MAKING CENTS: Unexpected financial treasures

We all eventually clean out a closet or basement, and find things that we forgot about and deem useful or valuable. From a financial perspective, the same process may also yield unexpected treasures. The living proof of this is your state’s unclaimed property list. In Massachusetts, it is estimated that one in 10 residents have unclaimed property.

There are two sides of cleaning out your financial closet. The first side is to find out if you have any unclaimed property. Do this by going to your state treasurer’s website and seeing if you’ve got property that you may have forgotten or never knew you had. An example of something you never knew you had could be from an old life policy, annuity, estate or retirement account from a deceased loved one who named you as a beneficiary.

The second side of cleaning out your financial closet goes beyond discovering the stuff that you may have forgotten or neglected. It is the prevention of things ending up on the unclaimed property list in the future.

The candidates for your ignored assets may include old bank accounts, old 401(k) accounts, old life policies or annuities.

Your annual tax filing should be your first reminder for any old bank accounts. Compare the interest from bank accounts from your last year’s tax return, account by account, to the 1099s received for the current year.

Beyond losing track of small accounts, remember to look closely at what type of bank account you hold. Is it possible that an older, higher-yielding certificate of deposit has matured, and rolled into a lower-yielding instrument? Update your inventory of accounts regularly, especially if you or your elder loved one is a “CD stacker” with many accounts spread around several institutions.

When people change jobs, there is a tendency to leave the old 401(k) assets in the old 401(k) plan. While this is far from a fatal error, not managing that old 401(k) plan may cause problems.

Older cash value life insurance policies and annuities are also candidates for being ignored or forgotten. These financial instruments are tax deferred, and will not generate a 1099 each year as a reminder. Check to see if these assets may be redeployed in better performing assets or to another type of insurance that may now be more desirable, such as long-term care coverage.

John P. Napolitano is CEO of U.S. Wealth Managementin Braintree, Mass., and 2012 president of the Financial Planning Association of Massachusetts. He may be reached at jnap@uswealthcompanies.com or on Facebook as JohnPNapolitano and US Wealth
Securities offered through LPL Financial, Member FINRA/SIPC.

Investment advice offered through U.S. Financial Advisors, a registered investment advisor and separate entity from LPL Financial. The LPL Financial Registered Representatives associated with this site may only discuss and/or transact securities business with resident of the following states: AL, AR, AZ, CA, CO, CT, DC, FL, GA, HI, IA, ID, IL, IN, KS, KY, LA, MA, MD, ME, MN, NC, ND, NH, NJ, NM, NV, NY, OH, OK, OR, PA, RI, SC, TN, TX, UT, VA, VT, WA, WV. USFA, and U.S. Insurance Brokers, LLC are wholly-owned subsidiaries of U.S. Wealth Management. U.S. Wealth Management companies are not affiliated with LPL Financial.

The information being provided is strictly as a courtesy. When you link to any of the web sites provided here, you are leaving this web site. We make no representation as to the completeness or accuracy of information provided at these web sites. Nor is the company liable for any direct or indirect technical or system issues or any consequences arising out of your access to or your use of third-party technologies, web sites, information and programs made available through this web site. When you access one of these web sites, you are leaving our web site and assume total responsibility and risk for your use of the web sites you are linking to.

Making Cents: Right answers usually aren’t easy ones

The most common answer delivered by financial professionals to their clients is “it depends". For some, it may be a quick way to skirt a direct answer. But in many financial situations, there is no black-and-white answer.

Let’s start with estate planning, an area where many feel that a set-it-and-forget-it approach is best. Nothing could be further from the truth. With the potential end to the Bush-era tax cuts looming, many wonder whether now is the time to engage in the $5 million substantial-gifting opportunity available under the current tax code.

Of course, much depends on what Congress does. But beyond the tax law, you may have concerns about your future ability to sustain your current lifestyle if you make such a large gift. You would also need to ask what can go wrong to make this gift look like a bad idea at some point in the future. These issues could include a long-term health issue that depletes funds faster than expected or, conversely, a much longer life than originally projected.

The “it depends” answer may also arise when planning for the funding of higher-educational expenses. The first side of this quandary deals with how you prioritize saving for your financial independence and other financial goals versus paying for four years of a private university. Then there are the realities of your future income, health and the earnings rate on your savings. Look at all contingencies and conceivable ways to fail before you charge ahead with your own ideas. Should you choose college funding as your first priority, it would be negligent to be underinsured to protect against the loss of life or income. Either possibility could cause failure of the funding plan. Diverting a small portion of your savings to possible contingencies for premature death or disability may be a prudent course of action.

If you choose to make financial decisions in a vacuum, then at least be aware of the possibilities of how your plan may become derailed. For example, holding on to an investment because you inherited it from your dad or because you’ve always owned it doesn’t mean that you should always own it. You’ll need to ponder the future of your current holding and weigh it against the alternatives you’re considering. Further conflict may arise if you ask whether capital gains taxes will be higher or lower next year.

There is a yin for every financial yang. Evaluating all of the possibilities with the help of a financial professional is the best you can do.

John P. Napolitano is CEO of U.S. Wealth Managementin Braintree, Mass., and 2012 president of the Financial Planning Association of Massachusetts. He may be reached at jnap@uswealthcompanies.com or on Facebook as JohnPNapolitano and US Wealth
Securities offered through LPL Financial, Member FINRA/SIPC.

Investment advice offered through U.S. Financial Advisors, a registered investment advisor and separate entity from LPL Financial. The LPL Financial Registered Representatives associated with this site may only discuss and/or transact securities business with resident of the following states: AL, AR, AZ, CA, CO, CT, DC, FL, GA, HI, IA, ID, IL, IN, KS, KY, LA, MA, MD, ME, MN, NC, ND, NH, NJ, NM, NV, NY, OH, OK, OR, PA, RI, SC, TN, TX, UT, VA, VT, WA, WV. USFA, and U.S. Insurance Brokers, LLC are wholly-owned subsidiaries of U.S. Wealth Management. U.S. Wealth Management companies are not affiliated with LPL Financial.

The information being provided is strictly as a courtesy. When you link to any of the web sites provided here, you are leaving this web site. We make no representation as to the completeness or accuracy of information provided at these web sites. Nor is the company liable for any direct or indirect technical or system issues or any consequences arising out of your access to or your use of third-party technologies, web sites, information and programs made available through this web site. When you access one of these web sites, you are leaving our web site and assume total responsibility and risk for your use of the web sites you are linking to.

Making Cents: Right time for renters to begin buying?

Fears about property values and job security are deterrents

If you've looked for a nice apartment or home to rent, you've probably noticed that the monthly cost of renting has risen substantially over the past few years.

Even with low interest rates, borrowers are having a tough time qualifying for mortgages. Despite what you see and hear from lenders, underwriting decisions are still being made on very stringent criteria that many do not meet.

A second reason, however, is that of uncertainty –– uncertainty with respect to the pricing stability of owning versus renting, and uncertainty about job security. Too many prospective buyers are still reeling from prior real estate losses or are familiar with such losses endured by a friend or relative.

If you are a landlord, this is probably good news. Pricing power should remain in your hands for at least a few more years. And like all real estate, the more in demand your location is, the less pressure you'll receive regarding pricing.

I would also expect to see news of rising real estate values. Low rates are still an attractant, but more significant may be the declines in inventory. Inventories are down because buyers have, indeed, emerged in some of the hardest-hit areas, believing that they are buying at rock-bottom prices. Banks are slowly selling off their portfolios of real estate owned through the foreclosure process, and they are acting more swiftly to foreclose on loans in default, further reducing the inventory of available homes.

Does this mean that now is the time for some of the uncertain renters to change their stripes and begin to buy? Maybe. But that “maybe” is going to have to address all of their fears about employment stability and property values.

They must mentally commit to being in a specific location for a long time. They would also want to have a cash safety net to ride through any extended period of unemployment.

While we are seeing some price appreciation in certain locations at this very moment, a lot of it is neighborhood-specific based on demographics, supply and demand. For prices to rise across the board, inventory will have to drop substantially, and that may take a few more years.

John P. Napolitano is CEO of U.S. Wealth Managementin Braintree, Mass., and 2012 president of the Financial Planning Association of Massachusetts. He may be reached at jnap@uswealthcompanies.com or on Facebook as JohnPNapolitano and US Wealth
Securities offered through LPL Financial, Member FINRA/SIPC.

Investment advice offered through U.S. Financial Advisors, a registered investment advisor and separate entity from LPL Financial. The LPL Financial Registered Representatives associated with this site may only discuss and/or transact securities business with resident of the following states: AL, AR, AZ, CA, CO, CT, DC, FL, GA, HI, IA, ID, IL, IN, KS, KY, LA, MA, MD, ME, MN, NC, ND, NH, NJ, NM, NV, NY, OH, OK, OR, PA, RI, SC, TN, TX, UT, VA, VT, WA, WV. USFA, and U.S. Insurance Brokers, LLC are wholly-owned subsidiaries of U.S. Wealth Management. U.S. Wealth Management companies are not affiliated with LPL Financial.

The information being provided is strictly as a courtesy. When you link to any of the web sites provided here, you are leaving this web site. We make no representation as to the completeness or accuracy of information provided at these web sites. Nor is the company liable for any direct or indirect technical or system issues or any consequences arising out of your access to or your use of third-party technologies, web sites, information and programs made available through this web site. When you access one of these web sites, you are leaving our web site and assume total responsibility and risk for your use of the web sites you are linking to

 

Retirees ask, will I outlive my nest egg?

The most commonly asked question of folks nearing retirement is: "What is a safe rate of withdrawal from my nest egg?" Gone are the days of living on the interest while leaving the principal untouched. With low interest rates, conservative investors are forced to either limit spending or cut into principal every month.

Ask yourself how long your money will last if you continue to earn a low rate of return.

If your conclusion is that you'll be living on Social Security alone by age 80, then you have got to do something. The choices are the same for all: make more or spend less.

Financial experts have concluded that a safe draw down rate is about 4 or 5 percent of your nest egg. That means you are not likely to outlive your money if the amount you withdraw each year does not exceed 4 to 5 percent of the nest egg's total size.

It would take a nest egg valued at more than $2 million to safely provide between $80,000 and $100,000 of supplemental annual income.

Be aware, that when income experts make forecasts, they are talking about a diversified portfolio and not a conservative basket of low-yielding guaranteed accounts. Examples of asset classes could be as mainstream as U.S. stocks, or as far flung as emerging market debt instruments, with holdings like real estate, mortgage loans or tax free municipal debt in the middle. It's important to be sure that your withdrawal rate works for you and that you are realistic in forecasting total earnings from the nest egg.

Look at the other side of the coin - the debt side of your life. While a 3 percent mortgage rate may be the lowest in our lifetimes, it can feel like a high rate if you are only earning 1 percent on your savings. Serious consideration should be given to paying off the mortgage and saving the interest costs on the loan. The only way it would make sense to keep the mortgage unpaid is if you were willing to risk some principal to earn more than the cost of the loan.

Low rates could be with us for a while. Foreign investors are doing their part to help keep rates low by preferring our safe-haven currency over their own. This allows rates to drift lower as the demand for bonds exceeds the supply.

John P. Napolitano is CEO of U.S. Wealth Management in Braintree, Mass., and 2012 president of the Financial Planning Association of Massachusetts. He may be reached at jnap@uswealthcompanies.com or on Facebook as JohnPNapolitano and US Wealth

Securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through U.S. Financial Advisors, a registered investment advisor and separate entity from LPL Financial. The LPL Financial Registered Representatives associated with this site may only discuss and/or transact securities business with resident of the following states: AL, AR, AZ, CA, CO, CT, DC, FL, GA, HI, IA, ID, IL, IN, KS, KY, LA, MA, MD, ME, MN, NC, ND, NH, NJ, NM, NV, NY, OH, OK, OR, PA, RI, SC, TN, TX, UT, VA, VT, WA, WV. USFA, and U.S. Insurance Brokers, LLC are wholly-owned subsidiaries of U.S. Wealth Management. U.S. Wealth Management companies are not affiliated with LPL Financial.

The information being provided is strictly as a courtesy. When you link to any of the web sites provided here, you are leaving this web site. We make no representation as to the completeness or accuracy of information provided at these web sites. Nor is the company liable for any direct or indirect technical or system issues or any consequences arising out of your access to or your use of third-party technologies, web sites, information and programs made available through this web site. When you access one of these web sites, you are leaving our web site and assume total responsibility and risk for your use of the web sites you are linking to.