01/19/2005
Anyone living in the industrialized world today cannot help but be a little shaken by the natural disasters which have recently ravaged certain parts of the world. The people, coastlines and properties of nine different countries are devastated by the tsunami. Sunny Southern California witnessed hillsides give way and carry homes and people to destruction and death. One of my favorite places, Park City, Utah was impacted by an avalanche. Such events remind us that disasters really can happen anywhere at anytime. Does that scare you? Hey, it scared me. That fear motivated me to make sure I had the right insurance so a natural disaster doesn't become a financial one.
Natural disasters are not the only eventualities that can knock you off course. Lost jobs, illnesses, death, disabilities, lawsuits, bankruptcies and other unforeseen circumstances can derail you from the personal and financial track you are on. It's not unreasonable to imagine one of these things striking because they happen everyday in this country. I'm not trying to scare you folks. On the other hand, if fear motivates you, then get scared because you really do need to create a plan to get though any event with knowledge and action to avoid a financial disaster.
What scares you the most? What is your worst possible financial nightmare? Put together a plan to prepare for it. The best time to prepare for a disaster is before the disaster strikes. So here are the must do action items for your disaster plan:
1) Have access to at 3 months of expenses saved up in a local bank.
I'm talking about cold, hard cash. If something bad happens-cash is king.
2) Have insurance- life, health, liability, business, disability. It is worth every penny to protect your assets, your family and your peace of mind.
3) Pay down any debt with no asset attached to it. You want to pay down your debts in the good times so they are not looming out there if you have a change of fortune.
4) Increase your credit score. If you have a credit score of 720-anyone will loan you money when disaster strikes. It is your get out of jail free card.
5) Have a will. Your will is a roadmap of what the people you have left behind know what to do.
When you have planned for life's challenges, you will sleep at night knowing that things are taken care of and that you and your family will be okay.
Year to date, investors in individual stocks have been punished for their optimism. Small caps are down 5% just since the first of the year--a mere 19 days ago. The Nasdaq is following closely behind, down 4% in the same time period. It's just rough out there right now. Last week, I had a conversation with a person who bought a stock just to see it drop 25% in one week! Stocks are having a very tough time mounting a rally so I urge investors in individual stocks to keep their stop losses very tight and be careful.
Is the goal of paying off your house a good one? Probably not. If you are in your prime earning years, your mortgage offers a huge tax deduction. If you have re-financed a 30 year fixed loan, you now have one of the lowest interest rates and safest loans. With the tax write-off on that loan, you are paying around high 3's or low 4's for that money. You don't want to use money that could earn 8% or more, if conservatively invested, to pay down your home because you will miss out on that 4% differential. Over the life of the loan, that could be an enormous amount of money and one heck of a lost opportunity.
What are you planning to do with your mortgage when you are no longer working? There is a direct correlation to the quality of life and the decisions you make regarding your mortgage. Putting together a plan for your mortgage will help you determine whether or not it makes sense to carry your mortgage into retirement. You will determine if it is best for your financial security in retirement goals to sell the big house and downsize to a smaller home or one in a geographic location which is more affordable. You may decide that you will have sufficient taxable income to justify a mortgage.
Since your mortgage is your greatest liability and your home is your largest asset, why not create a mortgage plan within your retirement plan? Even though retirement may still be a long way off, planning your finances with a specific goal regarding your mortgage will go a long way in creating your financial security in retirement. Given the state of social security and pensions today, you need to create as secure a retirement as you possibly can. Hey, you can change your plan or fine-tune as you go, but knowing now what you will do with your mortgage will make everything else take shape.
I want you to sit down and have an honest discussion with yourself and/or your spouse, and ask the following questions:
1) When do you plan to retire?
2) Where do you plan to retire?
3) What will you do with the family home at retirement?
4) What are the terms of your existing mortgage?
5) Based on your retirement vehicles, what will your taxable income be?
The goal in having this discussion is to create a picture of exactly where you are, where you want to be, and the very best way to get there. You may need to make changes in how you are currently managing your money to have the retirement you want when you want it.
If you would like help in creating a mortgage game plan, contact Josh Lewis at JLewis@Stearns.com. Or call him at 800-218-9217.
Knowing the place where you want to retire is a huge issue because the cost of living is so variable in this country and might well factor into the "when?" question. Do you plan to stay in your current home in retirement? If so what are the terms of that mortgage? Is it still going to be manageable in retirement? An unexpected leap in payments would be devastating to fixed assets.
Historic lows in interest rates will not go on forever. Make sure you have a payment you can comfortably fund without depleting assets. The risks in mortgages for retirees involve the inability to manage the costs and being forced to move when you didn't plan on it. If you deplete your assets to fund your mortgage, you will ultimately run out of money. People are living a lot longer. You don't want to outlive your money. Your mortgage is your largest single tax deduction. The percentage of your retirement income that is taxable weighs heavily on the benefits of carrying a mortgage through retirement.
How should you handle your retirement money? My High Monthly Income service is designed specifically to help those people in retirement manage their money and safely seek 8-10% or more in annual returns.
I am recommending to subscribers of High Monthly Income those targeted investments which are most likely to generate a safe and steady income this year regardless of what interest rates do. And, subscribers of my High Monthly Income Service are well ahead of the curve already this year as we just locked in a gain of 7.59% in just 10 short weeks. We are poised to jump on the next opportunity--which makes this a perfect time for you to come on board. If you would like to know which funds I am recommending to my subscribers seeking 8-10% or more in profits, please click on the following link:
http://www.fabianlive.com/nuservices/hmi.jsp
We all face an enormous task in funding and growing our retirement assets. The public and private systems are completely failing.
Social security, public pensions, corporate pension plans are not going to be able to deliver on the promises they made and the government will go broke trying to keep them afloat. It is time to face the music and take control of your retirement assets accepting that the only money out there for you in retirement is what you manage to save.
Bearing in mind that it's all up to you, the following action steps will ensure that you will have the best retirement regardless of failed promises:
1) Set a specific percentage goal for your retirement savings this year increasing it from last year. When you have reached your maximum contribution, add a new account.
2) Open an additional account, Roth or traditional IRA, VUL or variable annuity.
3) Rollover your old 401(k) and get it under your own control. Odds are it will make more for you when you manage it yourself.
How you live in retirement is going to be determined by how much you save and by how much you nurture and grow that money over time.
Don't be aggressive with it because you just can't afford to lose it. Make sure your retirement assets are bear-market proof. Take care of your retirement money like no other money you have because it is the money that will take care of you someday.
My friends, we are reminded that life and circumstances can be altered in an instant. While no one knows what eventualities lay ahead, we all know that the very nature of life is such that it is filled with times of joy and abundance and moments of struggle. I encourage you to use this reminder as a motivation to create an action plan for you and your family - to thrive in uncertain times and for financial security in retirement. Get all of the insurance you need, make sure you have a mortgage you can manage, fund your retirement accounts to the maximum and then start new ones. You can do this, and once you are prepared, those fears might just melt away.
"The most difficult thing is the decision to act, the rest is merely tenacity. The fears are paper tigers. You can do anything you decide to do. You can act to change and control your life and the procedure, the process is its own reward."
- Robyn Davidson
I think that quote just says it all, folks. Take care and please send me your comments, questions and suggestions.