Issue 37.15
Wow! So, we start off September and fall of 2015 in a crazy stock market with most indexes dropping over 10% in a two week period. That is the strongest decline in the market in decades within that short amount of time. We also have a crazy oil market. We have concerns about the U.S. Dollar, and we have a crazy world market with China and other countries showing signs of slow down and struggle. So, what can we do to help stabilize our retirement going into an uncertain time? Really is that not the main thing we care about?
Here is the question. In the midst of all of the volatility in the market, whether it is the oil crash, stock market decline, interest rate increase – what are some simple things that can stabilize our retirements over the next 20 years?
Here are my top three.
Debt. Lock in long term debt at fixed rates today so you can start structuring your other assets and income to adjust to the debt. But, certainly in a volatile market or uncertain market you want to fix in your long term debt.
- One way is to simplify into a 30 year fixed mortgage no matter your age. People always question why someone at age 70 would ever want to take out a 30 year mortgage. Guys, the American Dream is always about sustaining a comfortable lifestyle for one’s entire life expectancy, not about the goal of trying to pay a home off as fast as you can. During our retirement if we have commercial debt in auto loans, or credit cards etc… The high interest and payments will eat our fixed retirement income up monthly. I am a huge fan of a senior taking on a 30 year fixed mortgage and paying off higher debt to increase their retirement cash flow throughout their life. We don’t want to take on more debt, but by consolidating the debt into a longer payment term with lower payments, will jump start your monthly cash flow probably more than anything an average client can do – period.
If you can borrow with a mortgage today at 4% and get the interest deduction from the mortgage so your net interest rate is say 3% for the rest of your life – why would you ever pay your mortgage off early? You don’t. So, says also the Wall Street Journal’s number one financial advisor in the country the last three of four years in Ric Edelman, “Carry a 30 year fixed mortgage and never pay it off.” 80% of all of my senior client’s that I meet with can benefit greatly by some simple debt strategies with their home that will save them thousands annually in improving their monthly income.
2. A second way to lock in the future is to secure the reverse or government insured HECM loan. This is a loan that if you have enough equity in your home you can eliminate the current mortgage payment and be free and clear for the rest of your life. About 60% of our senior client’s opt for the new HECM loan, because you can buy a home for roughly half the purchase price and have no mortgage payments, or you can take your current mortgage and eliminate your monthly mortgage payment for life as long as you continue to pay your taxes and insurance on the home of course. If you think about your options in retirement – it is simple. Continue to pay your mortgage payment for life or roll it over to the HECM loan and be free and clear of your payment al together.
My concern is that if I lose a client or a spouse, and we lose income in the lower of a social security or part of a pension it makes it that much more difficult to continue to make a mortgage payment. You couple this with the market fluctuating and or your assets and it really makes you lose sleep.
3. C. Finally, with investing it is simple to make the argument that as long as your goal is long term then you should ride out the ups and downs of the market and it will all work out in the long term. Ya, if you are 30. It does not quite work that well when your 65. If you plan on needing your money in the next five years for income, I am not a fan of any of your investments in the market or having market exposure. The equities market is for basic long term growth, and when the market drops, and you are living on the income with lower values, it continues to alter your retirement income strategies. The key is just that simple. If you are going to need your funds in the next five years, then talk to your financial advisor about all of your options that have limited equity exposure so we don’t see what just happened in the market to your assets that you vitally need over the next 20 years. Until next month, Brandon.
Brandon Hansen can be reached at 435-673-4773.