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Mortgage, Personal Finance, Retirement, Taxes

Trumps Proposed Tax Plan

Republican lawmakers just released the Trump tax plan, cutting corporate and middle-class taxes.

It has the potential to impact:

• Individual tax rates
• Changes for the middle class
• Increasing the standard deduction and the child tax credit
• Potential changes in the mortgage interest deduction
• The medical expense deduction
• Estate tax changes
• And more…
trump tax plan
The Highlights of the Trump Tax Plan:
• $90,000 income pays 12% tax
• $259,999 income and below would pay a 25% tax
• Standard Deduction doubles to $12,700 for single filers and $24,000 for married couples
• Newly purchased mortgage interest deduction cap at $500,000
• $10,000 limit on property tax
• Retains the low income housing credit
• Repeals the AMT (Alternative Minimum Tax)

Here is a great article in The New York Times that highlights the proposed Trump Tax Plan changes.

This impacts real estate in a big way. First, the obvious, mortgage interest deduction reduction from $1 million to only $500,000 and the House bill restores an itemized property tax deduction for property taxes up to $10,000.

But additionally, the not so obvious, doubling the standard deduction for married couples to $24,000 would make the mortgage deduction useless for most homeowners.

A married couple would need a home-loan balance of about $608,000 before it would make sense to itemize and use the mortgage-interest deduction.

Any questions how the TRUMP TAX PLAN could affect you please do not hesitate to contact us.

Mortgage, Personal Finance, Retirement

Reverse Mortgages, Reconsidered

Once widely disparaged, Reverse Mortgages are getting a second look.

Too many baby boomers are retiring with insufficient savings.

Many of these boomers are “house rich” and “cash poor,” and in response to their circumstances, they may decide to utilize a reverse mortgage. That move could make funding their retirement much easier and greatly increase the quality and longevity of their retirement.

Opinions about reverse mortgages are changing rapidly.

Once saddled with an image problem, they are now seen as useful instruments for producing additional retirement income. Just like any mortgage, they are not without risk. Today a Reverse Mortgage is looked at as a smart choice; an opportunity, a financial planning opportunity to utilize a large retirement asset, just like a IRA or 401-k throughout their retirement.

Does borrowing against the value of a home in retirement seem like a clever idea or not?

The average American household has about 75% of their net worth in real estate and very little saved through traditional retirement means; such as a company pension, 401-k or a Traditional IRA. These retiree’s have been led to believe, effectively lied to, that having a mortgage free home increases the longevity of their retirement. Sadly, this is not the case in most instances.

utilizing a reverse mortgage in retirement, reverse mortgages This old age thinking erupted from the experiences of their parents the “The Greatest Generation.”

These parents of the Baby Boomers had company pensions and Social Security. Growing up through the Great Depression, The Greatest Generation rapidly paid their mortgage because the bank could call the loan until it was re paid by the borrower. During this time there was no such thing as a 30 year fixed mortgage. Maintaining this same the same “Depression” thinking today can hinder a retirement and actually make it a risky proposition.

The Journal of Accountancy had a great article on What role should your house have in retirement planning? You can read it here.

Not everyone is eligible for a reverse mortgage.

Most Reverse mortgages are insured by the Federal Housing Administration (FHA), which imposes some rules and have stricter financial requirements. One, the couple or individual applying for the loan must be age 62 or older. Two, the home involved must have a certain level of equity. Three, the borrower(s) must have the means to pay property taxes and insurance. Four, the borrower(s) must pay a fee to attend a counseling session on reverse mortgages. In addition, you cannot have a reverse mortgage and be delinquent on any federal debt.

The Reverse Mortgage loan can be as large as $625,000.

The limit varies per county, and three other factors can influence the loan amount – interest rates, the appraised value of the residence, and the age of the borrower(s). A retiree household can access the money in one of three ways – as a lump sum, as a monthly income stream, or as a line of credit, letting the money grow. Borrowers usually cannot acquire more than 60% of the home value within the first year.

Interest accrues during the life of a reverse mortgage, so the loan grows larger over time. A reverse mortgage is a non-recourse loan, though, meaning that the borrower is never personally liable for repayment. A reverse mortgage only needs to be repaid once the borrower dies, sells the home, or moves out of the home.

Stronger spousal protections were put in place during 2015.

If one spouse dies or moves out of the home the remaining spouse can stay as long as it’s their primary residence.  Even if they were not originally listed on the loan. Additionally, with Reverse mortgages, the taxes and insurance need to be paid.

Health Care costs are skyrocketing.

Today retirees are living much longer and medical costs are only going up. Fidelity estimates the average retired couple will spend $275,000 during retirement for medical costs. You can read the article here. Where would this money come?

Inflation and taxes are only going up.

During 10 years of retirement and 4% inflation your social security check just got 40% less. Think the government won’t tax Social Security? Think again.  Rising Medicare premiums is the ultimate back door tax of Social Security and they are going up fast!

Reverse Mortgages can help guard against inflation and be a safety net against rising healthcare costs.

Annuva Financial is a comprehensive Retirement Income Planning firm. If you believe your financial  future is worth a quick conversation with one of our professional advisers, call us at 800-282-1530. There’s no obligation.

Economy, Personal Finance, Retirement, Stock Market, Wealth Management

Enjoy the Market Rally, But Prepare for the Retreat!

Investors may be lulled into a false sense of security by this market.

Will the current bull market run for another year? How about another two or three years? Some investors will confidently say “yes” to both questions. Optimism abounds on Wall Street: the major indices climb more than they retreat, and they have attained new peaks. On average, the S&P 500 has gained nearly 15% a year for the past eight years.

Stocks will correct at some point. A bear market could even emerge. Is your investment portfolio ready for either kind of event?

It may not be. Your portfolio could be over weighed in stocks and stock mutual funds – that is, a higher percentage of your invested assets may be held in equities than what your investment strategy outlines. As your stock market exposure grows greater and greater, the less diversified your bull market and bear marketportfolio becomes, and the more stock market risk you assume.

You know diversification is important, especially when one investment sector that has done well for you suddenly turns sideways or plummets. When a bull market becomes as celebratory as this one, that lesson risks being lost.

How do bear markets begin?

They seldom arrive abruptly, but some telltale signs may hint that one is ahead. Notable declines or disappointments in corporate profits and quickly rising interest rates are but two potential indicators. If the pace of raising rates speeds up at the Federal Reserve, borrowing costs will climb not only for households, but also for big businesses. A pervasive bullishness – irrational exuberance, by some definitions – that helps to send the CBOE VIX down to unusual lows and can be seen as another indicator of a bear market or stock correction.

How long could the next bear market last?

It is impossible to say, but we do know that the longest bear market on record lasted 929 days (calendar days, not trading days). That was the 2000-02 bear. A typical bear market lasts 9-14 months.

Enjoy this record-setting Wall Street run, but be pragmatic.

Equities do have bad years, and bears do come out of hibernation from time to time. Patience and adequate diversification may make a downturn more tolerable for you. You certainly do not want the value of your portfolio to fall drastically in the years preceding your retirement.  If this happens, you will have a narrow window of time to try and recoup that loss. Remember, the market does not always advance. It may be time to lock in these gains or re balance your portfolio.

Be careful listening to the media.

So while 15% gains sound great, way over 200% gains without a significant correction; the average annual return since the 2000 bear market has been only 4.11% (without dividends). Adjust for inflation and the return goes down to 1.90%. Minus out taxes, management fees, brokers fees and expenses and it seems like those that have been in the market since 2000 are still losing money.

The coming correction is right around the corner. Be Proactive, Not Reactive. Our clients didn’t lose a dime in 2000 or 2008. How low can it go? That’s anyone’s guess but this guy thinks it will be the Worst Stock Market Crash Ever… and that would be pretty bad.

Personal Finance, Retirement, Wealth Management

Saving for Retirement

Overcoming Retirement Challenges

In a 2013 survey of people aged 50 to 70 with $100,000 or more in investable assets, 90% reported that they had experienced at least one setback in saving for retirement. In fact, the average respondent had experienced four setbacks with an average loss or missed opportunity of $117,000.1

The future is always uncertain, and as the saying goes, “Life happens.” It would be wise to prepare for the unexpected and react logically rather than emotionally when faced with retirement challenges. Here are some obstacles you might need to overcome.

Surviving market downturns. More than half of those surveyed said their assets had been reduced by market losses during the Great Recession.2 Yet another survey suggested that about 50% of workers who were 32 to 51 when the recession started actually showed gains in their retirement accounts during the 2007 to 2009 period.3 This group may have had lower balances when the recession began, and it’s likely that they continued saving throughout the downturn, which might have helped them benefit when the market started to improve. Remember that all investments are subject to market fluctuation and the potential for loss.

saving for retirement and challenges-to-retirement-savings

Saving too little or too late. To accumulate sufficient assets to retire at age 65, one rule of thumb suggests saving 15% of income starting at age 25. Someone starting at age 35 might need to save about 30% each year, and the savings percentage would increase to about 64% annually for someone starting to save at age 45!4 If these percentages seem unrealistic, consider that any savings increase is better than none. In addition to maximizing your retirement contributions, you may also need to adjust your lifestyle and control your spending. Once you reach age 50, you are eligible to make additional “catch-up” contributions.

Experiencing a traumatic event. A job loss, unexpected medical expense, death of a loved one, or divorce might make it difficult to save for retirement. Having an emergency savings account that could help cover at least three to six months of living expenses would put you in a stronger position. If possible, avoid tapping your retirement savings, especially tax-deferred IRAs and 401(k)s, because withdrawals are taxed as ordinary income and may be subject to a 10% federal income tax penalty if taken prior to age 59½. When your life returns to normal, try to save as much as possible at the highest contribution rate you can afford.

Balancing college and retirement. When these two priorities compete, many people — 15%, according to one survey — stop saving for retirement to pay for their children’s educational costs.5 A wide variety of college funding options are available, but there is no “scholarship” for retirement. The key is to balance your children’s needs with your own retirement goals and find an appropriate strategy.

The road to retirement is long, winding, and seldom smooth. But with patience and a steady commitment, you could reach your destination regardless of how many obstacles you encounter along the way.

For more information on this topic please contact Ben Borden Richmond, Va Financial Advisor, (804) 282-8820.

1–2), May 14, 2013
 3) The Pew Charitable Trusts, 2013
 4), September 24, 2012
 5), March 4, 2013
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