(BPT) - Your retirement. Your golden years to spend doing the things you enjoy - hobbies, travel, more time with family, and so on. But can you afford to live your post-paycheck life the way you always hoped?
Research from the National Retirement Risk Index estimates that more than 50 percent of households lack enough retirement funds to maintain their pre-retirement standard of living — even if they work until age 65.
It’s a scary statistic, especially if you’re approaching retirement age and don’t feel financially prepared to leave the workforce. Fortunately, even if you are facing a retirement shortfall, you do have options to help supplement your savings. For senior homeowners, those options could be in the walls around you.
Financial planning experts and academics from The American College, Boston College, Columbia University, and MIT, agree that incorporating home equity into a retirement plan helps savings last longer. The question is: what’s the best way to access your home’s equity? Here are three popular options.
1. The home equity line of credit (HELOC)
A HELOC allows you to establish a line of credit based on a percentage of the value of your home. You can then access this credit during a predetermined amount of time called a “draw period,” usually 10 years. During the draw period, you can borrow up to the designated amount while making monthly interest payments, and, if you choose to pay back on the principal, you can draw out again, much like a credit card. After the draw period when the HELOC resets, you are responsible for repaying the principal and interest either immediately or over a set period of time depending on the terms of the loan. You should be aware that if your home value depreciates, or if your financial circumstances change, the lender has the right to freeze your credit or even cancel your loan.
2. Reverse mortgage
A reverse mortgage is a loan that senior homeowners age 62 or older can use to convert part of the equity in their home into a usable asset, without giving up title or ownership of the house. According to Professor Wade Pfau of The American College, “the reverse-mortgage option should be viewed as a method for responsible retirees to create liquidity from an otherwise illiquid asset.”
Reverse mortgages are attractive to seniors, in part, because they require no monthly payment and do not have to be paid off until the last borrower permanently leaves the home. You have the option of taking the loan proceeds as a lump sum, a fixed monthly or tenured payment, or as a line of credit.
Last year, more than two-thirds of borrowers took a combination of regular payments and a line of credit.
Reverse mortgages also feature a non-recourse provision that protects you from ever owing the lender more than the value of your home, even if the house is “underwater” when you are ready to sell.
You are still responsible for paying your property taxes, homeowner’s insurance, and upkeep expenses or risk the loan being called due and payable.
3. Cash-out refinancing
Cash-out refinancing allows you to refinance an existing home loan — hopefully at a lower interest rate — and also refinance the home for a dollar value higher than the remaining principal. This loan allows you to keep the money above the principal as liquid cash that can be used to pay down other expenses or fund your retirement. Like your original forward mortgage, if you miss a monthly payment due to unanticipated expenses from a health care emergency or other life disruption, your loan could be called due and payable, and the lender could move to foreclose on your property.
Retirees may also face challenges qualifying for a cash-out refinance because of underwriting standards that require a certain amount of monthly income.
Choosing the right plan for you
While all three plans have their appealing points, new consumer safeguards for reverse mortgages are fueling their popularity among seniors who want the benefit of no monthly payment, a loan that can’t be canceled or reset, and the option of a line of credit that increases over time.
If you’re interested in pursuing a reverse mortgage, the National Reverse Mortgage Lenders Association can help. Their Roadmap can guide you through the features and responsibilities of reverse mortgages and the process for obtaining one which includes meeting with a reverse mortgage counselor and a financial assessment.
Visit www.reversemortgage.org/equity to learn more about how the solution to your retirement may have been under your roof all along.
3 Ways to Find Financial Happiness This Year
(Family Features) Whether a Millennial, good credit health matters. A majority of Americans feel it directly correlates with their overall happiness, too.
Three-out-of-five people say that a higher credit score plays an important role in their happiness, according to the Chase Slate 2016 Credit Outlook. Yet 30 percent of Americans have not checked their credit score in the last year and, of those, one-in-five elected to stay in the dark out of fear their score might be low.
Farnoosh Torabi, personal finance expert and Chase Slate financial education partner, suggests taking action now to let go of the fear factor and find financial happiness with these tips:
Don’t fear the future. Plan for it.
Get up-close and personal with your credit standing.
Raise your hand… and your voice.
For more tips to improve credit health and find financial happiness, visit Chase.com/news.
Photo courtesy of Getty Images (couple packing)
(BPT) - The stock market is off to a rocky 2016 and experts advise we buckle up. Uncertainty around China, oil and interest rates is leading to waves of selling and a sharp decline in the market. This volatility is a reminder that we should expect the best and prepare for the worst. At the very least, we're in for a roller coaster of uncertainty, and now is the time to get financially prepared. Here are three ways to get your money in order for uncertain times.
1. Stow away cash in an emergency fund.
You should have six months' expenses saved in case of an emergency. And by emergency, we aren't talking about a desperately needed wardrobe upgrade, or a European vacation to cope with a mid-life crisis. This should be money set aside to deal with life's emergencies like layoffs, medical bills or unforeseen crucial expenses. Don't feel bad if you haven't saved up six months' expenses though - according to a recent Bankrate survey, fewer than four in 10 Americans can handle expenses outside their normal budget. To get a rough goal for your emergency fund total, simply add up all recurring monthly expenses including rent/mortgage, food, gas, car payment, cable, phone, etc. and multiply by six. Try to put 5-10 percent of each paycheck after taxes to this fund, and be sure to put the money into accounts that are liquid and stable, like a checking, savings or money market account.
2. Play it safe with investing.
Investing shouldn't entail blindly paying a stockbroker and assuming all the risk with no tangible goal for success. New investing tools have emerged that bring elite investment options to everyday Americans. These can be great assets in a tough economy. Aspiration, for example, offers strategies that limit the volatility of the stock market and invest in companies with sustainable business practices toward the environment and their own workers that make them poised for growth. Best of all, customers set their fee, even if it's zero. Yes, you read that right - Aspiration lets investors pay them whatever they think is fair, and it can be changed at any time. If this sounds like a gimmick, know that Aspiration is a trusted brand that was just named one of Fast Company's Top 50 Most Innovative Companies of 2016.
If you prefer paying an advisor for advice, Personal Capital is another new-school financial company that provides award-winning technology to help you manage day-to-day finances and investments. Personal Capital offers investment advice from licensed financial advisors, at a significantly reduced all-in management fee.
Once your portfolio is set, start investing a modest amount each month. Even $50 a month will add up over time, and that money will do you more good in the long run than one night at the bar, 10 overpriced lattes, or five deli lunches.
3. Open a fee-free bank account.
The days of big banks dominating the industry and charging outrageous fees could be coming to an end. Convenient banking options exist that bear interest and don't charge an arm and a leg for services. Take the Aspiration Summit Account, a checking account that offers a 1 percent annual percentage yield (100 times the interest rate you get at big banks), $0 monthly service fees, and free access to any ATM in the world. Instead of spending millions on Washington lobbyists or corporate jets for its executives, Aspiration puts that money back toward making this the best account possible for its customers. And it gives 10 percent of all its revenue to charities helping struggling Americans. Money magazine named this the "Best Checking Account in America." Another option is your local credit union which will often have better services and fairer interest rates than a big bank.
Once your finances are in order, peace of mind can set in. A down economy is hard on everyone, but knowing you've taken the basic steps to save in case of emergency will pay off huge in times of need. And if the stock market never crashes and the economy only points upward, you can always use the spare cash for a down payment on that European vacation you've always wanted.
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