What Happens When My Mother Runs Out of Money?
By Glenn J. Downing, MBA, CFP®
Increasingly as we work with people of retirement age, we’re hearing a new concern: What happens when my mother runs out of money? This is something relatively new. Those in their middle ages used to be called the sandwich generation, because they were in the middle, caring for both their children and their parents. But this is something new . . . we’re speaking of people in their 60’s and 70’s caring for parents in their 80’s and 90’s.
By the time we hit our latter 60’s, most of us hope that the retirement nest egg is firmly in place, children are married off, and grandchildren are a joy. But since we’re all living so much longer, caring for one’s very elderly parents is now a large financial planning topic.
Medical Issues are a Primary Cause for Concern
Too often we see a client who is concerned about his parents outliving their assets. A parent with a long and debilitating illness is a common...
Asset Bubbles
By Glenn J. Downing, CFP®
(Note to the reader: I originally posted this piece in mid-March of 2020. Now I'm reviewing it at the end of April 2020. Hit the nail on the head, didn't I?)
I’m sure you’ve heard the term before: asset bubble. Sounds ominous, because a bubble is generally something that’s going to pop. On the other hand, I think of bubbles with champagne. So there are two images, both conjuring up a party that has to end at some time.
What does the term refer to in terms of market valuations? It means simply that at some point assets will be trading at a price that’s too high, and that the price will come down – maybe gradually, or maybe by a pop. Why is there so much in the financial literature today about asset bubbles? Because there appears to be a big asset bubble in the making.
Correction vs. Recession
Before I go on, let me define two terms:
- A market correction...
Your First Home Purchase Part II
by Jonathan G. Cameron, CFP®
In the previous installment of this 2-part series, I discussed how you can prepare yourself for a mortgage application in terms of your credit report and credit score. In this installment I’ll look at the criteria that lenders use when evaluating your application.
Where Can You Get a Mortgage?
You may obtain a mortgage from a commercial bank, a savings and loan institution, a mortgage company through a loan originator, or even a private individual.
How Much Will They Lend You?
To answer that, let me give you a term and define it. The term is PITI: Principal, Interest, Taxes, and Insurance. PITI is, in other words, the out-of-pocket expense that it takes to keep you living in the home you buy. PITI also includes association maintenance or condo fees.
Mortgage Qualifying Ratios
Lenders use two qualifying ratios in determining how much mortgage you can afford. They will loan you 28% to 36% of your monthly gross income for PITI...
Your First Home Purchase Part I
by Jonathan G. Cameron, CFP®
So you’re getting ready for your first home purchase. Congratulations! This is the first in a two-part series that should be helpful to you. Your First Home Purchase Part II is all about the criteria lenders use when evaluating your application.
Down Payment and Qualifying for a Mortgage
In buying your first place you’ve got two main considerations: Coming up with a down payment is #1. #2 is being able to qualify for a mortgage loan. This post assumes you're on track to save your down payment, and that you're looking into credit and mortgage qualification issues. Specifically, you’ll learn how to get a good credit score in order to qualify for a mortgage.
Good Credit is Accurate Credit
Your first mission is to make sure that your credit report is accurate. I say project, because it may very well be just that – a mission. There are three major credit bureaus: Experian, Transunion, and Equifax. Each...
Paying Off Student Loans
by Jonathan G. Cameron, CFP®
Student loans are often top of mind for many people in the early stages of a professional career. You’ve made an investment in yourself by getting a great education, and now you’ve got to make enough money to build a life, but also to repay those loans. The main piece of advice we give most of our clients with student loans is not about numbers. It’s about overcoming the feeling that this debt is very heavy burden. So if you’re in that camp, we have some thought to share:
Own it – These Student Loans are Your Responsibility!
Taking out these loans was ultimately your choice, so own it. You DID in fact have other options – you could have gone to a cheaper school, or stretched your education out as you worked your way through. Whatever the case, ultimately it is your signature on the loan form. Take responsibility.
Don’t Let Student Loans Tyrannize You – Make a Plan and Enjoy Life
Student loan...
Don’t Get Distracted by Financial Headlines – Stick to Your Financial Plan
by Jonathan G. Cameron, CFP®
We’ve all seen the financial headlines:
“Sell everything and buy gold!”
“Time to take profits off the table!”
“The market is poised for a big upswing – get in now!”
“Make 16% guaranteed with tax lien certificates!”
“Buy my real estate flipping system and control your own rental empire!”
…I’m getting an Excedrin headache.
The Trap of Financial Headlines
If you’re like many people, reading the financial headlines every day can make you crazy. Yet you continue to watch in order to stay informed. You want to be in the know about financial markets so you follow CNBC, Money Magazine, The Wall Street Journal, The New York Times, and others. Some outlets are better than others. There is so much economic uncertainty in the air, so you invest time and energy reading, or listening, to these “experts” to get a sense of what you need to do with your money.
...You Are Generous. Give Creatively.
By Glenn J. Downing, MBA, CFP®
Charitable Giving
As a financial adviser, I am privileged to work with many wonderful people who give generously. These are people who want to leave a legacy. These are clients who want to leave money behind which will continue to accomplish the good works the donor did during his or her lifetime. You may see or hear the names of prominent donors – sponsors of a university building or underwriters of Masterpiece Theatre – and think, Well, yes; I’d love to endow this or that organization or charity, but I’m simply not in that league.
Leave a Legacy
Even if you don’t have a lot of spare cash kicking around, you may still be able to leave a legacy. One of the best ways to do this is with life insurance. For a manageable annual premium, you may be able to leave hundreds of thousands of dollars to your favorite organization. It works like this:
Decide which non-profit you’d like to see flourish.
Typically, this is a...
The FRS Investment Option
By Glenn J. Downing, MBA, CFP®
FRS participants have a choice among two retirement plan options:
The investment option, which is a defined contribution plan (DC)
The pension option, which is a defined benefit plan (DB)
In previous posts, I covered both the FRS Pension Option and the DROP (Deferred Retirement Option Program). In this post, I’m presenting the FRS Investment Option.
The salient feature of any DC plan is the amount of contributions that can go into an individual’s account. On the other hand, with a defined benefit plan (also known as a pension plan) there is a pension formula. The inputs are usually based on years of service and average or final compensation. The formula calculates a pension amount that is guaranteed over the pensioner’s lifetime or lifetimes of the pensioner plus spouse. Here, though, I’m focusing in on the FRS investment option, which is the FRS defined contribution plan.
How Much Money Goes In?
ERISA statues define...
72 Is the New 70½
by Glenn J. Downing, MBA, CFP®
All the rules for Required Minimum Distributions (RMDs) changed with the SECURE Act of 2019. In this piece I go through the changes.
Important Ages
There are two important ages in retirement financial planning: 59 1/2 and 72. The former marks the age when you can distribute from your retirement account – IRA or 401k – without paying a 10% penalty on the distribution. The IRS, with this penalty, gives us all a reason to keep our long term savings in place for its intended purpose – retirement income. (Actually, there are several other important ages. Look at them here.)
The second date is now age 72, and this is the age at which you must begin taking your RMDs from your retirement account. This is a change; the date used to be April 1st of the year after the year in which you turn 70 1/2. More specifically, if you were born anytime after July 1st of 1949, the new law DOES apply to you. Born...
Some Thoughts on College Funding
By Glenn J. Downing, MBA, CFP®
As many of you know, I am a CFP® instructor with Zahn Associates and have been for many years. As I write I'm reviewing the material for General Principals of Financial Planning, which I’ll be teaching again soon. Part of that course is college funding.
In the context of the material, this section teaches the time value of money calculations. For example, if the client has a newborn who absolutely will be attending Harvard at age 18, how much new annual saving is necessary assuming 5% inflation and 8% earnings? Siri tells me that the full freight now is $78,200.
Ready for the answer? Sitting down? $18,743.42/year. Something most new parents can do, right?
I personally feel that if I have brought a child into the world, I have a responsibility to that child to give him or her the best start possible, and that includes a solid education. Yet college funding numbers look stratospheric. In this example, one year of college may...
