Before You Buy a Condo or Home in an Association: 4 Things You Need to Do

July 21, 2021 – So you managed to get lucky. It looks like you might win the bidding to buy that condo, or a home in an active adult community. But before you submit the winning offer and break out the champagne, here are 4 things you need to do first. Your new community’s financial picture deserves some extra looks, particularly in light of the collapse of the Champlain Towers South condo building in Surfside, FL. A community might look healthy, but until you have examined its financial reserves you really don’t know.

This week we listened to an insightful interview on NPR with Robert Nordlund, founder and CEO of Association Reserves. An expert on reserves and the financial health of communities, he lists four things things you need to do before you invest your hard-earned money in a condo or home in a community. We have added some of our own commentary to his questions.

June 29, 2021 — We baby boomers are constantly being warned that scammers are ready to take our last nickel, if we let down our guard for just one careless moment. An interesting pair of articles in the New York Times showed how that can happen to seniors, and surprisingly, that people in their 20s are twice as likely to lose big bucks to the internet’s artful dodgers than older people. Online Trickery Traps Seniors reported on how the elderly (and that increasingly means us) fell prey to unethical political fundraising ploys from both parties in the recent elections. The second article, The Young Fall for Scams More Than Seniors, found that scams involving job offers, paper checks, and student loan forgiveness snagged a surprising percentage of people aged 20-29.

June 20, 2021 — Virginia’s recent Comment to our “25 Most Popular Active Communities in the Southeast” article really got things going. Many folks jumped in to help answer her question, which asked what people thought about retiring in Maryland. Since hers generated so many other Comments (and Maryland is not an active community nor is it in the Southeast) we thought we would pull everything together under a new post to keep everything in better focus.

Most of the Comments quickly got into taxes and cost of living, although just about everyone liked other aspects of the Free State. Regarding taxes, an estate lawyer once said something very wise to my mother and I. He said: “Don’t let the tax tail wag the dog”. In other words, if you want to do something for good reasons (like move to another state), do it. His mantra – enjoy your life; fear of taxes is not the way to live. Just as important as that thought though, you also have to act on the basis of the facts, not on what you think you know or heard from someone else.

May 24, 2021 — The Employee Benefits Research Institute (EBRI) has released the results from its annual retirement confidence survey – and they are pretty good! Back in 2014, 55% of all workers said they were “confident they would have enough money to retire confidently”. This year, 72% of all workers say they are that confident, and 80% of retirees agree (in 2014 only 67% were that confident). The survey also had some other extremely interesting findings that we have detailed below.

Covid and confidence

One would have thought that a year of being in the Covid pandemic would have negatively affected how retirees feel about their retirements. Instead, 72% feel about the same level of confidence, and only 19% feel “slightly less confident”. How much the heady stock market has had an effect on this confidence is unknown, although we would venture it has been positive.

About one third of overall workers say the pandemic has affected their ability to save for retirement. One in five workers saw their pay or working hours negatively affected by the pandemic.

Of the 23% of retirees who feel less confident in total, most of them seem to be those with major debt problems, savings under $10,000, never saved for retirement, and those with poor health. However when it comes to debt, only 8% of retirees think they have a serious problem with it, while 26% think they have a minor problem.

Financial advice

Where would you guess most workers go for retirement planning advice? Our guess wasn’t the right answer. About 35% of people rely on family and friends, 35% do their own research online or with other sources, and 27% use a financial planner. About 22% rely on their employer. Some 36% of retirees say they have a financial planner.

Retiring earlier than planned

One of the more startling findings in the study is in when people retire. About half of them say they retired earlier than planned (46% vs. 48% who retired about when they expected). This is a result we have seen in many surveys – workers on average think they will retire much later than they actually do. Often it is an unexpected health issue or layoff that triggers the retirement. These problems tend to come out of the blue, and when they do they have a negative effect on retirement finances. EBRI found that half of workers believe they will gradually transition into retirement. However, 7 in 10 retirees report they had a full-time stop. Although almost three quarters say they will work in retirement, less than half do any kind of paid work.

Retirement lifestyle – good news for most folks

Some 71% of retirees say their retirement is either about what they expected or slightly better. That represents a slight dip from the 2020 survey results. Fewer said it was much better (10%) than much worse (19%). Again, there was a slightly more positive experience in 2021 vs. 2020.

Even more figures

The full report makes for interesting reading. There are the results for spending expectations in retirement, use of retirement savings, confidence in Medicare and Social Security. You can see the full report here.

Comments? How is your confidence in a comfortable retirement? Are you spending about what you thought? Did you retire when you thought you would? Please share your experiences in the Comments section below.

For further reading:
You Are Retiring, the Kids Are in College – And You’re Broke

April 12, 2021 — Today we are fortunate to have an interview with Jim, a retired vice president and trust officer  at a large Pennsylvania bank, who spent his entire career administering estates of all kinds and sizes. We think you will find his real life examples of what to do – and what not to do – in estate planning very useful.

The tips, advice, and experience that Jim brings to this important  topic is critical, since inevitably, everyone needs an estate plan. Jim believes that only about 50-75% of people of retirement age have an estate plan of some kind. Most of those folks have wills, while a much smaller percentage have trusts. As he pointed out early on in our interview,  even if you think you don’t have an estate plan, you actually do. That is because in the event of no will or trust, the government has rules about how your assets will be divided after your death. The problem is that it probably won’t be distributed the way you wanted it to be done.

April 5, 2021 – Naturally enough, most people concentrate their focus on their own Social Security retirement benefits. If they are careful, they compare the advantages of taking it early (as soon as age 62), waiting to Full Retirement Age (FRA, which is 67 for those born 1960 or later), or hanging in to get the maximum benefit at age 70. While it is great to know your own situation, most people overlook the importance of the benefits that might apply to their spouses. For some couples, particularly where one member earns much more than the other and Social Security will be the major source of income in old age, a bad decision can be disastrous down the road. This article will lay out the issues involved, so people can decide the best strategy for maximizing their Social Security spousal benefits.

There are two different scenarios to consider: spousal benefits while you are both alive, and survivor benefits when you depart this world. Let us take them one at a time.

1. Spousal benefits while you are both alive.

March 16, 2021 — If you turned 72 in 2020 or before, you probably will have to take a Required Minimum Distribution (RMD) this year from your IRA and/or 401(k) type plans. That is unlike last year, when COVID relief in the SECURE Act gave everyone a pass on taking the RMD.

All of those years when you were deducting your 401(k) and IRA contributions from your pre-tax income, and enjoyed tax free accumulation of earnings and interest on those investments, come home to roost when you reach a certain age. The law requires that you take an RMD from those retirement funds by a percentage that grows every year. Every cent of those withdrawals is considered taxable as ordinary income. Inherited IRAs and 401(k)s have different rules. Roth IRAs generally do not require RMDs.

The age at which you must start taking your first RMD has changed. If you turned 70 ½ in 2019 or earlier, you need to have taken your first RMD by April 1 of the year after that, and keep making them for the rest of your life.  If your 70th birthday is July 1, 2019 or later, you do not have to take withdrawals until you reach age 72 (first one by April 1 of the following year and Dec. 31 thereafter). The idea for pushing out the requirement by 1½ years is to help retirees accumulate more savings before they have to start withdrawing them. Note if you delay the first one until April 1 the next one has to be paid by December 31. There is currently a bipartisan bill in congress that would extend the age when you have to take your first distribution to 75.

February 16, 2021 — Last week on this Blog we posed the question, “How Much Is Enough for Retirement“. So when we came across this new study on the cheapest and most expensive places to retire from NetCredit, it seemed like the perfect follow-up.

As most retirees in the US or UK are figuring out, retiring in their own country means they are going to need over half a million dollars in the bank to do it comfortably. If that sounds unreasonable, then retiring abroad might be the next best option. NetCredit’s new study crunched the numbers to find out what it would cost to retire comfortably in (almost) every country around the world.

February 8, 2021 — If there was ever a perplexing question it is this one – how much is enough for a comfortable retirement? The short answer is – more than you probably think! The long answer starts with the fact that most people haven’t thought enough about their own situation to come up with a reasonable answer. Once you understand how your expenses match up with your income, then you can start to know how much you need for retirement.

People tend to underestimate several key components of the expense side – like how long they will live and what their medical costs will be, and forget about unexpected expenses like replacement roofs, worn out cars and AC systems, and assistance to family members. They also tend to have a vague idea about their income sources, and overestimate how long their savings will last. Much also depends on your lifestyle – you can live within almost any budget if you match expenses to your income, although it might be hard and require lifestyle changes.

So the first thing to do when trying to calculate how much you need for retirement is get a realistic handle on your budget – matching income to expenses. Income is fairly easy for most people to calculate, while expenses are harder. The expense side of the equation can vary widely, depending on your lifestyle, which fortunately you can modify.

Step #1: Figure Out Your budget (this applies to everyone!).

Until you have a good idea of what your retirement expenses will be and how they match up to your income, you can’t really start planning. It is a critical step to head off what could be a disaster – running out of money way before you or your significant other check out of this world. This budget worksheet in csv format contains most of the items you need to consider when developing a budget, and you can customize it to fit your needs.

January 9, 2020 – Most of the people who took the new version of our popular Social Security IQ Quiz were able to get a passing score of 60%. But there were 3 questions that many people had a lot of difficulty answering correctly. That lack of knowledge, unfortunately, could cost them significant amounts of money over their lifetimes.

Underestimating your Social Security benefits will cost you money

These were the Social Security questions that most people missed, along with the correct answers and more detailed explanations:

1. How many earning years are used to calculate your Social Security retirement benefit.

Only 49% of quiz takers got this answer correct. The choices were 25, 30, or 35 years – the correct answer was 35 years. While that might not seem that important a detail, it is.