Apr 22

There’s No Place Like Home: Steps to Take When Buying Your First Home

 

 

Washington, D.C., April 22, 2014 –Preparing to buy your first home is one of life’s most monumental steps. As with other milestones, such as getting married or having a baby, new homeowners must face the financial realities that come with investing in a home of their own.

 Certified Financial Planner Board of Standards (“CFP Board”) Ambassador Paul Jarvis, CFP® provides guidance on the “realty realities” that all new homeowners should be prepared to address.

 “Buying your first home is a wonderful endeavor but requires thoughtfulness and planning.  Taking the time to adequately budget, title, and protect your investment allows you to have a home you own not a home that owns you,” says Jarvis.

 In the latest installment of CFP Board’s “Let’s Talk Planning” blog and its “Financial Planning is for Everyone” series, the CFP Board shares three aspects of home ownership to consider when you close on and get the keys to your new home.

 

  1. Titling your home: There are several ways to own a house. What’s best for you depends on several factors:  For example, are you the sole purchaser, or are you buying it with another individual? If it’s just you, make sure you have a will to direct where the house should go in the event of your death. If you will be a co-owner, the important question is whether you want the home to automatically transfer to the other individual at your death.

 

  1. Insuring your home: If you have a mortgage, you must have insurance, but you do have choices about the kind of protection you buy. Homeowner’s policies differ with respect to the types of perils they cover, such as whether they include what’s inside your home and the monetary benefit you would receive if your home is destroyed.

 

  1. Maintaining your home: No more calling the landlord when there’s a water leak or the dishwasher dies. You need to plan for these events by setting up a “repair” account and funding it monthly. Once you move into your new home, get the names of some reputable contractors who do good work at reasonable costs.

 

Homeownership comes with more than enough new responsibilities. But there are two options new homeowners need not consider: mortgage insurance and bimonthly payment plans offered by the mortgage servicer. Mortgage insurance only makes sense it you cannot qualify for traditional life insurance because of health issues.  And you can increase your monthly payments on your own, shortening the duration of your mortgage and lowering your interest costs, without incurring bank service fees.

 If the homeownership process seems complicated, talk to a CFP® professional to prepare and plan. A Certified Financial Planner™ professional can help you focus on the important issues of owning a home: protection, preservation, and a plan for transfer. A home is an investment that needs your constant attention; enlist the help of a professional to take care of it.

  

ABOUT LET’S TALK PLANNING

“Let’s Talk Planning” is a blog by CFP Board Consumer Advocate Eleanor Blayney, CFP®, with posts each week with practical financial planning tips for consumers, as well as insights into the latest developments at CFP Board.  In addition to offering counsel on timely and evergreen financial planning topics, once a month Blayney will remind readers that “financial planning is for everyone,” with tips for consumers of all ages and life stages.

 

ABOUT CFP BOARD

The mission of Certified Financial Planner Board of Standards, Inc. is to benefit the public by granting the CFP® certification and upholding it as the recognized standard of excellence for competent and ethical personal financial planning. The Board of Directors, in furthering CFP Board’s mission, acts on behalf of the public, CFP® professionals and other stakeholders. CFP Board owns the certification marks CFP®, Certified Financial Planner™, CFP® (with plaque design) and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.  CFP Board currently authorizes more than 69,000 individuals to use these marks in the U.S.

 

CONTACT: Paul Jarvis, CFP Board Ambassador P: 701-451-3059 E: pjarvis@cfpboardambassador.org

 

The information in this article is not intended to be tax and/or legal advice and should not be treated as such. You should consult with your tax advisor and/or attorney to discuss your personal situation before making any decisions.

Additionally, If you are looking for additional help, seek help from a CERTIFIED FINANCIAL PLANNER™ Professional that can look at your individual situation holistically.

Mar 17

Three Key Retirement Income Considerations

 

 

Average life expectancy has risen steadily in the United States, so retirees and soon-to-be retirees need to ensure that they don’t tap their nest eggs too heavily.

 

Notice

There are two factors that can determine whether you’ll have a comfortable retirement: The amount of money you’ve saved and how quickly you spend that nest egg after you retire. 

 

The rate of annual withdrawals from personal savings and investments helps determine how long those assets will last and whether the assets may be able to generate a sustainable stream of income over the course of retirement. A number of factors will influence your choice of annual withdrawal rate.

 

The following are three key considerations.

 

Consideration 1: Your Age and Health

As you think about what your withdrawal rate should be, begin by considering your age and health. Although you can’t predict for certain how long you will live, you can make an estimate. However, it may not be wise to base your estimate on average life expectancy for your age and sex, particularly if you are healthy. The average life expectancy has risen steadily in the United States, reaching 78.2 years.¹

 

Consideration 2: Inflation

Inflation is the tendency for prices to increase over time. Keep in mind that inflation not only raises the future cost of goods and services, but also affects the value of assets set aside to meet those costs. To account for the impact of inflation, include an annual percentage increase in your retirement income plan.

 

How much inflation should you plan for? Although the rate varies from year to year, U.S. consumer price inflation has averaged under 3% over the past 30 years.2 So, for long-term planning purposes, you may want to assume that inflation would average in the range of 3% to 4% a year. If, however, inflation flares up after you have retired, you may need to adjust your withdrawal rate to reflect the impact of higher inflation on both your expenses and investment returns. Also, once you retire you should assess your investment portfolio regularly to ensure that it continues to generate income that will at least keep pace with inflation.

 

Consideration 3: Variability of Investment Returns

When considering how much your investments may earn over the course of your retirement, you might think you could base assumptions on historical stock market averages, as you may have done when projecting how many years you needed to reach your retirement savings goal. But once you start taking income from your portfolio, you no longer have the luxury of time to recover from possible market losses, as retirees and near-retirees during this latest market downturn have experienced firsthand.

 

For example, if a portfolio worth $250,000 incurred successive annual declines of 12% and 7%, its value would be reduced to $204,600, and it would require a gain of nearly 23% the next year to restore its value to $250,000.3 When a retiree’s need for annual withdrawals is added to poor performance, the result can be a much earlier depletion of assets than would have occurred if the portfolio returns had increased steadily. While it’s possible that your portfolio will not experience any losses and will even grow to generate more income than you expected, it’s safer to assume some setbacks will occur.

 

Your financial professional can help you determine a withdrawal strategy that can minimize the drain on your portfolio.

 

Source/Disclaimer:

1Source: Center for Disease Control, March 2012 (based on 2009 data, latest available).
2Source: Bureau of Labor Statistics, January 2014.
3Example is hypothetical and for illustrative purposes only. Your results will vary.

 

The information in this article is not intended to be tax and/or legal advice and should not be treated as such. You should consult with your tax advisor and/or attorney to discuss your personal situation before making any decisions.

Additionally, If you are looking for additional help, seek help from a CERTIFIED FINANCIAL PLANNER™ Professional that can look at your individual situation holistically.

 

Required Attribution

Because of the possibility of human or mechanical error by Wealth Management Systems Inc. or its sources, neither Wealth Management Systems Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall Wealth Management Systems Inc. be liable for any indirect, special or consequential damages in connection with subscriber’s or others’ use of the content.

© 2014 Wealth Management Systems Inc. All rights reserved.

“United Capital and Wealth Management Systems Inc. are separate and unrelated companies.”

Mar 14

Planning for the Future — What Motivates You?

 

This article underscores the benefits of maintaining a financial plan to pursue your goals for the future and the truth is that there is ample motivation to make the most of retirement planning opportunities.

 

 

Important!

Reality Check

It used to be that Americans could count on a pension plus Social Security to get them through their Golden Years. But traditional pensions only account for an estimated 18% of the total aggregate income of today’s retirees, and Social Security accounts for only about 36%.1 Alas, the responsibility for the bulk of your nest egg now rests with you.

 

As you begin thinking about a comfortable retirement, consider that by most estimates you’ll need at least 60% to 80% of your final working year’s income to maintain your lifestyle after retiring. And don’t forget that your annual income will need to increase each year — even during retirement — in order to keep up with inflation. At an average annual inflation rate of more than 3%, your cost of living would double every 24 years.

You’ll also have to consider the likelihood of increased medical costs and health insurance premiums as you grow older. The average cost of a year’s stay in a semi-private room in a nursing home, for instance, is now over $80,000 a year and could rise more than $130,000 per year by 2030, assuming an annual inflation rate of 3%.2

 

Getting a Leg Up

If this dose of reality makes you glum, cheer up — you have some allies. Investment vehicles, such as your employer-sponsored retirement plan and individual retirement accounts (IRAs), allow you to put off paying taxes on your earnings until you begin taking withdrawals, typically during retirement when you may be in a lower tax bracket.

Additionally, time can be an ally — or an enemy. Delaying the process of investing can significantly reduce your results. Consider this example: Jane begins investing $100 a month in her employer-sponsored retirement plan when she’s 25. Mark begins investing the same amount when he’s 35. Assuming an 8% annual rate of return compounded monthly, when Mark retires at 65, he’ll have $150,030. Jane will have $351,428.3

While this is only a hypothetical scenario and there are no guarantees any investment will provide the same results, you can see the remarkable difference starting early may make. But no matter what your age, contributing the maximum amount to your employer-sponsored retirement plan and IRA each year could help you achieve the comfortable retirement that each of us desires.

 

Source/Disclaimer:

1Source: Social Security Administration, Fast Facts & Figures About Social Security, 2013.

2Source: Genworth Financial, Inc. and National Eldercare Referral Systems, LLC, Cost of Care Survey, 2013.

3Example is hypothetical and for illustrative purposes only. The hypothetical rates of return used do not reflect the deduction of fees and charges inherent to investing and the example does not represent the return of any actual investment. Your results will vary.

 

The information in this article is not intended to be tax and/or legal advice and should not be treated as such. You should consult with your tax advisor and/or attorney to discuss your personal situation before making any decisions.

Additionally, If you are looking for additional help, seek help from a CERTIFIED FINANCIAL PLANNER™ Professional that can look at your individual situation holistically.

 

Required Attribution

Because of the possibility of human or mechanical error by Wealth Management Systems Inc. or its sources, neither Wealth Management Systems Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall Wealth Management Systems Inc. be liable for any indirect, special or consequential damages in connection with subscriber’s or others’ use of the content.

© 2014 Wealth Management Systems Inc. All rights reserved.

“United Capital and Wealth Management Systems Inc. are separate and unrelated companies.”

Mar 10

What’s the Best Way to Give Money to Children and Grandchildren?

Read this article to learn about financial gifting strategies that can benefit the giver and the recipient at the same time.

 

In 2014, the IRS allows you to give up to $14,000 annually (or $28,000 if you give jointly with your spouse) to each of as many people as you’d like in cash, investments, and/or property without triggering gift taxes. (This limit may be adjusted for inflation in future years.)

If you’re thinking about giving money to minor children, such as a new grandchild, it might make sense to take advantage of The Uniform Gifts to Minors Act or The Uniform Transfers to Minors Act (UGMA/UTMA) depending on your state. An UGMA/UTMA account allows you to establish a savings or investment account in a child’s name, with one adult named as custodian. Each parent or grandparent can contribute up to $14,000 annually without triggering a gift tax.

With an UGMA/UTMA strategy, the first $1,000 per year of unearned (investment) income is tax free. For children under 18, anything between that amount and $2,000 is taxed at the child’s rate. Any income exceeding $2,000 for children under 18 is taxed at the parent’s rate. For children over age 18, all income is taxed at the child’s rate.

Of course, asset gifts are not limited to young children or newborns. You can also give to as many adults as you’d like up to $14,000 a year. Keep in mind, however, that the IRS considers the value of the gift its cost basis for purposes of computing gift tax to be its value at the time that it’s given, not when you originally purchased or invested in it. By making a tax-smart financial gift to an adult-aged child, you could help him or her fund a down payment for a home or afford to maximize contributions to an employer-sponsored retirement plan.

If you’re thinking about starting a gifting program, a qualified financial professional can help you evaluate which strategies might be appropriate for your situation.

 

The information in this article is not intended to be tax and/or legal advice and should not be treated as such. You should consult with your tax advisor and/or attorney to discuss your personal situation before making any decisions.

Additionally, If you are looking for additional help, seek help from a CERTIFIED FINANCIAL PLANNER™ Professional that can look at your individual situation holistically.

 

Required Attribution

Because of the possibility of human or mechanical error by Wealth Management Systems Inc. or its sources, neither Wealth Management Systems Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall Wealth Management Systems Inc. be liable for any indirect, special or consequential damages in connection with subscriber’s or others’ use of the content.

© 2014 Wealth Management Systems Inc. All rights reserved.

“United Capital and Wealth Management Systems Inc. are separate and unrelated companies.”

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