later, so now they are listing it for $70,000 less than their first attempt.

 

“Now we are being realistic,” Grow said. “Now we want to sell the home as quickly as we can.”

 

Grow has another client, an elderly man in the early stages of Alzheimer’s disease, who has had his Heritage Highlands home listed for some time. The man has moved in with his son in Atlanta, but he has priced his home higher than perhaps the market can bear.

 

“He realizes that is his nest egg, and he is afraid to let it go too low,” Grow said. “He doesn’t need the money to live off right now, but he knows he is going to need the money down the road.”

 

One of the greatest challenges for selling a home in Southern Arizona’s active living communities like Heritage Highlands is the amount of inventory on the market. For example, Long Realty reported in October there were roughly 15 months of inventory on the market in Green Valley and other retirement communities. A healthy number is usually about six months of inventory.

 

“I always tell the elderly people that if you don’t have to sell in this market, then don’t,” said Peggy Miller, an agent with Long and president of the Green Valley/ Sahuarita Association of Realtors.

 


 


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


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


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Starting Over, With a Second Career Goal of Changing Society

Posted on December 13, 2008 by admin

The New York Times – December 12, 2008


Harvard kicked off a small but ambitious experiment this week that it hopes will become a new “third stage” of university education. For the student-fellows in the program, most in their 50s and early 60s, the goal is a second-act career in a new stage of life.


The 14 fellows have résumés brimming with achievement — including a former astronaut, a former senior official at the United States Agency for International Development, a physician-entrepreneur from Texas, a former public utility official from California, a former health minister from Venezuela and a former computer executive from Switzerland.


They gathered at Harvard on Thursday to begin the yearlong program intended to help them learn how to be successful social entrepreneurs or leaders of nonprofit organizations focused on social problems like poverty, health, education and the environment. Their interests include sickle cell anemia, women’s education in Africa, health care quality and water conservation.


The opportunity, the fellows say, is to pick up new knowledge, skills and professional relationships in a new realm. To Charles F. Bolden Jr., one of the fellows, it has the potential to be as life-changing as his selection to join America’s space program nearly three decades ago. “The Harvard program feels sort of like that,” said Mr. Bolden, 62, a retired major general in the United States Marine Corps and a veteran of four space shuttle missions.


The program, called the Harvard Advanced Leadership Initiative, is a collaboration among five of the university’s professional schools — business, law, government, education and public health. It is seen as a next stage for universities, beyond undergraduate and then graduate and professional schools.


If successful, Harvard professors say, it can serve as a model for schools at other universities, creating case studies and course material.


“This is about deploying a leadership force to have an impact on major social problems,” said Rosabeth Moss Kanter, a professor at the Harvard Business School who heads the program. “We want to make the case to the world that experience matters.”


The recession, to be sure, is going to make things tougher for social entrepreneurs, as it has for profit-seeking start-ups. Vivian Lowery Derryck, 63, a former A.I.D. administrator for Africa, had incorporated a new nongovernmental organization earlier this year, before joining the fellowship program. Her organization’s purpose, she said, would be to forge government and corporate partnerships to address social issues in Africa, like education. This summer, Ms. Derryck said, she spoke to multinational corporations that expressed an interest in contributing. But after the financial collapse, she worried that money might be scarce.


Still, the nonprofit sector tends to hold up reasonably well in recessions, experts say. The demand for social services grows in bad times, and while contributions will surely drop over the next year or so, they expect the long-term trend of growth to return eventually. In addition, experts say, a shortage of experienced leaders and management is a chronic problem in nonprofit organizations as they become larger and increasingly complex.


Nonprofit organizations face a collective “leadership deficit” over the next decade of more than 600,000 senior managers, the Bridgespan Group, a nonprofit organization that advises foundations and nonprofit groups, has estimated.


The Harvard program is aimed at the upper tier of that leadership gap. “This initiative is path-breaking and has enormous potential if it is done properly,” said Thomas J. Tierney, the chairman of Bridgespan.


The Harvard experiment is part of a larger effort to help find productive “next” careers for a coming flood of retiring baby boomers — more than 75 million people born from 1946 to 1964. Many of them resist the traditional retirement ideal of leisure and travel.


Indeed, more than five million Americans who are 44 to 70 are already engaged in a stage of work after their first careers that has a social impact, mainly in education, health care, government and other nonprofit organizations, according to a survey this year by Peter D. Hart Research Associates.


Such later-in-life, second acts have been called “encore careers,” “postcareers” and “engaged retirement.” No matter the name, the concept seems to have considerable appeal, encouraged by celebrity role models like Bill Gates and Bill Clinton.


Half of Americans age 50 to 70 want to find work that has a social impact after their primary career ends, according to a poll by Princeton Survey Research Associates.


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Coaches for a Game of Money

Posted on December 13, 2008 by admin

The New York Times – December 12, 2008


AS people contemplate their own economic straits, the not-so-funny line you often hear these days is: “O.K., where is my bailout?”


Few of us will ever get the financial breaks now being given to big companies, but there is a groundswell among financial professionals and policy makers to provide another sort of remedy.


As the economy sputters — and the news of crazy mortgages, escalating foreclosures and personal debt mounts — there is a growing impetus to give millions of Americans something they badly need: financial advice.


The financial world abounds with all types of advisers, of course. Financial planners are a common source of guidance. But most planners are geared toward helping their clients create a long-term strategy for managing their money.


Many charge a flat fee for a financial plan, or take a commission based on the products they sell, like mutual funds or insurance, or they charge a fee based on a percentage of assets under management. Fees frequently run into the thousands of dollars.


Where do you turn if you don’t have deep pockets or significant assets, or if you simply need help unraveling more mundane, yet crucial, financial problems, like deciphering the terms of a mortgage, the ins and outs of balance transfers or your 401(k) plan’s corporate matching system?


“You can take financial education classes. You can read books,” said Karen Murrell, a senior research fellow at the New America Foundation, a nonprofit policy research organization in Washington. “But if someone has questions or needs a second opinion before they make a financial decision, they need access to objective, expert advice. Given the current economic situation, there’s a greater need than ever before for this kind of service.”


The institute has been working on a policy idea that she describes as a “financial service corps,” inspired by the Peace Corps. If this federal program were adopted, Ms. Murrell said, financial professionals would volunteer their time, pro bono, to help low- and middle-income people sort out their financial lives and problems.


Given the ridiculous complexity of financial life, basic, inexpensive advice is needed for every income level, and certainly mine. Don’t get me started on the time, paperwork and hair-pulling it has taken me, as a freelancer, to set up and maintain my I.R.A.’s. Or what I’m going through trying to buy an iPhone without starting an international event by switching providers.


“There are just too many moving parts in our financial lives nowadays,” said Sheryl Garrett, president of the Garrett Planning Network, a nationwide association of fee-only financial planners who offer clients services by the hour, which can be very useful if you don’t want to invest in a long-term plan and really need short-term troubleshooting.


Ms. Garrett compares her business model to “a walk-in clinic that treats sprained ankles and dispenses flu shots — you’re there for everyday kinds of issues,” she said.


HELPING people cope with everyday money problems has been a growing concern in much of the financial world, and the economic crisis has made matters only more urgent. There is a pilot program in San Francisco that aims to give people financial advice and the coaching necessary to carry out their plans. The project, known as Wealthcare, is a partnership between EARN, a nonprofit that provides financial education, and Saundra Davis, a financial planner.


Ben Mangan, the executive director of EARN, said that most people seemed to need more than just information and advice to get a grip on their finances. Knowing you need to save for retirement is just the start, he said.


A financial coach could walk you through steps like opening a retirement account, understanding your investment options and setting up the contributions. The plan is to expand the program to other cities in 2009. The goal is to help “people of modest means, who are on the cusp of upward — or downward mobility, depending on their ability to manage their money,” he said.


Lately, it seems as if that could be anybody.


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