When it Comes to Money, Where do Millenials Stand?

75044752 - group of friends are enjoying a meal together. they are talking and laughing while eating their starters and drinking champagne.


With student loan debt at an all-time high, many millennials these days are faced with a dilemma. That dilemma involves whether they should pay off their student loan debt early or use any extra money to save toward retirement or purchasing a home. What’s right for you may not necessarily be what is best for another, which is why you should weigh your options carefully before deciding.

Student Loans vs. Investments

If you are like many millennials, the idea of paying on student loans for 20 or even 30 years can seem overwhelming. As such, you may be tempted to pay yours off before you start saving toward a home or contributing to a 401(k). The problem with that strategy is that it could essentially take years before you are ready to begin saving.

A better idea is to compare the amount of interest on your student loan with the amount of interest you could expect to earn from an investment. A good rule of thumb is that if the interest on your student loan is 5% or less, you should direct any extra funds toward a diversified investment account. That is because any money you earn from that account will likely be greater than the amount of interest you would have paid on your student loan.

Home buying vs. Student Loan Payoff

A home is a major investment that is in essence a part of your retirement fund. Even so, that does not always mean it is a smarter choice than paying off student loans. Today’s real estate market can be very volatile, so it could be quite a few years before you notice a significant increase in equity. Unless you plan to remain in that home for at least seven years, the return on your investment may not pay off.

Implement Smart Strategies

There are a few smart strategies you should take advantage of regardless of whether you choose to pay off student loans, save for a down payment on a home, or begin investing. For example, everyone should have an emergency stash of cash that is equal to at least three months’ worth of income. Until you have saved that amount, you should not even think about trying to do anything else.

You should also focus on more than just your student loan debt. For example, if you have high interest credit cards, paying them off first should be one of your top priorities. It’s also important to eliminate any other bank notes that come with a higher rate of interest than what your student loan currently has.

If your employer offers a 401(k), contribute enough to take full advantage of any employer match. You’ll barely notice the difference in your paycheck, and are actually leaving money behind on the table if you don’t.

Meeting all your monthly obligations can seem hard enough without having to worry about investing or saving. It can be tempting not to think about these things; however, addressing them now is essential if you are to achieve greater financial security in the future.

Continue reading

Is a Retirement Crisis Looming?

Americans are now living longer, and will therefore require more money to see them through their retirement years. However, there is less money available from traditional sources than before, meaning that a good number of people will fall short. Are we facing a retirement savings crisis, and if so, what can be done about it? Here’s what you need to know.

Reasons for Savings Gap

A number of things are contributing to the retirement savings gap, including:

  • The fact that fewer employees are eligible for pension plans
  • The possibility of Social Security benefits being cut in the future
  • Low enrollment and/or contribution levels in employer-sponsored 401(k) plans
  • Little or no savings accounts for a number of American households

Is this a Problem?

The National Retirement Risk Index reveals that approximately half of all working-age households will not be able to maintain their current standard of living once they retire. Andrew Biggs of Adventures in Education disagrees, citing other studies that claim fewer Americans that ever are falling short of their retirement goals. He also claims that senior citizens typically have lower poverty rates than the general population, and that 75% of those surveyed claim they have enough money to live comfortably.

Why do Opinions Differ?

Why do some economists claim there is a retirement shortfall, when others state there is nothing to worry about? According to Alicia Munnell of Boston College, some adhere to a model that believes retirees generally plan to spend less during their golden years, and that “empty nesters” begin saving more money once their children leave home. Others conclude that empty nesters splurge rather than save, and that retirees only spend less if they are faced with declining income.

Although they disagree as to whether or not there is a retirement crisis, Biggs and Munnell do agree on one thing, and that is the fact that low-income families are more likely to struggle. Munnell cites the fact that many low-income workers retire at age 62, before they are eligible for full benefits. Biggs claims that many may even lack enough work history to qualify for Social Security benefits at all.

What can be Done?

A number of solutions are available that could ensure more people are adequately prepared for retirement. One involves gradually lowering government pension benefits, which would encourage people to save more. Reducing regulations so that more small businesses could offer 401(k) plans is another. Social Security reform to increase revenue and keep it from being used as a “poverty program” would go a long way toward ensuring everyone who retires has adequate benefits as well.

Is there a looming retirement crisis? It all depends on who you talk to. Some claim that as Baby Boomers age, more and more people will find there is not enough cash available to sustain them for the next 20 or 30 years. Others say there is really nothing to worry about, and that most seniors are doing just fine. The truth is that there really are no guarantees, so the best plan is always to begin saving for retirement sooner rather than later.

Continue reading

Can your Real Estate Help you Retire?

Studies show that Baby Boomers are facing a financial shortfall when it comes to retirement. Many of them will bridge the gap by continuing to work, while others will tap into their biggest asset:  their home. If you have a significant amount of home equity, yet find your savings account is rather thin, the answer could be a reverse mortgage:  here’s why.

How Reverse Mortgages Work

With a reverse mortgage, you maintain ownership and occupancy of your home as normal. Your property is simply used as collateral against any equity you do tap into. The only difference is that you do not have to make monthly payments as you would when taking out a traditional mortgage. You can simply allow the amount of debt to increase until you pass away or move out, whichever comes first. The amount of debt you accrue may never exceed the amount of equity in your home, so there is no need to worry about passing on loan payments to your survivors.

Possible Uses for a Reverse Mortgage

Reverse mortgages are very flexible, allowing you to utilize your equity in a manner that best suits your needs. Some common ways in which retirees use reverse mortgages include:

  • To help pay for unexpected expenses such as major home repairs
  • Providing additional cash to supplement monthly living expenses
  • Allowing for a line of credit that could be used as needed

Eliminates a Mortgage Payment

A common misconception about reverse mortgages is that you cannot currently have a house payment in order to quality. The fact is that many retirees “flip” their current mortgage into a reverse mortgage upon retirement. This eliminates the need for monthly payments, freeing up additional cash to meet other expenses. Of course, you could still make a mortgage payment each month as usual if you wanted to extend your benefits, but you would be under no obligation whatsoever to do so if you occasionally fell short.

Other Benefits

The biggest benefit to a reverse mortgage is that it allows you to stay in your home. Perhaps you are emotionally attached to your house or look forward to passing it onto your children. A growing number of seniors these days also desire aging in place. Should you require renovations to do so, the funds from a reverse mortgage could ensure you are able to afford such a project.

Some other benefits of a reverse mortgage include:

  • Making it possible to delay withdrawals from a 401(k), which often come with tax penalties
  • Being able to stretch your retirement savings
  • No risk of default, since no payments are required until you move out
  • The funds you retain as a result of your reverse mortgage are completely tax free

You’ve spent years building up equity in your home, and that effort could very well pay off once you reach retirement age. If your retirement benefits are not quite what you had expected, you may want to consider using your home’s equity to enjoy the benefits of a reverse mortgage.

Continue reading

Red Sox’s David Ortiz Approach to Retirement

Copyright: ericbvd / 123RF Stock Photo

This season, Red Sox’s patron “Big Papi”, more formally known as David Ortiz, has decided to retire from his baseball career at the age of 27. Coined as a #retirementrookie in his recent campaigns by John Hancock, David Ortiz’s youthful retirement age is sparking up conversation on a range of social media platforms in regards to how Ortiz plans to spend his decades of retiree days ahead.

According to a 2016 Forbes report, David Ortiz earned $22 million that year, making it not farfetched that he has decided to retire before evening hitting 30. Though, there is more than planning for retirement than having your finances set. In Ortiz’s recent John Hancock campaigns, they point out some of the more daunting tasks that come with planning for retirement.

A good financial planner should discuss what their client’s objectives are in their post-career life. Aside from ensuring that you are financially secure, laying out a plan and goals for how you want to spend your decades of retirement. Of course an overseas vacation, laying out by the beach or cruising along a bike trail are all wonderful ideas of what retirement can include. Though, this new milestone in your life is going to grant you a freedom different from any other phase in your life.

For this reason, having objectives and creating new milestones for yourself in your potentially 30 plus years of retirement, or for Ortiz, 60 plus year, is a great way to avoid becoming bored. For Ortiz, some of the social media crowdsourced ideas from his John Hancock campaign included learning to play lacrosse, save the rhinos, take up an arts and craft hobby, and even explore New England’s beaches with a metal detector.

Though, all jokes aside, as we continue to dive deeper into an era dominated by technology, financial planning is not exempt. Considering that a central piece to the retirement equation is financial independence and security, the utilization of robo advisors is growing. These computerized financial advisors are able to breakdown the complex and routine numbers game that planning for retirement really is.

Though, as more becomes computerized, it is even more important to maintain that human element, especially when it comes to your retirement life plan. If modern financial advisors are able to meld the up and coming technological advances in securing financial independence with the increasing conversation about your life plan and goals, similar to that of David Ortiz’s discussion with John Hancock, we can create a more realistic approach to what life in retirement really means.

With no way to compute a life plan with a computer, the value of an advisor that takes into consideration the whole picture of retirement. Financial advisors that are able to discuss your objectives in retirement in unison with your finances will hopefully be the new standard in retirement planning. David Ortiz’s should be okay in early retirement considering his already promising deals he has been offered. As for the general population, taking into consideration the bigger picture in retirement planning should be the new approach.

Continue reading