Monthly Archives: December 2015

Buying a Second Home for Retirement: Good or Bad Idea?

While many retirees imagine escaping to somewhere warm and sunny once their working days are over, buying a second home in retirement can be a tough decision. Here are some considerations you may want to make before investing in your home away from home.

Time

How much time do you plan on spending in a second home? If you plan to visit for a few months out of the year, then buying another home can make sense. Otherwise, if you think you will be there only a couple weeks out of the year, then it may not be a good return on your investment. You may want to consider renting instead of buying, especially if you think you will only get a few years’ use out of the property overall.

Costs

Perhaps the most obvious influence on whether or not you buy a second home for retirement is your finances. Aside from the actual cost of the property, you may also need to factor in property taxes, insurance, and maintenance. If you are already retired, you may want to consider how long you will be able to do some (if any) of the maintenance on your own and how much it costs to hire someone.

Rental

If you plan on renting your second home while you are not there, then you may be able to recover some of the costs. You should also consider the responsibilities that come with renting the property, such as frequent upkeep and possible additional maintenance, marketing the property, and of course your own time spent coordinating rental schedules and costs.

Buying a second home for retirement can be a wonderful way to spend your post-employment years. Before you make the financial and personal commitment, speak with your financial advisor about the implications it may have on your future finances and your overall goals.

 

5 Tips to Improve Your Credit Score

Credit Card – Improving Your Score

Your credit score is like a story. It tells various bits of financial information from different chapters of your life.

Creditors can look at your story to determine if you qualify for certain offers, like home mortgages, auto loans, lines of credit, school loans, and a variety of other lending programs.

If the story qualifies for the offer, then the creditor may decide to approve your application and provide you with the credit you request.

If, however, your story has enough detours – such as late or missed payments – then the creditor may decide to decline your application. This can be devastating, especially if you are counting on a loan to get the car you need for work, or funding to get the education you need for advancing your career.

The good news is, there are several ways you can improve your credit score and create a better story for your future. Here are five tips to consider:

  1. Pay your bills on time. If this is one area that has damaged your credit score in the past, then make it a priority this time around to send in payments on time. If you have trouble making the deadline because you often forget, consider setting up automatic payments so you don’t have to worry about it. Continue to pay your bills on time, and over time you will improve the credit rating.
  2. Pay down small credit cards. When you have several small amounts on more than a couple of credit cards, it may be smart to pay them off so you only have debts on one or two cards. According to John Ulzheimer, formerly of FICO and Equifax, “One of the items your score considers is just how many of your cards have balances.”
  3. Be careful with credit card balances. Your goal with any credit card: 30 percent or lower. This is the percentage of revolving credit versus how much you are actually using should be. By keeping this ratio in check each month, you can work on improving your credit score for future purchases.
  4. Keep credit inquiries to a minimum. If you are constantly applying for credit, then it can appear to creditors as though you are a high risk. Save the applications for when you really need them, such as buying a home or a vehicle. And even then, you may want to apply only a few times within a short time frame.
  5. Stay consistent. According to Bankrate, suddenly paying less on your lines of credit than you normally do (or charging more) can indicate risk to a card issuer. The same can be said for taking out cash advances or using your cards at places like pawn shops or divorce attorneys, as they tell the creditor you may face future money stress.

There may be other ways to improve your credit score. Before you make any significant changes or put in any more applications for credit, be sure you speak with a qualified accountant or financial advisor.

How is Financial Planning Different with a Chronic Illness?

Financial Plans - Money for Illness

Most people do not plan on having a chronic illness. Therefore, they do not put a financial plan in place to cover a chronic illness.

However, if you develop an illness and do not have a plan, there are still steps you can take to prepare for a modified future.

Let’s talk about a few areas where you can focus your attention, whether you are currently sick or not.

Budgeting

Keeping track of your monthly income and expenses is a standard, recommended practice. But it is especially helpful for people who have a chronic illness.

Most people who become sick have not had to think about managing higher medical bills and costs associated with the illness, such as: loss of income if you cannot work or you have to reduce your hours, someone to care for you if you do not have long-term care or disability insurance, and transportation if you cannot drive yourself to doctor appointments. If you are retired, then you may have to depend on some of your social security benefits, savings, or investments to help pay your bills if you become sick.

By establishing a new budget, you can reduce the stress of making sure your bills are covered and build a solid foundation for the future. You may even want to consider setting up automatic bill payment or pay your bills online to ensure you do not miss a payment. If you need help managing your money, then you can set up a power of attorney to authorize someone you trust to act on your behalf.

Emergency Savings

If you have done any sort of budget or financial planning in the past, then you likely were told about the importance of emergency savings – a reserve of liquid cash for surprise expenses.

Generally, advisors tell you to put away three to six months of your salary, but if you already have a chronic illness then you may want to put away more to cover higher medical expenses and replace the income you lose if you cannot work.

Disability Insurance

If you are retired and you develop a chronic illness, then you may not want to purchase disability insurance. This is because you must be earning income at the time you get sick, in order to receive disability benefits. However, if you are earning income at the time you get sick and you already have disability insurance, then your policy may provide you with up to 60 percent of your normal income when you cannot work due to an extended illness (although it covers day-to-day expenses, not medical bills).

So for those of you who are employed and not currently dealing with a chronic illness, disability insurance may be right for you.

Long-term Care Insurance

Long-term care insurance can be a blessing if you develop a chronic illness, because it lessens the financial burden of out-of-pocket medical bills. To take advantage of the benefits, though, you need to sign up early enough and before you become ill. Most plans are difficult to qualify for if you are too old or are already sick.

If you already have a chronic illness but you do not have long-term care insurance, then there may be alternatives to help you afford your medical care and day-to-day expenses without emptying your savings or retirement accounts.

Estate Planning

Most people think of estate planning as something that you do for after you die, but a living trust can be established to help you while you are alive. A living trust allows you to control your property (this includes finances, homes and investments) and, if you choose, name a co-trustee who can manage the assets if you become unable to do so.

Consider a New Financial Plan

Whether you have a chronic illness or you want to plan for the “just in case”, it is best to speak with a financial advisor before you set up any accounts, enroll in insurance, or assign powers of attorney. An experienced advisor can make sure you understand all your options and help you make sound decisions that give you financial confidence.