Heading Into Retirement? Don’t Make These Real Estate Mistakes

The average American consumer that’s going into retirement usually makes some type of real estate decision, whether it’s to downsize to a smaller home, relocate to another state or renovate their home so that it’s more accessible.

Unfortunately, there are several mistakes that retirees make when it comes to real estate that can affect them negatively. Larry Luxenberg, managing partner with Lexington Avenue Capital Management, says that “Real estate is usually one of the biggest asset retirees have, but it’s the area with the most emotional attachment, and the place where it’s very easy to mess up.”

Mr. Luxenberg makes a good point, and below we’ve put together 5 of the most common mistakes that retirees make when it comes to real estate. Enjoy.

Real estate Mistake 1: Waiting too long to downsize.

Here’s a fact; the bigger your home is, the more energy it uses and the bigger the costs are to maintain it. Things like real estate taxes, homeowners insurance premiums and so forth don’t go down once you reach retirement, and the longer you wait to downsize to a smaller home, the more of your retirement savings you’ll spend on those expenses.

Thomas Scanlon, an advisor with financial firm Raymond James out of Manchester, Connecticut, says that “Lots of folks wait until post-college, and then children boomerang into the basement. It could be an 8 to 10 year run of having more home than they need.”

Real estate Mistake 2: Not taking the proceeds from downsizing and investing them.

Making the decision to downsize to a smaller home is a good one, especially if the end result is that you have extra money to put towards your retirement. Most people don’t invest that money however, and either spend it unwisely or put it in a basic savings account where it gains very little, if any, interest.

Scott Bishop, the director of financial planning with STA Wealth Advisors in Houston, suggests that living on the home equity money first would allow a retiree to leave their retirement funds untouched for a while longer, allowing them to grow at the same time. He also suggests that consumers consider the implications of taxes when deciding what money to use first.

Real estate Mistake 3: Maintaining 2 homes at the same time.

In the northeastern United States, including New York, Pennsylvania, Connecticut and other northern states, many people have one home and then a second in a warmer climate like South Carolina or Florida. These people are referred to as “snowbirds” and live part-time in both locations.

While this might be feasible when a consumer is still working, after retiring, having 2 homes at the same time can be a definite drain on retirement finances, for obvious reasons.

Real estate Mistake 4: Going into retirement with a mortgage.

While it’s true that mortgage rates are very favorable right now, and that mortgage interest can be deducted on taxes, the tax deduction isn’t significant enough for most retirees. Obviously, not having a mortgage in retirement will keep expenses lower and, in many cases, might allow a retiree to delay taking their Social Security distributions, which will allow those distributions to increase. Most financial experts also recommend that a consumer 50 years of age or older doesn’t buy a home because that would mean taking a mortgage very far into retirement.

Real estate Mistake 5: Not performing your due diligence before relocating.

Many soon-to-be retirees decide to move to a sunnier and warmer climate to retire, and make the mistake of purchasing a new home before performing their due diligence to find out what the tax situation will be like. They also overlook the obvious change in the cost of living in their new state as well, and the changes in healthcare options that they’ll have.

Researching any new city or state before relocating is vitally important so that, as you downsize to decrease your expenses, you don’t increase them in other areas because of taxes, cost-of-living or healthcare.

If you have questions or concerns about retiring, or your retirement accounts, please send us an email or leave a comment and we will get back to you with answers and advice.

Nearly 50% of Renters make this Money Mistake

Your typical American consumer knows that having a good credit score can be the doorway to loans with excellent interest rates when they buy a new car or a new home. The problem, according to a new survey from TransUnion, is that many renters make the false assumption that their on-time payments will help give a boost to their credit score, which in many cases it simply won’t.

In fact, there are quite a few renters that are completely misinformed when it comes to the mysterious three digit number that is their credit score, and almost 50% of renters between the ages of 18 and 64 are under the impression that the rental payments they make every month to their landlords will automatically be reported to the three biggest credit bureaus if they make them on time.

This information comes from a survey that one of those “big 3” credit bureaus, TransUnion, just completed. The TransUnion survey also showed that, when it comes to paying for things like their cable bill, Internet, smartphone and utilities, over 50% of renters believe that credit bureaus will be notified when they dutifully make these payments on time.

That being said, both TransUnion and Experian, another one of the “big 3” credit bureaus, have both recently started to collect the information about the rental payments that consumers make and factor that into their credit report. In practice however, the typical landlord doesn’t share any information with data collectors for credit bureaus on your rental payments, whether they’re on time or not.

That’s according to the senior vice president of TransUnion’s consumer division, Ken Chaplin. Mr. Chaplin also made a point of saying that payments to utility companies, cable companies and cell phone service providers are typically not reported.

The most common credit score that lenders use, called the FICO score, is typically unaffected by any rental payments or other type of payments that a consumer makes, even if that consumer’s landlord or service firm is one of the few that actually does report them. In other words, if you’re a consumer that’s counting on your on-time monthly rental payment to help you increase your credit score, you’re probably out of luck.

That being said, if you don’t make your rent or utility payments on time, it can hurt your credit score, and many landlords and utility companies report their delinquent customers to credit bureaus. Even worse, your account could end up in collections, something that will cause you all sorts of stress and anxiety, as well as costing you extra money.

Top 3 Ways to get the Most out of your 401(k) When you Retire

One of the absolute best ways to put away lots of money for retirement is with a 401(k). The biggest problem however is that many consumers simply don’t know the best ways to get the most out of them, and use them to generate the most retirement income. Today’s blog will look at the Top 3 ways to do just that. Enjoy!

1) Invest heavily in Mutual Fund 

Most consumers realize that the better return they get on their money, the quicker their 401(k) will grow. In order to do that however you need an investment that delivers the highest rate of return and, according to a survey conducted of Fidelity 401(k) by Fidelity of 401(k) millionaires, 75% of the savings in their 401(k) was in mutual funds. Fidelity found that, on average, this led to a return of 4.8% (during the 12 years that the survey focused on).

Of course investing a lot of money into stocks is a little bit risky and isn’t the best for every consumer or every situation, but a 401(k) that’s nicely diversified will, on average, provide you with a proven track record and more retirement funds.

2) Take advantage of the Fund Matching given by your company

This is where a lot of consumers make a mistake. If your company will match the amount that you put into your 401(k) (and many do up to a certain amount) you need to do everything possible to put in the most you can and get those matching funds. It seems simple but many people who have a matching program at their place of work don’t do this, leaving hundreds of thousands of dollars on the table throughout their career. If your company will match, dollar for dollar, the amount of money you put into your 401(k), taking advantage of all that free money should definitely be one of your financial priorities.

3) Never Cash Out your 401(k) Early

A lot of consumers make the mistake of cashing out their 401(k) when they change jobs, which frankly is a huge mistake. Not only will you have a huge tax liability when you do, as well as very high early withdrawal penalties, all the compound interest that you’ve got going for you and all of those years of growth will go right down the drain.

Your very best bet to take as much money into retirement as possible with your 401(k) is to switch it to your new employer’s plan or, if it’s the only choice, keep it with your previous employer. That’s the only way to let it grow into a much more substantial amount of money, let compound interest work it’s magic, and get a whole lot more money later than you would ever be able to withdraw right now

The Financial Impact on Teachers Obtaining Their Master’s Degree

You have received your teaching certification, and now you are ready to move on to either a Master of Arts in Teaching or a Master’s in Education. At this time, it is not required to have a master’s degree to begin teaching. However, states such as Ohio, New York, and Massachusetts demand the completion of a master’s degree within five years of signing on. Depending on whether you are going full or part-time, many MA programs are completable in two years or less. Consider the impact higher education will have on your financial situation. Take into account the money coming in, as well as the money going out.

Greater Earning Potential

It is no secret that furthering your education pays you back by providing you with greater earning potential. Matthew M. Chingos is the Senior Fellow at the Brookings Institution and Research Director of its Brown Center on Education Policy.  In the June 2014 paper, “Who Profits from the Master’s Degree Pay Bump for Teachers?”, he writes, “Ninety-six percent of the 112 major U.S. school districts included in the National Council on Teacher Quality (NCTQ) Teacher Contract Database pay teachers with MA degrees more than those with BA degrees, with an average difference of $3,205 in the first year of teaching, $4,176 in the fifth year, and $8,411 at the top of the salary schedule.”The promise of higher pay is a great incentive for many teachers to get their advanced degree.

The Cost of the Program 

Yes, you will earn more money, but you may have to take out further student loans in order to cover the cost of obtaining your master’s degree. Moreover, at this point, you may already be making payments on the loans you took out when you were working towards your BA. Doubling up on loan payments is no easy feat, and will certainly eat into that salary increase. In fact, in the same paper, Mr. Chingos writes, “the teacher has to hand over his MA pay increase every year for five years in order to cover the cost of the program.” Ouch. The good news is that you will eventually come out ahead, and the degree will increase your pay for the remainder of your career.

Loan Repayment

While it can be difficult to swing two loan payments, it is possible to manage the repayment process. The following suggestions will help you stay out of default and build good credit in the process:

  • Make each payment on time. It is important to make every payment on time in order to avoid late fees, added interest, and negative marks against your credit history.
  • Make extra loan payments whenever possible. If you have received a tax return or a work bonus, make an additional payment to reduce your debt and get your loan paid off faster.
  • Call your lender if you think you are going to default. If you have an issue and feel like you might run into trouble with your payments, call your lender immediately to go over deferment options.
  • Turn to a credit counselor. If you are having trouble balancing your debt, turn to a credit counselor for advice.

It is worth the time and money to get your MA if your state requires it or you are planning on being an educator for more than five years. You may have to balance your budget carefully for a while, but it is possible, and in the long run you’ll come out on top.