November 2013

Graphic: Thanksgiving turkey

Happy Thanksgiving

Thank you readers for continuing to support our blog, which was recognized this week by Jean Chatzky of AARP.

We’ll return next Tuesday with more coverage of financial behavior.Learn More

CFPB Guidance for Financial Consumers

The Consumer Financial Protection Bureau is kicking into gear to help consumers safely navigate the increasingly complex world of financial products.

The federal agency in recent weeks has released information for homebuyers and for seniors seeking financial advisers. It also accepts complaints about a growing list of financial products.

Homebuyers Seeking Help:

Individuals can search CFPB’s website for experienced home-buying counselors, by state. These counselors are approved by the U.S. Department of Housing and Urban Development.

To find a counselor, click here.

Seniors Seeking Financial Advisers: To help protect older Americans from poor financial advice, CFPB has created a handy guide to help them find a trustworthy adviser. The guidance includes the right questions to ask and the importance of proper certification. …Learn More

Photo: Money house made of bills

Housing Market Adds to Seniors’ Equity

The equity in older Americans’ homes has risen smartly over the past year, fueled by the housing market rebound. But whether retirees will tap these gains to pay their bills remains in doubt.

Equity values for homeowners who are 62 or older was $3.34 trillion in the second quarter of this year – nearly 10 percent above its $3.05 trillion value a year earlier – according to new data released by the National Reverse Mortgage Lenders Association (NRMLA), a trade organization.

Rising house prices are restoring equity even in places like Florida devastated by the housing market bust. Seniors’ home equity has surged 14 percent there over the past year, to $241 billion in the second quarter of 2013, though it remains far below the levels reached during the bubble.

The equity gains are not being propelled by homeowners paying off their home loans. U.S. seniors owed $1.07 trillion on their mortgages in the second quarter, compared with $1.09 trillion a year earlier, the trade organization said.

The housing market rebound is a reminder that equity is the largest single asset that older Americans hold – it’s worth more than their savings in their 401(k)s and IRAs. But the question remains: does this help them? …Learn More

Photo: Group of people

Will Millennials Be Ready to Retire?

As he logged on to his online 401(k) retirement account, Jordan Tirone, a 25-year-old insurance underwriter, explained the mental accounting behind his 5 percent contribution.

He pays $300 a month to live with his mother so he can pay off student loans. Nevertheless, a regular paycheck from his Hartford, Conn., employer is finally giving him some financial stability. “I’m feeling like I’m gaining some traction,” he said.

Spontaneously, he clicks his mouse and increases his contribution to 6 percent of his salary.

Although it can be difficult to focus on a retirement that is still 40 years away, many young adults like Tirone try very hard to save. But are they doing enough? A lot of evidence suggests they’re not, either because they can’t afford to, refuse to, or don’t know what to do.

Adults in their 20s and early 30s, in a recent survey of 401(k) participants by Brightwork Partners LLC, predicted they would have to rely on their personal savings for half of their income in retirement.

Their 401(k) contributions don’t square with their expectations. Data on retirement plans administered by Fidelity Investments show that adults in their late 20s contribute 5.9 percent to their 401(k)s; by their early 30s, that increases to 6.5 percent.

But a typical 25-year-old who wants to retire at age 67 should contribute anywhere from 10 percent to 12 percent of his pay, according to various estimates. … Learn More

Photo: Mortgage signing

Mortgages: the Closing Cost Minefield

When my new partner and I bought a condominium last month to accommodate our combined stuff, I remembered that borrowing so much money can be an emotional, even terrifying, ordeal.

It’s difficult to think clearly.

But attention should be paid to closing costs, which add to the cost of buying a house. So I decided to apply my skills as a veteran newspaper reporter and grilled my lender, attorney and real estate agent about these costs.

Despite my diligence, I was only modestly successful at reining them in. But I stepped on a few land mines that might help other homebuyers:

The HUD-1 matters:

Federal law requires prospective mortgage lenders to provide loan applicants with a “good faith estimate” of the closing costs within three days after they submit the application. This “GFE” is your lender’s best guess of the final fees they’ll charge for originating your loan.

My lender promptly sent the GFE. But the bank’s salesman promised to reduce the closing costs shown on the GFE, and I had to repeatedly nudge him to provide the more important document: the HUD-1 statement of my actual closing costs. …Learn More

Photo: Folders of insurance, medical, and bills

Healthcare Credits Reach Middle Class

Individuals earning nearly $46,000 a year and families of four earning $94,000 may be eligible for federal tax credits under the new health care law.

Tax credits are the mechanism by which the federal government caps how much people pay for health insurance premiums, which are set by the private market. The premium caps are based on how much someone earns, relative to the federal government’s definition of poverty.

Here’s an example of how premiums are calculated for, say, young, single workers who earn between $17,236 and $22,980 per year, which is between one-and-one-half and two times the poverty level. The premiums, which range from 4 percent to 6.3 percent of their income, start at about $57 a month for those at the low end of this income range and up to $121 at the high end.

In the following charts, Squared Away converted into dollars the income and premiums that the Henry J. Kaiser Foundation, in its brief on the healthcare law, has expressed as percentages of the U.S. poverty thresholds: …Learn More

Affordable Care Act: Who Gets What

The Henry J. Kaiser Family Foundation just released an excellent interactive slide show explaining how the Affordable Care Act addresses the various health insurance and financial challenges facing 47 million uninsured Americans.

Kaiser divided the uninsured into 10 groups – 28 million part-time workers, 8 million adults in their early 20s, and 3.5 million self-employed people, among others – with details about the specific provisions pertaining to each.

There’s a lot of detail here, so focus on the profiles that interest you most. Advance through the slides by clicking the arrow at the bottom of the screen. To return to the home page, click the “house.” …Learn More