Each year for its Retirement Confidence Survey, the Employee Benefit Research Institute (EBRI) surveys 1,000 workers and 1,000 retirees to assess how confident they are in their ability to afford a comfortable retirement. Once again, in 2019, retirees expressed stronger confidence than workers: 82% of retirees reported feeling “very” or “somewhat” confident, compared with 67% of workers. A closer look at some of the survey results reveals various lessons today’s workers can learn from current retirees.
Current sources of retiree income
Let’s start with a breakdown of the percentage of retirees who said the following resources provide at least a minor source of income:
- Social Security: 88%
- Personal savings and investments: 69%
- Defined benefit/traditional pension plan: 64%
- Individual retirement account: 61%
- Workplace retirement savings plan: 54%
- Product that guarantees monthly income: 33%
- Work for pay: 25%
Lesson 1: Don’t count on work-related earnings
Perhaps the most striking percentage is the last one, given that 74% of today’s workers expect work-related earnings to be at least a minor source of income in retirement. Currently, just one in four retirees works for pay.
Lesson 2: Have realistic expectations for retirement age
Building upon Lesson 1, it may benefit workers to proceed with caution when estimating their retirement age, as the Retirement Confidence Survey consistently finds a big gap between workers’ expectations and retirees’ actual retirement age.
In 2019, the gap is three years: Workers said they expect to retire at the median age of 65, whereas retirees said they retired at a median age of 62. Three years can make a big difference when it comes to figuring out how much workers need to accumulate by their first year of retirement. Moreover, 34% of workers reported that they plan to retire at age 70 or older (or not at all), while just 6% of current retirees fell into this category. In fact, almost 40% of retirees said they retired before age 60. The reality is that more than four in 10 retirees retired earlier than planned, often due to a health issue or change in their organizations.
Estimating retirement age is one area where workers may want to hope for the best but prepare for the worst.
Lesson 3: Income is largely a result of individual savings efforts
Even though 64% of current retirees have defined benefit or pension plans, an even larger percentage say they rely on current savings and investments, and more than half rely on income from IRAs and/or workplace plans. Current workers are much less likely to have defined benefit or pension plans, so it is even more important that they focus on their own savings efforts.
Fortunately, workers appear to be recognizing this fact, as 82% said they expect their workplace retirement savings plan to be a source of income in retirement, with more than half saying they expect employer plans to play a “major” role.
Lesson 4: Some expenses, particularly health care, may be higher than expected
While most retirees said their expenses were “about the same” or “lower than expected,” approximately a third said their overall expenses were higher than anticipated. Nearly four out of 10 said health care or dental expenses were higher.
Workers may want to take heed from this data and calculate a savings goal that accounts specifically for health-care expenses. They may also want to familiarize themselves with what Medicare does and does not cover (e.g., dental and vision costs are not covered) and think strategically about a health savings account if they have the opportunity to utilize one at work.
Lesson 5: Keep debt under control
Just 26% of retirees indicated that debt is a problem, while 60% of workers said this is the case for them. Unfortunately, debt can hinder retirement savings success: seven in 10 workers reported that their non-mortgage debt has affected their ability to save for retirement. Also consider that 32% of workers with a major debt problem were not at all confident about having enough money to live comfortably in retirement, compared with just 5% of workers who don’t have a debt problem.
As part of their overall financial strategy, workers may want to develop a plan to pay down as much debt as possible prior to retirement.
From Kathryn Streeter , USA TODAY
Using my phone’s speech-to-text feature in a recent exchange with a friend on the difficulties of the empty-nest season, I glanced down to check for accuracy before sending. My device transcribed “emptiness” instead of “empty nest.” Ironically, emptiness is exactly what many feel after their final child leaves home.
Author Melissa Shultz interviewed 50 women of diverse backgrounds and circumstances for her book From Mom to Me Again: How I Survived My First Empty-Nest Year and Reinvented the Rest of My Life. The one thing all interviewees shared was a powerful love for their children. As a result of this love, when children leave home their absence can produce a sense of emptiness, Shultz explains.
“Kids bring this fantastic chaos with them and when they go, it’s like all the air goes out of the room,” she says.
Shultz empathizes, recounting how she and her husband asked, “Now what?” on their first night home after dropping their youngest off at college.
“Start fresh things in your own life together a couple years before your last child graduates,” advises clinical psychologist Margaret Rutherford, who hosts the SelfWork with Dr. Margaret Rutherford podcast. You’re giving your child a lovely gift when you successfully move forward, she says.
Christie Turnbull, of Indiana, and her husband, Greg, are redirecting the energy they gave their children as they near empty-nest status. The Turnbulls have four children, and only one remains at home.
“While it’s sad to think about how quickly time has passed, it’s also been fun to see our kids enjoy where they are and where they’re headed,” Turnbull says. “We’ve always loved investing in the lives of teens, and with our extra time our focus is to be more intentional about continuing that with kids in our community.”
If Rutherford’s patients resist the shift in priorities, saying they’ll miss out if they don’t focus 100 percent on their teen, she’s bullish.
Having friends is also vital because your spouse can’t possibly meet your every need, Rutherford says.
Cultivating fun, trustworthy companions to walk by your side is especially important for single parents, she counsels. Seek out those with shared interests so that you’ll “already have people in your life who enjoy doing the things you enjoy doing” and appreciate you as an individual, outside your role as a parent.
Develop a communication plan because couples grieve differently. “My sense of loss was different than my husband’s, but no less significant,” Shultz acknowledges.
Rutherford explains that the parent experiencing the most detachment might want more contact with the child. Her advice is to develop a three-prong communication plan that will honor the most affected parent, the parent who is more ready and the child.
With each of these perspectives in mind, “Sit down and develop a plan before the child leaves so everybody knows what’s going to happen,” says Rutherford.
Shultz also strongly advocates for an early, honest conversation about maintaining the connection “comfortably felt as a family under one roof.” Stress that it’s important you stay connected, albeit in a new way.
Parents should get professional help, if needed. Fighting can erupt from the stress of pending change. Don’t be frantic, says Rutherford.
If signs of clinical depression appear, get help, urges Rutherford, whose next book, Perfectly Hidden Depression, will be released later this year. Depression can be relentless, overwhelming you with a lack of life purpose and causing you to lose interest in everything.
It’s an emotional time and Shultz cautions, choose your words carefully. “(Kindness) is the No. 1 trait of happy couples,” she says. Overall, be stubbornly optimistic about what’s ahead, she encourages, and rewire your thinking to expect the empty nest to reveal strengths, not weaknesses.
Shultz advises couples to plan their empty-nest phase in whatever way works best for them. “There’s no wrong way to do it as long as you are making plans and moving forward.” It’s a teachable moment, Shultz says, because just as you want your kids to move forward in life, so should you.Read More
You may benefit even if you can’t reduce your mortgage rate by a full percentage point.
Mortgage rates have dropped to levels not seen since 2016, and homeowners are rushing to refinance. You can benefit even if you don’t cut your rate by a full percentage point—a rule of thumb you can safely ignore. The question is whether you will stay in your home long enough to recoup the closing costs with savings on your monthly payments. For a quick answer, run the numbers using the refi break-even calculator at Bankrate.com.
Borrowers who closed on their loans in 2018 are leading the charge, according to Black Knight, a mortgage data, analytics and software provider. Say you got a $300,000 mortgage with a 30-year fixed rate of 4.5% last fall. If you refi to a rate of 3.8%—the national average rate reported by Freddie Mac in mid July—you would cut your monthly payment of principal and interest by $145, to $1,375, and you’d pay for your total closing costs (estimated at 2% of the loan balance) with monthly savings in 41 months.
Borrowers with adjustable-rate mortgages (ARMs) are refinancing to fixed rates in the highest numbers since 2007, presumably to lock in a low rate they’ll never need to think about again. In mid July, the average rate for a 5/1 ARM (the interest rate is fixed for the first five years and adjusts annually after that) was 3.5%, and for a 7/1 ARM, the rate was 4%, according to Bankrate.com.
If you originally took out an FHA loan but have since improved your financial profile or accumulated 20% equity, you can refi into a loan backed by Fannie Mae or Freddie Mac and not only reduce your interest rate but also eliminate the cost of mortgage insurance, which applies permanently on most FHA loans.
If you want to build equity more quickly or pay off your mortgage sooner—say, in anticipation of retirement—you could refinance into another, cheaper 30-year mortgage and use the monthly savings to prepay your mortgage. Or, if you can handle a higher monthly payment, you could take a new mortgage with a shorter term of, say, 15 or 20 years. In mid July, the average 15-year rate was 3.2%.
Gather your information. You can find an estimate of the market value of your home at Zillow.com or Trulia.com. Or ask a real estate agent, who may get your business down the road, to provide a market valuation of your home based on recent comparable sales.
Next, check your credit. The stronger your qualifications (the more equity you have, the higher your credit score and the less debt you carry), the lower the interest rate you’ll be able to get. Rates will be higher if you take cash out, take out a super-conforming mortgage (with a loan balance of $484,351 to $726,525), or are refinancing a multi-unit or investment property.
Well before you shop, double-check your credit reports from Equifax, Experian and TransUnion, the three major credit-reporting agencies (free annually at annualcreditreport.com) to ensure that no errors drag down your score. You may be able to check your credit score for free on the website of your credit card issuer, and everyone can see their credit score at Discover.com. (See 6 Ways to Boost Your Credit Score—Fast.)
Shop a variety of lenders, including the originator of your existing loan; your current loan servicer, bank or credit union; Quicken Loans; or a mortgage broker who may be able to pass along wholesale rates to you (look for an independent broker at findamortgagebroker.com). If you need a jumbo mortgage and are a client with your bank’s wealth advisory group, it may offer you the best deal, says Adam Smith, a mortgage broker in Denver. (The average jumbo rate in mid July was 4.1%, according to Bankrate.com.)
When you’re shopping for a mortgage, multiple credit checks won’t diminish your credit score if they occur within 30 days prior to calculating your score. And in the newest versions of the FICO score, those multiple inquiries made within a 45-day period count as only one inquiry.
Lenders will typically charge you from 1% to 3% of the loan balance to refinance. Closing costs will include the lender’s origination fee, third-party costs (including the cost of an appraisal, title search and so on) and recording costs.
You could pay the closing costs out of pocket. But before you do, consider how you could deploy the money for a better return. If you have enough equity, you can add the closing costs to your loan balance and finance them. With rates so low, the impact on your monthly mortgage payment could be negligible. But a higher loan balance and loan-to-value ratio could tip you into a higher risk category with a higher interest rate.
Or you could pay a higher interest rate in exchange for a lender credit that offsets closing costs. You can use the Tri-Refi Calculator at HSH.com to estimate the difference in outcome, but your loan officer should help you make the right decision to maximize the benefit of the refi.
Once the refinancing is under way, don’t open new credit lines or increase the balances of your existing credit because lenders will reverify your debt-to-income ratios just before closing. If the ratios exceed the lender’s limit, it must requalify you.
Prove it. Before a lender can approve your loan, it must document and verify your employment, income, assets and more. But lenders are trying to streamline the process, from application to closing, with technology. For example, at Quicken, customers can import their account statements directly from their bank or brokerage.
You will need an appraisal of your home’s value. Your lender may accept an automated valuation. But if it can’t access enough data or you’re taking cash out, the lender probably will send an appraiser to visit your home.
Homeowners have amassed nearly as much home equity as they had before the housing bust, but they have been cautious about extracting it. Although Fannie Mae and Freddie Mac will let you borrow up to 80% of your home’s value, and FHA will let you go up to 95% if you’ve made your payments on time for 12 months (85% otherwise), most borrowers are being more conservative, borrowing only 65% to 70% of their home’s value on average, says Bill Banfield, an executive vice president at Quicken Loans.
Freddie Mac says that homeowners who are tapping their home equity through cash-out refinancing are using the money to pay off more-expensive debt, make repairs or improve their homes, add to their savings, buy a car or other major purchase, or save or pay for college expenses.
Under the new tax law, if you don’t use the money to substantially improve your home, the interest on that portion of the loan isn’t deductible if you itemize.Read More
As a woman, you have financial needs that are unique to your situation in life. Perhaps you would like to buy your first home. Maybe you need to start saving for your child’s college education. Or you might be concerned about planning for retirement. Whatever your circumstances may be, it’s important to have a clear understanding of your overall financial position.
That means constructing and implementing a plan. With a financial plan in place, you’ll be better able to focus on your financial goals and understand what it will take to reach them. The three main steps in creating a nd implementing an effective financial plan involve:
• Developing a clear picture of your current financial situation
• Setting and prioritizing financial goals and time frames
• Implementing appropriate saving and investment strategies
Developing a clear picture of your current financial situation
The first step to creating and implementing a financial plan is to develop a clear picture of your current financial situation. If you don’t already have one, consider establishing a budget or a spending plan. Creating a budget requires you to:
• Identify your current monthly income and expenses
• Evaluate your spending habits
• Monitor your overall spending
To develop a budget, you’ll need to identify your current monthly income and expenses. Start out by adding up all of your income. In addition to your regular salary and wages, be sure to include other types of income, such as dividends, interest, and child support
Next, add up all of your expenses. If it makes it easier, you can divide your expenses into two categories: fixed and discretionary. Fixed expenses include things that are necessities, such as housing, food, transportation, and clothing.
Discretionary expenses include things like entertainment, vacations, and hobbies. You’ll want to be sure to include out-of-pattern expenses (e.g., holiday gifts, car maintenance) in your budget as well.
To help you stay on track with your budget:
• Get in the habit of saving–try to make budgeting a part of your daily routine
• Build occasional rewards into your budget
• Examine your budget regularly and adjust/make changes as needed
Setting and prioritizing financial goals
The second step to creating and implementing a financial plan is to set and prioritize financial goals. Start out by making a list of things that you would like to achieve. It may help to separate the list into two parts: short-term financial goals and long-term financial goals. Short-term goals may include making sure that your cash reserve is adequately funded or paying off outstanding credit card debt.
As for long-term goals, you can ask yourself: Would you like to purchase a new home? Do you want to retire early? Would you like to start saving for your child’s college education? Once you have established your financial goals, you’ll want to prioritize them. Setting priorities is important, since it may not be possible for you to pursue all of your goals at once. You will have to decide which of your financial goals are most important to you (e.g., sending your child to college) and which goals you may have to place on the back burner (e.g., the beachfront vacation home you’ve always wanted)
Implementing saving and investment strategies
After you have determined your financial goals, you’ll want to know how much it will take to fund each goal. And if you’ve already started saving towards a goal, you’ll want to know how much further you’ll need to go. Next, you can focus on implementing appropriate investment strategies. To help determine which investments are suitable for your financial goals, you should ask yourself the following questions:
• What is my time horizon?
• What is my emotional and financial tolerance for investment risk?
• What are my liquidity needs?
Once you’ve answered these questions, you’ll be able to tailor your investments to help you target specific financial goals, such as retirement, education, a large purchase (e.g., home or car), starting a business, or increasing your net worth.
Managing your debt and credit
Whether it is debt from student loans, a mortgage, or credit cards, it is important to avoid the financial pitfalls that can sometimes go hand in hand with borrowing. Any sound financial plan should effectively manage both debt and credit. The following are some tips to help you manage your debt/credit:
• Make sure that you know exactly how much you owe by keeping track of balances and interest rates
• Develop a short-term plan to manage your payments and avoid late fees
• Optimize your repayments by paying off high-interest debt first or take advantage of debt consolidation/refinancing
Understanding what’s on your credit report
An important part of managing debt and credit is to understand the information contained in your credit report. Not only does a credit report contain information about past and present credit transactions, but it is also used by potential lenders to evaluate your creditworthiness.
What information are lenders typically looking for in a credit report? For the most part, a lender will assume that you can be trusted to make timely monthly payments against your debts in the future if you have always done so in the past.
As a result, a history of late payments or bad debts will hurt your credit. Based on your track record, if your credit report indicates that you are a poor risk, a new lender is likely to turn you down for credit or extend it to you at a higher interest rate. In addition, too many inquiries on your credit report in a short time period can make lenders suspicious. Today, good credit is even sometimes viewed by potential employers as a prerequisite for employment–something to think about if you’re in the market for a new job or plan on changing jobs in the near future.
Because a credit report affects so many different aspects of one’s financial situation, it’s important to establish and maintain a good credit history in your own name. You should review your credit report regularly and be sure to correct any errors on it. You’re entitled to a free copy of your credit report from each of the three major credit reporting agencies once every 12 months. You can go to www.annualcreditreport.com for more information
Working with a financial professional
Although you can certainly do it alone, you may find it helpful to work with a financial professional to assist you in creating and implementing a financial plan.
A financial professional can help you accomplish the following:
• Determine the state of your current affairs by reviewing income, assets, and liabilities
• Develop a plan and help you identify your financial goals
• Make recommendations about specific products/services
• Monitor your plan
• Adjust your plan as needed
Tip: Keep in mind that unless you authorize a financial professional to make investment choices for you, a financial professional is solely there to make financial recommendations to you. Ultimately, you have responsibility for your finances and the decisions surrounding them. There is no assurance that working with a financial professional will improve investment results.
At a time when your career is reaching a peak and you are looking ahead to your own retirement, you may find yourself in the position of having to help your children with college expenses while at the same time looking after the needs of your aging parents. Squeezed in the middle, you’ve joined the ranks of the “sandwich generation.”
What challenges will you face?
Your parents faced some of the same challenges that you may be facing now: adjusting to a new life as empty nesters and getting reacquainted with each other as a couple. However, life has grown even more complicated in recent years. Here are some of the things you can expect to face as a member of the sandwich generation today:
Your parents may need assistance as they become older. Higher living standards mean an increased life expectancy, and you may need to help your parents prepare adequately for the future.
• If your family is small and widely dispersed, you may end up as the primary caregiver for your parents.
• If you’ve delayed having children so that you could focus on your career first, your children may be starting college at the same time as your parents become dependent on you for support.
• You may be facing the challenges of “boomerang children” who have returned home after a divorce or a job loss.
• Like many individuals, you may be incurring debt at an unprecedented rate, facing pension shortfalls, and wondering about the future of Social Security.
What can you do to prepare for the future?
Holding down a job and raising a family in today’s world is hard enough without having to worry about keeping the three-headed monster of college, retirement, and concerns about elderly parents at bay. But if you take some time now to determine your goals and work on a flexible plan, you’ll save much stress–and expense–in years to come. Planning ahead gives you the chance to take the wishes of the entire family into account and to reduce future disagreements with your siblings over the care of your parents. Here are some ways you can prepare now for the issues you may face in the future:
• Start saving for the soaring cost of college as soon as possible.
• Work hard to control your debt. Installment debts (car payments, credit cards, personal loans, college loans, etc.) should account for no more than 20 percent of your take-home pay.
• Review your financial goals regularly, and make any changes to your financial plan that are necessary to accommodate an unexpected event, such as a career change or the illness of a parent.
• Invest in your own future by putting as much as you can into a retirement plan, where your savings (which may be matched by your employer) grow tax deferred until you retire.
• Encourage realistic expectations among your children; their desire to attend an expensive college will add to your stress if you can’t afford it.
• Talk to your parents about the provisions they’ve made for the future. Do they have long-term care insurance? Adequate retirement income? Learn the whereabouts of all their documents and get a list of the professionals and friends they rely on for advice and support.
Caring For Your Parents
Much depends on whether a parent is living with you or out of town. If your parent lives a distance away, you have the responsibility of monitoring his or her welfare from afar. Daily phone calls can be time consuming, and having to rely on your parent’s support network may be frustrating. Travel to your parent’s home may be expensive, and you may worry about being away from family. To reduce your stress, try to involve your siblings (if you have any) in looking after Mom or Dad, too. If your parent’s needs are great enough, you may also want to consider hiring a professional geriatric care manager who can help oversee your parent’s care and direct you to the community resources your parent needs. Eventually, though, you may decide that your parent needs to move in with you. If this happens, keep the following points in mind:
• Share all your expectations in advance; a parent will want to feel part of your household and may be happy to take on some responsibilities.
• Bear in mind that your parent needs a separate room and phone for space and privacy.
• Contact local, civic, and religious organizations to find out about programs that will involve your parent in the community.
• Try to work with other family members and get them to help out, perhaps by providing temporary care for your parent if you must take a much-needed break.
• Be sympathetic and supportive of your children–they’re trying to adjust, too. Tell them honestly about the pros and cons of having a grandparent in the house. Ask them to take responsibility for certain chores, but don’t require them to be the caregivers.
Considering the needs of your children
Your children may be feeling the effects of your situation more than you think, especially if they are teenagers. At a time when they are most in need of your patience and attention, you may be preoccupied with your parents and how to look after them. Here are some things to keep in mind as you try to balance your family’s needs:
Explain fully what changes may come about as you begin caring for your parent. Usually, children only need their questions and concerns to be addressed before making the adjustment.
• Discuss college plans with your children. They may have to settle for less than they wanted, or at least take a job to help meet costs.
• Avoid dipping into your retirement savings to pay for college. Your children can repay loans with their future salaries; your pension will be the only income you have.
• If you have boomerang children at home, make sure all your expectations have been shared with them, too. Don’t be afraid to discuss a target date for their departure.
• Don’t neglect your own family when taking care of a parent. Even though your parent may have more pressing needs, your first duty is to your children who depend on you for everything.
Most importantly, take care of yourself. Get enough rest and relaxation every evening, and stay involved with your friends and interests. Finally, keep lines of communication open with your spouse, parents, children, and siblings. This may be especially important for the smooth running of your multi-generation family, resulting in a workable and healthy home environment.
Myth: Social Security will provide most of the income you need in retirement.
Fact: It’s likely that Social Security will provide a smaller portion of retirement income than you expect.
There’s no doubt about it — Social Security is an important source of retirement income for most Americans. According to the Social Security Administration, more than nine out of ten individuals age 65 and older receive Social Security benefits.
But it may be unwise to rely too heavily on Social Security, because to keep the system solvent, some changes will have to be made to it. The younger and wealthier you are, the more likely these changes will affect you. But whether retirement is years away or just around the corner, keep in mind that Social Security was never meant to be the sole source of income for retirees. As President Dwight D. Eisenhower said, “The system is not intended as a substitute for private savings, pension plans, and insurance protection. It is, rather, intended as the foundation upon which these other forms of protection can be soundly built.”
No matter what the future holds for Social Security, focus on saving as much for retirement as possible. You can do so by contributing to tax-deferred vehicles such as IRAs, 401(k)s, and other employer-sponsored plans, and by investing in stocks, bonds, and mutual funds. When combined with your future Social Security benefits, your retirement savings and pension benefits can help ensure that you’ll have enough income to see you through retirement.
Myth: Social Security is only a retirement program.
Fact: Social Security also offers disability and survivor’s benefits.
With all the focus on retirement benefits, it’s easy to overlook the fact that Social Security also offers protection against long-term disability. And when you receive retirement or disability benefits, your family members may be eligible to receive benefits, too.
Another valuable source of support for your family is Social Security survivor’s insurance. If you were to die, certain members of your family, including your spouse, children, and dependent parents, may be eligible for monthly survivor’s benefits that can help replace lost income.
For specific information about the benefits you and your family members may receive, visit the SSA’s website atssa.gov, or call 800-772-1213 if you have questions.
Major Sources of Retirement Income
Myth: If you earn money after you retire, you’ll lose your Social Security benefit.
Fact: Money you earn after you retire will only affect your Social Security benefit if you’re under full retirement age.
Once you reach full retirement age, you can earn as much as you want without affecting your Social Security retirement benefit. But if you’re under full retirement age, any income that you earn may affect the amount of benefit you receive:
- If you’re under full retirement age, $1 in benefits will be withheld for every $2 you earn above a certain annual limit. For 2019, that limit is $17,640.
- In the year you reach full retirement age, $1 in benefits will be withheld for every $3 you earn above a certain annual limit until the month you reach full retirement age. If you reach full retirement age in 2019, that limit is $46,920.
Even if your monthly benefit is reduced in the short term due to your earnings, you’ll receive a higher monthly benefit later. That’s because the SSA recalculates your benefit when you reach full retirement age, and omits the months in which your benefit was reduced.
Myth: Social Security benefits are not taxable.
Fact: You may have to pay taxes on your Social Security benefits if you have other income.
If the only income you had during the year was Social Security income, then your benefit generally isn’t taxable. But if you earned income during the year (either from a job or from self-employment) or had substantial investment income, then you might have to pay federal income tax on a portion of your benefit. Up to 85% of your benefit may be taxable, depending on your tax filing status (e.g., single, married filing jointly) and the total amount of income you have.
For more information on this subject, see IRS Publication 915, Social Security and Equivalent Railroad Retirement Benefits.
|If you were born in:||Your full retirement age is:|
|1955||66 and 2 months|
|1956||66 and 4 months|
|1957||66 and 6 months|
|1958||66 and 8 months|
|1959||66 and 10 months|
|1960 and later||67|
If you were born on January 1 of any year, refer to the previous year to determine your full retirement age.
An old rule of thumb said that you could afford to buy a house that cost between one and a half and two and a half times your annual salary. In reality, there’s a lot more to take into consideration. You’ll want to know not only how much of a mortgage you qualify for, but also how much you can afford to spend on a home. In order to know how much you can truly afford, you need to take an honest look at your lifestyle and your standard of living, as well as your income and what you choose to spend it on.
Getting to the bottom line
If you have unlimited resources, you can afford to buy whatever home your heart desires. For most of us, though, that’s not the case.
Unless you can afford to buy a house outright, you’ll probably need to get a mortgage to help you pay for it. So, determining how much house you can afford is often a case of determining how much of a mortgage you can afford.
Start with some simple math: Take your monthly income and subtract all of your non-housing-related expenses. What you’re left with is the amount per month that you have available to allocate toward housing.
Other housing expenses to factor in
In determining what you can afford to spend on a home, you should also take into account other housing-related expenses. The total amount of expenses may depend in part on what type of home you buy and where it’s located. Such expenses include:
- Maintenance costs–everything from weekly rubbish removal to a new roof
- Utility costs–electricity, heating and/or air-conditioning, gas, water and/or sewer
- Homeowner association fees or condominium assessment fees
Deduct the monthly portion of these expenses from what you estimated your monthly housing allowance to be, and you’re getting close to determining how much of a monthly mortgage payment you can afford. Of course, mortgage lenders have a slightly more sophisticated way of determining how much they think you can afford.
Mortgage prequalification and preapproval
Consider shopping for your mortgage before you start shopping for your house. Compare the mortgage rates and terms offered by various lenders, and then get preapproved or prequalified with the lender of your choice. That way, you’ll know how much you can spend on a house before you fall in love with one that’s just out of your reach. Make sure you understand the difference between prequalification and preapproval.
Prequalification is simply the process of estimating how much money you’ll be able to borrow based on the qualifying ratios appropriate for the type of mortgage you’re considering. Preapproval, on the other hand, means the lender has gone through the underwriting process and verified among other things your income and credit. Once you’re preapproved, you’ll get a letter stating that the lender will give you a mortgage up to a certain amount, provided that certain conditions are met (e.g., the property is appraised for an amount sufficient to cover the mortgage). Preapproval lets you know exactly how large a mortgage you can get. It also gives you more credibility as a buyer, since the preapproval letter lets the seller know that you’ll qualify, financially, for a mortgage if your purchase offer is accepted.
Make sure you really can afford it
Remember that mortgage lenders can only tell you how much of a mortgage you qualify for, not how much you can afford. If homeowners insurance and property taxes are escrowed with your lender, these expenses will increase your monthly mortgage payment. The payment amount will be even more if you’re required to carry specialty policies such as flood or earthquake insurance in addition to homeowners insurance. And if property taxes are especially high, you may find that you’re unable to afford the home.
Keep in mind that your actual mortgage payment will also depend on your interest rate and the term of the loan. Generally speaking, lower rates of interest and longer terms equal lower monthly mortgage payments.
Now might be the time to think about revising your budget. Perhaps you can think of ways to reduce your non-housing-related expenses; doing so will free up money that you can apply toward your housing costs.
Also keep in mind any future plans that may affect your budget. Perhaps you’ll need to buy a new car in a few years. If you haven’t already done so, perhaps you’ll be starting a family soon. If you have children, as soon as they’re in kindergarten you’ll need to think about saving for their college expenses. No matter how much of a mortgage a lender tells you that you qualify for, you must always be sure your mortgage payment is not beyond your means. After all, it’s the roof over your head.
Long-term care is not just provided in nursing homes–in fact, the most common type of long-term care is home-based care. Understandably, many people put off planning for long-term care. But although it’s hard to face the fact that health problems may someday result in a loss of independence, if you begin planning now, you’ll have more options open to you in the future.
1. What is long-term care?
Long-term care refers to the ongoing services and support needed by people who have chronic health conditions or disabilities. There are three levels of long-term care:
- Skilled care: Generally round-the-clock care that’s given by professional health care providers such as nurses, therapists, or aides under a doctor’s supervision.
- Intermediate care: Also provided by professional health care providers but on a less frequent basis than skilled care.
- Custodial care: Personal care that’s often given by family caregivers, nurses’ aides, or home health workers who provide assistance with what are called “activities of daily living” such as bathing, eating, and dressing.
Long-term care is not just provided in nursing homes–in fact, the most common type of long-term care is home-based care. Long-term care services may also be provided in a variety of other settings, such as assisted living facilities and adult day care centers.
2. Why is it important to plan for long-term care?
No one expects to need long-term care, but it’s important to plan for it nonetheless. Here are two important reasons why:
The odds of needing long-term care are high:
- Approximately 52% of people will need long-term care at some point during their lifetimes after reaching age 65*
- Approximately 8% of people between ages 40 and 50 will have a disability that may require long-term care services*
*U.S. Department of Health and Human Services, November 14, 2017
The cost of long-term care can be expensive:
For many, the cost of long-term care can be expensive, absorbing income and depleting savings. Some of the average costs in the United States for long-term care* include:
- $6,844 per month, or $82,128 per year for a semi-private room in a nursing home
- $7,698 per month, or $92,376 per year for a private room in a nursing home
- $3,628 per month for a one-bedroom unit in an assisted living facility
- $68 per day for services in an adult day health-care center
*U.S. Department of Health and Human Services, October10, 2017
3. Doesn’t Medicare pay for long-term care?
Many people mistakenly believe that Medicare, the federal health insurance program for older Americans, will pay for long-term care. But Medicare provides only limited coverage for long-term care services such as skilled nursing care or physical therapy. And although Medicare provides some home health care benefits, it doesn’t cover custodial care, the type of care older individuals most often need.
Medicaid, which is often confused with Medicare, is the joint federal-state program that two-thirds of nursing home residents currently rely on to pay some of their long-term care expenses. But to qualify for Medicaid, you must have limited income and assets, and although Medicaid generally covers nursing home care, it provides only limited coverage for home health care in certain states.
4. Can’t I pay for care out of pocket?
The major advantage to using income, savings, investments, and assets (such as your home) to pay for long-term care is that you have the most control over where and how you receive care. But because the cost of long-term care is high, you may have trouble affording extended care if you need it.
5. Should I buy long-term care insurance?
Like other types of insurance, long-term care insurance protects you against a specific financial risk–in this case, the chance that long-term care will cost more than you can afford. In exchange for your premium payments, the insurance company promises to cover part of your future long-term care costs. Long-term care insurance can help you preserve your assets and guarantee that you’ll have access to a range of care options. However, it can be expensive, so before you purchase a policy, make sure you can afford the premiums both now and in the future.
The cost of a long-term care policy depends primarily on your age (in general, the younger you are when you purchase a policy, the lower your premium will be), but it also depends on the benefits you choose. If you decide to purchase long-term care insurance, here are some of the key features to consider:
- Benefit amount: The daily benefit amount is the maximum your policy will pay for your care each day, and generally ranges from $50 to $350 or more.
- Benefit period: The length of time your policy will pay benefits (e.g., 2 years, 4 years, lifetime).
- Elimination period: The number of days you must pay for your own care before the policy begins paying benefits (e.g., 20 days, 90 days).
- Types of facilities included: Many policies cover care in a variety of settings including your own home, assisted living facilities, adult day care centers, and nursing homes.
- Inflation protection: With inflation protection, your benefit will increase by a certain percentage each year. It’s an optional feature available at additional cost, but having it will enable your coverage to keep pace with rising prices.
Your insurance agent or a financial professional can help you compare long-term care insurance policies and answer any questions you may have.
|Age||2018 Limit||2019 Limit|
|40 or under||$420||$420|
On July 1st an amended bill signed by Governor Ron DeSantis made the action commonly known as “Texting While Driving” a primary traffic offense. This means that a law enforcement officer may now be able to pull you over if they believe you were texting while driving.
Here are a few things to know about the new law:
- Drivers will still be allowed to look at their phone while at a stoplight. This was a solid compromise to a society that has glued their eyes to their devices.
- The law only bans texting while a vehicle is moving, That means you can still check your GPS or change your music. Ahhh, but how does law enforcement know the difference? We’ll get to that.
- The law requires ALL hands-free use in school zones and active construction zones. You can’t be touching your device for any reasons with-in these zones.
- Any citation is considered a moving violation; an adjudication on the offense will add 3 points to your license along with a fine. You can elect a “texting while driving” safety course much like a speeding violation to keep those points off. Very simply, this will be considered a moving violation.
- If you are a first time offender you are allowed to have your ticket dismissed in the county where the ticket was issued by the Clerk of Court if you show up with proof of purchase of a hands-free device for your car.
- Hands-free device you say? Yes, you can text as long as you don’t do so by manual entry.
A major concern in the legal community is that this law could become grounds for a pre-textual stop. This means that law enforcement could use this law to allow them to conduct a traffic violation, minor or otherwise, for the ulterior purpose as to allow the officer to really investigate a separate and unrelated, suspected criminal offense. This is a major concern in areas where crime statistics are higher, minorities are involved, or there are no other legal grounds to stop a citizen but one is created to do so.
Our legislature has addressed this issue with a provision that requires law enforcement to notate the race of the driver being pulled over and/or cited for these offenses. These statistics must be reported to the State of Florida annually.
To reemphasize, it is a defense to the offense if you are not using your phone for texting purposes. In those situations it might benefit a driver to show law enforcement what they were actually using their phones for (assuming it can be proven). YOU DO NOT HAVE TO ALLOW LAW ENFORCEMENT SEARCH YOUR PHONE. Under the amended law, any law enforcement officer would be required to inform you of your right not to search and their failure to do so could actually negate your citation and/or any criminal offenses that might arise from their invasion of your privacy.
Remember, texting while driving can be dangerous. Studies suggested it can be just as dangerous as driving under the influence of alcohol. This new texting law was largely created to protect all of us from a driver distracted by texting while at the same time balancing the public’s right to be free from an unwarranted stop, posing a risk to one’s rights.Read More