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.

Women may need to plan for long lives

The basics of financial planning are essentially the same for males and females. However, there are some aspects of financial planning that have greater impact on women than on men, regardless of marital status or profession.

The first is life expectancy. In general, women have a longer life expectancy than men. This natural longevity advantage, coupled with family history and lifestyle, could necessitate planning for an extended life expectancy. A woman's money may need to last longer than the money of a male counterpart. Should that influence how you invest or how much you spend, or both?
One could argue that there's a greater need for the types of longevity protection offered through insurance products.

Long-term-care insurance is one example. Living well past life expectancy creates a greater likelihood of being alone significantly longer. I do not recommend a spouse at home as the long-term care giver for a spouse, but many do end up in that role anyway. If the odds are that the woman will live longer, then perhaps long-term-care coverage is worth considering.
Annuities are another financial product created by insurers that are designed primarily to provide for retirement. Annuities are used to accumulate assets for retirement years and to produce an income stream that cannot be outlived.
Planning for Social Security may also present an entirely different opportunity for long-lived women. In general, the longer you wait to take Social Security benefit payments, the larger that amount gets, until age 70. For the person who lives 10 to 12 years past age 70, waiting frequently produces a larger total benefit than taking a reduced amount of Social Security any time between the ages of 62 and 70. For the woman who lives well beyond age 82, each month's payment just makes the benefit from waiting better.

Depending on the family, the loss of a spouse may cause other problems.
A common void for many women after the loss of a husband is in the area of home maintenance. The husband may have performed a long list of upkeep chores. It is wise to understand that your cost of living without your male spouse may not drop as much as you expect, because of the services you may now need to pay for.

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.

Financial planning more than investing

When I speak to people about financial planning, they most often want to talk about investing. I understand the fun and seductive nature of seeking higher returns for your money, but the financial planning process is far more important than any one investment or portfolio.

This should include a discussion of your goals and dreams, and fleshing out some goals that you've eliminated from memory because you didn't think they were achievable.

But beyond the life planning part of financial planning, a planner should take a close look at many quantitative issues. At a minimum, these issues should include a look at your cash flow, what you earn and how much you spend. It should also look at your assets and liabilities from many perspectives: what you own, how you own it, what you owe, what your assets are worth and the tax cost or basis for each asset.
The planning process should then include a detailed analysis of the following areas: risk management, investment analysis, tax planning, retirement planning and estate planning. A detailed analysis of your risk management program, for example, should include a review of each policy for insurance and any other plans for risk mitigation.
For a review of your estate plan, the planner should perform a rigorous review of your current plan including all relevant documents and legal agreements for applicability to your situation today and appropriateness given your goals, family situation and the current tax environment.

A financial plan can be done as a one-time engagement based on your current circumstances. It is better, however, due to the barriers that naturally occur in financial markets, tax codes and your personal life to be current at all times with no less than annual reviews with a qualified professional.

Now a newer term, "wealth management" is being bantered about. In my opinion wealth management is the same as financial planning. The problem is that many firms call themselves financial planners or wealth managers, and do not follow a process designed to deliver proactive and holistic financial counseling.
They use the terms as a lure for attention to get themselves in a position to manage your assets or sell you insurance.

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.

Your business can survive your death

No one lives forever, but in theory, a business organized as a corporation or LLC could survive beyond your lifetime. This is one area that business owners frequently ignore until there is a problem.
The first pitfall is either not having a written succession plan or having one that is so old that it is ineffective. A succession plan should involve all stakeholders. That may include family and surviving dependents, partners, clients or customers and employees.

For partners, make sure there is a written agreement that covers succession for a few contingencies. The first would be not waking up for breakfast. The death of an owner with no succession plan invites battles with remaining shareholders and family.
The second contingency would be the disability - temporary or permanent - of an owner, either a temporary or permanent one. In many ways, this could be more harmful to the business than the death of a shareholder.
The last contingency would be a partner wanting out of the business.
People get burnt out, want to retire or desire a major change in their lives. A written agreement with fellow shareholders must address this possibility.

Valuation of the business is another common pitfall. Many written agreements between owners are vague or poorly drafted when it comes to the pricing and payout of an owner's interest. The worst kind of valuation language asks that an outside accounting firm value the business or suggests that several valuations are obtained, with an average of them becoming the actual price. A better way is for the shareholders to agree each year on a current valuation should any contingencies occur during the coming year.
Beyond valuation, funding for the buyout is a sticky issue. Many have insurance policies to back up the agreement, which is a good thing. But frequently the policies are inadequate or owned in such a way as to trigger tax consequences that may differ from your understanding. The insurance obtained should cover both death and disability, and match up with the terms of the buyout.

Inadequate funding is frequently the kiss of death for the business, the survivors of the deceased and the remaining shareholders. Many businesses can't afford to stay in business following the death or disability of a key shareholder.

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.

Several tax increases loom in 2013

The Affordable Health Care Act, aka “Obamacare,” has been the news most read by Americans in the past week. But beyond the fact that the Supreme Court found it was not unconstitutional to levy a new tax to help pay for mandated health insurance, there are other taxes ready to be levied on Jan. 1.
An additional 3.8-percent tax will be levied on capital gains and investment income for high wage earners starting in 2013. For the same earners, there will be a 0.9-percent increase in the Medicare tax.
Flexible spending accounts will have a $2,500 cap and the threshold for the medical expense itemized deduction is going to be 10 percent of adjusted gross income.

There is concern among investors about the consequences of larger taxes on investment income and capital gains. This speculation includes thoughts that taxpayers may elect to sell appreciated assets in 2012 to lock in the lower tax rate in effect for 2012, adding downward selling pressure on your portfolio.

The second 2013 tax increase would be in the estate arena. Currently there is a $5 million dollar exemption for both gifts and estates.

Starting in January, the estate limits are set to revert to the previous $1 million level.
The problem with the scheduled estate tax increase is that many believe that the law will not regress to the limit of over 10 years ago, even though that is exactly how the law reads today. Many people simply feel that the government will pull another rabbit out of its hat and maintain the $5 million exemption. This has many holding off updating their estate plans on blind faith and crossed fingers. This is not something I would recommend, especially if your estate is substantial and taking advantage of the $5 million exemption makes good estate planning sense.
The last set of tax changes scheduled to take effect next January are from the expiring Bush-era tax cuts. These could raise the tax on dividend income from 15 percent to as high as 43.4 percent if you make more than $250,000.

Politics created these uncertainties and politics will likely determine if change. Your financial future, however, is too important to leave to politics. You may have to plan using two scenarios, but that may beat doing nothing and leaving it up to congress.
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.

Busting myths of financial service firm independence

Most financial services firms tout their independence and how they are always looking to do what is in the best interests of their clients. But the truth, of course, isn't so simple.
Let's start by busting a few myths about adviser independence. First may be the myth that because someone practices as a fee-only adviser that they are completely independent. In theory, of course that would be true. But in practice, I've seen independent fee-only advisers whose independence may be compromised because of limited product knowledge or using the same cast of characters for commission business or other services without offering a choice of others who may be equally or more competent.

Next is the myth that an adviser who earns commissions is not independent. This may or may not be true. The best way for an adviser compensated by commissions to be independent is to represent and evaluate every possible product or company for client solutions and to fully disclose any compensation from the use of that product.

There are a few different levels of independence. Beyond the whole issue of the commission itself, the next issue is what products or services are offered by an adviser's firm. For example, if an independent company only represents a few companies in any given area, is the adviser or that firm truly independent? I would argue not.

If the solutions presented to you always have the same brand name, there is a good possibility that your adviser is not acting independently. It is very difficult, if not impossible, for any one company to manufacture the best in class for the entire range of financial products. Ask to see some alternatives if you want to test this.

Many financial firms tout themselves as financial planners when in reality they are product salesman using a consultative selling process that mimics comprehensive financial planning.

This does not mean that all commission-based financial firms mask their true intentions behind the cloak of financial planning, but specifically ask if a written financial plan will be prepared for you. I don't mean pages of numbers and forecasts. I mean a document written in plain English that spells out your situation, goals and objectives, alternatives and specific recommendations. Be very direct and ask specifically if an adviser will put their advice in writing.

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.