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‘Bucket’ Approach to Spending Reduces Stress of Retirement

Wed, 01/16/2019 - 16:13

(TNS)—Anyone retiring in 2019 could understandably be feeling a little skittish.

There’s retirement research showing market declines in the first few years can devastate a portfolio’s chances of providing enough income for life, and recent volatility after a nearly decade-long bull market is worrisome.

Interest rates moving higher could be a good sign, in theory, for someone hoping to build ladders of CDs, for example. On the other hand, if it also ushers in an era of rising inflation, that’s troubling, too. A prolonged government shutdown could have even more of an impact on the economy.

If delaying is no longer an option, either because of health, the job market or simply your own conviction, consider building in a few contingency plans. Several financial advisers contacted for this article say they are carving out cash buckets for retirees’ living expenses. Some of them take spending money directly from the cash bucket, replenishing it with stock gains periodically, while others keep the cash as a reserve to draw from during market downturns.

Either way, they say the cash acts as a volatility buffer, allowing clients to refrain from panic selling into a market decline.

“Creating a bucket strategy can help clients compartmentalize assets designed for certain purposes or periods of time,” says Ashley Folkes, a financial planner in Scottsdale, Ariz. “Having safe money to draw down from for the first few years alleviates some of the stress from the buckets (that are invested in stocks).”

Consider a couple retiring this year at precisely their full retirement ages, as defined by the Social Security Administration. The 66-year-olds will get a combined $3,000 a month in Social Security benefits and they have retirement accounts worth $500,000. Suppose the couple wants to withdraw $21,853 this year from savings, which is the spending rate recommended by BlackRock’s LifePath Spending Tool. Using a bucket strategy, the couple would put $65,559 into the cash bucket while investing the remaining $434,441 in a portfolio of 60 percent stocks and 40 percent bonds.

So, the couple will have about $260,665 invested in the stock market, $173,776 in bonds and the $65,559 in cash. Without the cash reserve, a 60/40 stock/bond allocation would mean the couple had $300,000 in stocks and $200,000 in bonds.

Clearly, the cash bucket creates a more conservative portfolio overall, which is important for retirees to understand as they try to find the appropriate amount of risk to cover their expenses and inflation.

Now, for the cost side of the equation.

Anyone about to retire should know precisely how much they are spending, though advisers says this is sometimes a big area for miscalculations. Particularly in the first few years, travel and hobby expenses can really add up, notes Mike Alves, a financial planner in Pasadena, Calif.

“Every client is different,” he says.

Rather than building in an unsustainable long-term withdrawal rate to accommodate a few trips in the early years, he carves out another bucket for big-ticket items. Clients see that bucket and know that when it’s gone, it’s gone, and they are left with their long-term withdrawal rate that pays the essentials, he says.

Janet Kidd Stewart writes “The Journey” for Tribune Content Agency. Share your journey to or through retirement or pose a question at journey@janetkiddstewart.com.

©2019 Tribune Content Agency
Distributed by Tribune Content Agency, LLC

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Categories: Realty News

Government Shutdown: Resources for Federal Workers Who Can’t Make Mortgage or Rent

Sun, 01/13/2019 - 13:02

(TNS)—As the government shutdown grinds into its third week, more than 800,000 federal employees and 4.1 million federal contractors are caught in the crosshairs. Federal workers will go without paychecks beginning January 11.

Some of these unpaid employees are nervous about their finances, particularly being able to make their monthly rent or mortgage payment on time. That’s not surprising considering a recent Bankrate.com survey found that 23 percent of Americans have no emergency savings in the bank.

Before we cover what specific lenders are doing for these federal employees, here’s some advice for anyone who is having trouble paying their basic bills.

Steps to Take If You’re at Risk of Falling Behind on Mortgage or Rent
If you don’t have any emergency savings or enough of a cushion to get by, here are other options to consider to keep the roof over your head:

Talk to your landlord or lender ASAP. Don’t wait until you’re behind on payments. Lenders may work with you to waive late fees, set up a repayment plan or offer loan forbearance. The key is to explain the situation, says Jeff Cronrod, a founder and board member of the American Apartment Owners Association, one of the nation’s largest residential landlord associations in the U.S. representing 100,000 property owners.

“Not all landlords are rich; they rely on those rent payments to cover their mortgages and property costs,” Cronrod says. “They understand this situation isn’t the tenants’ fault.”

Cut all unnecessary spending and talk to your creditors. Account for every dollar going out. Look at canceling subscription services, recurring home maintenance services and vacation travel—at least until the shutdown (or your own cash crunch) is over. Learn about other ways to cut back on spending and how to create a budget.

Additionally, monitor account balances and, if necessary, pay only the minimum on credit balances until your income is restored, says Mark Hamrick, Bankrate.com senior economic analyst. The Office of Personnel Management posted sample letters on its website that impacted employees can use to ask creditors for leniency on bill deadlines.

“Call and speak with creditors, such as auto loan providers or utilities, to see if they have flexibility on payments for temporary hardship cases,” Hamrick says. “While they will not likely forgive the debt, some creditors might be willing to allow a delay in payment.”

You’ll still owe the money, but it might not be owed immediately—and that can improve near-term cash flow to pay for immediate basic needs, such as rent or mortgage, Hamrick adds.

Explore short-term, low-interest direct deposit loans. Some institutions are offering “furlough” loans for clients who have their paychecks deposited directly into a checking or savings account. These loans don’t require credit checks and are often for a limited amount at a low interest rate. Contact your bank or credit union directly to inquire whether this is an option.

Tap an open home equity line of credit, or HELOC. If you already have a HELOC and are still in the draw period, you could pull out cash from your available line to make your mortgage payment. The average interest rate for a HELOC is 6.52 percent and 5.88 percent for a home equity loan, according to Bankrate.com data. That’s much lower than the average interest rate on credit cards, at 17 percent or more.

Be cautious about using credit cards or borrowing from retirement and 401(k) accounts. If you’ve exhausted all other options, paying for your rent, mortgage or other bills with a credit card can get you by if it’s an accepted form of payment; however, you don’t want to rely too heavily on credit cards because you’ll pay much higher interest rates than other forms of borrowing, making credit cards harder to pay off as interest piles on.

You may need to turn to your long-term savings and investments for emergency cash; however, you should do so with extreme care. Roth IRA holders may withdraw their own contributions—not earnings—without tax or penalty, but traditional IRA holders will pay income taxes and a 10 percent penalty on the taxable amount if you’re under age 59. The IRS reports that 401(k) holders can borrow up to half of their account balance (a maximum of $50,000) tax-free, but funds must be repaid within five years in most cases. The catch is that you have to stay with your current employer for the duration. If you lose your job, you’ll have 30-60 days to repay the loan or face penalties.

Since these options can severely disrupt your retirement plans, consider them as a last resort. Before pulling funds from any long-term investment, read the fine print and consult your tax adviser.

Mortgage Lenders and Financial Institutions Offer Relief
Some of the nation’s largest mortgage lenders and credit unions are offering assistance programs to clients impacted by the shutdown. Here’s a look at some of them:

  • Fed Choice Federal Credit Union lists several relief options for mortgage and banking clients online, including short-term, low-interest furlough loans and mortgage refinancing options. Visit the credit union’s website for more information.
  • USAA is offering a low-interest, direct deposit loan to members who are active duty Coast Guard and National Oceanic Atmospheric Administration, or NOAA, employees only. Call (800) 531-8722 for assistance.
  • Navy Federal Credit Union is offering a zero-percent APR loan up to $6,000 during the government shutdown. The assistance is open to federal government employees and active duty members of the Coast Guard whose pay has been disrupted by the shutdown, and have an established direct deposit account. You can register on Navy Federal’s website, in branches or by phone at (888) 842-6328. Members impacted by the shutdown who don’t meet the eligibility requirements should visit a branch or call to discuss their situation.
  • Bank of America advises its mortgage clients to call its assistance line at (844) 219-0690 or visit one of its branches to inquire about the Client Assistance Program, says spokesman Lawrence Grayson. “We’re closely monitoring the situation and will work with clients on a case-by-case basis,” Grayson says. “Relief options may include late fee refunds or waivers, repayment plans or loan modifications.”
  • Quicken Loans is waiving all late fees for clients who may miss a mortgage payment due to the shutdown. For help call (800) 508-0944 or email Help@QuickenLoans.com. Here’s part of their emailed statement: “During the government shutdown, just like every day, we are fully prepared to accommodate each clients’ unique situation—especially those that may be dealing with any financial hardship—to help them through a period of uncertainty.”
  • S. Bank says it will assist customers who may be eligible for mortgage relief programs, including loan forbearance and deferred first payment dates for new mortgages. Payment plans may also be available for those who qualify, says spokeswoman Cheryl Leamon. For more information, call the U.S. Bank mortgage customer service line at (800) 365-7772.
  • Wells Fargo is offering forbearance or other payment assistance programs to its mortgage clients on a case-by-case basis. Call (888) 818-9147 or visit Wells Fargo’s website for more details.

If your loan servicer isn’t on this list, call your lender directly to find out what assistance options are available. Your current loan servicer may not be the lender that closed your loan; home loans are often resold on the secondary mortgage market to other companies after closing. Check your most recent mortgage statement to find the name and contact information of your loan servicer. 

©2018 Bankrate.com
Distributed by Tribune Content Agency, LLC

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Categories: Realty News

3 Reasons Americans Count on Their Homes After Retirement

Thu, 12/27/2018 - 16:00

(TNS)—Retirees who own their homes outright are often at an advantage over their renting—and retired—counterparts. There are two reasons for this: their housing costs are generally lower, and they have access to safety-net cash in the form of home equity.

However, all homeownership is not created equal, explains Russ Thornton, financial advisor at Wealth Care for Women in Atlanta. For example, if you move often, owning a home outright by age 62 can be challenging. For most people, a 30-year mortgage is the norm. If you plan to retire by 65, then you would have to buy a home by 35 and stay in it to retire mortgage-free.

“Those who keep their homes for years and years and years tend to grow equity, which can be a wealth-builder,” says Thornton. “If there’s a reasonably high likelihood that you’re going to stay in the same home for 10 years or more, then you should probably buy. If you move every few years into more expensive houses, then you might not get the same benefits from homeownership as those who stay in one place.”

Devising a long-term plan, including what homeownership looks like in retirement, is important, Thornton says. Since the big goal for retirement is to eliminate as many expenses as possible, erasing a monthly housing payment is optimal. In essence, renters who plan on staying in the same general area for years to come should consider buying.

  1. They can say goodbye to mortgage payments.
    The twin bridesmaids of finances are income and expenses. When people retire, the money coming in usually shrinks, which means so should the money going out. A mortgage payment is one expense soon-to-be retirees should try to retire before they do.

“If you can be mortgage-free by the time you reach retirement, you’ll be in a good position. Retirees need to reduce their cost of living and owning a home is a good way to do that,” Thornton says.

Mortgage-free retirees can save hundreds or thousands of dollars each month. Even with property insurance, which costs an average of $93 per month, and taxes, the cost of owning a home is often less than renting.

Not only can retirees save on their housing costs; they can also make money on their homes. Retirees who travel can earn money while they’re on vacation through sites like Airbnb. Another option to get extra cash flow is to rent a room, Thornton says.

Downsizing can also save you money. Going from a large family home to a cozy condo or smaller house can reduce utility costs as well as allow you to cash out some equity in your home to fatten your nest egg. For people not ready to sell, there are other options that allow you to tap the equity while keeping the house.

  1. They can access home equity, if needed.
    With working years behind you, having a backup generator of cash is a good thing. There are several ways homeowners can tap the equity in their home without putting up a for-sale sign; two of the most common ways are a cash-out refinance and a home equity line of credit, or HELOC.

Equity-rich homeowners who want to lower their mortgage interest rate might consider a cash-out refinance. This increasingly popular option hit peak numbers in the second quarter of this year, reaching $16 billion of equity cashed out, the highest since 2008, according to a report by Freddie Mac.

A cash-out refinance is almost like selling your house to yourself. The bank would cut you a check for the equity, which is the difference between what you owe on the house and the market value. If your home is worth $200,000 and you owe $100,000, then you have $100,000 of equity in the home.

Banks usually limit the amount you get to 80 percent of the total equity. That means with $100,000 in equity, the bank might give you $80,000. The amount you qualify for is usually based on income, credit score and other determining factors.

Now comes the tricky part: When you do a cash-out refinance, you’ll get a new mortgage. If your interest rate is high because of poor credit or market conditions and you think you have a chance of getting a lower interest rate with a new mortgage, then a cash-out refinance might be an appealing way to access your equity; however, if your mortgage interest rate increases with a new mortgage, then you should consider other options, such as a HELOC.

Something else to keep in mind is the fact that a new mortgage usually means going back to square one if you choose a longer term. If your house is a few years away from being paid off, restarting the clock is probably not a good financial move. You’ll end up paying years more in interest and increasing your debt burden. 

  1. Even with a mortgage, they have liquidity options.
    For people who want to keep their homes and existing mortgages while tapping their home equity, one alternative is a HELOC.

HELOC lenders use the equity in your home as collateral to extend lines of credit over a fixed amount of time. Like a cash-out refinance, lenders typically cap the credit amount at 80 percent of the total equity. Some places, like Navy Federal Credit Union, go up to 95 percent of the total equity.

The benefits of HELOCs are that you only pay on what you use and the interest is tax-deductible if you use it to repair or upgrade your home. For retirees who want to retrofit their homes to make life easier, such as installing stair lifts, grab bars and handrails, a HELOC could be a good way to fund those upgrades and get a tax break.

Before you decide on a lender, make sure you understand the terms of the HELOC and any associated fees, says Johnna Camarillo, assistant vice president of Equity Processing and Closing at Navy Federal Credit Union.

Some lenders might charge a service fee or a fee if you have a zero balance. Likewise, some lenders require a balloon payment at the end of the loan, which could put some borrowers in hot water.

Balloon payments are typically large payments owed at the end of a loan. If a borrower hasn’t sufficiently prepared for that payment, then the loan could go into default and you could risk losing your home.

“Before you get a HELOC, ask yourself: ‘Can I afford the payments if I max this thing out?’ Every person is different, so it’s important to look at your budget and not overspend,” Camarillo warns.

Retirees who own their home are going to qualify for a HELOC easier than someone who holds a mortgage, which is beneficial if emergencies come up and you need to borrow a chunk of cash. HELOCs normally have lower interest rates than credit cards or personal loans, making them an attractive option for homeowners.

It’s important to remember that once you use that equity, it will likely take years and even decades to rebuild it.

“Home equity is like a bar of soap—the more you handle it the smaller it gets,” Thornton warns. 

Plan Ahead for Retirement
For folks nearing retirement who still owe on a mortgage, paying off that loan should be high on your list. If you plan on retiring in 10 years, then try to put more money toward your principal or even consider refinancing from a 30-year mortgage into a 15-year mortgage to lower your interest rate and repay the loan faster.

The dual benefits of lowering your living expenses and having access to cash in emergencies are great reasons to sail into retirement without a home loan springing a leak in your budget.

©2018 Bankrate.com
Distributed by Tribune Content Agency, LLC

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Categories: Realty News

The Journey: Changes in Tax Law Lead to Shifts in Giving

Sun, 12/09/2018 - 13:05

(TNS)—Older retirees may save Christmas for charities.

Donors gave a record $410 billion to nonprofit causes last year, according to Giving USA Foundation, in part because taxpayers were bunching contributions ahead of this year’s higher standard income tax deduction, experts say. That led to worries that 2018 might be a down year for philanthropy. The higher standard deduction means fewer people will likely itemize and claim charitable deductions.

Enter older retirees, who typically have more conservative portfolios, so thus may not be feeling the recent stock market plunges as keenly as younger people. They also may be feeling generous after a recent tax law overhaul left in place the ability to donate their required minimum distributions from IRA funds directly to charity tax-free.

Darin Shebesta, a financial advisor in Scottsdale, Ariz., recently advised a client in her mid-70s that she could save about $5,000 in taxes by donating her required distributions directly to a half-dozen charities. Of course, the tax savings only makes sense if retirees don’t need the funds for expenses.

One of the recipients was a nonprofit dance school she attended 60 years ago, but still remembered fondly.

“We got her connected back to the school, and she donated the funds in honor of her husband,” who died about two years ago, Shebasta says. “She had been underspending her withdrawal strategy and she had no kids,” so the money had been earmarked for friends after her death. The idea of seeing the money put to work now at an organization that mattered to her gave her a chance to, in effect, enjoy the money during her lifetime, he says.

Financial advisors say charitable giving strategies can be a way for them to better connect to clients, which has obvious marketing appeal—but it can also help retirees clarify their overall financial goals, prioritize spending and generally feel good about putting their life savings to work after focusing for decades on saving.

After working for 14 years in nonprofit fundraising, Juan Ros became a financial advisor about six years ago.

“I make it a point with every prospective client to talk about their charitable objectives,” he says. Not everyone has them, which came as a bit of a surprise to Ros after spending so many years around donors. The conversations produce a broad sense of a client’s interests in the world at large, he says, a point of learning that can help him frame retirement timing and spending plans, in addition to understanding charitable goals.

Other advisors, meanwhile, say clients are flocking to donor-advised funds this year as a result of the new tax law. The vehicles allow donors to take the standard deduction one year and then itemize the next year, spreading out the actual gifting of money to the charities at the donor’s leisure.

Advisor Mark Wilson encourages clients to donate appreciated securities equaling two years’ worth of donations to donor-advised funds. This allows them to avoid the capital gains taxes due on the investments (which are in taxable accounts) and control the timing of the gifts, he says. 

©2018 Tribune Content Agency
Distributed by Tribune Content Agency, LLC

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Categories: Realty News

Gift-Giving Guilt: Nearly Half of Americans Have Felt Pressured to Overspend During the Holidays

Wed, 12/05/2018 - 16:56

(TNS)—For many Americans, the holidays mean family, food and overspending.

More than two in five gift shoppers feel pressured to reach deeper into their wallets than they’re comfortable with, according to the 2018 Bankrate Holiday Gifting Survey.

Despite budget constraints, there are some lines most people refuse to cross to save money. Buying used and regifting are generally considered to be on the naughty list, the survey finds.

Feeling anxiety around providing a “magical” gift or exceeding someone’s expectations is natural, says Suzanne Degges-White, Ph.D., chair and professor of the Department of Counseling, Adult and Higher Education at Northern Illinois University.

“If you let yourself forget that Hallmark had it right when their tagline became, ‘It’s the thought that counts,’ you can be swindled into spending a lot more than you can afford in your efforts to prove your affection and devotion,” Degges-White says.

The survey was conducted online in Ispos’ Omnibus. The sample consists of 1,000 nationally representative interviews, conducted between October 12-14.

Parents and middle-income earners more likely to feel holiday pressure. More than half (54 percent) of respondents with children reported feeling pressure to overspend during the holidays, according to the Bankrate survey.

“I always tell parents to step back and recognize that we all have too much stuff. Let’s face it: Kids are going to outgrow their clothes and out-mature their toys. So, if you’re going to spend, spend wisely and be savvy about it,” says Nora Yousif, vice president and financial adviser at RBC Wealth Management.

Yousif recommends spending on intangibles, like contributions to college funds or shares in an innovative company. Or, families could do what she and her loved ones do and spend on a group vacation. This year, they’re going to Savannah, Ga.

“There’s nothing wrong with getting old-school,” Yousif says. “Not to sound like Scrooge, but teaching your children to want what they have is a valuable lesson, too. It may not be what the neighbors are gifting their child, but if you’re gifting yours something that will benefit them down the line, like contributions to their college fund, that’s the smarter, savvier gift in the long run.”

Middle-income earners may feel pressured to keep up with the Joneses during the holidays. More than half of those earning between roughly $50,000 and $75,000 felt pushed to overspend—a higher percentage than their peers, according to the Bankrate survey.

The people in the middle are really squeezed for income, says Mark Hamrick, senior economic analyst at Bankrate.

“In some ways, they have the worst of both worlds because there is at least the perceived pressure to spend and also some capability,” Hamrick says. “What’s universally true for all income levels is the need for everybody to have a plan and stick to it.”

Hamrick recommends people create a budget that looks at how much money they’re bringing in from work and other revenue sources each month, as well as how much cash is going out for bills and other expenses. If there’s money left over, people can use the cash to buy gifts. To make it easier, people can open dedicated savings accounts with strong interest rates and set money aside each month leading up to the holidays.

However, if there’s no money available after expenses, people should not reach for their credit cards and take on debt to buy gifts.

“If you’re overspending to try and maintain a certain quality to a friendship or family relationship, then that’s not sustainable,” Hamrick says. “Ultimately, if someone’s world is grounded in something that’s counter to the true spirit of the holidays, then there probably needs to be a reckoning for everybody.”

Overall, spending is expected to reach record levels during the holiday season, moving past the $1 trillion mark for the first time, according to an estimate from the market research firm eMarketer. Consumers are expected to spend an average of $638 on gifts during the holiday season, according to the National Retail Federation and Prosper Insights & Analytics.

Saving Money on Gifts During the Holidays
The vast majority of us won’t opt for the nuclear option to save money during the holidays; 13 percent of respondents said they were willing to skip or boycott gift-giving altogether during the upcoming holiday season, according to the Bankrate survey.

Other options that remain largely unpopular with shoppers looking to save include buying used or secondhand items and regifting, the survey shows. The stigma of picking up gifts from thrift shops might be lessening as consumers learn more about the environmental and eco-friendly reasons for looking beyond new gifts, Degges-White says.

The social taboo against regifting probably comes from the worst-case scenarios we’ve experienced, she says.

“They might have noticed gift tags that gave evidence that the gift was originally given to the giver; clothing items that were stained, wrinkled or noticeably outdated; or gifts that they had given the giver in the past,” Degges-White says. “Regifting isn’t inherently a bad practice, but when it’s done without grace or respect for the recipient, then it can create hard feelings.”

Most respondents looking to save money indicated they felt most comfortable limiting who they’re buying for or actively seeking out coupons and store sales to save money. People get creative in providing a great gifting experience without unwrapping their personal budget. Yankee Swap, Secret Santa and other games are popular for many families and friend groups.

This year, more than 10 million people are expected to use Elfster, an online version of Secret Santa, according to the California-based company.

“Elfster is a great way to save money during the holidays,” says Michael Johnson, spokesman for the company. “I have two main recommendations: First, make sure you set a spending limit that everyone in your group will be comfortable with. Second, make sure everyone gets a great gift. Why spend time and money getting a gift they don’t love? Try using the wish lists and our anonymous Secret Santa questions to make sure everyone gets a gift they will love. That can be a lot of fun and a great way to connect that you don’t experience with more traditional gift-giving.”

©2018 Bankrate.com
Distributed by Tribune Content Agency, LLC

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Categories: Realty News

7 Ways the Fed’s Decisions on Interest Rates Affect You

Sun, 11/11/2018 - 13:03

(TNS)—When the Federal Reserve raises interest rates, you feel it.

“The Federal Reserve has its fingers in your pocketbook to a greater degree than the IRS,” says Michael Reese, a certified financial planner in Traverse City, Mich.

In September, the Fed raised rates for the third time in 2018, and a fourth hike in December is likely.

The Federal Open Market Committee sets monetary policy, primarily by raising or lowering the Fed’s target for the federal funds rate, which is used as the benchmark for a range of consumer interest rates.

Here are seven ways the Fed affects your pocketbook.

  1. The Fed Influences Prices
    The Fed’s actions have an indirect impact on the prices you pay at the grocery store, gas pump and other retail outlets.

That’s because the cost and availability of money affect people’s willingness to pay for goods and services. When money is cheap and plentiful, there’s more demand and prices tend to rise.

“When the economy’s doing really well and the labor market is good and the unemployment rate is falling, that’s when you have concerns about employers hiring and bidding up wages and inflation rising,” says Gus Faucher, chief economist with The PNC Financial Services Group.

Traditionally, the Fed fights inflation by raising the federal funds rate, which makes money more expensive and scarcer. That is supposed to reduce overall demand and slow the pace of price increases. Raising the federal funds rate is less about fighting inflation and more about getting the rate closer to its long-term neutral of 3-3.5 percent, says Joel Naroff, president and chief economist for Naroff Economic Advisors.

  1. The Fed Affects Jobs and Wages
    At every meeting, monetary policymakers consider labor market data as they make decisions aimed at achieving maximum employment. They look at numbers such as:
  • Payroll changes
  • Labor force participation rate
  • Duration of unemployment

The Fed indirectly affects the job market. When it raises the federal funds rate, it tends to slow the economy. That leads to fewer people being hired. They also have less leeway to demand pay raises. This lack of power to bargain for higher wages is seen as a way to fight inflation.

  1. Fed Affects Credit Card Rates
    Most credit cards charge variable interest rates tied to the prime rate, which is about 3 percentage points above the federal funds rate. When the federal funds rate changes, the prime rate does, as well, and credit card rates follow suit.

Apply for a zero-percent APR balance transfer credit card before that happens. It will give you time to pay down your debt interest-free.

“What the Federal Reserve does normally affects short-term interest rates, so that affects the rates that people pay on credit cards,” Faucher says.

When the Fed sends credit card rates higher, it costs more to borrow. So people tend to borrow less, and buy less. That slows the economy and puts the brakes on inflation.

  1. Fed Nudges CD Yields
    If you rely on interest from certificates of deposit for income, you’re probably not happy that the Fed kept interest rates at rock bottom for so long.

“Retirees want to live on the interest on their CDs,” Reese says. “The Fed determines whether they can do that or not.”

CD rates largely follow the short-term interest rates that track the federal funds rate; however, Treasury yields and other macroeconomic factors can influence rates on long-term CDs.

Individuals should focus on the real rate of return on CDs, after inflation is taken into account, says Casey Mervine, vice president and a senior financial consultant at Charles Schwab. In the late 1980s, for instance, you could earn double-digit rates on CDs, but with inflation also in the double digits, your actual earnings were much lower due to the erosion of your purchasing power.

  1. Fed Drives Auto Loan Rates
    The federal funds rate chiefly influences short-term interest rates, because it’s a rate on money lent overnight between banks. But it also trickles through to medium-term fixed loans, such as auto loans.

“The rate the Fed sets ends up affecting almost everything in our economy,” Reese says.

Whether the lender is a credit union, bank or other institution, it will price auto loans relative to the prime rate, which moves up and down in sync with the federal funds rate.

If a bank is charging its customers 4.64 percent for a 60-month loan on a new car, and the federal funds rate increases by a half-percentage point, the lender will bump up the rate to about 5.14 percent. Auto loans also benefit from being sold into the secondary market, making more investors’ dollars available to finance your car purchase or refinancing.

  1. Little Influence on Mortgages
    Mortgage rates respond to market forces, specifically to the needs of bond investors. The Federal Reserve exerts an indirect influence on mortgages.

Sometimes mortgage rates go up when the Fed increases short-term rates, as the central bank’s action sets the tone for most other interest rates—but sometimes mortgage rates fall after the Fed raises the federal funds rate. Look at the last time the central bank went on an extended rate-raising campaign. Starting in June 2004, the Fed raised the federal funds rate 17 times in two years. What happened at first? Mortgage rates fell during the summer and fall of 2004. Back then, the Fed’s rate hikes caused investors to become less concerned about inflation, so mortgage rates fell.

Mortgage rates eventually rose, and were higher in June 2006, at the end of the rate-hiking campaign, than they were at the beginning, two years earlier.

In 2017, housing economists predicted mortgage rates would rise. Instead, they remained fairly steady despite three Fed rate hikes. Mortgage rates have been on a steady climb since the beginning of 2018, which shows the central bank’s actions aren’t predictive.

  1. Touching Home Equity Lines
    Your home equity line of credit, or HELOC, is linked to the prime rate. When the Fed raises its target rate, HELOC rates follow.

Because credit card interest rates will go up, too, it still could be to your advantage to consolidate credit card debt into a lower-rate HELOC if you have the self-discipline to pay off the debt as quickly as you can.

The sooner you pay off variable-rate debt, the better, because many investors and economists expect the Fed to keep gradually increasing the federal funds rate.

©2018 Bankrate.com
Distributed by Tribune Content Agency, LLC

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Categories: Realty News

Getting a Mortgage Is Now Easier, but It Could Backfire

Wed, 10/31/2018 - 16:25

(TNS)—Clearing the hurdles to qualify for a mortgage used to be much harder. House hunters with too much debt had their home-buying hopes dashed after being denied a mortgage.

That’s changing as mortgage lenders ease lending guidelines to expand mortgage credit to more people.

Borrowers with a high debt-to-income ratio now have more leeway than since the subprime mortgage meltdown of a decade ago. Your debt-to-income ratio, or DTI, is the percentage of monthly income you pay toward your monthly debts, including a new mortgage payment. It’s a key factor—along with your credit—that lenders use to determine whether you can repay a loan. The more debt you have, the higher your DTI ratio—and that’s a red flag for lenders evaluating your potential for risk.

Some consumer advocates worry that borrowers who are already struggling to stay afloat might get in over their heads with today’s laxer lending requirements. On the flip side, expanding access to mortgage credit could help creditworthy borrowers in higher-priced housing markets join the homeownership ranks they’ve increasingly been shut out from.

How Getting a Mortgage Has Gotten Easier
Fannie Mae and Freddie Mac, the two government-sponsored enterprises that back most U.S. mortgages, have eased their lending rules in recent years. Fannie Mae increased its maximum DTI ratio to 50 percent, up from 45 percent, in July 2017. Both agencies allow borrowers to finance up to 97 percent of a home’s purchase price, which is considered a high loan-to-value ratio.

Conventional lenders charge higher interest rates on high DTI loans to mitigate their risk. They also require a higher FICO score and more cash reserves.

Raising DTI limits is just one way lenders have made it easier to get a mortgage. LTV ratio increases help borrowers who don’t have a large down payment; however, you’ll pay private mortgage insurance when you put less than 20 percent down—and you might not be able to borrow as much as you need to buy a home.

Some conventional lenders have rolled out their own low down payment programs without private mortgage insurance in exchange for a higher interest rate. Government-insured loans require little to no down payment, and generally have more relaxed credit score requirements than conventional loans.

Mortgage Credit Standards Still Tighter Than Boom Times
Borrowers who don’t fit into a pristine credit box now have more options, says Joel Kan, associate vice president of Industry Surveys and Forecasting with the Mortgage Bankers Association. There’s more balance to the lending equation nowadays after the regulatory pendulum swung too far in the opposite direction—a move that shut out otherwise capable borrowers, Kan says.

Although standards have loosened considerably in recent years, today’s lending practices are still more stringent than they were before the housing crisis. The days of doling out loans without verifying income or employment are long gone.

“We’re still about one-quarter of where we were compared to the pre-housing boom,” says Kan of mortgage credit accessibility. “Standards are looser now than they were from 2010 to 2012 when credit access was the tightest, but it’s not subprime.”

The share of new, conventional conforming home loans with a DTI ratio above 45 percent spiked after Fannie Mae raised its DTI limit, according to research from CoreLogic. From early 2012 up until last summer, the share of these high DTI loans held steady between 5 percent to 7 percent. In the first quarter of 2018, that share nearly tripled, jumping to 20 percent. The average DTI ratio for these home loans rose by two points to nearly 37 percent from Q1 2017 to Q1 2018.

Even as high DTI loans gain popularity, lenders haven’t budged on credit score standards. Borrowers’ average credit score for conventional, conforming purchase loans remained unchanged at 755 in the first quarter of 2018 compared to the same period a year ago, CoreLogic found. That’s significantly higher than homebuyers’ average credit score of 705 in 2001—before the downturn.

Expansion of Mortgage Credit Has Its Drawbacks
High DTI and LTV loans aren’t without risks. A high LTV ratio increases borrowing costs, and you’ll likely have to pay mortgage insurance to offset the lender’s risk.

For starters, lenders calculate your DTI ratio using your gross monthly income (before taxes and payroll deductions) and debts that appear on your credit report. They’re not including monthly expenses like groceries, gas, auto or health insurance, daycare/tuition, utility bills and other recurring bills that can eat up a good chunk of your monthly budget, says Rebecca Steele, CEO and president of the National Foundation for Credit Counseling.

“It puts some borrowers in a more precarious position,” Steele says of high DTI loans. “Today, people have significantly less savings in reserve. To have that you need a stable income, and some consumers struggle with that. Most people have little disposable income, especially because rents are going up.”

A job loss or other major financial hardship could land you in a tighter spot than if you had paid down your debt and shored up your emergency savings fund before buying a home. You’ll also pay more interest with a high DTI loan, Steele says.

Another key issue that some first-time buyers overlook are the hidden costs of homeownership, says Jeff Levine, a certified financial planner with BluePrint Wealth Alliance in Garden City, N.Y. When you’re stretching your income to cover monthly debt payments, you won’t have as much cash on hand for maintenance expenses, homeowners association dues and major repairs that inevitably pop up. Borrowers should factor those expenses into the mix and avoid overextending themselves, Levine says.

“Just because you can get approved for a mortgage doesn’t mean you should get one,” Levine says. “People got into trouble (in the downturn) because they borrowed up to the hilt and didn’t have the capacity to repay.”

©2018 Bankrate.com
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Categories: Realty News

Solar Panels, Elevators, a Dog Shower? Here Are 12 Cutting-Edge Items for Your Next Home

Thu, 10/25/2018 - 15:46

(TNS)—Shopping for a new home? It’s not all about square footage, counter tops and closet size.

Homes are changing. You’ve got homework to do. Decisions to make. Some will affect your pocketbook for years. Others will improve your quality of life the day you move in.

And one … well, it’ll just make your pooch less smelly.

Here’s a quick tour of cutting-edge amenities now offered at some new-home communities:

California Room
For years, builders would slap an awning on the back of the house and call it a patio. Now, homes frequently come with a modern and stylish upgrade called the California Room.

It’s an indoor-outdoor space with a ceiling and just one or two walls. It can be used as a second dining room, outdoor kitchen or even a living room with couches and flat screen TV. It may have a ceiling fan, fireplace and tile or polished concrete floor. Depending on the level of extravagance, a California Room may add $7,000 to $20,000 to the home price.

The Disappearing Wall
Some homes that don’t have California Rooms instead come with a disappearing back wall made of accordion-style, bi-fold doors that fold aside, opening your great room to the backyard.

“It has huge style points,” recent Folsom, Calif., homebuyer Ian Cornell says. “It looks great and when you are relaxing, I anticipate that feeling of open space and connecting to outdoors.”

Baby boomers, some now in their early 70s, want homes they can stay in as physical limitations set in. Home builders call it “aging in place.”

Builder Mike Paris of BlackPine Communities estimates the elevator adds $25,000 to $35,000 to the price of the house, depending on how many “stops” it has—but you don’t have to buy the elevator yet. The spaces on each floor also serve as closets, pantries and storage rooms.

“This gives the buyer the peace of mind that they can age in place without incurring the cost when they may not need the elevator at that time,” Paris says.

Doggy Showers
Fewer young homeowners have kids. More have dogs, though—and many of us consider our dogs full-fledged family members.

Introducing the indoor doggy shower, with tiled walls and hot and cold faucets, often located in the laundry room.

“It’s about three feet-wide, two feet above the ground. A special faucet to wash at your waist. It’s like a half-tub,” says Matt Gustus of Anthem United Homes.

Other builders are adding doggy drawers in the kitchen of new homes: Slide open the bottom cabinet drawer, and it holds your pet’s eating dish and water bowl. Slide it back in and it’s out of sight. No tripping or accidentally kicking the water bowl.

Solar, Now
Going solar is like getting braces. The row of panels on the roof isn’t pretty, but it could pay off with a smile in the long run.

The California Energy Commission will require most new homes to have solar starting in 2020, but some home builders are including solar now as standard equipment. Should you get one? It may require some calculations, based in part on how long you plan to live in this house.

The Energy Commission estimates solar could add $10,000 to the cost of a new home, but the panels could cut average monthly utility bills by $80.

A ‘Tesla’ in the Garage
If you buy a home with a solar rooftop, should you order a solar energy storage battery for your garage, too?

Technology expert Bob Raymer of the California Building Industry Association says it may be a smart move, as utility companies increase rates during new “time of day” electricity pricing.

“There are going to be a lot of homeowners with sticker shock,” Raymer says.

A solar battery in the garage will allow homeowners to minimize evening utility bills by storing their own daytime solar energy, then tapping into it in the evening. The batteries aren’t cheap, though, costing anywhere from $4,000 to $15,000. Tesla is among the makers. Some in the industry say prices will come down if you wait a few years.

Piggy Bank Attics
Energy efficiency is about more than rooftop solar. The real bang for your buck may involve a new approach to attic insulation. Raymer of the BIA suggests buyers ask their builder if the attic can include energy-saving insulation techniques now that will be required in 2020. It involves adding R19 insulation in the attic’s ceiling rafters, basically along the underside of the roof.

That will keep attic temperatures far closer to room temperatures in the house below, which will cool air conditioning ducts that run through the attic, making it easier for them to do their job of delivering cool air through the house.

Cooking With Gas? Nope
New-home energy efficiency is a fast-changing realm. A pioneering company, De Young Builders in Fresno, Calif., is constructing some of the first “zero-net energy” homes in the state.

For cooks, though, going no-carbon means stovetop cooking without gas. That’s going to be a tough sell for some traditionalists. De Young and other builders hope to make it easier by offering electricity-based induction stove tops as an alternative.

Next Gen Homes
Lennar Homes officials say more buyers are multi-generational families who want to live under one roof, but want some distance from each other. So the company’s begun building in-law apartments that are embedded in the main home, with a front door of their own, but with another door to the main house.

They call them Next Gen homes. The apartments have kitchenettes, a living room, bathroom, bedroom, washer and dryer and sometimes their own patio. Grandparents can live there. Or boomerang 20-somethings back from college. Or special needs adult children who can benefit from some independence.

A homeowner can rent the space out to a tenant for extra income, but that may be a little close for comfort. The main house and embedded unit share the same utilities. Plus, you can sometimes hear noise on the other side of the wall.

Foiling Porch Thieves
New homes are techier than ever. Doorbells now double as cameras and loudspeakers. You can see who’s at your front door via a smart phone app while sitting in your office miles away. If it’s someone selling a product, you can pretend you are home, politely saying no thanks. If it’s a delivery service, you can, if you choose, code them into the house, so they don’t have to leave the box on the porch.

Other Tech Options
Smart thermostats: You can set the temperature via smartphone app before you get home, or, some thermostats watch and learn your rhythms and adjust the temperature on their own.

Lennar Homes has introduced “Wi-Fi certified” homes that put an end to an annoying modern issue—reception dead zones. Their system even extends to the backyard. An Amazon rep comes to your house when you move in to help you program your system, which includes Amazon’s Alexa technology.

©2018 The Sacramento Bee (Sacramento, Calif.)
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Categories: Realty News

Buying in the Future? Start Saving Today

Tue, 10/23/2018 - 16:32

This Could Take a While

With inventory low and prices rebounding, affordability has become one of the foremost housing issues—both for buyers entering the market, and homeowners looking for a new, but practically priced property after selling. According to new research, accumulating enough for a down payment can take over seven years—and even longer in pricey spots.

If the average buyer earning the median national income saved 10 percent of it per month, it would take 7.2 years to amass a 20 percent down payment on the average home in the U.S., according to an analysis recently released by Zillow. Buyers in California are in for the longest savings stretch: 18.4 years in Los Angeles; 18.3 years in San Francisco; and 21.8 years in San Jose—the longest of the markets in the report. Buyers have an easier path in Pittsburgh, where it takes 4.8 years, and in Cincinnati, Indianapolis and St. Louis, where it takes 5.1 years.

The disparity between earnings growth and home prices is substantial, the analysis shows. Incomes have increased 52.6 percent in the past 20 years, while appreciation has hit 98.6 percent.

“The simple fact that home values have far outpaced income growth, lengthening the time needed to save for a down payment, contributes to millennials’ struggles to enter homeownership,” says Skylar Olsen, director of Economic Research at Zillow. “Saving up for a down payment can be tough, especially when the cost of everyday life outpaces the money you put into the bank. It requires good budgeting and long-term planning. It’s one reason why more and more first-time home buyers are looking to family and friends for financial help when coming up with their down payment.”

While 20 percent down is ideal by many measures, it’s not a requirement; in fact, borrowers can be eligible for as low as 3 percent, depending on the loan and their situation. For guidance, contact your REALTOR®.

“Even if you don’t have plans to buy a home in the next year or two, it’s not a bad idea to start setting aside savings for a future home purchase,” Olsen says. “It’s also important to remember that there are many options for mortgages requiring less than 20 percent down.”

For more information, please visit www.zillow.com.

Suzanne De Vita is RISMedia’s online news editor. Email her your real estate news ideas at sdevita@rismedia.com. For the latest real estate news and trends, bookmark RISMedia.com.

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Categories: Realty News

This Is the Average FICO Score—How Does Your Score Stack Up?

Tue, 10/23/2018 - 16:15

(TNS)—The average credit score in the United States hit an all-time high in 2018, according to a new report from the credit scoring company FICO.

The average FICO credit score reached 704 in April—up four points from the year prior, according to the semiannual report released in late September. The steady improvement in credit quality signals American consumer credit and financial health is strong as the Federal Reserve’s rate hikes make borrowing more expensive.

Ninety percent of top lenders factor in FICO scores when making lending decisions, according to FICO. The three-digit number influences the ability to land an apartment, buy a car and even finance a smartphone.

“Since bottoming out at a score of 686 in October 2009, we have seen eight consecutive years of increases in the national average FICO score,” Ethan Dornhelm, vice president of FICO Scores and Predictive Analytics, says in the report.

A FICO score of 800 or higher is generally considered exceptional. The 670 and up range is good to exceptional, and 669 or below is considered fair or poor.

Fewer People With Low Scores
The boost in the average FICO score can largely be explained by fewer consumers posting scores below 550 paired with more people hitting the so-called super-prime range above 800, according the report.

To come up with its scores, FICO looks at how often consumers are paying their bills on time, what percentage of available credit they’re using, the average age of their lines of credit, their total number of accounts, derogatory marks in their credit report and other related factors.

The average credit score is partly stronger because fewer people are falling behind in their bills and ending up with accounts turned over to third-party debt collection agencies. Twenty-three percent of consumers had one or more collection account on file as of April—down from 25.8 percent in 2017, according the report.

There’s also reason to believe more people are seeking credit responsibly. The percentage of the population with one or more “hard” inquiries posted to their file hit a four-year low of 42.2 percent, according to FICO.

Older people score higher in general than younger people, but the average FICO score shifted up this year 4-5 points for age groups across the board, according the report.

Consumer Education Helps Boost Scores
“Another potential driver of the continued increase in the national average FICO score could be increasing consumer education and awareness about their FICO score,” Dornhelm says in the report.

This summer, Discover Financial Services released a report that found 85 percent of U.S. consumers are aware of their credit standing. Research from FICO and Sallie Mae suggests that consumers who frequently check their FICO scores make better financial decisions and are more likely to have higher scores.

Various companies provide consumers with tools to track their credit standing, including Discover’s Credit Scorecard and Intuit’s Turbo. The services offer soft credit pulls that do not affect users’ credit scores negatively.

Consumers can also request free copies of their credit reports annually from each of the three major credit bureaus: Equifax, Experian and TransUnion. Copies can be obtained online at AnnualCreditReport.com. These reports do not provide consumers with their credit scores, but rather the underlying payment and debt information that helps inform those measures.

You can also get your TransUnion credit report and score for free with Bankrate.

©2018 Bankrate.com
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Categories: Realty News

Move? No Thanks, Homeowners Say

Sun, 10/14/2018 - 13:02

Are you happy in your home, or are you looking to move?

If your answer to the first question is yes, you’re in the company of 83 percent of homeowners, according to Zillow’s annual report on Consumer Housing Trends. In fact, 63 percent have no intention of moving, either because they’re content with their current home, or deterred by the inconvenience it’d be to pack up and relocate.

Americans in general would rather renovate than sell, according to another related report by Zillow. More than three-quarters (76 percent) prefer to spend on upgrades, instead of a down payment on a new place—a catch-22, because when homeowners don’t list, inventory suffers.

“Even in a seller’s market, simultaneously buying and selling is an exercise in frustration,” says Skylar Olsen, director of Economic Research and Outreach at Zillow. “Add to that the emotional history between you and your home, and it’s no wonder low inventory has been in a self-fulfilling cycle. Homeowners may hesitate to sell because of limited options for them as buyers, but by holding on to their homes, they are themselves contributing to low inventory.”

Americans are discouraged, as well, by growing mortgage rates, which is affecting affordability—why choose a higher rate, when you can hang on to a lower one? According to Freddie Mac, mortgage rates are rising toward 5 percent.

There has been a more than three-year downtrend in housing inventory, Zillow data show.

For more information, please visit www.zillow.com.

Suzanne De Vita is RISMedia’s online news editor. Email her your real estate news ideas at sdevita@rismedia.com. For the latest real estate news and trends, bookmark RISMedia.com.

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Categories: Realty News

Hurricane Florence: Nearly $30 Billion in Estimated Losses

Sun, 09/30/2018 - 13:03

Earlier this month, Hurricane Florence blasted through the Carolinas and Virginia, leaving a path of flood and wind damage in its wake.

According to an analysis by real estate data provider CoreLogic, residential properties in the Carolinas and Virginia sustained between $19-$28.5 billion in damage, which includes impact from both inland flooding and storm surge. Of that amount, an estimated $13-$18.5 billion is in uninsured losses. Flood losses insured by the National Flood Insurance Program (NFIP) are estimated to be $2-$5 billion, and wind losses are estimated to be an additional $1-$1.5 billion.

In total, CoreLogic estimates that flooding and wind damaged 487,000 residential homes in North Carolina, 109,000 in South Carolina and 28,000 in Virginia.

The House recently passed a five-year FAA reauthorization with a bill—the Aviation, Transportation Safety, and Disaster Recovery Reforms and Reauthorization—that includes relief funding designed to expedite recovery efforts for Florence-impacted areas. The FAA’s current authorization was set to expire on September 30; however, the House approved a one-week extension and the Senate is expected to vote shortly (at press time), according to Aviation International News.

“…Even today, over a week after the storm made landfall, flooding remains a significant concern for families in both North and South Carolina,” said NAR President Elizabeth Mendenhall in a statement. “In these times, we are reminded of the importance of peace of mind for property owners with access to quality and affordable flood insurance, and maintain our call for Congress to pass responsible, long-term NFIP reauthorization. We commend the House for passing H.R. 302, and urge the Senate to take up this important legislation quickly.”

Liz Dominguez is RISMedia’s associate content editor. Email her your real estate news ideas at ldominguez@rismedia.com. For the latest real estate news and trends, bookmark RISMedia.com.

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Categories: Realty News

The Defining Financial Question of Millennials: Do You Want to Live Comfortably Now, or in the Future?

Thu, 09/27/2018 - 15:53

(TNS)—Millennials are faced with the internal conflict almost every day: live comfortably now, or later?

Thanks to $1.5 trillion in student loan debt, rapidly increasing healthcare costs and high living costs, scraping by now often can be prioritized over worrying about retiring on a beach later.

Regardless, millennials are doing a good job at prioritizing retirement savings more than other generations—but most, including millennials themselves, believe their efforts still won’t be enough.

Current Savings Habits of Millennials Show Bleak Financial Futures
Experts say saving 15 percent of your income should lead to comfortable retirement. Millennials are struggling to hit that target.

Only one-third of millennials currently have money saved for retirement, according to a report from the National Institute on Retirement Security. Of that one-third, they have a median amount of about $19,100 saved.

For older millennials, those values aren’t ideal. There might still be time for younger ones to ramp up their savings—but affordability is a giant barrier.

For Susan Stalte, a 26-year-old healthcare professional in Pennsylvania, her retirement savings are a work in progress. Each month, she puts $150 into a Roth IRA; it’s a number she admits “doesn’t feel like enough” but hopes to increase over time. She currently has about $2,500 saved.

However, Stalte says she’s often told that even having $1 million for retirement won’t suffice.

“It almost feels as if there will never be enough to save in order to retire comfortably,” she says.

Based on Stalte’s current balance and savings habits, and under the assumption that she’d earn a 7 percent annual return and like to retire at 65, Bankrate’s Roth IRA calculator shows that she will have only $392,530 by the time she’s ready to retire.

Stalte would have to nearly triple her monthly contributions to retire with a little over $1 million, considering Social Security benefits are expected to decrease over time.

When asked about her capability to triple her monthly savings, Stalte says the number is “terrifying”—but possible.

“I’ve known that I’ve had to someday invest that amount each month, but I think I was just waiting for the right time,” she says. “There will never be a right time, so better now than never. It’s very stressful to think about.”

Millennials Have to Choose: Live Comfortably Now, or Later?
Some experts say retirees will need at least 80 percent of their pre-retirement income once they quit the workforce. Not everyone has the same ability as Stalte to increase their savings—a recent Prudential survey finds that 70 percent of millennials can’t.

“The issue is not the inability to plan; it is the inability to save,” says Ben T., a survey respondent quoted in the survey. “Saving money for retirement just isn’t a luxury everyone has.”

A giant factor in the inability to save more is debt. According to Harry Dalessio, head of Full Service Solutions at Prudential, millennials are more focused on paying down their student loan and credit card debt than saving.

“They don’t believe (they can do both) at the same time,” Dalessio says.

When you put the numbers on paper, though, it’s hard to believe they can. 

Living Costs Increase, Earnings Don’t
Living expenses can be overwhelming. Childcare costs, healthcare costs and education costs are escalating—and millennials are making less than the previous two generations. In 2016, 41 percent of young men ages 25 to 34 had an annual income below $30,000, compared with 25 percent in 1975, based on 2015 dollars, according to the U.S. Census.

So, they’re forced to choose: Do they want to live comfortably now, or sacrifice for comfort down the road?

Josh Rubin, a 35-year-old millennial business owner in Sacramento, Calif., has chosen to embrace the now; he has almost no retirement savings. Even though he has what he thinks is a “decent” income, he cites high living costs and wanting to be happy as the main reasons he isn’t building a nest egg.

“I think my generation sees more value in enjoying life than working hard and being miserable to hope to be secure later,” Rubin says. “This doesn’t mean I spend money freely and buy things I can’t afford, but the average cost of even just rent is sky-high compared to what older generations used to have to deal with.”

It’s not that millennials aren’t sacrificing at all; they just are in ways that aren’t monetary. They’re delaying major life milestones, like homeownership, marriage and childbearing, partially because they can’t afford them.

They also fear the economic future.

As a millennial who was born in 1982, Rubin lived through the 2008 recession. He cites low faith in the long-term value of stocks and savings to be another reason he isn’t saving for his future. The Prudential survey found that 77 percent of millennials fear another global recession will take place in their lifetime—one more disruptive than that of 2008.

Bridget Fitzgerald, certified financial planner and wealth strategist at PNC Wealth Management, is 26 years old. As someone who lived through the recession, she empathizes with the dreary outlook.

“When you experience a traumatic event in childhood, it can be a weakness even as an adult,” Fitzgerald says. “The best defense is to prepare for it—save, understand how the markets work, remove emotion from your financial decisions and don’t let impulse drive you.”

Do Millennials Really Need to Catch Up With Retirement Savings?
About 79 percent of millennials surveyed think it’s highly or somewhat likely that people will no longer be able to retire comfortably in the future.

The concept of retirement is already rapidly changing. With the disappearance of pension plans and tightened Social Security benefits, baby boomers are starting to work well past the industry-standard retirement age of 65. It’s estimated that they’ll account for almost 25 percent of the labor force by 2024.

Full retirement will likely be a thing of the past by the time millennials reach 65.

Dalessio acknowledges that there’s a retirement crisis in our country—but he adds that there are plenty of tools available, especially from employers, that can help. These tools include aid with understanding the building blocks of financial wellness. Employers are using these tools to recruit and retain all generations, but especially millennials.

They’re also implementing automatic enrollment in 401(k) plans, which enables employees to save without having to think about it.

“While there is now more of a shared responsibility for saving, many employers are still doing their part,” Dalessio says.

He also adds that many millennials don’t fully understand their employer-sponsored plans—most of them find the information to be “complicated,” he says.

Fitzgerald agrees that there are tools available to help millennials plan for retirement, but she adds that these tools don’t leave millennials feeling optimistic about the future.

“The numbers are just unreal and can be soul-crushing,” Fitzgerald says. “What is annoying for some is that you try to save into your 401(k) and the available tools tell you that you still need to save more. That is often not an option.”

Instead of letting the pressure of industry standards bog down and discourage millennials, Fitzgerald tells her clients to think about their own specific goals for retirement. Shifting the conversation away from traditional expectations and toward an individual’s own wants and needs can lead to a more productive mindset toward saving.

“It depends on what you want to accomplish in retirement,” Fitzgerald says. “What is ‘comfortable’? What will you be doing? What are your goals? These are important, motivating questions to consider.”

And if you haven’t started saving?

“Saving is a hard choice,” she says. “Sacrifice is hard—but starting the discipline of saving early will help you accomplish your goals in the future.”

Even if those goals are untraditional.

©2018 Bankrate.com
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Categories: Realty News

7 Benefits of a Federal Reserve Interest Rate Hike

Tue, 09/18/2018 - 15:26

(TNS)—Interest rates are going up. The Federal Reserve in June hiked rates for the second time in 2018, and there could be two more rate hikes before the end of the year, including one at this month’s Fed meeting.

Sure, the increases mean it will cost more to borrow—but you’ll benefit from getting better rates on high-yield certificates of deposit.

Healthier returns on CDs are only one gain from the Fed’s rate-raising campaign. Here’s how you can take advantage of other positive outcomes from Fed rate increases. 

  1. Higher Returns for Savers
    If you’re a saver, low interest rates have brought about the financial equivalent of a long drought. Any improvement, even modest, is welcome and overdue.

“Interest rates have been so low for so long that many people have fallen out of the habit of rate shopping,” says Robert Frick, corporate economist for Navy Federal Credit Union. “But now that rates are rising, they should get back into the habit and will be seeing bigger payouts from their accounts, especially certificates of deposit. This is especially important for people on fixed incomes.” 

  1. Tamed Inflation
    Most broad-based measures of prices indicate inflation has continued to remain under control in the U.S. in recent years. The central bank’s target for inflation is 2 percent, but inflation has yet to hit the bull’s eye on a sustained basis, as measured by personal consumption expenditures, or PCE.

If the Fed achieves its objectives in steering the economy, inflation should remain under control.

A positive inflation scenario after a rate increase might include “lower prices of imported consumer goods, due to a likely higher exchange value of the dollar if our domestic rate increases are not matched by policy tightening in other major economies,” says Daniil Manaenkov, U.S. forecasting specialist at the Research Seminar in Quantitative Economics at the University of Michigan. 

  1. More Lending
    A credit bubble rightfully received some of the blame for the financial crisis in 2007. In the aftermath, lending came to a complete stop.

Lending has resumed. “Banks may have a greater incentive to loan out reserves at higher interest rates, and thI increased flow of additional credit would boost economic growth,” says Sean Snaith, director of the Institute for Economic Competitiveness at the University of Central Florida. 

  1. More Interest Income for Retirees
    As a rate boost brings better returns to savings vehicles, senior citizens should enjoy better paydays by putting their money in CDs and savings accounts. “Higher interest rates on CDs and other financial instruments will particularly help older Americans trying to live on their retirement savings,” says Lynn Reaser, chief economist at Point Loma Nazarene University in San Diego.

As the population ages in coming years, many more Americans will come to appreciate even modest increases in interest income during retirement when they buy certificates of deposit. 

  1. Stronger Dollar to Boost Purchasing Power
    As the Fed continues to boost rates (and with the outlook for more rate hikes to come), the U.S. dollar gets more support. Ultimately, that means more purchasing power with the greenback compared with other currencies.

Predicting moves in the foreign exchange market is difficult, but Snaith and other economists say the dollar could strengthen further as the Fed boosts rates.

Fed tightening “is likely to mean a somewhat higher dollar, so people traveling to Europe will do well,” says Dean Baker, co-director of the Center for Economic and Policy Research in Washington.

  1. Stocks Will Trade on Fundamentals
    As the Federal Reserve embarks on what officials have called “normalization” (that is, a backing away from record-low rates), stock prices may start to make more sense and not reflect the central bank’s easy monetary policy quite so much.

“A normalization of rates would return the focus to market fundamentals and off of focusing on the nuances of each Fed statement,” says David Nice, former senior economist at DS Economics in Chicago. 

  1. Would-Be Homebuyers May Get off the Fence
    As the Fed continues to raise rates, higher mortgage rates likely will follow. If the prospect of higher mortgage rates compels you to a home sooner than later, you won’t be alone.

“Higher mortgage rates could push buyers off the fence—increasing demand, increasing prices and increasing home equity so that more people can sell their homes,” says Joel Naroff, president of Naroff Economic Advisors in Holland, Pa. 

©2018 Bankrate.com
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Categories: Realty News

Credit Freeze: A Misunderstood Freebie That You Actually Want

Thu, 09/13/2018 - 16:15

(TNS)—Just one year ago, consumers woke up and discovered that hackers had one heck of a field day with their Social Security numbers and other information in a massive data breach at Equifax. Equifax’s screw-up would forever leave millions just that much more vulnerable to ID theft. Face it: It’s not like you can change the locks on the side door. Once hacked, your Social Security number is out there indefinitely.

Beginning September 21, though, a new federal law will help consumers stop intruders in their tracks. The three big credit reporting agencies—Equifax, Experian and TransUnion—will be required to offer you a credit freeze, free of charge. Such a freeze will restrict access to your credit file and help stop crooks from opening credit cards in your name.

Also starting September 21, parents across the country will be able to get a free credit freeze for children under age 16. A child’s credit file would be frozen until the child is old enough to use credit.

To be sure, the new law is but a minuscule response to the widespread outrage expressed by consumers just a year ago. Even so, it is a key step for regaining some control over our data.

Yet there’s a not-so-small challenge ahead: Many people may have absolutely no idea what a credit freeze actually is and how it works, according to new research conducted by a team at the University of Michigan School of Information in Ann Arbor. Amazingly, some consumers wrongly think that a credit freeze stops them from using their own credit cards.

So what exactly is a credit freeze?
Yixin Zou, a U-M doctoral student, says she was astonished to hear consumers disclose that they somehow associated a freeze with stopping the use of their own credit cards or limiting their own access to their existing credit cards.

“I’m quite surprised,” says Zou.

Perhaps some consumers associated a freeze with times that credit card issuers send out new cards and stop us from using old ones because the numbers of the old ones have been breached.

Perhaps others remember tips that once suggested putting your credit card in the freezer in a baggie to control spending.

Who knows?

Instead, a credit freeze stops many but not all businesses and others from reviewing your credit file.

The consumer who signs up for a voluntary credit freeze is given a PIN—a PIN that you want to keep track of—to use when you want to unfreeze that credit file in order to apply for new credit.

Under the new law, if a consumer asks for a freeze online or by phone, the credit reporting agency has to put the freeze in place no later than the next business day, according to a Federal Trade Commission blog.

If the consumer wants to lift the freeze—for example, to finance a new phone or fridge—that has to happen within an hour.

“It’s just assumed that people know what a credit freeze is,” says Florian Schaub, U-M assistant professor of Information, whose research focuses on security and privacy issues.

Schaub says too often “credit freeze” is just swept into the jargon in the industry—jargon that many consumers simply do not understand. Many times, people only fully understand a credit freeze once they’re actual victims of ID theft and told that a credit freeze is essential.

And what is a fraud alert?
Some consumers had a hard time understanding the term “fraud alert,” as well. Some thought the alerts were when a bank or credit union would text you when fraudulent activity was detected on your account.

Instead, placing a fraud alert on your credit file actually means that you’re adding a red flag, if you will, to your credit report to alert a lender to carefully verify your identity before making a loan.

Under the new law, a fraud alert will last one year, instead of 90 days. If a victim of identity theft, you’d still be able to extend a fraud alert for seven years.

We’re not talking about buying some service or signing up for some credit lock product that might have certain strings and conditions, as well as a fee. This is a free freeze.

But all that jargon—freezes, locks, alerts—can truly confuse consumers who are already overwhelmed in their financial lives.

Schaub says the credit bureaus don’t have much incentive to carefully explain things like credit freezes or fraud alerts; after all, their business model is to collect and aggregate our information to provide to lenders who want to sell us loans.

“We, as citizens, are not their customers,” Schaub says. “What makes them money is sharing our credit reports with other businesses.”

Everyone has something to lose.
Many times, particularly lower-income consumers wrongly believe that they have little reason to worry and don’t really need to protect their data after a breach, according to the U-M researchers. Those consumers thought that scammers would target people who were more affluent.

“They would say ‘I’ve got nothing to lose. Why would an identity thief go after me?'” Schaub says. He says other research has shown that people of low socioeconomic status are disproportionately affected by identity theft.

The U-M research found that most consumers took little to no action to protect themselves despite the risk of identity theft. Some consumers underestimated the likelihood of becoming a victim.

Some consumers reported that they were likely to delay taking the time to handle any security-related tasks until they’re actually harmed—even though recovering from ID theft can be far more time-consuming than prevention, researchers say.

Of course, ID thieves can see huge payouts using your stolen Social Security number for all sorts of things, including getting medical care or poaching your medical insurance, filing a fraudulent tax refund (which stops you from getting your refund cash until you take steps to clear up the matter), and filing for unemployment benefits or even Social Security benefits using your number.

Putting a credit freeze won’t stop all fraud, of course, including someone who tries to file a fraudulent tax return to collect refund cash.

The Equifax breach was significant because of the kind of data that was involved. On Sept. 7, 2017, the major credit reporting agency announced a “cybersecurity incident” where crooks gained access to Social Security numbers, birthdates, names and addresses. And in some cases, Equifax noted that some partial driver’s license numbers were stolen, too. The incident involved data for nearly 147 million people.

Without the change in the law, many consumers in several states had to pay a fee of around $10 or so for each freeze they placed on their credit files, or $30 for putting a freeze with the three agencies. Then there could be a fee of $10 or so for lifting that freeze when you wanted to take out a loan or open a credit card. Fees could be waived under certain circumstances, such as when someone has stolen your identity to open credit.

Under the new law, you can unfreeze your report at no cost, too.
Enabling consumers to get free freezes, of course, should encourage people who don’t have a lot of extra cash to consider putting a freeze on their credit.

After the Equifax breach, U.S. consumers—whether they were part of the breach or not—were allowed to sign up to freeze their credit reports at Equifax if they made a move before July 1. But the new law will go much further and offer free freezes indefinitely.

The U-M research involved in-person, comprehensive interviews with 24 consumers in the Ann Arbor area during the first few months of 2018.

Typically, while those consumers had heard about the Equifax breach, more than half of them had done nothing to further protect themselves and prevent identity theft afterwards, the research concluded.

The key to all of this, of course, is that it’s up to consumers to lock that door.

“The level of vulnerability is pretty stunning,” says Chi Chi Wu, staff attorney at the National Consumer Law Center in Boston.

Wu says being able to obtain a free credit freeze for children could be more important than some families realize—even though children wouldn’t be part of a data breach such as Equifax.

“Children are lucrative targets for ID theft because they have clean records,” Wu says. In many cases, though, children become victims of ID theft because parents or other family members steal the child’s ID to apply for utilities, such as electricity.

Wu says consumers need to realize that the data that’s out there can be used now or years from now.

“Now how do you prevent ID theft given that this information is out there?” Wu says. “Most people’s Social Security, birthdates, are just hanging out there. It can never be taken back.”

The U-M researchers concluded that it’s not enough for companies to simply report data breaches. The researchers maintain that companies should clearly inform consumers on how they’re affected, what their risks are once ID thieves can get access to that data and what immediate steps consumers can take to protect themselves.

Even if not affected by a data breach, people should consider placing a credit freeze with each of the three credit bureaus after September 21, as it substantially limits potential abuse of one’s credit report, Schaub says.

The new law—called the Economic Growth, Regulatory Relief and Consumer Protection Act—also provides that if you have guardianship, power of attorney, or conservatorship over an adult, you can get a free credit freeze for that person after providing proof of authority.

When is a credit freeze a bad idea?
Like many tools, this strategy isn’t for everyone. If you’re about to apply for a mortgage, a car loan or a student loan, don’t take out a credit freeze before you get the loan. If you do, you’re going to have to unfreeze that credit report before you can get approved for a loan. You’ll need to consider the hassle factor.

Some entities, such as insurers and employers, are exempted under the new federal law and would still have access to your credit report even under a free credit freeze. The Federal Trade Commission notes that your report could still be released to your existing creditors or to debt collectors acting on their behalf, as well. Government agencies may have access in response to a court or administrative order, a subpoena, or a search warrant.

Most consumers are being more watchful when it comes to checking their credit card and bank statements every month to make sure that the charges are accurate or looking at their credit reports, says Matt Schulz, chief industry analysts for CompareCards by LendingTree.

“Equifax may have been the tipping point where people from now on just assume their information is already out there,” Schulz says.

How do you get a free credit freeze?
If you won’t need new credit soon, then a credit freeze may be for you—but remember, the free credit freezes for all do not hit until September 21. Under the new law, the Federal Trade Commission and the credit reporting agencies must set up webpages to make it easier for consumers to take advantage of their new rights. Those links will be in operation when the law takes effect, according to the FTC blog.

If you want a free freeze, you’d need to contact each of the agencies individually. Here are some current numbers:

  • Equifax’s automated security freeze system can be reached at 800-349-9960
  • Experian can be reached at 888-397-3742.
  • TransUnion is at 888-909-8872.

You’re going to need to supply data such as your name, address, date of birth, Social Security number and other personal information.

After receiving your freeze request, each credit reporting company will send you a confirmation letter containing a unique PIN (personal identification number) or password. Keep the PIN or password in a safe place. You will need it if you choose to lift the freeze.

©2018 Detroit Free Press
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Categories: Realty News

What to Buy in September

Mon, 09/10/2018 - 16:57

(TNS)—September is a big month for bargains, with deep discounts on summer merchandise and more.

“September is all about the end of summer, so anything seasonal is going to be on clearance,” says Benjamin K. Glaser, former features editor with DealNews.com.

You’ll find the last of the one-cent and 10-cent deals on school supplies at the big office-supply chains in September. If you or the student in your life needs a laptop computer, you might find a bargain.

“Inventory will be more limited, but the discounts justify giving it a look,” Glaser says.

At the grocery store, summer produce is discounted and so is the first bounty of fall.

“You’ll see great prices on peaches and nectarines, alongside pears and apples,” says Chris Romano, chief operating officer of Veggie Noodle Co. in Austin, Texas, and former coordinator for produce and floral for Whole Foods Market. “You have two seasons at the same time.”

Here’s your guide to the best things to buy in September.

Tomatoes and Corn
If you’ve been enjoying big, juicy summer tomatoes, now is your last chance to enjoy them at lower prices.

In September, you can still find a rainbow of heirloom varieties for 20 to 50 percent less than out-of-season prices, Romano says.

Big, round “slicer” tomatoes—a cookout staple for topping burgers—will be cheaper, with some as low as 99 cents a pound. Don’t forget fresh corn—markets tend to roll out specials, such as 25 cents an ear, or four for $1.

September also ushers in the first tastes of fall. Hearty greens that are great in soups and salads, such as kale and chard, “need the cool, crisp nights” that September brings, Romano says. Look for big discounts.

Apples and Pears
Craving apple pie, apple fritters or just a sweet, crispy apple with a slice of cheese? Domestic apples are a fall crop, and as they roll into the stores in September, you’ll see prices start to drop, says Romano.

It’s also the start of the short season for another fall favorite: Bartlett pears.

“They’re very prolific and very flavorful in September and October,” says Romano. “You’ll see some nice discounts.”

Make your calendars, caffeine fiends: Saturday, Sept. 29 is National Coffee Day. To celebrate, many coffee houses and doughnut shops, including chain stores and small independent cafes, will offer deals and discounts. Some coffee shops offer free cups of java and doughnuts on the house, as well as special buys on coffee beans.

One place you won’t find a free cup of joe: Starbucks. The giant coffee chain instead uses National Coffee Day to kick off charitable events and tout the positive impact it has on coffee-growing communities worldwide.

Airline Tickets
Most people take their big trips in summer, which makes September a good month to find deals on airline tickets. The one exception for fall travel bargains is Thanksgiving week. Flights sell quickly and at a premium for that holiday.

A few guidelines to follow:

  • If you see a good price, grab it. Airfares change frequently, and there’s always someone waiting to grab that ticket if you don’t.
  • The general rule for buying airline tickets is to book about 60 days in advance, so if you’re planning a winter getaway, September is a good time to nail it down.
  • To boost your chances of landing a deal, set fare alerts for your destination on sites such as Orbitz or Travelocity, or use a price prediction and monitoring app like Hopper. Google Flights is also a good resource for booking air travel, and it recently added new tools to help you decide the best time to book.

Bicycles, Gear and Accessories
Whether you’re an occasional bike rider or you take it seriously, September is a good month to buy a bicycle. New models debut in the fall, so retailers start to sell old inventory.

A lot of bike manufacturers have already delivered their 2019 models, says Larry Pennenski, manager of Mike’s Bikes, which sells the top bike brands at its two stores in Charleston, S.C.

Don’t expect huge discounts on bicycles.

“There’s not a whole lot of markup on them,” says Pennenski. Mike’s Bikes typically discounts older models by about 10 percent, he says.

Bike prices are all over the place, depending on what you want. A 10 percent discount on a $500 Electra Cruiser, for example, saves you a tidy $50. In September, also look for deals on cycling jerseys, helmets, storage stands, tools, and more.

Your location affects prices, too. In northern climes, the bike business slows down during cold months. That’s leverage for shoppers. Being a first-time customer at your local bike shop might give you negotiating power, too, since the store probably wants to build loyalty and retain you as a lifetime customer.

©2018 Bankrate.com
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Categories: Realty News

Consumer Confidence at High Point

Sat, 09/08/2018 - 00:00

In August, consumer confidence rose, posting a 133.4 reading in the Consumer Confidence Index® from The Conference Board. July’s reading was 127.9.

The Expectations reading of the Index, which gauges how consumers feel about their business, employment and income prospects six months out, improved, as well, to 107.6, while the Present Situation reading, which gauges how consumers feel about conditions currently, rose to 172.2.

“Consumer confidence increased to its highest level since October 2000 following a modest improvement in July,” said Lynn Franco, director of Economic Indicators at The Conference Board, in a statement. “Consumers’ assessment of current business and labor market conditions improved further. Expectations, which had declined in June and July, bounced back in August and continue to suggest solid economic growth for the remainder of 2018. Overall, these historically high confidence levels should continue to support healthy consumer spending in the near-term.”

Source: The Conference Board

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Categories: Realty News

Beware Location Remorse: Over a Third Have ‘Neighborhood Regret’

Thu, 09/06/2018 - 16:01

You can change a house—location is tougher.

According to new research by Trulia, 36 percent of Americans have “neighborhood regret,” or would have moved to another neighborhood than the one they reside in today. The feeling is heightened in metros, where 46 percent are dissatisfied with their pick, but less pronounced in rural areas (31 percent) and the suburbs (30 percent) The portal surveyed 1,000 Americans in Austin, Chicago and San Francisco who moved in the past three years.

What makes a neighborhood suitable? Forty-eight percent of those surveyed were motivated by the “vibe,” 37 percent were affected by crime rates, and another 37 percent were attracted to easier travel to work. Attributes that led to regret? Lack of public transit, noise and traffic.

Is your neighborhood a problem? For future moves, prepare through research. Look up neighborhood photos—something just 38 percent of those surveyed did—and plan a time to visit. Only 37 percent explored the neighborhood’s popular spots, and 47 percent did not go at night. Remember, as well, that your agent is an expert on the local market. Contact them for help with your move.

For more information, please visit www.trulia.com.

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Categories: Realty News

Housing in 2020: Construction Costs Grow, Mortgage Rates Slow

Sun, 08/26/2018 - 13:06

Where will housing be in 2020? According to the latest Metrostudy predictions, if all continues on its current track, construction costs could continue to increase, and mortgage rates could reel in.

While rates have increased in the last six months, impacting affordability, the rise is not significant according to historical trends, says Mark Bound, chief economist and senior vice president at Metrostudy, a provider of primary and secondary market information to the housing and residential construction industries. In the long term, Boud predicts mortgage interest rates will top out at 5.8 percent in 2020 and 2021, eventually being pulled down by slower economic growth—and because of tighter lending practices, the market environment will not become as dire as the last housing bubble.

As for inventory, it is significantly under-supplied, while homes are increasingly overvalued; however, the risk of a price collapse is small due to the tight market, and Boud expects the cycle of under-supply to plateau in 2020. The lack of new inventory is, in part, in response to trade increases, as many of the imposed tariffs—specifically the 20-plus percent tariff on lumber imports, and 10 and 25 percent tariffs on aluminum and steel imports, respectively—directly impact construction efforts.

These factors could lead to an increase in overall construction timelines, as well as an increase in construction costs by at least $2,000 per house, according to Boud. More homes in the upper price ranges are being built, while inventory under $400,000 is lower, in some cases. Overall, the national market is becoming top-heavy, which typically only occurs where land is more expensive, such as in California, Boud says.

Remodeling activity continues to rise in response to homeowners staying in their homes for longer, as well as the continuing trend toward purchasing existing homes, which triggers renovations. According to Boud, this is most common in coastal markets, or markets that have high appreciation rates, such as Texas.

Something to watch? Inflation. Boud says inflationary pressures are slowly building—inflation rose from 2.4 percent in March to 2.9 percent in August—but in a few years, the national debt could slow economic growth, which, in turn, could slow down rising interest rates.

Another concern? The current downward trend of the 2-10 Treasury yield spread, which could see negative figures in about a year, may be a sign that a recession is in the cards.

However, the current economy is healthy, Boud says. In the past 12 months, 2.4 million jobs have been generated, increasing demand for housing and pushing the unemployment rate down. Additionally, housing starts are fairly stable, forecasted to be 1.28 million in 2018, and increasing to 1.33 million in 2019 and 1.345 million in 2020, before plateauing.

Liz Dominguez is RISMedia’s associate content editor. Email her your real estate news ideas at ldominguez@rismedia.com. For the latest real estate news and trends, bookmark RISMedia.com.

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Categories: Realty News

401(k) Auto-Enrollment Connected to Early Withdrawals, With Housing Implications

Thu, 08/23/2018 - 16:41

With Social Security trust fund reserves waning—predicted to be depleted by 2034, leaving Social Security unable to maintain full scheduled benefits—and the number of retirees expecting to receive benefits increasing, more and more Americans are relying on 401(k) savings to support their retirement living. In fact, Statista estimates there are 41.2 million households who presently own a 401(k) plan in the U.S.

How does auto-enrollment fit in with these tax-advantaged savings accounts? There’s a clear benefit, as recently determined by 401(k) record-keeper Alight Solutions LLC in its 2017 Trends & Experience in Defined Contributions Plans report. Far more individuals contribute to a 401(k) with an auto-enrollment feature (85 percent) than to plans without it (63 percent).

While that should lead to higher savings rates and stronger financial health for future retirees, there is a glaring concern: Increases in auto-enrollment are leading to more early withdrawals. According to Retirement Clearinghouse LLC, over 60 percent of 401(k) participants with balances below $10,000 liquidate their accounts after leaving a company, reports the Wall Street Journal.

What’s causing this increase in withdrawals (also known as leakage)? Job changes lead to low 401(k) balances, which are largely cashed out due to company payout checks that can easily be deposited. The alternative? Having to fill out burdensome paperwork to transfer the funds into a tax-advantaged account. Others use their funds as a type of loan regardless of penalties incurred.

Although small loans or early withdrawals may not seem like much in the grand scheme of funds necessary to support retirement living, these can add up to a costly dip in long-term savings. While statistics by the University of Pennsylvania’s Wharton School show that most 401(k) borrowers pay themselves back (with interest), 10 percent default on nearly $5 billion per year.

How will this impact retirement-incentivized real estate? A survey conducted last year by The Hartford Advance 50 Team and MIT AgeLab found that 73 percent of surveyed adults over 45 strongly agreed with the statement “What I’d really like to do is stay in my current residence for as long as possible.”

That may not be achievable for a majority of retirees. Less funds to support retirement living may lead to more move-down buyers, as retirees struggle to pay off remaining mortgage debt on bigger homes while also maintaining their current costs of living. Additionally, aging in place no longer means simply staying in their current home, as improvements are necessary to ensure their safety and comfort, and these modifications can be costly.

Independent living in a safe format is merely one consideration. According to a Merrill Lynch Finances in Retirement Survey last year, the average cost to retire has increased to $738,400. The average balance in a 401(k) account is $102,900, according to Fidelity.

How much does auto-enrollment and early withdrawals impact retirement moving trends? Participating employees are more likely to reduce their potential auto-enrollment gains by as much as 42 percent, withdrawing an average of $850 more than employees who voluntarily enroll. This could lead to massive losses in retirement savings down the road.

When taking overall auto-enrollment savings into consideration, however, those who participated saved, on average, $1,200 more in eight years (in 2004 dollars) compared to employees hired only a year earlier but who were required to sign up on their own, according to the Alight report. Additionally, companies offering auto-enrollment are largely converting more employees, who would not typically contribute, into retirement savers.

Younger workers should start seeking employment with companies that offer 401(k) auto-enrollment now, and should refrain from pocketing low balances should they transfer jobs or withdrawing until they have reached retirement age. Additionally, in order to truly benefit from auto-enrollment and build up savings, Congress may have to impose added restrictions on low-balance payouts in response to job transitions, as well as make it easier for auto-enrolled contributors to transfer funds without the hassle of complex paperwork.

Liz Dominguez is RISMedia’s associate content editor. Email her your real estate news ideas at ldominguez@rismedia.com. For the latest real estate news and trends, bookmark RISMedia.com.

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Categories: Realty News