Archive for Financial Planning

The 28/36 rule

What is a manageable mortgage payment? A rule of thumb among mortgage lenders is the “28/36″ measure of how much of your total pretax income goes to paying back loans: no more than 28 percent for monthly housing expenses( property taxes, homeowners insurance, homeowner’s dues, and mortgage), and no more than 36 percent for all debt ( car, home, student loans, credit cards). This “debt-to-income” guideline means on a 30 year mortgage of $180,000 at 4.5% will be a payment of $912 and you will need a household income of $52,000 to meet the guideline.

Banks also take into account the “loan to value” ratio of how much of your own money you are putting down. This assumption is that people will be more likely to keep up payments on a home that is worth more than the mortgage. The classic 20 percent down payment. Plus , you now have “skin” in the game.

Sign these Important Papers

Most Americans, regardless of age, avoid thinking about sickness or death with the hope that it will never happen. None the less one need to be practical in their thinking. Here are some important papers you must have completed.

Advance directive: A living will, a type of advanced directive, tells loved ones and medical personnel the treatment you want or don’t want should you be unable to speak for yourself due to accident or coma.

Durable power of Attorney for health care : Often included in an advanced directive designates your choice of who can make medical decisions for you when you cannot.( you may want to laminate this and put it in your wallet and/or hold it in an electronic storage that family members have access).

Will: With a Will you can head off potential family squabbles by spelling out who gets what. For those with asset values over $100,000 we always suggest a Living Trust that contains a Pour Over Will.

Durable Financial Power of Attorney: Not all of your assets can be in a Living Trust. If you are alive yet incapacitated, the only way a person chosen by you can access an IRA, pension or other financial account on your behalf is through this document. Many brokerage accounts have their own forms so better check with them to see if they are needed also.

This is just a start. In many cases you can get these forms online for a low fee. If you want to be certain you are doing it correctly in your state it is worthwhile to hire an attorney.

Saving Money Before and During Retirement

Saving money before and during retirement so their standard of living doesn’t suffer is important for many retirees. Unfortunately, many Americans aren’t saving nearly enough and are falling short of setting aside adequate funds to support their retirement needs. The average retirement savings for people aged 56-61 is only $163,577. Meanwhile, retirees can spend nearly $275,000 on health care. The National Institute for Retirement Security estimates that America has an up to $14 trillion gap in retirement savings.

If you are retired and finding that balancing your savings and spending is an ongoing challenge, follow these tips for ways to trim your expenses and save more.

1. Cut Your ‘Time-Saving’ Costs
When you’re employed and busy managing your career and family, spending money on time-saving items—like professional house cleaning or monthly food-subscription services—can be helpful. Once you retire, however, you typically have more time on your hands. You may be paying for items that are no longer necessary. You can save money each month by trimming or eliminating any time-saving resources you don’t need to support your retirement lifestyle.

Actions to take:
• List all the monthly, quarterly, and annual subscriptions and services you have. Identify which ones aren’t necessary.
• Consider taking over household chores you pay someone else to manage.
• Assess how much you spend on eating out, and switch to eating in for some of those meals.

2. Reduce Your Health-Care Costs
Retirees typically spend a large amount on health care, often siphoning income that could be used for other expenses. Unless you have the money to pay these bills, they could leave you in a financial bind. You can help reduce some of your medical costs by learning to shop around. For example, changes like getting an MRI at a radiologist instead of a hospital can make a difference in your medical bills, as the radiologist is typically less expensive.

Actions to take:
• Get comparative quotes from hospitals and other medical professionals.
• Check prescription costs at different pharmacies, and consider buying generic.
• Revisit your insurance plans to help identify if you’re receiving the best value.

Every retiree’s financial life and needs are different, so knowing a true breakdown of your daily, monthly, and yearly costs (your budget) is important for finding ways to save. By taking time to assess what may be unnecessary spending in your life, and reducing or eliminating these expenses, you may have more money on hand for other lifestyle needs.

To learn more about how you can trim your spending or pursue other financial goals in retirement, please contact us. We’re happy to help you explore strategies for your unique needs.

“It’s not the situation, but whether we react (negative) or respond (positive) to the situation that’s important.”

–Zig Ziglar

Stock Market Correction Coming!

Are you concerned that the stock market is getting overvalued and on the verge of a nasty correction? This 10 minute You Tube video will provide helpful education in a logical , unemotional and scientific way. I think you will find it very revealing.

Administration and Probate

Everyone hates probate. Someone dies, someone else goes to court, and, after delays and expenses the assets are distributed. Why go through this unnecessary time and expense?

Probate assets include house, cars, bank accounts, timeshares, mineral interests, rental property and certified securities. Most banks and title companies will NOT allow transfer of these assets without a “letter” issued by the probate court.

On the other hand , non probate assets transfer immediately. All you need is a death certificate. No lawyer, no probate , no delays.

There are 3 simple ways to create non probate assets. First,, a single owner can list out a beneficiary. Examples are for life insurance, IRAs, brokerage accounts and internet bank accounts. Second, an account can be set up as joint ownership with right of survivorship. Each owner must agree and no owner can be removed without every other owner’s consent. This is a easy way to do things but has many pitfalls.
Third a Revocable Intervivos Trust, aka, Living Trust may be set up. Under this arrangement all your assets are owned by the trust which never dies until you say that it dies ( ends or terminates). You still have full access to all the assets. Thus there is NO need for Living or Death Probate since you do not have any assets in your name.

All of these methods can work. My favorite is a Living Trust for anyone with over $100,000 in assets. Get the book, “The Loving Trust” by Esperti and Peterson for a great down to earth explanation of all 3 above listed methods.