Category: Smart Money Tips

Should I Push To Pay Off My Mortgage Before Retirement?

If you are like most Americans, your mortgage payment is probably your highest fixed expense. A mortgage is often seen as “good debt” since you need somewhere to live and you’re going to have to pay for it. But what about when you retire and you are living off of your savings? Will your mortgage payment overwhelm your budget? Should you pay it off before you retire or carry it with you? As with most things in life, the answer is not cut-and-dried. Answer these seven questions to decide what is best for you:

1. HOW TIGHT WILL YOUR RETIREMENT BUDGET BE?

Have you determined your investment withdrawal rate and what your monthly income will be once you leave your working years behind? If your budget will be tight or your income will be significantly lower than what it is now, you might want to work longer to eradicate your mortgage payment. This will increase your cash flow in retirement, possibly freeing up some funds so that you can travel or pursue other passions. 

2. WHAT IS YOUR INTEREST RATE?

Over the lifetime of a mortgage, you pay tens of thousands of dollars in interest. If you pay it off early, you will a lot of interest charges. Even though you would lose the tax benefits mortgage interest offers, you would still have more at the end of the day.

But, if your choice is between paying off your mortgage and investing more to build up your retirement wealth, you need to do the math. Compare your interest rate with expected market returns based on historical data. If you locked in your mortgage when interest rates took a nosedive and only pay 3.5%, then you might want to pour your extra cash into your savings if you believe you could get a return of 6%. The opposite is also true. If your interest rate is higher than what you think the market could give you, pay off your mortgage first. 

3. DO YOU HAVE ADDITIONAL DEBT?

Is your mortgage your only debt or are you paying off student loans or credit cards too? Make sure you use any excess cash to pay off higher-interest debt first.

4. ARE YOU MAXING OUT YOUR RETIREMENT CONTRIBUTIONS?

The benefits of retirement savings accounts are touted everywhere we turn. Roth IRAs offer tax savings in retirement, Traditional IRAs and 401(k)s let you save on taxes now, and many employer-sponsored plans give you a match, essentially building up your nest egg with free money. If you aren’t maximizing your savings to the limits these accounts allow, you should do that first. This will bulk up your retirement savings and give you more financial flexibility and freedom in retirement.

5. HOW WILL YOU PAY OFF YOUR MORTGAGE?

Getting rid of this budget line item is a noble goal to have, but where will you get the money to accomplish this? Are you thinking about withdrawing from your retirement accounts to make this goal a reality? 

First, don’t pay off your mortgage at the expense of your standard of living in retirement. If you are worried about your retirement income already, don’t increase that worry by decreasing the balance in your accounts. Second, maybe use funds from a Roth IRA before taking from a taxable account, that way you won’t be adding to your annual income tax, potentially pushing you into a higher tax bracket. Depending on your age, you will not only face taxes but also penalties if you make a withdrawal from an IRA or 401(k). You will also lose the future growth on the balances in your accounts. 

But if you are determined to pay off your mortgage before you enter your golden years, here are some other options that avoid raiding your precious retirement nest egg:

Make Extra Payments

To slowly but surely minimize the amount you owe on your home, put any extra cash towards additional principal payments. It might not be as satisfying as paying your mortgage off in one big chunk, but even small amounts can take years off of the back end of your mortgage and reduce the total amount of interest you pay. 

Think About Biweekly Payments

Another option is to make biweekly payments of half your usual monthly payment. Because there are 52 weeks in the year, you’ll make the equivalent of 13 monthly payments by year-end. On a 30-year mortgage, making 13 monthly payments each year instead of 12 would reduce the term of your loan by about four years. 

15 Years vs. 30 Years

One way to slowly decrease your mortgage before retirement is to refinance to a 15-year loan. Your monthly payments will most likely be higher than those for a 30-year mortgage, but the increase will be balanced out by a lower interest rate and you will save thousands of dollars in interest over the term of the loan. Make sure you speak with an unbiased professional before taking this step to ensure the difference in interest rates will be worth the refinancing fees.

6. ARE YOU PLANNING TO MOVE?

If you want to relocate to a sunnier place or maybe move to be closer to your grandchildren, don’t worry about paying off your mortgage before taking on a new one in a different location. You can take the equity from the sale of your home and combine it with your savings to put towards the new house if you decide to go that route. 

7. HOW MUCH PEACE OF MIND WILL A MORTGAGE-FREE LIFE BRING?

Many people place a high value on being debt-free. They want to enter retirement with nothing holding them back financially. Retirees with the least amount of stress and the most financial freedom are those with the lowest fixed expenses.  If you want to retire with a clean slate, paying off your mortgage might be the right decision for you.

After answering each question with your personal situation in mind, where do you stand? If you want help weighing your options and making the decision that will benefit you the most, click here to schedule a phone call.

About Richard

Richard Archer is a financial advisor and the President of Archer Investment Management with more than eighteen years of industry experience. Largely working with successful individuals and couples, he specializes in providing comprehensive investment guidance and personalized care and attention to each client. Along with holding a Bachelor of Science in Economics and a MBA, he is a CERTIFIED FINANCIAL PLANNER™ certificant and a Chartered Financial Analyst®. He combines his advanced industry education and knowledge with his genuine care for people to provide clients with an exceptional experience. To learn more about Richard, connect with him on LinkedIn or visit www.archerim.com

Divorce is Painful. How To Plan For the Best Financial Outcome

As wonderful as marriage can be, there’s no denying the fact that around 50% of marriages in the United States end in divorce. (1) Regardless of the reason for the separation, a divorce can be painful, emotionally draining, overwhelming, and expensive. While there’s no avoiding the emotions that come with such a significant life event, you may be able to reduce some of the stress and financial implications if you prepare ahead of time. 

THE FINANCIAL IMPLICATIONS OF DIVORCE

There’s no doubt about it; divorce can absolutely devastate your financial situation. Think about it this way: in order to maintain the same standard of living post-split, individuals would need more than a 30% increase in income. (2) And it’s even more challenging when children are involved. Since most children live with their mother after a divorce, one in five women find themselves in poverty due to the financial burden associated with taking care of the children. 

Don’t let yourself become a statistic. Before you file papers for a divorce, make sure you’ve reviewed these tips that will help you plan for the best financial outcome:

1. GUARD YOUR EMOTIONS

We all know that it’s unwise to make financial decisions based on emotions, but it’s easier said than done. When walking through a divorce, both sides often try to take out their feelings on the other. Try to avoid this behavior at all costs by focusing on the tasks at hand and turning to your advisor to help you keep a clear head about what really matters. 

Because there are so many difficult decisions to be made, don’t rush the process. As unenjoyable as a divorce is, you want to carefully consider each decision. The choices you make will have a long-term impact.

2. EVERYTHING IS FAIR GAME

When splitting up assets and liabilities, almost everything is up for grabs, even things that are in only one person’s name. Whether it’s credit card debt or frequent flyer miles, understand that it all needs to be negotiated. There’s one area where this doesn’t apply; gifts and inheritances that are linked to one spouse only are not at risk of division unless they are commingled with other assets. 

When you are entering marriage, it’s understandable that you don’t want to think about a future divorce. But with the high rate of divorce from first marriages and the shocking fact that subsequent marriages have an even higher chance of failure (3), it’s worth it to consider a prenuptial agreement or at least create an inventory and valuation of assets prior to marriage. 

3. PLAN YOUR PURCHASES

If you know you have a significant purchase on the horizon, make the acquisition before filing for divorce. Once the papers are in the hands of the court, many states prevent people from making big purchases through an automatic financial restraining order. 

4. GATHER EVIDENCE

Despite the emotional toll of divorce, it’s vital that you are thorough in your organization. Since you’ll want an accurate record of the assets you own and the debts you owe, start a list of all marital assets and liabilities. Of course items like your home and cars are important to include, but remember to list other assets including artwork, pensions, inheritances, second homes, and other valuables. It might be worth it to take photos of your assets, make copies of account statements, and have a record of all important numbers. 

5. BE HONEST

Hiding assets is not the way to go. If you try to conceal something from your spouse and it is discovered later, you could lose your credibility in court and face penalties. 

6. NON-ALIMONY MONEY IS NOT TAXABLE

If you receive a transfer of money as a result of the divorce agreement, you will not face taxes on that income. While alimony is taxable, any other payouts escape taxation. Unfortunately, the party paying the cash will not benefit from a tax break.

7. CONSIDER A MEDIATOR

Other than double the living expenses and loss of income, divorce can devastate your finances due to all the legal fees involved! The average cost of a contested divorce ranges from $15,000 to $30,000. (4) If you want to avoid these high fees, use a mediator who will facilitate agreements and help you avoid hefty legal costs. 

8. UPDATE BENEFICIARIES

With all the paperwork and life upheaval, many people forget to update their beneficiary designations. It’s common for married couples to have each other listed on their accounts, so if the unthinkable happens and you pass away, your ex might end up with your assets. Make a list of all accounts that have a beneficiary listed and make the changes right away.

9. EDUCATE YOURSELF

In many marriages, one spouse will take on the responsibility of handling all financial matters from budgeting to paying bills. In a divorce, that can mean the other spouse is completely clueless about their financial situation as well as how to manage finances on their own. 

If you aren’t in charge of your household’s finances, you’ll want to review accounts and get a handle on everything you and your spouse own before starting the divorce process. It’s important that you understand your current income, savings, regular bills, and debts. You may be assuming you have more or less than you actually do, or you may discover a loan or account you weren’t aware of. By obtaining a big picture of your finances, you’ll have an idea of what you and your spouse will split, how you’ll handle your children’s expenses, and other financial decisions that will have to be made. 

10. PLAN FOR THE FUTURE

Going through a divorce is hard enough; you want to get back on your feet as quickly as possible without another series of hurdles and roadblocks. Although many people will experience a divorce in their lifetime, few are prepared for all the details that need to be handled after the divorce settlement is in place in order to restore peace of mind and independence. 

Once the divorce is finalized, it’s time to move forward. You’ll need to create your own budget, determine new goals, and review your investments to ensure they line up with your personal risk level. For many, this can be overwhelming, but divorce is not the nail in your financial coffin. Find a financial advisor who can walk you through the process and help you set yourself up for success. If you or someone you know is going through a divorce, I’m here to help. Click here to schedule a phone call.

About Richard

Richard Archer is a financial advisor and the President of Archer Investment Management with more than eighteen years of industry experience. Largely working with successful individuals and couples, he specializes in providing comprehensive investment guidance and personalized care and attention to each client. Along with holding a Bachelor of Science in Economics and a MBA, he is a CERTIFIED FINANCIAL PLANNER™ certificant and a Chartered Financial Analyst®. He combines his advanced industry education and knowledge with his genuine care for people to provide clients with an exceptional experience. To learn more about Richard, connect with him on LinkedIn or visit www.archerim.com

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(1) https://www.mckinleyirvin.com/Family-Law-Blog/2012/October/32-Shocking-Divorce-Statistics.aspx

(2) https://divorce.usu.edu/files-ou/Lesson7.pdf

(3) http://proactiveadvisormagazine.com/financial-impact-of-divorce/

(4) http://info.legalzoom.com/average-cost-divorce-20103.html

What Can You Do About the Equifax Data Breach?

The recent Equifax Data Breach has compromised sensitive information for almost 150 million Americans. To see if you were affected, you can enter your information here. If you have been affected, it’s important to be proactive to protect your credit. Here are some steps I recommend.

For those who believe their data was compromised, the free credit monitoring that Equifax is providing could be a good start: https://www.equifaxsecurity2017.com/.  

Instead, I pay for the credit monitoring service from Zander Insurance Group to help protect my family:  https://www.zanderins.com/idtheft2

Another option is to potentially pay and get a freeze put on your credit for one year. You  can visit the following two websites of the other two credit reporting bureaus as well to sign up:

1) TransUnion: https://www.transunion.com/credit-freeze/place-credit-freeze

2) Experian: http://www.experian.com/news/data-breach-five-things-to-do-after-your-information-has-been-stolen.html

Also, here’s a free website I use to personally monitor and improve my credit score: https://www.creditkarma.com/auth/logon/  On this site, you can set up proactive alerts to warn you if there’s a big change on one of your credit reports by selecting ‘Profile & Settings’, then ‘Communications & Marketing’, and checking the ongoing alerts you would like to receive.

If you don’t wish to use CreditKarma.com or a similar site, you can also visit https://www.annualcreditreport.com/index.action and obtain your credit reports for free from each of the credit reporting bureaus.

THE DAY MY IDENTITY WAS STOLEN

It was a seemingly ordinary day when it happened. My phone rang and, when I answered, I heard the voice of an unknown man.

“Hello, is this Mr. Richard Archer? This is John from Neiman Marcus in Atlanta. We’re just calling to confirm that you were just in our mall location and applied for a new store credit card.”

These three sentences commenced my unfortunate identity theft journey. In the next few days, I came to learn that a man had my Social Security number and full name and had created a fake driver’s license with my correct home address alongside his picture. He walked around the Atlanta mall impersonating me, moving from store to store trying to open credit accounts. So far, he had succeeded at Neiman Marcus, Best Buy, Toys ‘R’ Us, and several times at Verizon. Before we were alerted, he’d run up more than $1,000 in cell phone charges.

HOW DID IDENTITY THEFT HAPPEN TO ME?

Some people might wonder how I, a financial planner, could become the victim of identity theft. I’ve helped multiple clients get through identity theft, and I know what a mess it can be. Hoping to avoid it happening to me, I shred account statements religiously, watch my credit score online, consistently update my passwords, use a locked mailbox, and never click on suspicious links online. So what went wrong?

I thought long and hard about it and then I remembered notices from my alma mater and TJ Maxx. Both had suffered huge data breaches in the past two years, and they had each notified me that my personal information might have been compromised.

Here’s the truth: identity theft can happen to anyone — even to a financial planner and even to people who proactively safeguard their personal information. If you’ve ever had a bank account, credit card, shopped online, or included your Social Security number on an application, your identity could potentially be stolen.

WHAT TO DO ABOUT IDENTITY THEFT

It was in the evening when I received that call from Neiman Marcus, and it was hard not to panic at the thought of everything I was going to have to do to get this fixed. I knew I needed to cancel my credit cards, change my account passwords, and notify my bank and credit agencies. I had read stories about others who had their identities stolen and it had taken them, on average, a year and 200+ hours to get to a point where they could use their rebuilt credit again.

But then I remembered I had purchased ID Theft Concierge Protection from Zander ID Theft Solutions. I found their hotline number and called them, crossing my fingers that their office wouldn’t be closed at this time of night. My anxiety was high as I pictured a crook walking around Atlanta ruining the good credit I had worked so hard to build.

Luckily, a professional from Zander was available and immediately helped by placing a freeze on my credit and requesting me to send in everything I could to help him fix this problem. Over the next four weeks, I scanned and sent copies of all related correspondence I received regarding my many new credit accounts while the folks at Zander personally contacted and cancelled each new fake credit request. They had to contact several companies multiple times because the companies really wanted to get paid the thousands of dollars they were owed. 

Three months later, Zander had my entire credit report back to normal, and within four months my credit score was restored. 

LESSONS LEARNED

Experiencing this process firsthand, I learned the value of having expert help. It was such a relief not having to figure out all of the ins and outs of rebuilding my credit by myself. The professionals at Zander were faster, more persistent, and more successful than I could have been while also trying to run a business and spend time with my family.

Based on the amount of information my identity thief knows about me, I am positive it will happen again in the future. However, I have alerts set now that tell me when anyone requests new credit and a special verbal password to use with the credit agencies and my banks. I continue to do everything I can to protect my data myself, but a lot of it is out of my hands since I’ll frequently have to share my Social Security number, date of birth, name, address, driver’s license number, or other information. Furthermore, data breaches are becoming more common, so it’s just a matter of time before it happens again.

However, I feel more confident and at ease knowing someone else is also looking out for me. These are the feelings I hope to provide my clients. By serving as a family’s financial professional, I am there to provide a second set of experienced eyes on their strategies, offer guidance, and take some of their responsibilities off their plate so they can focus on their family.

Whether you have questions about protecting your identity in the wake of the Equifax Data Breach or seek advice about other elements of your finances, I’m here to help and am available to chat. You can easily book an appointment with me online here.

About Richard

Richard Archer is a financial advisor and the President of Archer Investment Management with more than eighteen years of industry experience. Largely working with successful individuals and couples, he specializes in providing comprehensive investment guidance and personalized care and attention to each client. Along with holding a Bachelor of Science in Economics and a MBA, he is a CERTIFIED FINANCIAL PLANNER™ certificant and a Chartered Financial Analyst®. He combines his advanced industry education and knowledge with his genuine care for people to provide clients with an exceptional experience. To learn more about Richard, connect with him on LinkedIn or visit www.archerim.com

What are the Most Common Problems Couples Face Concerning Money?

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It’s nearly impossible to ignore the statistics on love and money. An AICPA study shows that money is the most common reason married couples fight, with couples averaging three arguments per month about financial issues. Furthermore, arguments about money are the most common predictors of a future divorce.

What makes money and love so difficult to peacefully coexist? Let’s look at three common money issues couples face.

1. DIFFERING SPENDING PERSONALITIES

Even among a happily married couple, differing financial philosophies can clash and cause tension. It’s natural that some people are spenders and others are savers, but it’s important for a couple to be on the same page regarding their finances. Establish and agree upon a few basic guidelines and structure for how you will spend and save money. For example, how much can be spent per month on non-essentials?

2. DISPROPORTIONATE DEBT BETWEEN SPOUSES

When a couple marries, there’s a chance one spouse has more debt than the other, whether it’s school loans or credit card debt. Even if you both consider your assets and debts to be shared and split 50/50, arguments tend to ignite when there’s a disproportion of debt between a couple. To reduce stress and potential disputes, work together to find ways to tackle your debt before making other financial moves, such as investing or buying a first or second home.

3. A LACK OF UNIFIED FINANCIAL MANAGEMENT

In many relationships, one spouse often takes on the role of their family’s CFO, paying bills, monitoring expenses, and making financial decisions. But as a result, the other spouse is left out and isn’t aware of what financial goals they’re pursuing or what their finances look like. While some people prefer to manage their family’s money, it’s still important for both partners to work as a team and make financial decisions together.

Although the topic of money can occasionally cause concern among couples, money doesn’t have to become a source of strife in a relationship. Invest the time to address spending habits and savings goals, and communicate effectively.

As an independent financial advisor, I enjoy working closely with couples and helping them identify and pursue their lifelong objectives. If you have questions about your financial situation or have yet to get started with financial planning, I’d be happy to help. To learn more, call 800-840-5946 or visit www.archerim.com.

About Richard

Richard Archer is a financial advisor and the President of Archer Investment Management with more than eighteen years of industry experience. Largely working with successful individuals and couples, he specializes in providing comprehensive investment guidance and personalized care and attention to each client. Along with holding a Bachelor of Science in Economics and a MBA, he is a CERTIFIED FINANCIAL PLANNER™ certificant and a Chartered Financial Analyst®. He combines his advanced industry education and knowledge with his genuine care for people to provide clients with an exceptional experience. To learn more about Richard, connect with him on LinkedIn or visit www.archerim.com

5 Best Practices for an Organized Financial Life

laptop-phone-backdrop

Imagine laying out all of your bills, account statements, insurance policies, and loans and trying to make sense of them all. Pretty overwhelming, isn’t it? That’s why organization is so foundational. You cannot succeed in your financial life without being organized. Here are 5 steps to get your finances in order.

1. SIMPLIFY

Look at the big picture of your finances. Are they complicated? Do you have too many credit cards, accounts that go unused, or 401(k)s from past employers? Make a list of all your accounts and prune them back. The fewer you have to manage, the easier it is. Even better, keep all your financial dealings in one place in our online client portal where you can access your investment accounts, see the current value of each of your assets, and review your debts.

2. SAVE A TREE

Clutter is one of the enemies of organization. Unless you’ve created a streamlined system, paper documents often pile up and can be difficult to track down when you need them. Instead, go paperless by enrolling in electronic delivery wherever possible. Then, all you’ll need to stay on top of things is a list of your usernames and passwords.

3. ORGANIZE YOUR PASSWORDS

Speaking of, find a method of keeping all of your login information in one place.

Find a password manager that will keep your information safe and help you generate many different and complex passwords.  Also, regularly update your passwords so your account details are protected from hackers and identity theft.  

4. KNOW WHERE TO LOOK

Despite how digital our lives are becoming, there are still times we need physical documents. Find a system that works for you, whether it’s a binder, a locked filing cabinet, or an in-home, fireproof safe. Gather everything together neatly and store it in one place that is easy for you to access.  Buying a crosscut shredder to dispose of older documents is also a must.

5. CREATE A MASTER LIST

Develop a master directory that lays out all your financial information to help you manage your affairs and serve as a guide to your family members if they ever need to assist with your finances. Be sure to include account numbers and logins, and keep this document password-protected or under lock and key.

It’s impossible to make wise financial decisions if you don’t know what you have to work with. If you’re ready to organize your finances or aren’t sure how strong your foundation is, we encourage you to schedule a phone call with us today.

About Richard

Richard Archer is a financial advisor and the President of Archer Investment Management with more than eighteen years of industry experience. Largely working with successful individuals and couples, he specializes in providing comprehensive investment guidance and personalized care and attention to each client. Along with holding a Bachelor of Science in Economics and a MBA, he is a CERTIFIED FINANCIAL PLANNER™ certificant and a Chartered Financial Analyst®. He combines his advanced industry education and knowledge with his genuine care for people to provide clients with an exceptional experience. To learn more about Richard, connect with him on LinkedIn or visit www.archerim.com.

VIDEO: How Much Income Do You Need in Retirement

austin-360-bridge

I’m Richard Archer, founder and President of Archer Investment Management. While it’s tempting to tell you all about me, the truth is that I’m all about you—your financial goals, dreams, concerns and success. That’s what I’ve built my company on, and that’s why I’m so proud of it.

Want to Buy Happiness? Spend Your Money Wisely

pay-here

Can money buy happiness? You may think the answer is no, but maybe it’s not about the balance in your accounts and more about how you choose to spend your money. In their book “Happy Money: The Science of Happier Spending“, Elizabeth Dunn and Michael Norton delve into the research linking money and happiness.  Here are five ways they found money can “buy” happiness:

1. FOCUS ON “DOING,” NOT “HAVING”

The joy of having “things” fades quickly, whereas experiences have a lasting effect. If you’re going to spend money, choosing to go on a vacation or attend an event can lead to far more happiness than purchasing that new big-screen TV.

2. KEEP THINGS FRESH

If something is always available, it often loses its luster. If you buy a pastry every time you get coffee, it stops being a treat and becomes a dull routine. But if you only treat yourself once a week, you will have something to look forward to and will appreciate it more.

3. BUILD ANTICIPATION

Have you ever planned a trip months in advance, creating itineraries and researching restaurants? If so, you know that one of the best things about taking a vacation can be the waiting period, the build-up to the day you get on the plane or pack up the car. The anticipation of what’s to come intensifies the emotional experience.

4.  BUY TIME

Many people sacrifice valuable time to save a bit of money. But time may be more valuable. Try paying for a housekeeper, having your groceries delivered, or splurging on a direct flight instead of a cheaper indirect one. One way to save time that I’m particularly fond of (warning, shameless plug ahead) is to invest in a financial advisor to simplify your financial life. In all seriousness, by streamlining your finances, you can free up time and mental energy so you can focus on what’s important to you.

5. GIVE FREELY

We often think that spending money on ourselves will bring happiness. But in reality, one of the best ways to create fulfillment is to spend our money on others. Have you ever bought the perfect gift for someone and experienced joy at how much they appreciated it? It’s a win-win.

Having more money doesn’t guarantee happiness, but being intentional with your money can bring you fulfillment. I’d love to help you simplify your finances so you can find even more happiness in life! Click here to schedule a phone call.

About Richard

Richard Archer is a financial advisor and the President of Archer Investment Management with more than eighteen years of industry experience. Largely working with successful individuals and couples, he specializes in providing comprehensive investment guidance and personalized care and attention to each client. Along with holding a Bachelor of Science in Economics and a MBA, he is a CERTIFIED FINANCIAL PLANNER™ certificant and a Chartered Financial Analyst®. He combines his advanced industry education and knowledge with his genuine care for people to provide clients with an exceptional experience. To learn more about Richard, connect with him on LinkedIn or visit www.archerim.com.

Is It Better to Rent or Own in Retirement?

elderly-couple-looking-at-papers

You’ve probably had it drilled into you since you were young that owning a home means that you are on the road to success. For generations, buying a home was considered the cornerstone of the American dream, but is that still the case? Is buying really better than renting?

You may be surprised by this, but the Harvard Joint Center for Housing Studies tells us that the majority of renters are 40 or older and that there has been an increase in the number of renters in their 50s and 60s.

When it comes to retirement, here are some questions to ask yourself when making the decision to rent or own your home:

1. IS YOUR HOME PROVIDING A RETURN ON YOUR INVESTMENT?

A common cliché is that your home is an investment. But despite the benefits of homeownership versus renting, owning a home can be a considerable drain on your resources. It’s true that you can gain from owning a home. If you bought when the housing market was low, you may have amassed a large amount of equity. But that equity only serves you well if you are planning to sell. Unless you downsize or move to a cheaper area, anything else you buy will be a similar price; therefore, the equity you gain will just be going towards your new home.

But what if you feel like you are throwing away money on rent? While rent payments only go into the hands of a landlord and don’t increase your net worth, there are additional hidden costs that come along with homeownership that you might be forgetting. If you own your home, you need to budget for property taxes, maintenance, and insurance. Not to mention the time and effort required in keeping up a home.

If you are in it to invest, let’s consider an example. Say your mortgage interest rate is 5%. If you estimate that, based on your risk tolerance and time horizon, you can expect an investment return of 4%, it would make more sense to pay down your mortgage. Otherwise, you’re potentially throwing away 1%. However, if you are an aggressive investor and believe you could earn 8% on your investment, it would make more sense to invest. Or, think of it this way: if your ownership costs total $2,000 a month and you could rent your ideal property for $1,800 a month, you have $200 to invest. Use a calculator to compare the potential investment growth with how much equity you could gain.

2. IS THE TAX BENEFIT WORTH IT?

If you enjoy benefitting from the tax deduction that home ownership offers, renting won’t look enticing. But remember that in order to receive the deduction, you must itemize your taxes. Depending on the value of your home, the standard deduction might be more than the interest rate deduction. Also, as you pay off your mortgage, the amount you dedicate to interest decreases each year, meaning you will receive a small deduction. And if you have already paid off your home, you can only deduct your property taxes.

3. WHAT CAN YOU HANDLE?

As you age, you might realize that you can’t handle the upkeep of your home. Even if you previously enjoyed puttering around with tools and landscaping the yard, your health might prevent you from continuing these activities. Take a look at your lifestyle and make an informed decision. If you would gain peace of mind with someone else maintaining your residence, you might want to rent.

You may be drawn to the amenities that come with renting and want to be part of a community with others who are in the same phase of life you are. Even if you enjoyed living in the suburbs or country as an empty-nester, you may be drawn to a more urban setting with more transportation options. Retirement is a completely new season of life, so you need to evaluate how you want it to look instead of relying on old ways of thinking.

4. ARE YOU PLANNING TO LEAVE YOUR HOME TO YOUR HEIRS?

If part of your estate plan is to have your children inherit your home, it makes the most sense to stay put as a homeowner. According to a Trulia study, it’s only worth it to be a homeowner if you are going this route. Otherwise, it’s always cheaper to rent than own in retirement. One of the most important benefits of owning a home is building equity. If your children sell the home when you pass, the equity becomes their inheritance. But again, you need to weigh the pros and cons of the potential growth of that equity. If you sell now when the market is up and rent for considerably less, you could invest the equity you gain from the sale and use that money as an inheritance.

Do need more convincing that homeownership may not be the best financial decision for your golden years? Take the time to watch this video to get a thorough picture of why homeownership might not be your wisest choice.

Whether you rent or own in retirement is a personal decision you must make based on your unique set of circumstances and values. Do you own your home outright? How much equity do you currently have? Does your home require minimal upkeep? How are the advantages and disadvantages balancing out for you? Is it time to reevaluate your situation? I would be happy to help you think through your options and make a decision that will benefit you for years to come. Click here to schedule a phone call.

About Richard

Richard Archer is a financial advisor and the President of Archer Investment Management with more than eighteen years of industry experience. Largely working with successful individuals and couples, he specializes in providing comprehensive investment guidance and personalized care and attention to each client. Along with holding a Bachelor of Science in Economics and a MBA, he is a CERTIFIED FINANCIAL PLANNER™ certificant and a Chartered Financial Analyst®. He combines his advanced industry education and knowledge with his genuine care for people to provide clients with an exceptional experience. To learn more about Richard, connect with him on LinkedIn or visit www.archerim.com.

Richard Archer Receives the Five Star Wealth Manager Award

five-star-professional

The Five Star Wealth Manager Award honors professionals in the financial services industry who are committed to excellence, aiding consumers as they decide who can best help them meet their financial goals. Candidates are screened for client complaints, retention rates, status as a Registered Investment Adviser (RIA), years as a RIA, and credentials such as Certified Financial Planner (CFA) and Chartered Financial Planner (CFP).

Archer is thankful to be recognized for his extensive post-graduate work, outstanding client relationships, and the decision to build his fee-only RIA business in the way he knew would most benefit his customers.

“After college, I studied for another seven years to obtain my CFA & CFP designations and my McCombs MBA. It was a lot of work, but I felt I needed to not only be able to deeply understand the investment universe and portfolio construction, but also be able to address wide-ranging financial planning issues such as insurance, estate planning, and taxes. Additionally, I wanted to be able to understand my clients who own their own businesses and to help them be even more successful. At the end of the day, the most important thing to me is to be useful and valuable to my clients. The more I know, the better I can help them achieve their dreams.”

The award is a great starting point for clients when looking for financial advice, but Archer suggests that consumers screen to make sure fees charged are commensurate with the services provided and that a potential adviser is a good fit.

“No matter the awards or designations a financial advisor has received, a client should look for someone who truly listens to them and understands their needs.”

AWARD DETAILS

To receive the Five Star Wealth Manager award, a wealth manager must satisfy 10 eligibility and evaluation criteria.

  1. Credentialed as an investment adviser representative or a registered investment adviser.
  2. Actively employed as a registered investment adviser representative or as a principal of a registered investment adviser firm for a minimum of five years.
  3. Favorable regulatory and complaint history review.
  4. Fulfilled their firm review based on internal firm standards.
  5. Accepting new clients
  6. One-year client retention rate.
  7. Five-year client retention rate.
  8. Non-institutional discretionary and/or non-discretionary client assets administered.
  9. Number of client households served.
  10. Education and professional designations.

About Richard

Richard Archer is a financial advisor and the President of Archer Investment Management with more than eighteen years of industry experience. Largely working with successful individuals and couples, he specializes in providing comprehensive investment guidance and personalized care and attention to each client. Along with holding a Bachelor of Science in Economics and a MBA, he is a CERTIFIED FINANCIAL PLANNER™ certificant and a Chartered Financial Analyst®. He combines his advanced industry education and knowledge with his genuine care for people to provide clients with an exceptional experience. To learn more about Richard, connect with him on LinkedIn or visit www.archerim.com.

What I Learned from My Cycling Trip: Risk Tolerance During an Ascent

bike

You frequently hear the word “risk” thrown around when it comes to your portfolio, but have you truly grappled with the thought that you could lose everything? It’s easy to say that you are willing to take risks when things are good, when you’re cycling on a smooth, flat, paved road. On my recent cycling trip, I came face-to-face with risk and the fear that resulted.

THE REALITY OF RISK

Every cyclist is familiar with the moments on a long climb when they have to focus solely on the few feet of pavement in front of them, those times when they could lose their nerve if they dare to look over the cliff’s edge beside them. My most recent experience with this kind of test was when I was three hours into arguably the toughest climb in Europe: The Valley of the Tears. My fellow cyclists and I had already climbed about 40 kilometers when the very narrow, one-lane road pitched up menacingly into an unending series of 20%+ inclines separated by blind switchbacks.

I swallowed hard to push down the fear I had building up in my throat, summoned all of the remaining strength I had in my screaming quads, and attacked. In order to avoid tipping over backward in a slow motion, uncontrollable wheelie back down the unforgiving incline, I stretched out as far forward as I could, laying my stomach on my handlebars and forcing my front wheel to stay in contact with the ground. The further I rose, the worse the road surface became, challenging me even further. I dodged deep potholes every few feet, and loose gravel caused my back wheel to slip, stealing my precious pedal power. Then, I rose above the treetops along the left side of the road that had thankfully blocked my view of the 4,000-foot drop to my left.  

The road narrowed further, and I was unwillingly forced out toward the precipice by a solid mountain rock wall that curved low and in toward my head. I was left with precious little room to ride as I fought up the mangled road surface. At that very instant, I realized I had, unwittingly, pushed myself beyond my personal risk limit. Fear overwhelmed me and my shoulders, legs, and hands started shaking uncontrollably. I knew I had to get off this road and this mountain now.

ANTICIPATE YOUR LIMIT FOR RISK

I’ve never left a ride unfinished, and in my mind, quitting was not a choice. Climbers are the toughest cyclists, willing to endure hours of grueling pain and fatigue while never expecting to reach their limits. Risk is an accepted aspect of the sport, and you prepare every way you can to minimize it. You build strength over long hours on the bike trainer, quietly sneak out before sunrise on weekends to get your training rides in before the traffic begins, and avoid desserts for months prior to big climbs, trying to avoid carrying even one extra ounce up the hills.

I thought I was prepared for the Valley of the Tears. I had conquered the worst climbs Austin has to offer, finished a mountain stage of the Tour de France, had excellent equipment, was hydrated, and had held back some energy in reserve that day. I knew that this hill was going to do its best to defeat me and throw every challenge at me that it could. If you ask for help from our support van among this group of elite cyclists, you had better have a bone sticking through your skin. Not only is it just not done, but it’s mortifying for an athlete of this level to throw in the towel. On these rides, our goal is to see if we’re the among the best climbers in the world. But on that hill, my fear of death fought and overcame my shame of arriving at the top of the climb inside the van, my bicycle sticking out of the top rack like a big blue last place trophy for all to silently ridicule.

RISK AND YOUR PORTFOLIO

I unclipped from my pedals midway through that climb. I had no choice. I had dangerously lost my ability to focus only on the road ahead of me. I had failed to anticipate my limit for risk, and now I was in a jam: 4,000 feet in the thin air, squeezed on a rough, narrow path, unable to safely descend or ascend. As I reflect on my predicament, I cannot help but draw parallels to the risk that accompanies financial portfolios.

I spend hours every week working with my clients, trying to determine how much risk they are willing to take with their hard-earned money in exchange for potentially higher investment returns. It can be hard to figure out your risk tolerance when you haven’t seen your portfolio fall 35% or more like many investments did in 2008. It’s my job to guide you toward a portfolio you can hold fast to when the road gets rough above the treetops and real, permanent loss is staring you in the face. My only goal is to help you discover your risk limits before you’re overcome with fear and dangerously stranded like I was in the Valley of the Tears, when you are too terrified to hold on, and cannot afford to sell and lock in your losses at likely the worst possible time. I’d love to chat with you, talk through your goals, and help you reach your dreams while working within your personal risk level. Click here to schedule a phone call.

About Richard

Richard Archer is a financial advisor and the President of Archer Investment Management with more than eighteen years of industry experience. Largely working with successful individuals and couples, he specializes in providing comprehensive investment guidance and personalized care and attention to each client. Along with holding a Bachelor of Science in Economics and a MBA, he is a CERTIFIED FINANCIAL PLANNER™ certificant and a Chartered Financial Analyst®. He combines his advanced industry education and knowledge with his genuine care for people to provide clients with an exceptional experience. To learn more about Richard, connect with him on LinkedIn or visit www.archerim.com.