Still Clickin

This decision can be quite different for seniors than it is for younger adults. For seniors,

• the tax deduction for mortgage interest is less attractive because, with mature or no mortgage payments and lower tax brackets, it can have little impact.

• the leverage of home equity is limited to reverse mortgages, the last will, or medical expenses.

• the headaches of home maintenance can be burdensome.

• the exposure to significant homeowner association assessments can be worrisome.

Although renting frees a senior from these issues, it comes with issues of its own.

• Rents can, and do, rise.

• The ownership of rental properties can, and often does, change.

• The level of care and maintenance exercised by any landlord can vary greatly.

• Neighbors can change more frequently.

Whether it is less expensive to rent or buy depends entirely upon the market. When rental properties are scarce and demand is high, the cost of owning might prove to be more attractive. If the balance is reversed, the opposite is true. An interesting financial analysis can be made by dividing the market price of a home by the annual rent of a similar home in the same neighborhood as described in a recent article in the Ny Times. The result of that calculation was referred to as the rent ratio. In this article, the author makes an interesting comparison that when the rent ratio exceeds 20, it is financially smarter to rent.

Finances, however, are only one part of the equation. Each day you defer the choice of where you want to “just be” carries its own cost as well. Your relationship to a view, an ambiance, or a neighborhood carries its own rewards.

How should you proceed in making this decision? Some practical steps are -

1. Talk to a banker or financial professional to determine what is possible financially.
2. Learn about the real estate rights and laws for renters in your state.
3. If you can afford to, let the decision be influenced by your lifestyle, e.g. freeing yourself from the need to rake the leaves from the yard.
4. Visit any rental property both during the week and on the weekend, and note the activity and friendliness of the people you see.
5. Let your final choice be guided by the place where you want to be each day.

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Yesterday, an article in the NY Times described the problems that a senior encountered with a reverse mortgage. What was bothered me was that the entire article referred to a reverse mortgage as a loan. Nothing could be farther from the reality.

Reverse mortgages must follow a set of rules established by the federal government. These rules are not entirely comprehensive, but they do have a broad scope, e.g.

• Not every financial institution offers these deals. There are government approved lenders for the different areas of the country.
• The different lenders will charge different fees, offer different valuations for your home, as well as the amount of your payments.
• The maximum amount for which you can “sell” your house is limited by a government scale that varies by location. It tops out at about $350,000 no matter what your house is actually worth. Typically, you should be offered about 75% of your home’s value up to that maximum.
• The bet the financial institution is making is that you will die before their payments to you exceed the amount that they can realize by selling your house after you die.

A reverse mortgage has its place, but that place is defined by a narrow set of circumstances. Specifically -

• You are effectively selling your house in exchange for the right to live in it until you die.
• Once the deal is done, you have ceded control over your house. Theoretically, you could regain the home by paying back everything you have received plus interest, but that is unrealistic. Effectively, you have sold your house.
• The bet you are making is that you will live much longer than the norm, and the total payments that the financial institution must make to you exceed the amount you could realize by selling your house today. In a very real sense, you are betting your house.

What’s a senior to do?

1. Depending upon your relationship with your children, it may be wise to let them know that you are thinking of selling your home. Since the home may form the core of any inheritance they might envision, they might choose to help you financially rather than lose the asset of your home.
2. Evaluate any total dollar offer as if you are selling your house . . . because you are!
3. If your house is worth more than the maximum permitted for your area, this deal is not for you. It may be time to sell the house, as beloved as it may be, and move into a rental.
4. If you have modest income, you may qualify for Section 8 housing, a government program that limits rents to a certain percentage of your income.
5. If the total offer sounds like a fair selling price for your house and your forbearers have a history of extended longevity, you may be among the small percentage of people for whom a reverse mortgage is a good deal.
6. If you do decide to apply for a reverse mortgage, plan to get three different quotes. Also, don’t be afraid to ask for help. The AARP can offer some independent help.

Some other sources of information include - Reverse Mortgage Summary, Reverse Mortgage Calculator and Comparison Tool, HUD Vouchers, and HUD on Reverse Mortgages.

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Recently, the daughter-in-law of a Still Clickin reader wrote to ask how to best help her mother-in-law through a difficult financial situation. She raised four issues which occur fairly often in communications across the generation divide - (1) the financial issues, (2) the senior’s fear of change, (3) family relationships, and (4) the tension imposed by the constraints of time, distance, and caring.

Some of the details involved follow.

1. Financial: Because the mother-in-law owned some real estate, one possibility to help with her cash flow was the choice of a reverse mortgage. That option would provide both some funds and a familiar setting. However, if those funds were not sufficient, the sale of that property together with qualification for Section 8 rental alternatives might provide her with a different possibility of adequate housing at an affordable level.
2. Fear of Change: Since her mother-in-law had recently experienced the loss of her own husband and another son, any change of her living conditions would make her feel extremely vulnerable - exposed to loneliness, lack of security, and loss of independence. Asking her to move from her current surroundings would be bound to threaten her further.
3. Family Relationships: It seemed that the daughter-in-law and her husband were the only family members that were actively engaged in resolving the issue. In such a situation, they had to recognize that ANY mother-son relationship comes with a history of emotions that can cloud any person’s ability to listen. It did not mean that anyone had done something wrong, but it did mean that there was a communication hurdle that had to be overcome.

One plan of action that could be suggested to help this situation is -
1. Create a simple summary of the financial situation highlighting the monthly shortage of funds.
2. Develop a set of options for the mother-in-law to consider. For example,

• Stay at her current location, change nothing and risk foreclosure in xx months.
• Move back to her own house with a reverse mortgage and risk ??
• Move into section 8 location #1 and live independently on $$ per month.
• Move into section 8 location #2 and live independently on $$ per month.

3. Identify a non-family member whom she trusts. It could be someone she has met at the hospital, a local church, or a friendly neighbor and ask them to present these options to her.
4. Allow her to make the choice. If she trusts this other person and the options are clearly presented, she should be able to make a good choice. By letting it be her choice, rather than her son’s decision, she retains her dignity and sense of independence.

Regarding the last issue of tension, I wish I could say handling such issues is ever easy. It is not, because in a family members care for each other too deeply. Sometimes that love really does hurt. But once you pass through the period and have proved your love, the truth and fidelity of that effort bring great peace.

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To get a senior discount, the most important thing you can do is to ask the question. Store or service clerks may not offer the information because they might fear the risk of offending someone. If you ask, however, you might be surprised at what you find.

Senior discounts are never required, but they can make good business sense for many merchants. Seniors can be the most reliable customers, they may shop during slack periods, and their wealth of experience can make them easier to service. In short, it can be a win-win opportunity for any merchant or service provider.

Make certain you carry some sort of verification with you in case you are challenged. (Don’t you just love to be carded?) Also, be aware that the age threshold may vary, e.g. 50, 55, 60, 62, or 65, by location. Each organization can set its own rules. For example, Kroger offers seniors a 5% discount on Wednesdays in some locations.

What seems to be the best approach?

1. Don’t be embarrassed to ask the question everywhere, e.g. hair stylist, barber, cleaners, theaters, travel services, grocers, tire shops, etc. Even if they don’t currently have a discount, they may decide to offer it to you just because you asked.
2. Sometimes it is called an AARP discount rather than Senior. Don’t let semantics get in your way.
3. Do your homework, especially for any major purchase. A higher priced location may actually offer a better deal for you once the discount is applied.
4. Some operations may only offer discounts on certain days or on certain lines of merchandise.
5. Don’t forget to include your local government and utilities. Some offer discounts to seniors or at least will freeze rates.

Some other places to look for information include Discounts by The Rubins, About Senior Discounts, Database of Senior Discounts - for a Fee, and AARP Benefits.

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Choosing a bank to hold and service your money used to be a simpler proposition. Rates were similar, and the major consideration was convenience. Those days are over. The banking industry has consolidated (from 15,084 firms in 1984 to 7,842 in 2003), and fees have emerged as a constant threat to your account balance.

You now have to evaluate the -

• type of bank - commercial, savings and loan, credit union,
• size/style/location - national, regional, community/local, and Internet, and
• products offered - rates, fees, service levels, ATM’s, and on-line facilities.

Since the choice between banks can become quite confusing, it is best to take a step-by-step approach toward your selection(s).
1. Decide how you want to use the bank, e.g. long-term savings, short-term savings, on-line bill paying, convenience checking, etc.
2. Determine your comfort levels for -

• Convenience checking vs. On-line bill paying,
• National scope vs. local relationships for service levels and ATM’s,
• Interest rates vs. schedule of fees.

3. Select two products for comparison, e.g. long-term savings and convenience checking.
4. Use Bankrate to select a few institutions, at both your state and national level, that support each product. Sensibly, your selections should be limited to banks with ratings of four or more stars.
5. Go to the individual web sites of each bank to further investigate the specific details of the product offerings, bank locations, etc.
6. Visit a local bank branch, if possible, to verify the details.
7. Compare the details, select your institution, and open your account.

Using this approach, I made a selection of three banks -
1. A local bank for a convenience checking account that -

• has full access to on-line banking facilities,
• with a compensating balance on deposit, charges utterly no fees for foreign ATM’s, check printing, per item, or monthly service, and
• is small enough to recognize you as a name, not a number.

2. Two national Internet banks for long-term savings that -

• offer multi-layered security access,
• provide much higher interest rates than any local institution, and
  
• support ease of funds transfer and availability.

Other sites with information on this topic include - Guide from Met Life and Choosing a Bank

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Today’s post is written on automatic pilot. My mind is elsewhere.

Although it is wisest for Seniors to avoid any kind of debt, credit cards have become so pervasive in today’s economy that it is often necessary to use one. Given that reality, seniors should select their cards carefully for maximum benefit.

Like so many products, the right one for you depends upon how you use it. Of all the personal debts we can incur, the credit card is usually the worst, i.e. gives you the least value for your money. Mortgage debt is typically the least expensive, followed by auto loans, then personal loans. Credit card debt, once you are past the introductory teaser rates, can often cost more than twice as much as these other loans. Credit cards provide convenience, but they can charge an arm and a leg for it.

What you want to find is a card with -

• no annual fee,
• low late fees,
• low interest rates on purchases, and
• low interest rates on cash advances.
  

But to enhance their offerings, some card issuers also offer other features that may influence your choice. These features include -
0%/low Introductory rate on transferred balances,

• Low rate for carrying a balance -
• Convenience only, no balance carried -
• Cash rebates
• Travel/Airline miles
• Gas discounts

What’s a person to do?

1. If you are carrying a balance, work on a plan to eliminate it. A 0% introductory rate card may help you achieve that goal, but pick the one with the lowest rate at the end of the introductory period.
2. If you pay off the balance each month as you should, look for those with add-on benefits that most appeal to you and are the most generous. For example, some airline programs offer double and triple miles.
3. Do not be casual about making your payments. Make certain that your payments will arrive on time.

Some other Internet resources with helpful information include -

• Comprehensive credit considerations for Seniors,
• Bankrate’s Cards for Seniors, and
• Credit Card Debt.

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The idea behind segmenting household budgets from personal budgets is to put the “exceptions” and loopholes in one obvious place. Personal means just that - every member of the household has their own individual account. All expenditures for that one individual are allocated to the control of that one person. Both the funds, and the responsibility to manage them, are clearly delineated.

Categories of personal expenses could include - doctor, dentist, hair stylist, barber, clothing, restaurants, entertainment, gifts, health club, dues, etc. Start by determining annual amounts, then pro-rate and control them monthly.

Depending upon personality type, the effect of this segmentation will -

• teach discipline to those who are casual with their spending, or
• create freedom for the frugal who feel they have received a gift of a little mad money.

The Wikipedia article on personal budgets provides a helpful overview of this topic.

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Setting up a budget is like picking a diet. Fundamentally, you are going to eat less cash and exercise more restraint. When you go off the diet, you will at least know when and why. If you stick to it, you should get financially trimmer.

Some tips -

1. Keep it simple. If it requires too much effort to maintain a budget, it will not last.
2. In a household, have everyone understand and agree to the process. No household plan will work if certain members consider themselves exempt.
3. Choose a reasonable measurement period. Some people may choose daily, others weekly, and still others monthly. It has to be at least monthly for it to have any real impact.
4. Experiment with record keeping. Some people use envelopes for receipts, others use ledgers. Some switch to credit cards and check, rarely using cash for anything. Others carry a notebook and write everything down. Try a few different approaches to find out which one is the least burdensome for you.
5. Separate required payments from variable. For example, rent or property taxes are predictable and regular. Cell phone bills, on the other hand, can be extremely variable and influenced by your choices. It is these variable expenses that are the primary focus of your budget.
6. Assess your performance regularly. This review should occur at least monthly. The focus should be on any surprises as well as opportunities to save more.

For more, some other sites to visit are -
Family Budget Tips and Tips for Seniors.

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For most of us, retirement means that we have to watch how quickly our nickels and dimes are flowing out the door. Pundits advise that you should decrease your assets by no more that 4% per year. Whether or not that is realistic for your situation, some form of budgeting makes common sense.

At the heart of any budget is the identification between essentials and accidentals, i.e. the “must haves” versus the “want to haves”. Most of us usually to blur this distinction and consider everything a “must have”. But that is not reality. The core idea behind a budget is the face up to what is really necessary and critically identify the “must haves”.

For example -

• Food is the fundamental must-have, but that doesn’t include Godiva.
• Water is another must, but does that mean Pellegrino?
• Shelter, clothing, heat, light, mobility, and communication also contain “must haves”, but they also have many optional components.
• Entertainment and travel may be considered optional by many, but a few optional items have to be included within any budget if it is going to work.

To approach budgeting -

1. Divide your expenditures into Household Budgets and Personal Budgets, which will help narrow the focus of your spending.
2. Most of your everyday expenditures will be assigned to the Household Budget.
3. Your Personal Budget will manage most optional expenditures, but medical and dental are also components of this account.
4. Organize a simple process for record keeping, so that effort will require minimal effort.

Some helpful references include - Lessons on Budgeting, and
Budget Guidelines for Seniors

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‘Tis the season to keep the ID scam artists at bay.

As a senior, there are few things that make me more uncomfortable than the exposure to ID Theft. It is a mystifying, ever-present reality that I, like most seniors, feel ill-equipped to deal with.
However, there are some simple steps that anyone can take to limit their exposure. There are more extensive steps to take than these that you can access at the links below, but you should at least attempt to follow these basics.

Telephone -

• Place your telephone number on the national Do Not Call List. An enrollment is good for five years.
• If you receive any call from a government entity, bank, mortgage company, credit card company, or retailer asking for any information, just SAY NO! Ask them to make their request in writing, and then HANG UP!
• Unfortunately, some charitable organizations use the phone to solicit donations. Again, just say NO! Ask them to send a written request. Hang up.

Email -

• If you receive an email from a government entity, bank, mortgage company, credit card company, or retailer asking for any information, just delete. No trustworthy organization operates in that fashion.
• Do not even open emails from sources you do not recognize. Most especially, do not open their attachments.

Regular Mail -

• Rip to bits any piece of mail that includes an account number or any personal information. Discard it with the food garbage, the wetter the better.
• Rip up and discard into the garbage any unsolicited credit card applications.

Credit Card and Bank Statements -

• Keep credit card and ATM receipts, and compare the items on the statements you receive to these receipts.
• Contest any unfamiliar transaction. This is your first alert system and first line of defense against ID Theft.

These are just basic activities. Additional information can be found at -

• Your Credit Advisor
• AARP ID Theft Prevention Seminar

N. B. Click below to make a comment. If you would prefer to make an enhancement to the original article, please go to wikiSenior.com and click on edit.