Archives for November 10, 2019

It will be a long winter for millions of Americans who won’t be able to head to the ski slopes or sunnier climes for a vacation.

Some 33 million Americans, many of them millennials, are financially tapped out and will stay home this winter, according to a new WalletHub survey.

“It should be no surprise that 33 million Americans say they can’t afford to travel this winter,” said WalletHub CEO Odysseas Papadimitriou. “Even though unemployment is near record lows and the stock market is near record highs, there are a lot of things weighing on consumers financially right now.”

Papadimitriou said many cardholders are “racking up credit card debt at a pace reminiscent of the run-up to the Great Recession” — a time when millions of cardholders, many suddenly unemployed, couldn’t pay their card bills.

And, he added, “Student debt clearly is a problem.”

Indeed, some hoping to travel this holiday season are still paying last year’s debts, according to another study, conducted by NerdWallet.

“One in 12 Americans who put 2018 holiday travel expenses on a credit card are still paying for them,” said Kimberly Palmer, a personal finance expert with NerdWallet.

“Nearly two-thirds who spent money on flights and hotels during the 2018 holiday season spent more than they planned to, with some taking cash from their savings or using their credit card to cover the additional costs,” she added.

Part of the problem, according to NerdWallet, is that about 40% of Americans “would rather go into debt paying for holiday travel than skip seeing their family during the holidays.”

The report found that the average holiday expenses on flights and hotels put on a credit card came to $1,105.

Charles Hughes, an adviser in Bayshore, New York, said cardholders, especially younger ones, need to “understand how destructive credit card interest is and how it will hurt them achieving long-term goals.”

There is also a generation gap influencing how credit cards are used.

Amanda Templeton, a business professor at Southern Utah University, noted the income difference between generations. She said this is why many millennials won’t be able to travel this holiday season. But if they do, they will often do so by adding debt.

Baby boomers tend to pay for trips with cash while millennials often use credit cards to finance trips, according to Templeton.

And millennials, she added, are “more apt to treat themselves.”

If you have a credit card from Chase or Citi, you may be able to borrow against the unused portion of your credit line in the form of a loan.

Both issuers are touting the loans to select customers as a quick and easy way to get cash — say, for an unexpected expense or home project.

The primary appeal is convenience. You don’t have to apply for a separate loan or undergo a credit check, and loan payments are rolled in with your regular payment so that you have one bill each month.

With the Citi Flex Loan, you can spread out payments for a term of up to 60 months. My Chase Loan, which Chase plans to launch this year, will have a term of up to 24 months. For both plans, the interest rate is fixed.

Most credit cards have a variable rate, so taking the loan provides more predictability for a big purchase than charging it to your card.

But variable card rates will fall further if the Federal Reserve continues to lower the federal funds rate. (That’s the rate banks charge each other for overnight loans and a key indicator to where rates are headed.)

Before taking out a card loan, though, shop around.

The issuer likely will offer you a loan rate that’s lower than your card rate (recent average card rate: 17.14%), but you may find an even better deal elsewhere. (Neither issuer was willing to provide a range of rates charged for the loans, but several Citi cardholders we spoke with said they had received offers ranging from 9.99% to 16.99%.)

If you switch to a card that offers a 0% rate for the first several months you have the account, you’ll fare better as long as you pay off the balance before the no-interest window closes.

The Wells Fargo Platinum Visa and U.S. Bank Visa Platinum cards both recently charged zero interest on purchases for the first 18 months.

If you prefer a personal loan, review offers from lenders at www.lendingtree.com and www.supermoney.com.

Lightstream, a division of SunTrust Bank, recently offered rates as low as 3.99% on personal loans.

As you compare loans, check for origination fees and prepayment penalties.

According to the Social Security Administration, more than three out of every five retired workers rely on their monthly payout to account for at least half of their income. That, arguably, makes deciding when to take benefits the most important decision that seniors will ever make.

Unfortunately, deciding when to take your payout isn’t a cut-and-dried issue. In other words, there’s no one-size-fits-all strategy that seniors can follow to determine what path will net them the highest possible lifetime payout. However, there are questions that can be asked, and answered, prior to taking Social Security that should help put you on a path to higher lifetime income from the program.

1. Am I in good health?

One of the primary reasons there is no one-size-fits-all claiming strategy is because none of us (thankfully!) knows our expiration date. If we did, we’d know exactly when to begin taking benefits in order to maximize our payouts from Social Security. This makes taking your benefit a little bit of luck and science.

The “science” aspect comes from asking yourself whether or not you’re in good health. The reason? The longer you’ll live, the more you’re incented to wait to take your payout.

As you might already be aware, retired worker benefits can begin at age 62 or any point thereafter. However, your benefit grows by approximately 8% for each year you hold off on taking your payout, up until age 70. All factors that impact your payout being equal, such as earnings history, work history, and birth year, a retiree claiming benefits at age 70 could take home up to 76% more per month than a retiree claiming their permanently reduced payout immediately upon turning 62. Of course, the trade-off is that the early claimant receives their payout for eight years before the age 70 filer collects a dime from Social Security.

If you’re in good to excellent health, and/or you have immediate family members that have lived into or past their 80s, you might be a great candidate to wait on taking benefits. That’s because if you live to be about 80 or older, you’ll net more in lifetime income by maximizing your monthly payout (i.e., waiting until 70, or at least until after your full retirement age).

On the flip side, if you have a chronic health condition, and/or your immediate family hasn’t lived to the average U.S. life expectancy of 78.6 years, an earlier claim might be worthwhile. Even though this might mean a permanent reduction to your monthly payout, it would boost your lifetime collection from Social Security if you live to, say, age 70 or 75.

2. Have I considered what’s best for my family?

Next, prior to taking your retired worker benefit, you’ll want to ask yourself what’s best for your family.

Although your Social Security retired worker benefit is a highly personal decision — after all, it’s based on your work history, earnings history, and birth year – your claiming age can ultimately impact your entire family.

For example, if you’re married and you happen to pass away before your spouse, your spouse would then have the opportunity to claim a survivor benefit that’s based on your work history. The condition being that this survivor benefit must be higher than what your spouse would receive from their own work and earnings history. If you waited until at least your full retirement age to begin receiving your payout, your surviving spouse will have an opportunity to maximize their survivor benefit. However, if you made an earlier claim, it’ll ultimately reduce the amount they can receive.

Furthermore, it just makes sense, when married, to have a game plan when it comes to Social Security. Generally speaking, couples will want to allow the income breadwinners’ payout to grow over time, thereby providing a greater boost to household income many years down the road. At the same time, having the lower-income spouse claim early could make sense given that it would provide some income to the household in the interim.

Long story short, deciding when to take Social Security is, more often than not, a family affair.

3. Do I really need this money now?

Lastly, you’ll want to really ask yourself whether you need regular income from Social Security to make ends meet right now.

More specifically, it’s worth pointing out that around 60% of retired workers wind up taking their payout prior to reaching age 65. This means that approximately three out of five retirees is accepting a pretty sizable permanent reduction to their monthly payout by claiming early. If there’s a valid reason, such as an inability to find work (and therefore no income stream), or a chronic health condition, then this early filing may very well make sense. But hindsight suggests that most folks would be better off waiting on their payout.

In June, United Income released a study that examined more than 2,000 senior households. The purpose was to map when seniors took their Social Security benefit versus when it would have been optimal to do so. What the analysis found was that most retirees chose to take their payout early, yet more than four out of five would have made an optimal claiming choice if they had waited until age 67 or later to begin taking benefits.

Also, don’t overlook the fact that the retirement earnings test could come into play if you’re still working and receiving a Social Security benefit. Though it can be tempting to claim early in the hope of doubling up on income sources, the retirement earnings test, which allows the Social Security Administration to withhold some or all of your benefits, may keep this ideal scenario from happening.

If you can answer these three questions, then you’re ready to make a smart and informed Social Security claiming decision.

Millennials may get flack for being hooked on their smartphones, but this generation may be on to something with respect to retirement planning. There’s a movement gaining momentum among the younger set called FIRE, or financial independence, retire early. FIRE involves saving high percentages of your income today to create a work-free tomorrow.

Saving does not come naturally to many U.S. households. A 2018 study by Northwestern indicates that one in three Americans has less than $5,000 saved. Even more concerning, about one-third of Americans have no retirement savings at all. Low savings balances, along with uncertainty surrounding Social Security and healthcare costs have many people planning to delay retirement as long as possible.

But not everyone is accepting that reality. Some millennials are adopting the concept of extreme downsizing to enable early retirement. By living frugally and saving half or more of their income, these aspiring retirees are building up savings balances of $1 million or more before they reach their 50th birthday. And that, along with other income streams from gig work, investments, or rental properties, is giving them the freedom to say goodbye to the workforce permanently.

Can you implement extreme downsizing in your life? It takes time and discipline. To save $1 million, you need to invest $1,234 monthly at a 7% return for 25 years. It only takes 15 years if you can save $3,155. Read on for five ways to slash your household expenses, so you can afford to save for financial independence. 

1. Swap the ranch house for a tiny home

Retirees commonly evaluate downsizing as a money-saving strategy. Replacing a big home with a smaller one frees up cash, eliminates a mortgage payment, and lowers the property tax bill. But why wait until retirement to make this move? Say you downsize today and it saves you $12,000 a year in mortgage payments and property taxes. Tuck that money away for 10 years and it grows to $120,000 plus interest. If your savings goal is $1 million, you’re more than 10% of the way there.

2. Ride on two wheels instead of four

You can also create a stream of savings by rethinking your transportation strategy. Cars, especially new ones, are expensive. You buy insurance and you pay for gas and oil changes. And then there’s depreciation. Swapping out your new car (and car payment) for a used vehicle will eliminate the payment and reduce your insurance. And if you can rely on a bicycle and public transportation, you get rid of maintenance and registration expenses, too.

3. Clean out your closet

How many pairs of shoes do you really need? Most people can manage with three or four pairs to get them to the office, the gym, and everything in between. It’s likely you’ve collected a few extras over the years, along with extra pants, sweaters, coats, and watches.

All of these items are candidates for resale. Take them to a thrift shop for quick cash or try selling your old stuff on Poshmark or ThredUP. Whatever funds you raise should go straight to your savings account.

4. Clean out your garage, basement, and attic

Garages, basements, and attics tend to accumulate things you’re not ready to throw away. Old furniture, home decor items, and sentimental knick-knacks don’t serve you well when they’re hidden away in storage. If you have items that someone else would use and enjoy, plan a garage sale or list them on a resale app like LetGo or OfferUp. You can sell old books and textbooks from your college years on Amazon or to used book stores. 

5. Downsizing expenses

You might know the usual savings tricks of canceling cable and gym memberships. Maybe you’re making your own lattes and you also slashed your dining budget by learning how to cook. On top of that, you’ve reduced your heating bill by 10% because your thermostat is turned down to 62 degrees in the winter.

You’re already a frugal living guru. Are there still opportunities to cut back expenses even more? You bet. Here are five more strategies to consider.

Cancel your internet and cable at home

You could rely on free Wi-Fi at the library or even at the nearest McDonald’s to keep up with your email. Switch to reading books, from the library of course, or playing card games in the hours when you’d normally watch television. Trade cable in for one or two low-cost streaming services, if you haven’t already.

Switch to a low-cost cellphone plan

Republic Wireless has an unlimited talk and text plan for $15 per month, with no contract required. For $5 more, you can add 5GB of 4G LTE data.

Unplug every device that’s not in use

Toasters and coffee pots use electricity even when they’re not turned on. Duke Energy estimates that unplugged devices account for up to 20% of your electricity bill.

Switch to tea and reuse your tea bags

Tea, on the whole, costs less than coffee — especially when you use reusable tea bags.

Capture the cold water from your shower

Don’t waste that initial blast of cold water that comes out of the shower. Either hop right in and bear the cold or keep a bucket to collect the water. You can use it for plants and pets.

Small steps for big savings

Downsizing your home is a big win, but being consistent with smaller lifestyle changes is also impactful over time. The next time you see millennials bringing their own snacks to trivia night at the bar, give them a nod. They’re probably chasing FIRE, after all.