retirement

7 New Year’s Resolutions For A Richer 2017

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The New Year is a great time of renewal. That makes it a good time to make bold, decisive changes in your life. Leave behind the baggage that was 2016 and start fresh with a blank slate in 2017. If you’re looking for some resolutions to improve your personal finances, we’re pleased to offer seven ways to make 2017 the year of the dollar!

1.) Track your spending

If you’re looking to take your first steps toward financial literacy, figuring out where your money goes should be at the top of your list. If you don’t know where your money goes, it’s going to be tough to follow through with any other money plans. You may have a general sense of how much you spend, but after a month where you’ve recorded every dollar, you’ll have a much better picture. Using apps like Mint or Personal Capital can automate the process. You might even find that keeping track of what you do with your money encourages you to spend a little more judiciously.

2.) Make a budget

About 70% of Americans live financially spontaneous lives. They don’t make a plan for spending or saving. When asked why they chose not to do so, the most common response was that the family spent all the money anyway. This is a circular problem. If you don’t have a budget that includes setting aside money for long-term expenses and savings, you’ll end up spending all your money on unplanned things and events. The best way to stop the cycle is to sit down and make a budget that modifies your spending to be more in line with your priorities.

3.) Get out of debt

Easier said than done, right? However, there’s no bigger stumbling block to financial security and wealth building than debt. It’s hard to save for long-term goals when so much of your monthly income gets eaten up by interest and fees. There are a variety of methods you can use to help accelerate your payoffs. For instance, you can add an extra $50 or $100 to your credit card payments. Or, you can focus all your payment resources on the highest interest debt until it’s paid off and then move it all to the next highest for snowballing your way to freedom from debt.

4.) Start an emergency fund

The best way to avoid going into debt is to have some money on hand to handle the occasional, yet inevitable, emergency. Most Americans, though, can’t come up with $500 in such instances. Set a specific goal, like adding $10 per month to a savings account. At the end of the year, you’ll have more than $100 available in case something goes wrong.

5.) Start a retirement account

You can’t save for what you don’t think about. When retirement is years or decades away, it’s difficult to incorporate thinking about it into your daily routine. If you have a retirement account open, you’ll get monthly statements, which serve as reminders. The challenge, though, is taking that first step. Don’t let perfect be the enemy of good. While there are important differences between Roth and Traditional accounts, either one is better than no retirement savings at all. If your job offers a 401(k) matching program, sign up to get at least the full matching funds amount – it’s free money. Do a little bit of research, then open the account that seems like the best idea.

6.) Automate your savings

Saving money takes willpower. Because it’s hard to practice self-denial on a constant basis, that extra $5 you’ve earmarked for savings can very easily turn into a mid-morning coffee. Fighting that impulse is a constant struggle. That’s why it’s easiest to avoid the decision altogether. Change your direct deposit to put some of your paycheck directly into a savings account, where you won’t even think of spending it impulsively.

7.) Get educated

Knowledge is power, and that’s especially true in the world of personal finance. What you know about your money goes a long way toward determining how much of it you get to keep. There’s a lot to learn, but you’ve got a wealth of information at your fingertips. Resolve to read one personal finance article a week (subscribing to this Blog can be a great start). Not only will this give you good ideas for improving your personal financial situation; you’ll also spend more time thinking about your money. That will lead to positive results down the line!

Happy New Year from all of us at Destinations Credit Union. We hope you have a safe, happy, and prosperous 2017!

Your Turn: What resolutions are you making this year? Will 2017 be the year you join a book club, quit smoking or spend more time with your family? Let us know in the comments!.

SOURCES:
https://wallethub.com/blog/financial-new-years-resolutions/9202/
http://www.reviewjournal.com/business/money/13-financial-new-years-resolutions-you-should-make
http://www.practicalmoneyskills.com/personalfinance/savingspending/budgeting/newYearsRes.php
http://www.theblaze.com/stories/2013/07/16/so-what-percentage-of-americans-actually-keep-a-budget-gallup-results-may-surprise-you/


Single At Retirement

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Most of the retirement advice out there is for people “growing old together.” What does a person need to do to plan for a fabulously single life after work?
Take a look at nearly any retirement guide, and there’ll be a section on what to do with your spouse’s income and savings. If you don’t have a spouse, there are several benefits you won’t have: spousal Social Security benefits, life insurance payouts and equity, and preferential tax treatment for married couples. It can seem like the deck is stacked against you.
Regardless of why you find yourself planning for a single retirement, whether it’s death, divorce or just not meeting the right person, you’re not alone. According to the US census, 54% of men and 27% of women over age 65 are single. They’ll face a much more difficult retirement landscape than their married counterparts.
That doesn’t mean you need to find the first available partner to get hitched, though. There are many strategies that are easier for single people to execute than their married counterparts. Here are three steps you can take to make your retirement years safe and secure.
1.) Start saving now
One area where single people lag behind married couples is in retirement savings. More than 40% of unmarried women and 34% of unmarried men have saved less than $1,000 for retirement. There may be any number of reasons for this, but the bottom line remains the same: Start saving more.
It may be helpful to start small. Try a dollar-a-day saving challenge by saving one dollar every day for 30 days. Use that money to start or add to a tax-advantaged retirement account like an IRA. After 30 days, one dollar every day will start to feel like a habit and it’ll be easier to add more to it.
Beyond putting more money away, single retirement may require a more cautious retirement plan. You may need to work longer to achieve the same level of security in retirement. For most people, the years they work just prior to retirement are their peak earning years. A few more years at your max salary (and max savings rate) can add up quickly!
2.) Choose your accounts wisely
There are a few common retirement situations that put single people at greater risk. These risks mean that you’ll want to prepare a little differently than married couples. Most notably, single people have less support and flexibility if they start outliving their savings. For married couples, the larger pool of assets and supplemental income streams help to keep this from being a serious worry. Singles don’t have access to these benefits, so they need to be more careful in their selection of retirement vehicles. Looking to guaranteed sources of income, such as lifetime annuities and defined benefit plans, can help alleviate these concerns. While these investments may have a place in every portfolio, the additional security they provide to single people makes them especially useful.
Also, major medical problems pose a more significant challenge. Instead of having to depend on a partner to take care of you if you require long-term care, you may need professional assistance. This might come in the form of either in-home care or a residential facility. Long-term care insurance, though expensive, can be an excellent way to protect yourself against these costs. Similarly, keeping a robust Health Savings Account (HSA) can help save on taxes now and pay for medical expenses later.
3.) Take advantage of the opportunities
While being single in retirement does pose a number of challenges, it also opens up a number of exciting opportunities. For example, there’s no reason why your retirement years have to be in the same community where you worked. You can take advantage of your new lifestyle to move to a place with a lower cost of living, thus extending your retirement savings.
There are also many bridges to retirement that are available to singles that may not be as desirable for married couples. Starting a small business using your workforce skills can put you in a position to maximize your tax benefits while also bolstering your income over those early retirement years. Whether it’s in consulting, freelancing, or something unrelated to your career, you can put your skills to work pursuing your passions.
Since there’s no guaranteed inheritance outside a marriage, your estate planning has many more options. You don’t have a partner depending on your assets when you’re gone, so you can dedicate your remaining savings to a cause that’s important to you. You’ll want to set up an estate plan that reflects your values and commitments, and you have the opportunity to do just that.
If you’re ready to take the next step in your retirement planning, you owe it to yourself to see what benefits are available to credit union members. Call, click, or stop by Destinations Credit Union today!
YOUR TURN: What are you most looking forward to in retirement? How do you plan to make that dream a reality? If you’ve already retired, what tips do you have for the next generation?
SOURCES:
http://www.cnbc.com/2016/03/18/women-more-likely-than-men-to-retire-poor.html
http://www.wsj.com/articles/retirement-planning-tips-for-singles-1412540047
http://www.thefiscaltimes.com/2016/07/22/Single-Lady-s-Guide-Retirement-Planning
http://retirementrevised.com/retirement-planning-for-singles-three-must-do-items/2/


Steps You Can Take For Filling Your Pension Gaps

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After a lifetime of hard work, many people expect to retire in some comfort and enjoy their remaining years. In some lines of work, especially public service professions like police and firefighting, the retirement package is a big part of the recruitment process. Yes, the hours are long and the work is dangerous, but the community values the services these individuals provide and the professionals appreciate the assurances that they will be taken care of after their working years have ended.

However, with states facing increasingly harsh economic times, many in government have been rethinking this arrangement. More people are living longer, which would otherwise be good news. In this context, though, the additional payouts are part of what’s creating a budget crunch. Many states, notably Illinois and Michigan, have been embroiled in efforts to cut benefits to retired workers.
According to economist Andrew Biggs, these difficulties stem from a chronic underfunding of benefits programs by state and local governments over the past decade. Faced with losses in tax revenue caused by recession, states and localities saved money for the present by not paying for the future. After years of this conduct, these programs are now running out of money.
Private sector pensions aren’t safe either. Several large, multi-employer firms have been attempting to renegotiate their benefits structure. It’s a move, according to Central States Pension Plan, designed to prevent them from running out of money. Labor unions, faced with decreasing employment and stagnant wages, are simply running out of money to pay existing beneficiaries. They may see even greater struggles as the pool of retirees expands.
The good news is that attempts to decrease current pension benefits have consistently met with resistance. This week, the Treasury Department rejected Central States’ petition to reduce benefits in a ruling that is consistent with other attempts to reduce existing benefits. If you’re currently on a pension, you may see a reduction in cost of living adjustments (COLA), but your benefits will likely continue as-is. If you’re counting on a pension to cover some or all of your retirement needs, though, you may be in trouble. Whether or not the reforms go through, pension-providing agencies are facing a funding problem that’s in need of resolution.
If you’re fairly new in your career, you’ve got plenty of time to adjust. You’ll need to re-evaluate your retirement planning strategies, but there’s still time to ensure you can retire safely and comfortably. If you’re closer to retirement, you’ll need to take action sooner to address this shortfall. Either way, try these steps:
1.) Re-evaluate risk
If you have private retirement funds, you may have been investing them fairly aggressively. You could afford to lose that money since your retirement income was guaranteed. Pursuing higher returns offered by a slightly riskier strategy makes sense in that instance.  
Without a safety net, though, those private retirement funds have got to last. Switching to a more conservative investment strategy will help you protect your nest egg in the event that your pension program falls through. You’ll see smaller returns, which may mean staying at work a little longer to fill the retirement bucket, but you’ll protect the retirement funds you do have.
2.) Cut your expenses
If you can’t increase your retirement income, the next best bet is to reduce your retirement expenses. For some of these, like utilities and other necessities, there’s little you can do. Many other expenses, though, are well within your means.
If you were planning to “downsize” when you retire, it might make sense to do so sooner than planned. If you can sell your house and move to a smaller location, doing so a little early might give you more investment capital. It’ll also lower your month-to-month expenses now, enabling you to put more money away for retirement. If you have adult children who are still living at home, it may make sense to help them get into a rental of their own. The increased cost of paying their rent may be offset by the decreased monthly expenses of a smaller home.
Another expense you can control is taxes. If you’re over 55, you can make “catchup” contributions of $6,500 to a Roth IRA, which will provide you with tax-free growth. Similar additional deposits in a 401(k) plan can also help make up for a lack of investment earlier. You can also make a conversion of funds from a traditional 401(k) or IRA to a Roth account, provided you pay taxes on them when you make the withdrawal. It might make sense to absorb these taxes now while you have the income to cover them rather than to wait until you’re depending on your assets for all your income.
Yet another way to minimize your tax burden is to contribute to a Health Savings Account (HSA). These plans allow for tax-deferred deposits and tax-free withdrawals to pay for medical expenses. You’re almost certainly going to have medical expenses in your golden years, so making the most out of these accounts while you’re working can be a big help.
3.) Save As Much As You Can

While you are working, sock away as much as you can into a Roth IRA, 401K or any other way you can, to supplement any pension plan offered by your employer.  Roth IRAs provide withdrawals that are tax-free at retirement, since they are after-tax retirement plans.  Ask Destinations Credit Union about opening your Roth IRA.

4.) Adjust your plans
It’s easy to catastrophize the decline of pension benefits. The immediate response might be despair and hopelessness. While it’s justifiable, it’s not a useful response. This bit of information requires you to change your plans. That’s all.
If you were planning to quit work as soon as you turn 65, you may have to change that plan and work a little longer. These are your peak income years, so it won’t be as much time as you think, especially with an intentional savings plan that’s designed to get you to your goal as soon as possible. Staying on a few more years is frustrating, but survivable.
You might also have to change what retirement looks like. It might mean getting a part-time or freelance job for the first few years to keep from cutting too much into savings. It might mean more limited opportunities to travel. Perhaps retirement involves a side hobby like furniture restoration or automotive repair that can generate a little income. These plan changes don’t mean you’re not going to retire, only that retirement means something slightly different now.
Your turn: What are your plans to close the gap between your retirement dreams and your work reality? Any tips to share with your fellow savers?
SOURCES:

http://rootofgood.com/roth-ira-conversion-ladder-early-retirement/

http://www.detroitnews.com/story/opinion/2016/05/04/michigan-pensions-retirement-security/83889526/

http://www.freep.com/story/money/personal-finance/susan-tompor/2016/05/06/teamsters-treasury-decision-central-states-pension/84014252/

http://www.forbes.com/sites/andrewbiggs/2016/05/06/are-state-and-local-governments-really-underfunding-their-pensions-yes-really/#521fa63865c3

Your Tax Refund – Why Is It So Small?

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This time of year, W-2 forms are coming in, shoe-boxes are coming out and kitchen tables are disappearing under a pile of documents.  It’s tax time, and the most common set of questions we hear revolve around the same issue: Why is my refund so small? How can I make it bigger? While we are not tax professionals, here are some observations we’ve had while serving our members over the years. You may want to discuss them in further detail with your tax advisor. 

Question:  Why is my refund so small?

Answer: There’s no secret to withholding. You tell the IRS factors about your life, your employer holds money back to “guess” at how much you’ll pay in income taxes, and then whatever has been withheld is paid to the IRS for covering your annual income tax burden. If, in fact, you’ve withheld more during the year than you need to pay, the IRS will pay you back any extra income you’ve withheld.

If your tax refund is smaller than you expect, then you didn’t withhold enough money to cover your tax bill. If the amount is surprising because it doesn’t look like last year’s refund, then you probably had something different happen this year. Did you pick up extra income? Did a child move out? Did you stop paying the interest on your mortgage or student loans? Knowing this, if you’re looking for a reason why your refund was smaller, start with the changes in your life.

If you still can’t figure it out, look at how much you made this year as well as your total withholding.  If you made significantly more than last year while withholding the same amount, that could be the reason.  If you want better, more specific answers, take your information to a tax preparation professional. 

Question:  So, should I withhold more?

Answer:  We hear this one a lot. Many of our members were raised on “the IRS savings plan,” particularly if they came from poorer or lower middle-class backgrounds. Families that had trouble getting ahead would plan on tax refunds for a once-a-year spending spree. Now, as the children of those families have grown up, they want to have that type of spree as well.

It’s not a good idea to withhold more money so you can have a bigger refund. In fact, it’s about the worst investment you can make, because you get paid no interest on it. Your money will even lose value due to inflation while the government holds it, so it’s like you paid someone for the privilege of not accessing your money while it earned zero interest. Imagine a free checking and savings account, except the exact opposite in every way: It’s not free, you can’t access it like a checking account, and you don’t earn interest on it like a savings account. It’s a free checking and savings account you set up for someone else. 

Question:  How can I get more money back?

Answer:  The obvious way to get more money back is to find more deductions or withhold more during the year. However, there are other ways to make tax time more profitable. 

Imagine that, instead of withholding an extra $100 every month, you invested it in a savings certificate, money market, or Christmas club account.  Over the course of the year, you’d accumulate $1,200 in principle, just like you’d have an extra $1,200 coming from the IRS. In other words, this method is just as good as the IRS savings plan: If something crazy happens on your tax return or you have some money to avoid a big tax bill, you can have a big annual spending spree.

But it’s better than withholding for a variety of reasons. First, you can access it if you’re putting that money into a money market or other savings program. (Try the high yields on our Kasasa Cash Rewards Checking account with a Saver attached.)  Second, your money will be protected from inflation, and then it will grow. Earnings on different programs vary based upon what you choose to invest in, along with other factors. But even earning a couple of percentage points above inflation could lead to another $100 in your pocket on top of the principle, and save you $100 that you would have lost to inflation. $200 isn’t chump change, particularly on a modest investment, and it could even be more depending upon how much you invest and the program you choose.  Even if you don’t earn much, though, it’s still better than giving that money away.


Even better, you can use that money to double dip.  If you withhold that extra $100 every month, then deposit it into one of our tax-exempt college or retirement savings funds, you can have a big payday while building deductions for next year, so you’ll get even more back.  Obviously, your specific situation will vary and there are limits to how much you can put into each of your tax-exempt accounts, but if you’re interested in starting the snowball effect of compound interest, tax deductions and long-term savings, give Destinations Credit Union a call at 410-663-2500 and we’ll get you set up in no time.  

How Will I Ever Retire If They Keep Moving The Finish Line?

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What happens if you’ve made it to the day you thought you’d be retiring, but you’re simply not financially ready? Perhaps you passed your “Plan B” date. Maybe even “Plan C” has come and gone. You know you’ve been making the right moves, but a temperamental stock market, kids who stayed home longer than expected or an unlucky series of events keeps pushing back your time frame.  So, in exasperation, you ask … 

Question: “How will I ever retire? When will it be safe to stop working?“ 

Answer:  Well, hopefully very soon.  We’re going to show you some ways to put luck back on your side.  It’s going to be part planning, part faith and a good deal of ingenuity, but we can get your pictured future back within sight again. 

Question:  “OK, so how do I know when I’ll have enough money?” 

Answer:  The first thing you need to do is realize that enough money is possible.  It’s scary to read headlines about Boomers running out of money because they lived so long, especially when they’re coupled with stories about how the 4% rule isn’t enough.  If you take these articles at face value, you’ve got to come up with 40 years of savings, assuming you’ll be taking out as much as 10 percent of your nest egg every year.  Because it’s difficult (if possible at all) to get to that point, it’s easy to give up. 

Instead, go back to 4%.  Or, if you’re being conservative, make it 5%. That’s a 25% raise! That’s a lot! Then, remember the lessons of your working life: Anything that happens far in the future should be weighted far less, because you never know what might happen between now and then.  You might find you don’t care for fly fishing that much or you no longer need that annual trip across the country. Your neighborhood’s home values could rebound.  Maybe you’ll stumble onto a strong investment.  There’s too much uncertainty in life to freak out about what’s going to happen far away into the future. Take 5% out, per year, until you’re 85.  That’s plenty. Anything beyond that is too much. 

Question:  “How can I make sure I’ve got enough retirement income?“ 

Answer:  One of the easiest ways to produce panic is realizing that money only flows one way once you stop working. You’ve been conditioned to treat any month in which you spend more than you earn with revulsion, shame and guilt. Now, that’s going to happen every month – for the rest of your life.

A lot of retirees feel more comfortable with money coming in on a regular basis. You can accomplish this in a variety of ways.  First, try to put off Social Security as long as possible.  The higher payout will make retirement much easier. Second, try to create passive income using investment products.  In the same way that dividend-producing stocks pay out on a regular basis, you can create passive income that can be accessed any time by moving chunks of your retirement into high yield savings products like money market accounts.  That way, you can still budget the way you used to without having to sell your stocks (while hoping you guessed the right time to sell).

You can also create passive income by using your home equity to fund a business venture.  Right now, mortgage rates are low, but a lot of Boomers are missing out because they paid off their homes in order to retire.  You use a home equity line of credit to buy a rental property (which builds equity at the same time it gives you a paycheck) or start an online business built around your hobbies.  If you love to knit, sell handcrafted items on Etsy.  Do you like to fish? Start manufacturing lures with the equity in your home.  These ideas can generate a monthly income for you and also give you something else to leave to your children.  In a pinch, you can even sell the rental property or sell shares in the business for a quick cash infusion. 

Question:  What about my health?  That can be a big cost, even with Medicare. 

Answer:  One of the best places to put some money when you retire is into various forms of insurance. You probably already have life insurance, homeowners, and insurance on your other big purchases, but you also probably only have Medicare to cover the health side of your insurance portfolio.  What happens if you need something Medicare doesn’t cover?  Is it worth it to go on Healthcare.gov and try to find a supplemental plan?

One way to keep your options open is to try a “do-it-yourself” Health Savings Account (HSA).  While traditional HSAs gain their benefits from your employer paying into them, you can get a lot of the same benefits simply from putting some spare cash into one of our high-yield money market accounts.  That way, you’ve got money put aside for a health emergency, but you’re not spending on a premium you’ll only need very rarely.  As an added benefit, you can access that money if you need it for things that aren’t health-related if some other kind of emergency comes up.

Hopefully, you’ve gotten a better idea of how to tackle retirement.  You need to have faith and protect yourself at the same time.  The best way to do that is to put your money with someone you trust and give yourself access to it, just in case.  If you need any more info, want more guidance, or just need someone to talk to about taking the leap, give Destinations Credit Union a call at 410-663-2500.

Passive Income And Rental Properties

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Investing can feel pretty distant.  It’s hard to imagine the tiny fraction of Disney or Google that you own, your savings accounts can look a lot like a bunch of numbers with no meaning and mutual funds are about as easy to conceptualize as advanced trigonometry that’s taught in the original Greek. That’s why a big part of building a savings plan you can stick to begins with finding one you understand.  Passive income is one such simple concept. It is a valuable addition to your wealth-building strategy because it can put cash in your hand every month while also being tied to something tangible, like real estate.

Through passive income, you can develop a variety of ways to get paid every month with little or no day-to-day effort on your part.  One of the most traditional ways to generate this kind of income is to own a rental property, because you then receive a rent check every month while only needing to occasionally call a maintenance professional or list the house for rent every couple of years.  The benefit is obvious – if the rent you charge is greater than the cost of the mortgage, insurance and incidentals, you’ll earn a profit every month.  It might not be a large amount of money, but you’ll build equity along the way, and you can always sell the house at some point down the road.  

If you’re young and trying to figure out a retirement plan, owning a rental property can be fantastic because you’ll earn a few bucks every month, which will eventually turn into a larger payday on a regular basis when you pay off the mortgage. If you plan it right, this can be right around when you retire so you have retirement income without having to sell any stocks or liquidate any accounts. Also, if you ever hit a rough patch or need to raise cash for another investment opportunity, you can sell the house.  If you’re looking to get a great rate for a rental property, you can even use the equity you’ve got in your current house with a home equity loan, locking in a fixed rate while mortgage prices are at historic lows.


Sources:

http://www.kbb.com/ford/f150-regular-cab/2010/xl-pickup-2d-6-1-2-ft/?vehicleid=349410&intent=trade-in-sell&mileage=71631&condition=good&pricetype=private-party 

http://www.usatoday.com/story/money/cars/2015/01/06/pickups-best-selling-vehicles-2014/21334373/  

http://www.bankrate.com/calculators/auto/car-finance-payment-calculator.aspx?ec_id=m1116180&s_kwcid=AL!1325!3!68171004368!e!!g!!auto%20payment%20calculator&ef_id=VZinGAAABSKGYTa4:20151105171243:s  

The Government’s $3 Trillion Dollar Plan

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So, whatever happened to that interest rate hike?  It was supposed to happen all spring, then all summer, and now we’re supposed to be fully confident that the Federal Reserve is going to raise interest rates by the end of 2015.  But so far, it hasn’t.  On one hand, that’s great news: You still have time to lock in a fixed-rate mortgage or take out a low, fixed-rate home equity loan to pay off those credit cards before the rates go up. By the way, if you’re interested, that’s only a click away.  

On the other hand, it’s a little worrisome.  Raising the prime interest rate is how the Fed tells us that the economy is doing well and it’s time to save money.  So, why haven’t we seen an interest rate hike? The answer is more interesting than you might think, because it involves a multinational chain of events and a $3 trillion gamble with your tax dollars on an interesting new idea. It’s an idea that falls somewhere between efficiently practical and boringly immoral, just as many decisions often are when they’re made by folks who have spent too much time staring at spreadsheets and not enough time breathing fresh air.

To explain what’s going on, we need to flash back six years.  At the height of the financial crisis, the two biggest concerns for the long-term future of the American economy were the resiliency of the big banks and the incredible number of home foreclosures.  If the banks couldn’t get their balance sheets straight, they couldn’t loan money, which would mean that anyone who wanted to buy a home, start a business, or go to college would suddenly find themselves without a loan to do so. Meanwhile, those on the brink of foreclosure, trying to keep their businesses afloat or finishing their education might lose everything they’d worked to acquire.  Of particular concern to the government were American homes, because our homes represent the largest part of our wealth, are essential to our well-being and buoy our retirement accounts.  Unfortunately, investment products built on inadvisable home loans were the centerpiece of the financial crisis, making the protection of our mortgages a difficult task.

The government’s solution was to bail out the banks, but to do so in a way that we hadn’t tried before.  Normally, the Fed puts money into the economy by buying government bonds from banks by using money it creates on a computer in its offices.  Fed managers tap on their keyboards, change a few spreadsheets, and poof, money is created.  In the aftermath of the financial crisis, however, they decided to create money by buying mortgage bonds, which made it easier for government money to flow to beleaguered homeowners, thereby protecting Wall Street and Main Street at the same time.  

However, the Fed can’t just create money without enduring some repercussions. Usually, it has to either remove the money from the economy over time, which can slow down an economic recovery, or watch as inflation eats away at the value of the dollar, causing people to dip into their savings and work harder for less actual pay. Neither option is fantastic.
This time, the repercussions could be even worse.  Because the Fed has tied the $3 trillion it created over the last six years to mortgage bonds, removing the money could cause a spike in mortgage rates. After all, that $3 trillion has been paying part of your mortgage for the last six years; that’s a profit for your lender that’s been passed on to you.  If the Fed chose to remove the $3 trillion and raise interest rates, we could see a spike in mortgage rates that all but guarantees young people will rent their homes for their whole lives.  If you were planning on selling your house in time for retirement, it could cripple the value of your home, because the same buyer who had $250,000 wouldn’t have more money, but they would have to pay more to their lender.  Not fantastic.

All year, the Fed has been staring down this crisis, warning us that it would have to raise rates, all the time hoping that doing so wouldn’t kill the housing market. Then, a really odd set of circumstances kept it from having to do so.  Twin financial crises in Europe and China drove international investors to the dollar. As they sought to sell other currencies, they propped up the value of the dollar, delaying the effects of inflation and buying the Fed more time.  

Now, a new plan has emerged, which is where a really interesting idea comes into play.  What if the Fed didn’t take the money out? Instead, it’s started paying the banks to keep savings with Washington, just like your savings account (except thousands of times larger).  The idea is that, as long as inflation is being kept under control through foreign investment, our central bank can pay about $30 billion a year in interest for financial institutions to store money. That money makes the banks want to save, which takes money out of the economy, which they pass on to some customers in the form of higher savings rates and making them want to save as well. Suddenly, the money has come out of the economy, inflation isn’t a risk, and everyone along the way is getting paid for doing so, especially big banks and their shareholders.  

Reminder: that’s your $30 billion per year.  Another reminder:  $30 billion was the budget request to keep Pell grants in line with inflation … over the next 10 years.  You’re paying the mega-banks 10 times what you’re paying to keep college funding from shrinking.

It’s a short-term solution, obviously.  Voters don’t love their tax dollars being spent to reward the same banks that caused the financial crisis, and those banks, by definition, are the ones being let off the hook.  Europe and China won’t buy dollars forever, particularly if it doesn’t look like the Fed is raising rates (which would help foreign investors who are saving their greenbacks).  At some point, the money is coming out of the economy.  Ten years from now, the Fed says, it will all be gone.  The only question is, how fast it will come out, which means we’re still waiting to hear when the prime interest rate is going up.

And that brings us back to today.  We’ve been told to expect a rate hike by the end of the year, and when it comes, it’ll cost you more to pay off your credit cards.  If you’re in a variable rate mortgage, your monthly payment will eventually go up.  The best move today is the simplest one, which is transferring over to fixed-rate loans.  Do it today, so you can save thousands of dollars.  Then, once you’ve locked in your rate, let your congressperson know that you don’t love your tax dollars continuing to bail out the mega-banks six years later.  

Sources:
http://www.nytimes.com/interactive/2015/business/economy/fed-interest-rates.html?_r=0
http://www2.ed.gov/about/overview/budget/budget16/budget-factsheet.pdf
http://www.nytimes.com/2015/10/27/us/politics/congress-and-white-house-near-deal-on-budget.html
http://budget.house.gov/fy2016/
http://www.npr.org/sections/money/2015/10/23/451228005/episode-659-how-to-make-3-trillion-disappear
http://www.theatlantic.com/business/archive/2011/04/the-destruction-of-money-who-does-it-why-when-and-how/236990/  

Nightmare On Your Street – Finances And Horror Movies

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As Halloween gets closer and you want to avoid the chilly darkness of October evenings, grab a blanket and stream a marathon of scary movies. Horror flicks are classic fun, whether they’re good enough to keep you up all night when you’re home alone or bad enough to laugh at while with a group of friends because we all know what’s going to happen next. The classics follow a simple formula, but it works. 

The same is true when it comes to your finances. Spend less than you earn, pay off debt and invest your money with trustworthy people.  Still, we have trouble getting all of the complex parts of our financial lives sorted out.  Let’s try applying the scary movie formula to your finances so you’ll never have that heart-racing moment of panic when you check your balances again. 

The scary cat.  In the first 15 minutes of all the classic horror movies, our protagonist gets startled by a cat. It’s a silly little trope that keeps coming up, but screenwriters use it because viewers tend to get bored without a scare in the first few minutes. Bringing out the monster too early can kill the suspense, so it’s an easy-to-insert moment to keep viewers on edge.  Watching scary movies in my household, I can tell you that it works: That stupid cat has caused my heart to race faster than any workout I’ve done.

Are you jumping from the cat?  Does every market hiccup cause you to change strategies?  Are you yanking money out of savings to throw at the stock market (or vice versa) every year?  It’s time to get past that initial scare.  The market isn’t going to kill you overnight, just like it won’t make you rich overnight (Black Tuesday 1929 and Google’s record-breaking July 15th notwithstanding). 

If you want to develop a plan with which you can feel safe during the scary cat moments, give us a call at 410-663-2500. If you want to do it yourself, we can get you into a safe plan for saving with a high yield account or certificate in just a few minutes, which can help balance the risk of your other investments.  If you’re trying to build a safer safety net for retirement or college savings, we’ve probably got more savings options than you’ve ever heard of, many of which have major tax benefits. We can walk you through a few plans, help you pick the one that’s right for you, and in many cases, we can even set it up with automatic deposits so you don’t have to think about it again.

The victim who runs upstairs when she should run out the door. Why?  Why?  Why are you running upstairs, you silly soon-to-be victim?  Of all the silly horror movie clichés, this is the one that drives me bonkers.  We always get a few establishing shots of the house early in the movie, which shows us that this house is enormous enough for a final-reel chase scene with the killer.  No one needs this much house. It’s usually a teenage girl with a single parent (who is not at home) in a house big enough to hold the entire football team of her late boyfriend.

Do you have too much house?  Are you cleaning extra bedrooms you don’t use? Do you have a home gym, office, or library that you never visit?  Maybe it’s time to simplify.  You can sell that house and move into something a little sleeker, and use your windfall to put in all of the custom features you’ve ever wanted on that new house.  Which would you rather pay for:  the storage room that’s basically a walk-in junk drawer or a dressing room with a walk-in closet?  Give us a call to find out how we can help you. 

The killer who just won’t die.  In every great horror movie, there’s a killer with an uncanny ability to survive anything the protagonists throw his or her way.  In your finances, sometimes large debts can feel that way.  No matter how fast you run, they just keep coming, like Michael Myers chasing Jamie Lee Curtis through two decades of Halloween movies.  You throw cash at the balance every month, but nothing happens.  What can you do?

If you want to kill a scary movie monster, you can’t do anything that the protagonist does in a scary movie.  After all, the scary movie wants to make a sequel, but that’s the last thing you want out of your debt. Instead, let’s adapt a strategy from the Terminator:  Even an unkillable robot from the future can’t stand up to a vat of molten steel. You need to submerge your debts in one large vat that can consume them all: Turn all of your high-interest, variable-rate, hidden-fee credit card debts into one simple, low-interest, fixed-rate homeequity or debt consolidation loan with all of the transparency and confidence you’ve come to expect from Destinations Credit Union.  The first step is calling a Loan Officer to discuss your goals. Through our partnership with Accel, you can also get free unlimited financial counseling to develop a plan. 

Hopefully, your finances aren’t a horror movie.  Horror movies play on our fears for entertainment, but it’s not as fun in real life.  If they are, though, it’s better to call in some help than it is to split up and try to explore the woods alone. That’s why we’re here.  With a little help, your money can look more like a swords-and-sorcery epic:  Everyone’s a hero and everyone gets a happy ending.

Straight Outta Excuses: The Financial Lessons Of Dr. Dre

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With “Straight Outta Compton” being the box office surprise of the summer and a new studio album filling America’s iPhones for the first time since before iPods were invented, Dr. Dre is experiencing a late-career renaissance. While rappers’ careers are notoriously shorter than almost any other group of musicians, Dr. Dre is relevant for the fourth consecutive decade.  Perhaps even more surprising than his prolonged musical success is his financial success. With the 2014 sale of his iconic Beats headphone company for $3.2 billion, his share of the company vaulted him into uncharted territory: He claims to be rap music’s first billionaire.


Let’s take time to examine Dr. Dre’s personal narrative and see what lessons we might glean, because no matter who you are while you’re reading this, you almost certainly started with more than he did and currently have less. We could all use a prescription from this doctor.

Pursue your goals with drive and clarity.  One of the themes of Dr. Dre’s life is that he has followed his own vision, no matter what other people are doing. The biggest rap acts when Dr. Dre started were flashy pop-infused showmen like MC Hammer and Vanilla Ice, but he wanted to make serious music about the world he experienced. When he backed Eminem in the late 1990s, the idea of a white rapper was seen as a novelty, but Dr. Dre ignored appearances in favor of his faith in his ability to identify talent.  In each case, Dr. Dre believed in himself, understood what his goals were, and did what needed to be done.  

What are your goals?  Do you want to retire to the beach?  Do you want to ditch the rat race?  When you pass that billboard with the giant Powerball payout, where does your mind wander?  Let us know. We have ways to help get you there.  We may have expert advice because we’ve been there before.  Don’t be embarrassed if you think it’s crazy: It was crazy for Dr. Dre to get a local criminal, Eazy-E, to bankroll his band, but it was still the right move.  Let Destinations Credit Union be your Eazy-E (without the criminal background, of course).  Step one to your goals is call or e-mail us.

Be careful who you trust with your money.  One person who never comes out looking well in the Dr. Dre story, whether in Straight Outta Compton, Behind the Music, or even the US legal system, is Suge Knight.  The erstwhile villain of the film’s second act, Knight’s character uses violence and intimidation to force Dr. Dre to move on from his record deal with almost nothing.  Less violent is the film’s depiction of Jerry Heller, but the fictional version of N.W.A.’s manager is portrayed as similarly unscrupulous.  Everyone seems ready to steal Dr. Dre’s money.

Even among friends, money can make enemies.  The infamous early-1990s feud between Eazy-E and Dr. Dre had deep roots in questions of trust and money that poisoned the shared bond between N.W.A.’s most famous members.   

Who do you really trust with your money?  We all have people close to us to whom we might “lend” money without ever expecting it back, but how many people would you trust to hold your next mortgage payment for a few weeks? Bonds of friendship and family often fall apart when it comes to money.   As your credit union, we know you’ve put your faith in us to take care of your money.  You already know we exist by the members and for the members rather than a board of executives or stockholders, but it’s worth the reminder that our model was built to make sure you have someone you can trust.  We promise to live up to that trust every day.  

Own something that matters to you.  Dr. Dre didn’t get rich working for someone else.  Dr. Dre got rich making his own label, signing his own acts, then doing it all again.  Without releasing an album between 1999 and 2015, he still made a fortune by owning the label that released albums by Eminem, among others.  He didn’t earn his mega-wealth endorsing Beats headphones; he owned a large chunk of the company.  

What do you own?  Do you own your home?  Do you own a business? Do you own a share in your success?  Risk can be scary, and hanging out a shingle can be risky. But in exchange for risk, you are entitled to the fruits of your labor, and those can be fantastic.

If you want to own something that matters and set goals based around your family, you can offer them a home that is safe, comfortable and inviting.  You could take steps to improve the curb appeal of your house, to make your home easier to sell if you pass, add a movie room to transform those Saturday night Netflix sessions into unforgettable family experiences, or even buy a pair of Jet Skis to entice the grandkids.  You can check out our fantastic home equity rates.

Dr. Dre has been part of our lives for so long that we don’t really think about him much.  In a lot of ways, we forgot about Dre.  But his story is really extraordinary, and if we take a few minutes, we can probably learn some lessons from him for our personal financial health.

Sources:
http://www.businessinsider.com/beats-by-dre-almost-never-happened-2015-8

http://www.dailymail.co.uk/news/article-3209565/Straight-Outta-Compton-wrong-says-man-created-NWA-band-s-manager-says-film-s-hero-Dr-Dre-broke-black-Beatles-Ice-Cube-joined-Suge-Knight-used-death-threats-help.html

How Boomers Can Retire The Way Millennials Work

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You may have noticed a surge in the number of ponytails and slightly exposed tattoos around the workplace water cooler. Or perhaps you find you now need to get to the office earlier if you plan to land a space for locking up your bike. Maybe you’ve had to make peace with the fact that the kid in your meetings who doesn’t look old enough to ride solo on a roller coaster is not an intern, but an actual employee!  Face it, millennials are a force in the American labor force. In fact, by 2020, they’ll represent more than half of all workers in the country.  In spite of what you’ve read, those pesky youths can actually teach us experienced folks some important lessons about money, some of which might make you rethink part of your retirement planning.  Here are some of the things they’ve figured out that the rest of us might want to consider:

1.)  Don’t be afraid to move.  USA Today recently reported that one-third of all employees in America are freelance, by-the-job workers.  In many cases, these jobs are being handled by young people, many of whom commute over Wi-Fi from home or a coffee shop, instead of 45 minutes of bumper-to-bumper on I-695.  In fact, many of those young people would need an airplane ticket to come into the office.  An increasing number of young people live a “digital nomad” lifestyle, living in the cheapest cities and working wherever they feel most inclined.  It’s easier to make ends meet living in San Antonio, where the median home price is $150,000, than it is in San Francisco, with a median home price six times as high.
The same logic works for retirement.  There’s no reason to keep living in a pricey neighborhood just because it’s a convenient drive to the office you’re not visiting any longer.  In fact, many retirees are following the digital nomads abroad, retiring to Asia and Central America, where the cost of living is pennies on the dollar.  In Belize, for example, a couple can retire with a budget of around $13,000 per year. That’s below the poverty line in the United States! How many flights could you buy for the grand-kids with that kind of savings? Would they love to visit you on the beach?  You bet they would!
 2.) Know what to rent … know what to buy.   It used to be that every young person’s living room looked the same:  futon from the curb, coffee table from Ikea and an enormous corner bookshelf filled to the brim with DVDs. Before that, the DVDs were LPs, the coffee table was a spool table and that futon was probably the same futon from the same curb, just 20 years earlier. But if you ask millennials how many DVDs or albums they own, they’ll respond with a confused look.  Why would anyone own movies or music?  Paying $20 for one movie or album doesn’t make sense when you can get all of Netflix for $8 per month or Spotify for free. 
The same is true for a lot of the things you might want in retirement. Is it time to replace that car? Borrow at the lowest rates possible.  Do you want to own that house forever?  Why not create a leaseback arrangement? Do you own a timeshare?  Sell it and put the proceeds into a high-yield money market account.  It’ll go a long way toward paying for your vacations, wherever you choose to go. 
3.)  Get connected.  Young people can do just about everything through social media, even when they’re otherwise not technologically inclined.  I recently had a millennial ask me what use anyone could possibly have for Excel, which was stunning by itself, but then she proceeded to arrange a meeting over Instagram on her phone at the drop of a hat and on a Saturday afternoon, which was even more shocking.
Make your social media work for you.  Go through the social media apps on your phone, see what you use them for and why you have so many.  Then ask young people why they have apps you don’t. Do those apps sound useful?  If so, get them. If not, try them out anyway. While you’re at it, follow the businesses you use most often, so you can find news and deals.  It’s better than email, faster and easier to interact.  

Most importantly, if you’re not following us on Twitter and Facebook, now’s the time.  We put out a lot of great info to help you with your finances, and you can shoot us a question. With just a couple of clicks, you can see the questions other people have.  You might even learn the answer to a question you didn’t even know you needed to ask!  
Sources:

http://www.forbes.com/sites/kenrapoza/2013/02/18/one-in-five-americans-work-from-home-numbers-seen-rising-over-60/  
http://money.cnn.com/2015/08/13/retirement/retirement-income-plan/index.html

http://money.cnn.com/2015/09/03/pf/gig-economy-free-agents/index.html

http://www.usatoday.com/story/money/personalfinance/2015/09/04/credit-dotcom-financial-checklist/32349553/

http://www.bestplaces.net/city/texas/san_antonio

http://money.usnews.com/money/blogs/on-retirement/2014/04/16/the-worlds-9-most-affordable-places-to-retire