Archive for the 'Retirement Pitfalls' Category

Reverse Mortgages may be Riskier for Younger Retirees

Posted on May 7, 2012 by Rohith

A reverse mortgage taken too early could be a mistake, a New York Times article published last month points out. Homeowners who wait until age 72, as supposed to the minimum age of 62; to take out a reverse mortgage will get considerably more money. Gathering input from consumer advocates, the Times addresses what it finds as potential downsides for people taking reverse mortgages at a younger age and concludes that homeowners at or near retirement should work with a financial planner or a lawyer specializing in estates to make sure they have a clear plan for the next 20 years of living expenses

A reverse mortgage allows people age 62 and older to tap the equity they have in their home, pay no money to the bank as long as they stay in the home, and potentially have $1,000, $2,000, or more income each month. This may seem like a lifesaver, but like all other seemingly too-good to be true deals, it does run some risks.

According to Suze Orman, the biggest risk with a reverse mortgage is that while it can indeed be a viable way to generate income, it is very important to understand that after you take out a reverse mortgage you will still be responsible for paying the property tax, the insurance premium, and all the maintenance costs for your home. If you can’t continue to cover those costs you will risk losing your home to foreclosure.

Second, there are concerns over the expense of and use of the reverse mortgage proceeds. Some borrowers withdraw the maximum amount of equity ($625,500) because they think they should, rather than leaving it in a line of credit account to accumulate interest. Many borrowers also make the mistake of treating reverse mortgage proceeds as a windfall – when it is really a loan – and spend it on frivolous or lifestyle purchases, rather than on necessary living expenses.

Finally, borrowers also fail to realize that a reverse mortgage can affect their eligibility for certain government benefits, such as social security and Medicaid. According to Consumers Union, a ‘lump sum’ reverse mortgage payout may immediately put the elder above the asset limit for SSI/Medicaid and disqualify the senior for these important benefits, unless careful legal planning is done to avoid this result. Before obtaining a reverse mortgage then, all prospective borrowers should research the impact on the money they expect to receive from government entitlement programs.

Are you on the fence on whether or not you should receive a reverse mortgage? Take 30 seconds to use the Reverse Mortgage Calculator to help finalize your decision.

 

 

 

How prepared are people approaching retirement?

Posted on March 19, 2012 by Steve

Not very – consider some of these stats from a recent NYT article on the impact of the 2008 financial crisis:

  • 36% of American workers age 55 to 64 say they have less than $25,000 in retirement savings
  • 52% of American workers age 45 to 54 say they have less than $25,000 in retirement savings
  • 33% of retirees get more than 90% of their income from Social Security (the avg SS payment is ~ $1,000 per month)
  • 17 % of workers have defined-benefit pensions
  • 39 % have 401(k)’s
  • 53 % of all workers have neither…

To compound the problem some professional investors are predicting lower long term returns for stocks of about 5% vs. 8-9% historically, based on the historical relationship with bonds which are now providing lower returns.

Anyway – some things to consider as you plan your own future.  Good luck!

Life expectancy has gone up 30 years in the past century – the cost of living longer

Posted on March 5, 2012 by Steve

Americans are gaining 1.1 years of life expectancy every five years -

This article does a good job of summarizing the costs faced by people and our society as we continue to extend life expectancies.

Today there are approximately 53,000 Americans who are age 100 or older, compared with just 2,300 in 1950.

Throwing it All Away

Posted on November 7, 2011 by Erin

Imagine making $50 million in your career.  Now imagine after you retire, you have to take up another 9-5  job because you have lost all of your earnings.  Seems almost impossible, right?  Think again.  It was reported last week that NFL quarterback Mark Burnell did just that.  This all happened apparently due to multiple bad investments that he had made over the years.  He invested in 9 companies, six of which are already no longer in business.  He put money into a high-end real estate company that bottomed out during the start of the housing crisis and he also lost every dime he put into the fast food chain, Whataburger.  He’s also facing six different lawsuits and may have to pay almost $25 million towards them.

You do have to feel bad for the guy, but he does provide a good blueprint for how NOT to prepare for retirement.

Make sure you’re on the right track for your retirement by using our retirement calculator.

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Retirements Swallowed by Debt

Posted on January 27, 2011 by Jason

The New York Times, January 26th, 2011

Bill Freedman, 86, felt financially secure. He had a comfortable
income from Social Security, an I.R.A., investments and an inheritance.
But when he took a fall last October, his daughter, Nancy Freedman, went
to his Manhattan apartment and found several credit cards piled up in a
desk drawer. After making a few phone calls, she discovered he was
$15,000 in debt.

“I read him the riot act,” said Ms. Freedman. Her father maintains
that his finances were manageable. Still, he thought it was a good idea
to hand over the reins to his daughter, who now has power of attorney.
His bills and statements are mailed to her apartment.

“I urge everyone to have that conversation with their parents” about
money, said Ms. Freedman. “I also think it is the parents’
responsibility to tell their children.”

Is it? Study after study shows that more elders are living with heavy credit card debt,
regularly swiping cards to pay for things like gas and groceries. And
as the balances pile up, the elderly cope in a number of ways. Some,
like Mr. Freedman, permit their adult children to step in, while others
seek outside counsel in an effort to preserve their independence. Some
elderly debtors are trapped in limbo, too proud to ask for help but too
strapped to pay off the debt.

No wonder growing numbers of the elderly have or want jobs. A report from the Sloan Center on Aging and Work at Boston College found that 30 percent of unemployed workers over age 55 have more credit card debt than retirement savings; 41 percent have as much. The situation for employed older workers is less grim, but not by much: A study by researchers at Rutgers University
found that 22 percent of older workers, the vast majority of them
employed, reported increased credit card debt, and 12 percent said they
had missed a credit card payment because of the economic downturn.
Experts say many older Americans face the very real possibility of
starting retirement in the red.

“They don’t have anything to fall back on,” said Carl Van Horn, a
public policy professor at Rutgers University and co-author of the
study. “They can’t sell their house, their retirement savings are
nonexistent, they owe all this money in credit card debt — and that’s a
bleak future.”

The growing reliance on plastic has driven the average credit card debt for people over 65 to $10,235, according to a July 2009 study by Demos, a public policy research organization in New York.

José Garcia, associate director of research and policy at Demos, said
the increase in the number of older Americans getting new credit cards
outpaces that of any other age group.

Read more of this article.

Debt Consolidation:  Retiring with debt is almost a guarantee that your retirement plans are going to miscarry.  Credit Card debt is widely considered the worst form of debt to have, due to the exorbitant interest rates associated with it.  If you have debt in retirement, or believe you will when you retire, it’s time to consider a comprehensive plan to eliminate that debt.

How Baby Boomers Can Retire Despite A Downturned Economy

Posted on January 27, 2011 by Jason

Seattle Medium, January 25th, 2011

More than 10,000 baby boomers will turn 65 each day during the next two
decades, says AARP, the nation’s leading organization on elder issues.
The generation that grew up with changes in social mores, music, and
more now faces a particularly challenging time to leave the workplace.

But what’s a person to do with the rest of their lives, if they were
born between the years of 1946 and 1964? Especially when current
economic trends and measures are more down than up, who can really
afford to retire?

Kiss goodbye the days of secure pensions and
gold watches for decades of service. According to the Employee Benefit
Research Institute, only 15 percent of the workforce today has a
traditional pension plan. Instead, 401(k) s in the private sector and
403 (b) s in public and not-for-profit organizations are the likely
alternative plans. These benefits are tied to stock market performance.
When the market performs well, benefits boom; but conversely, benefits
diminish when the market performs poorly.

Also gone are the
days when owning a house meant sure-fire wealth building. Eleven
million Americans now owe more than their home is worth. Boomers hoping
to downsize to smaller spaces may find that while unemployment hovers
near 10 percent, prospective homebuyers may be waiting for the job
market to improve before making such a large and long-term investment.

When disposable funds are fewer than in workplace years,
older consumers can be particularly at-risk to incur debts that tarnish
the golden years. Or as the O-Jays sang, it’s that ‘almighty dollar’
that can change you – especially when there’s not enough to provide for
yourself or your family.

For example, long-time homeowners
with title to their homes or nearing the end of mortgage payments might
be lured into a reverse mortgage. As a loan against market value,
reverse mortgages can be a transaction that enables borrowers to turn
that value into ready cash without selling the property.

However, before signing on the dotted line for a reverse mortgage,
borrowers should clearly understand that they are signing an end of life
loan. Full repayment is required when either the borrower passes away
or no longer lives in the residence for more than a year. Any absence
due to year-long extended health care, such as rehab or assisted living
facilities will make the loan due.

Overdraft, another debt
trap, may offer a convenient way to pay for purchases; but if there is
no cushion in the account or consumer checkbooks aren’t accurately
balanced, overdraft fees that average $34 per transaction can quickly
siphon off disposable income. Even worse, consumers only learn of the
charges after the statement arrives. Rather than incur the risk of
overdraft fees that each year strip $23.7 billion from checking account
holders, it is better to decline overdraft than to accept it.
Unauthorized overdrafts strip fees from Americans 55 and older at the
level of $4.5 billion per year. Nearly $1 billion of that comes from
people who are heavily dependent on Social Security income.

Even
worse than overdraft fees are payday loans that promise quick and easy
cash without credit checks. In recent months, many payday lenders began
accepting unemployment checks or disability benefits as income. Yet
what the marketing and advertising do not share is how only a very small
percentage of payday borrowers are actually able to retire their
short-term loan in two weeks. The vast majority of payday borrowers –
12 million each year — become trapped into a turnstile of repeat loans
and high-cost fees that result in more money being paid for interest and
fees than the amount borrowed. Meanwhile, payday lenders reap $5
billion annually.

Read more of this article.

SMART MONEY: No need to file, they already are bankrupt

Posted on January 27, 2011 by Jason

The Oakland Press, January 27th, 2011

DEAR BRUCE: My parents, both 80, have lived for years on their
credit card, running up the balance and paying it off every month. This
works great when you have ample income to cover it. For whatever
reasons, they have no investment income left and are living on
retirement and Social Security now. While they live in their own home,
they have two reverse mortgages on it and I think they exceed the
current value of the home, so selling it is not an option. They have
reached the point where not only are they running up the credit card
every month, they have maxed out two substantial lines of credit on
other cards as well. The interest alone runs them $700 per month. While
they have no mortgage or car payments, they have substantial medical
expenses (prescriptions). They cannot meet the interest obligation every
month. I estimate their credit to be about $20,000. Dad is talking
bankruptcy. I am not in a position to assist them in any meaningful way.
Is this a good alternative for them? Or should they seek credit
counseling/debt consolidation? They are in the position of NOT being
able to stop using the credit card because it takes up literally all of
their income each month. I hope I’ve given you enough information to
put forth an opinion. — Jennifer, via e-mail

DEAR
JENNIFER: Technically, your mom and dad are bankrupt. Having financial
obligations and no resources to cover them. The house isn’t an asset
given the fact that it has reverse mortgages and very likely the house
is upside-down. This has no adverse effect on them as long as they
continue to pay the taxes and insurance, this will allow them to live
there until they pass away. Their Social Security income is not
attackable so they can depend upon that. As far as the credit cards,
sooner or later they will not be able to make a minimum payment and
then the whole house of cards will collapse. I don’t see credit
counseling or debt consolidation having any value. The only positive
thing they can do is write to the credit card companies and explain
that their assets have been completely exhausted, their only income is
Social Security and they would like to close out the accounts, but they
are not in any position to reduce the outstanding balances. After
investigation, chances are the credit card companies will write the
debts off.

DEAR BRUCE: My mother carried the note on my
house, which was forgiven upon her death. I paid monthly interest,
which stopped when she passed away in 2009. Because I no longer owe
anything on my house and it is fully paid for, how do I get the deed? —
Meredith

Read more of this article.

The Financial Nightmares Facing Boomers

Posted on January 26, 2011 by Jason

Yahoo Finance, January 16th, 2011

This month, the first baby boomers officially reached retirement age,
and they’re in a gloomy mood. A Pew Research Center survey last month
found that 80 percent of the nation’s 79 million boomers are
dissatisfied with the way things are going today — more than members of
any other age group. This may reflect that 60 percent of Americans aged
50 to 61 think they might need to delay retirement because of the
recession, according to a May 2010 Pew survey. Fully 57 percent of
boomers said their household finances have deteriorated in the past few
years, more than any other generation surveyed.

Sinking home equity, rising health-care costs, and low returns on most
investments have left boomers near retirement confronting a pile of
financial worries instead of happy visions of golf, grandchildren, and
travel. Here are some potential financial disasters facing this
generation — and tips on how to avoid them.

Inflation

The U.S. cost of living rose just 0.1 percent in
November 2010, according to a Dec. 15 Labor Dept. report, but inflation
could be a serious concern in the future. Recent efforts by the U.S.
Federal Reserve to stimulate the economy have drawn criticism from GOP
leaders. Four of them, including new Speaker of the House John Boehner
(R-Ohio), sent a letter to the Fed on Nov. 17 warning that so-called
quantitative easing could lead to “hard-to-control, long-term
inflation.” An annual inflation rate of 7 percent running for a decade
is enough to cut a dollar’s purchasing power in half.

How to Avoid: The usual recommended hedges against inflation are
investments in commodities, real estate, and Treasury Inflation
Protected Securities, or TIPS. Princeton University economics Professor
Burton G. Malkiel advises buying securities in countries rich in natural
resources, such as Brazil and Australia.


Read more of this article.

5 Reverse Mortgage Scams

Posted on January 26, 2011 by Jason

Financial Edge, January 21st, 2011

Staying vigilant against computer scams and other fraud has become a
natural part of life for many consumers, yet scams are successfully
perpetrated every day. One reason: Individuals who intend to commit
fraud have become more creative than ever, and they choose their targets
with care. One group of people that scammers like to target is the
elderly, believing that older people are less quick
to catch on to a potentially harmful scheme than younger people may be.
In recent years, as the number of senior homeowners who opt for a reverse mortgage has risen and so has the prevalence of reverse mortgage scams. (For related reading, also take a look at The Reverse Mortgage: A Retirement Tool.)

IN PICTURES: Digging Out Of Debt In 8 Steps

The Home Equity Conversion Mortgage
(HECM) is the FHA’s reverse mortgage program, which is available to
homeowners age 62 and older and can be a valuable financial tool for
tapping into home equity and providing income for retirees. Homeowners
working with a legitimate reverse mortgage lender will be required to participate in financial counseling to ensure that they understand the loan and how it works.

If you are considering a reverse mortgage, watch out for these potential scams:


  1. Foreclosure Scams
    In this scam, the perpetrators go after seniors who are in danger of losing their home to foreclosure. They artificially inflate the value
    of the home with the help of a dishonest appraiser, and then obtain a
    reverse mortgage on the property. After the mortgage approval, the
    scammers have the seniors transfer the title to them and the seniors are
    left without a home and without the funds from the reverse mortgage.
    Another way of defrauding the senior homeowners is to work with a fake
    financial institution that will inform the owners that they cannot
    qualify for a reverse mortgage but that they can have a different type
    of loan. During the closing, the title to the property will be
    transferred away from the homeowners.

  2. Equity Theft Scams
    These
    complicated schemes often involve several individuals who work together
    to buy a distressed property or a foreclosure, then obtain an inflated appraisal
    and then recruit a senior to repurchase the property and take out a
    reverse mortgage on the property. Usually the settlement attorney for
    the reverse mortgage is also in on the scam, so all of these individuals
    abscond with funds from the reverse mortgage at settlement, leaving the
    seniors with little or no equity and no cash.

  3. Free Homes
    Scammers
    and con-artists use advertising to recruit seniors to live in a home so
    that a reverse mortgage can be obtained on the property. The scammers
    keep the reverse mortgage proceeds and the seniors pay the property
    taxes and insurance on the home. Generally, the reverse mortgage is
    obtained on a false, inflated appraised value. Once the seniors pass
    away or move, the reverse mortgage lender is stuck with a loss due to the lack of true value in the home.

Read more of this article.

About Reverse Mortgages:  The best possible defense against scams is to understand the program in question yourself, backwards and forwards.  NewRetirement.com’s information resource can help you do just that.

FHA’s Reverse Mortgage Standards Get Tougher in Response to Increased Delinquency

Posted on January 6, 2011 by Jason

Moneywatch, January 5th, 2011

What do you do if you’re on a fixed income and are earning next to nothing on your savings?

If you’re a senior (62 years of age or older) and you own a house, you might get a reverse mortgage,
which would allow you receive a stream of income or a lump sum of
equity from your home (or eliminate any mortgage payments you have),
bringing in  more cash to pay your bills or fix up your property.

But even with a reverse mortgage, seniors still have some expenses
associated with the property, including homeowners insurance premiums,
real estate property taxes, and maintenance.

Here’s the problem: Seniors are so strapped thanks to the recession,
that some have stopped paying their insurance premiums and taxes. And,
some are claiming that despite having reverse mortgage education before
signing on the dotted line, they didn’t understand that they still had
to pay these expenses. So, they didn’t.

As a result, their homes are subject to foreclosure, which is making the Federal Housing Administration (FHA) (which guarantees virtually all reverse mortgages) nervous.

Now, FHA is advising seniors and lenders to be more careful with their reverse mortgages.

While the Department of Housing and Urban Development
is working to establish new rules for reverse mortgagors and lenders
facing outstanding debts, the FHA released guidance yesterday for
borrowers and lenders who have delinquent housing and insurance
payments.

“We understand that some seniors have not paid
their taxes or insurance for some time and may be at risk of losing
their home. Today’s guidance is designed to establish a clear framework
that protects both the homeowner and the lender who participate in our
reverse mortgage program,” said FHA Commissioner David H. Stevens

Read more of this article.

About Reverse Mortgages:  It is easier to avoid delinquency on a Reverse Mortgage than on a traditional mortgage, but not automatic.  If you are considering a reverse mortgage, it is important to understand what your responsibilities will be.  Find out more at NewRetirement.com

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