Bob Fay

Monday, June 8, 2015

Consumer watchdog weighs in on reverse mortgages

Thursday, 4 Jun 2015 | 3:41 PM ETCNBC.com

Baby boomers are coming up short on retirement savings, but most of them have a key asset they bring to their later years: their homes.

Tapping that asset in the form of a reverse mortgage is becoming a popular way for seniors to generate income after they stop working, and reforms in recent years have reduced or eliminated many of the problems these loans presented in the past. While loan volume has declined slightly in recent months, seniors still have about 628,000 of the loans outstanding, roughly 1 percent of the overall mortgage market, according to the Consumer Financial Protection Bureau (CFPB).

But problems persist with reverse mortgages, not least in how the loans are advertised, and on Thursday the CFPB highlighted some of those shortcomings in a new study describing the results of a reverse mortgage focus group.

"The ads left the consumers believing that if they purchase a reverse mortgage loan, they will be able to rest assured that they can live in their homes and enjoy financial security for the rest of their lives," said CFPB Director Richard Cordray in prepared remarks. "Incomplete or inaccurate information in an ad can cause older Americans to make the wrong choice that jeopardizes their financial security. They could run out of money for their day-to-day expenses or they could even lose their homes."

Tapping into home equity

Reverse mortgages enable seniors to use their homes to generate income and provide backup income when their investment portfolios dip. In a mirror image of a traditional mortgage, a lender in a reverse mortgage makes payments to the homeowner either as a lump sum, monthly payments or as a line of credit the homeowner may or may not use.

If homeowners maintain their homes and keep up with tax and insurance payments, they keep title to their home until they die or sell, and at that point the loan must be repaid, often with the proceeds of the home's sale.

"It can kind of replace a home equity line of credit," said John Salter, a wealth manager at Evensky & Katz/Foldes Financial Wealth Management and an associate professor of financial planning at Texas Tech University. Salter said he has put three clients in these loans: two because the lines of credit offered a backup in the event they needed them to supplement their savings, and one who refinanced the last of a traditional mortgage with a lower interest line of credit.

Nearly 76 percent of people aged 55 to 64 own their own homes, as do 79.5 percent of those over 65, so reverse mortgages are a potential lifesaver if those homeowners do not have much in the way of retirement savings. Millions do not: 58 percent of Americans aged 55 and over have less than $100,000 in total savings and investments, excluding their homes, according to the Employee Benefit Research Institute. (Tweet This)

"If households do not have enough from Social Security and their 401(k) assets, they should consider tapping their home equity by either downsizing or taking a reverse mortgage," wrote Alicia Munnell, director of the Center for Retirement Research at Boston College, in areport released in April.

Deceptive ads?

But the benefits of reverse mortgages only hold if borrowers truly understand what they are getting themselves into, and if the several dozen people in the CFPB focus group are an indication, many do not.

"Consumers found it difficult to understand from the ads that reverse mortgages are loans with fees and compounding interest. Most ads did not include interest rate information or included it only in the fine print," Cordray said in his statement. "Other consumers mistakenly thought that because the money they received through a reverse mortgage represented home equity they had accrued over time, there was no reason they would have to pay it back."

That kind of misunderstanding can lead consumers to make any number of mistakes with these loans. If they take out a lump sum, they risk blowing the money and running short in later years. If they blithely take out the loan without having their spouse as a co-signer, and then die first, the spouse may be left trying to immediately repay the loan. (If both spouses sign the loan when they are 62 or older, the surviving spouse is allowed to stay in the house and repayment is deferred.)

Some of the ads for reverse mortgages feature celebrities, like former U.S. Sen. Fred Thompson and actor Henry Winkler. While the CFPB declined to cite specific ads with boldface names, Cordray said celebrity endorsements could be troublesome. One focus group member stated that "When it's a former congressman endorsing it, it makes it sound like a good idea."

Ads for reverse mortgages may be proliferating, but there are objective sources of information for seniors seeking to learn about reverse mortgages. For example, a CFPB fact sheet lays out how these loans work.

Homeowners can also seek out a financial professional to walk them through the reverse mortgage landscape, Salter said. And when looking for a lender, he suggested making sure they have no financial incentive to recommend a type of payment, such as a lump sum payout, that might not be in the homeowner's best interest.

"Find somebody that's willing to kindly explain everything from an educational perspective and ask if they are commission neutral," Salter said.

Say 'I do' to love & money: 3 smart money moves for newlyweds

Sharon Epperson | @sharon_epperson

Saturday, 6 Jun 2015 | 4:35 PM ETCNBC.com

COMMENTSJoin the Discussion

Financial compatibility is right up there with having a sense of humor as a top trait that couples look for in a partner, according a new poll on "Love and Money." But there can be some major differences in how partners manage money that can have serious ramifications in a relationship, and that could impact your own financial security.

For many newlyweds, tying the knot can often be complicated when it comes to finances. Make sure you have a talk—at least one a month—with your spouse about your money and your future so you can live happily ever after.

Be open about your own finances

Paper Boat Creative | Getty Images

Newlyweds can begin building a great foundation by talking about their financial dreams so they can figure out how to reach them together. Some key questions include: Are you a saver or spender? Do you have money woes that keep you up at night?

Your partners should know if you're facing $25,000 in credit card debt or $75,000 in student loans, preferably before you walk down the aisle. However, if you didn't discuss it before the wedding, do it now. You also want to let your spouse know if you own property, have a side business or have investments that you've accumulated prior to your marriage, and whether you want to manage your assets on your own or together.

Be prepared to work together

Even if you divide some financial responsibilities, you will need to work together to reach your financial goals. Research shows that couples are more likely to build wealth if they are working together. To get on the same page and stay on track, schedule a "money date" with your finance to go over budgets, review expenses and talk about your expectations.

Consider "yours, mine and ours" accounts

"With regards to all marital money matters, I like to start with the concept of a 'financial three-way', which consists of 'yours, mine and ours'," said financial advisor Manisha Thakor, director of wealth strategies for women at The BAM Alliance.

A couple may decide that everything related to housing, food, transportation, entertainment, and vacation is considered "joint" and they pay for these out of a joint checking account. Another couple may decide that other items such as charitable giving, personal grooming, clothes, presents, and hobbies are "separate." Any of these "solo" expenses would come from separate checking and savings accounts.

You could use the same approach with credit cards, but understand the potential downsides too. "When it comes to 'joint' anything in a relationship, the actions of one party will have lasting effects on the other," said Thakor, a member of the CNBC Digital Financial Advisors Council.

New York-based financial advisor Stacy Francis agrees—and adds that merging finances doesn't necessarily prevent financial infidelity. "You can have joint accounts, but that does not protect you from your spouse opening an account without you being any wiser," said Francis, who is also a member of the council. "If you spouse wants to hide something- they will."

That's why financial advisors say it is so important to be open and honest about your finances. Keep talking!

Sharon Epperson is the author of "The Big Payoff: 8 Steps Couples Can Take to Make the Most of their Money -- and Life Richly Ever After."

Saturday, May 23, 2015

For retirees, there's no place like their own home: Study

Andrew Osterland, special to CNBC.com

Tuesday, 19 May 2015 | 9:00 AM ET

CNBC.com

Where do you want to spend your retirement?

Americans almost universally say they want to be in their own homes, close to their families and near good friends. If they develop significant health issues—as they almost certainly will later in retirement—they want to deal with them where they live for as long as they can.

Daniel Rodrigueq | E+ | Getty Images

"No one talks about looking forward to a nice nursing home in retirement," said Judith Chipps, a financial advisor with Merrill Lynch Wealth Management. "Many of the facilities for retirees are fantastic places, but the vast majority of people want a solution where they stay in their own homes."
While the financial condition of the average American heading into retirement is not very good, most people feel optimistic about their housing situations.

A recent survey of more than 3,600 Americans across income, age, gender and ethnic groups by Merrill Lynch and research firm Age Wave found that 81 percent of the respondents over age 65 were homeowners, and 72 percent of them had fully paid off their mortgages and had average home equity of $213,000. Additionally, 66 percent of the retirees in the survey said they felt free to live where they wanted to.

"We often think of housing in retirement in terms of disability, but the way retirees talk about it is in the context of freedom," said Ken Dychtwald, president of Age Wave. "They've reached the point where they don't have to live where their kids go to school or near work. They can live how and where they want to."

That feeling of freedom and choice generally characterizes the first 10 to 15 years of retirement, he added. To that point, 64 percent of retirees in the survey said they had either already moved in retirement or expected to at some point.

One of the more surprising findings of the survey, said Dychtwald, was that only 51 percent of the retirees who moved went to a smaller home with lower expenses. Given the generally low level of personal savings that retirees have, that could pose financial problems down the road.
"From a practical point of view, downsizing makes sense, but half of retirees don't move to someplace smaller, and 30 percent actually move to a bigger home," he said. "You can end up cash-poor and brick-rich."

The second phase of retirement—typically starting when people approach the age of 80—is where the financial challenges become more considerable. People are more likely to have some disability and/or cognitive issues, and the cost of their health care is typically rising.
Eighty five percent of survey respondents said they wanted to receive the long-term care they would need in their own homes, but for that to happen, they will have to make significant changes.
"People don't want to be forced out of the homes they love because they can't get around them," Dychtwald said. "There's a growing desire not to be institutionalized, but adjustments have to be made in people's homes."

The 10 Best States for Retirement

Jumper | Photodisc | Getty Images

Those home-renovation needs include single-level living spaces, wider hallways, accessible electrical sockets and a wide variety of safety and convenience features that will make life easier for older homeowners.

Last year, Americans over the age of 55 spent roughly $90 billion on home renovations—47 percent of the national total, according to studies by the Joint Center for Housing Studies at Harvard University.

While much of that investment was to add bedrooms and space to accommodate family visits, much of it was to make homes more age-friendly, and with the baby boomer generation entering their retirement years, that will only increase.
"The home-improvement business is always focused on young families, but it's the parents and grandparents that are doing the remodeling," Dychtwald said.

"A long-term care facility is not typically an option for a majority of Americans. People don't have the money for those kinds of things." -Sheryl Garrett, founder of the Garrett Planning Network

For many people, staying at home vs. a long-term care facility is not only the more attractive scenario, it's also the only affordable one.
"A long-term care facility is not typically an option for a majority of Americans," said Sheryl Garrett, a certified financial planner and founder of the Garrett Planning Network. "People don't have the money for those kinds of things."

Instead, she sees growing numbers of families moving closer to each other and sharing the work of taking care of parents and grandparents.
"I think we're returning to the norm of two and three generations ago, with family members living together again," Garrett said. "You stick with your clan and take care of each other."

While it's easy to get gloomy about the late retirement prospects for Americans who don't have a lot of resources, Dychtwald expects people and entrepreneurs will find solutions.
"I worry about the differences between haves and have-nots becoming more pronounced, but there are so many models of retirement emerging," he said. "It's up for grabs what it becomes."

Whether it's social adjustments, such as families choosing to live together or to share resources and expenses with other families and friends, or new ideas that will help people generate income from their homes, the choices are increasing.

"There will be a much bigger focus on the elderly and elderly care going forward," said Merrill Lynch's Chipps. "Sometimes from crises you get new solutions. I think it could trigger more creative alternatives."
—By Andrew Osterland, special to CNBC.com

Retirees wait longer to claim Social Security benefits

Tom Anderson | @bytomanderson

Wednesday, 20 May 2015 | 2:46 PM ET

CNBC.com

More people are waiting longer to retire, and that's affecting when they claim Social Security benefits.
While more than a third of workers still claim Social Security retirement benefits when they turn 62, the earliest age possible, a growing number are waiting until their mid-60s or later, according to a new study. And that's to their benefit: the longer they wait, the bigger their payments can be.

"The good news is that more people are claiming retired-worker benefits at later ages, and this pattern is consistent with increased labor force participation at older ages and the rise in the average retirement age," Alicia Munnell, director of the Center for Retirement Research, and co-author Anqi Chen wrote in their study.

Workers claiming benefits at the age of 62 dropped from 56 percent in 1996 to 35.6 percent in 2013 for men and from 62.8 percent in 1996 to 39.5 percent in 2013 for women, according to the Center for Retirement Research at Boston College analysis, which used unpublished data from the Social Security Administration to calculate the number of people eligible for retired-worker benefits by birth year. Meanwhile, the percentage of those waiting until their full retirement age, or the age at which they're entitled to full benefits, rose from 17.5 percent in 1996 to 28.1 percent in 2009 for both men and women.

The differences between men and women are also diminishing. "This pattern has to do with the changing role of women in the workforce," Munnell said. "The gap has been shrinking over time and should probably eventually disappear because women's work patterns are converging with those of men."

Claiming Social Security benefits early shrinks payouts by as much as 30 percent. The Social Security Administration reduces a retirement benefit by 5/9 of 1 percent for each month before full retirement age, up to 36 months. If the number of months exceeds 36, then the benefit is further reduced by 5/12 of 1 percent per month. The agency also imposes limits on income for early retirees. If early retirees earn more than $15,720 in 2015, their benefits will be reduced by $1 for every $2 they earn above the limit.

Nonetheless, for decades, the majority of retirees took benefits early even as many financial advisers urged them to wait. Now that's starting to change.
Social Security claims fall into four broad categories: Those who claim at 62, those who claim between 62 and full retirement, those who claim at full retirement age, and those who claim after full retirement age.

While claiming benefits at 62 is still more popular than claiming between 62 and full retirement is and , or researchers found that waiting to claim benefits at full retirement age was the second most popular option for both men and women. That age differs depending on your birth year. If you were born between 1943 and 1954, your full retirement age is 66. Then the full retirement age increases in two-month increments each year for those born between 1955 and 1959. For those born in 1960 and later, the full retirement age is currently 67. (The Social Security Administration offers a calculator to help you determine your full retirement age.)

Waiting past full retirement age can boost Social Security benefits even more. Each year you wait past full retirement age to claim Social Security benefits up to age 70, you earn an 8 percent delayed retirement credit that will increase your Social Security benefits in addition to cost of living adjustments.

Jim McGuire | Getty Images

While the increase in people waiting to claim their retirement benefits may result in bigger payouts, it's not likely to affect the financial status of Social Security much.

"On the expenditure side, benefits are actuarially adjusted so that—on average—it shouldn't matter whether people are claiming early at 62 or as late as 70," Munnell said. "On the revenue side, having people continue to work and contribute does increase payroll tax revenues. On a slightly more esoteric level, if the people who are postponing are high-income, long-living people, their delay will slightly increase the costs of the program."

All of Social Security's trust funds are projected to be depleted by 2033. But even after that year, the agency projects that it will have enough money from payroll taxes to cover three-quarters of the benefits it has promised retirees, according to the 2014 trustee's report. However, studies from Harvard and Dartmouth found that the Social Security Administration's actuarial forecasts have been consistently overstating the financial health of the program's trust funds since 2000, and the trust funds could be depleted sooner than projected.

Whatever the future benefit payouts of Social Security may be, more Americans plan on working longer to fund their retirement. Eighty-two percent of workers age 60 or older expect to keep working past age 65 or do not plan to retire, according to a recent survey of American workers from the Transamerica Center for Retirement Studies. And the estimated retirement age of American workers polled by Gallup has slowly risen from 63 in 2002 to 66 last year.

Whether working longer and claiming Social Security later will be enough for most Americans to afford a decent retirement, though, remains unclear.

Sunday, May 17, 2015

Tom Brady isn't the only one that should fear deflation—the economy should too

Alex Rosenberg | @CNBCAlex

CNBC.com

The specter of deflation is haunting more than New England Patriots quarterback Tom Brady. The whole U.S. economy is now grappling with its effects.

As growth splutters, the world's largest economy is facing the real possibility of a spiral in prices. On Thursday, the Producer Price Index for Final Demand showed that prices fell by 0.4 percent in April compared to March, and by 1.3 percent versus last April. The readings according to the previous-used PPI data series, known as PPI for finished goods, looked even worse, with a monster 4.4 percent year-over-year drop.

Steep price drops can be perilous for the growth of an economy that's comprised of nearly 2/3 consumer spending. While falling prices may sounds attractive from a consumer standpoint, they are bad for the overall economy since deflation encourages people to save, rather than spend, money. After all, why spend a dollar today when it will be worth the equivalent of $1.05 tomorrow?
However—and perhaps unlike the Patriots' embattled quarterback—the U.S. has a good excuse for the potential deflationary shock: Oil.

Crude's slide over the past year has reduced macro price metrics tremendously. And indeed, when energy and food prices are stripped out to produce what's known as the "core inflation" measure, PPI for Finished Goods actually rose by 2 percent over the course of the year. On the other hand, the core PPI for Final Demand number still fell 0.2 percent from March to April.
Simultaneously, some maintain that no matter how noisy the inflation reading may be, there are still bad signs embedded in it.

"The PPI came in well below expectations and trying to pin the drop in wholesale prices on any one component would be a mistake," wrote Steven Ricchiuto, Mizuho's unconventional chief economist. "The loss of upside momentum in prices is broad-based."

Headaches for the Fed?

Getty Images

For Ricchiuto, the number also points to a headache for the Federal Reserve in its quest to raise short-term rates. The central bank has set an inflation target of 2 percent, and no matter what the actual inflation number is, 2 percent does appear to be elusive at this point.
This despite years of ultra-loose monetary policy, which theoretically should spur inflation by making it more attractive to spend rather than save money. If inflation does not pick up, the Fed may not see fit to raise rates.

"The PPI fits with my later-rather-than-sooner Fed call, and further supports my call for a sustained trading range on 10-year notes," Ricchiuto wrote.
That is, a delay in the Fed's rate-hiking plans would mean that Treasury bonds can stay put, instead of trading much lower as yields rise.
The key event for inflation-watchers will come on Friday, when April Consumer Price Index data is released. Economists are looking for inflation of just 0.1 percent, and 0.2 percent ex- food and energy.

But those more bullish than Ricchiuto, such as RBC senior economic Jacob Oubina, say that the April inflation reading should mark the "bottom" for inflation, with core inflation "grinding up" to 2 percent by year-end.

Oubina says that shelter makes up 42 percent of CPI, and since rental real estate "will continue to be in high demand, that alone will support the inflation backdrop as we make our way through the balance of 2015."

PPI is often used to forecast CPI, given that those produced goods will, in theory, be sold to consumers in the future. Yet the weak April reading doesn't spook the RBC economist, largely because it is such a "frustratingly volatile" economic reading.
"Energy and trade services alone pulled this index down. So the pass-through argument just doesn't pass the smell test," he said.

—By CNBC's Alex Rosenberg.

Friday, May 1, 2015

Doctor shortages: Here's the real culprit

Jake Novak | @jakejakeny

CNBC.com

Ever wonder why it's often so hard to find a doctor, especially if you don't live in a big city?
Ever wonder why the government has such a hard time understanding or following the law of supply and demand?

These two questions go together because it's the government that's created and continued a harrowing chokehold on the supply of doctors in America. And if it doesn't ease the grip soon, not even those of us who live in large urban areas are going to escape the consequences. A study conducted this year for the Association of American Medical colleges predicts that by the year 2025, the United States will face a shortage of between 46,000 and 90,000 physicians.

Yuri Arcurs | Getty Images

Medical-school applicants basically need to have near-perfect GPA's and very high MCAT scores to get accepted to an accredited U.S. institution. Even among that much better qualified pool of applicants, only about 50 percent get accepted. Imagine if only half of our high-school grads who applied for college got in to any college — there would be riots at admissions offices every spring.

If you're among the lucky ones to get accepted, there's an ever-expanding amount of requirements, including coursework and hands-on training. The average time a medical student spends in school is now a whopping 14 years. Sure, extra training is usually a good thing, but that's a looong time to ask a smart, young person to take him or herself out of the good salary-earning pool for science-skilled workers. A med-school student is likely to see his or her college classmates who majored in the hard sciences making big money elsewhere before they even get to dissect their first cadaver.

All that extra time in school brings up another little problem called "tuition," which serves as an additional barrier to entry to those students still willing to blow a decade and a half in school. That tuition problem translates to a median $170,000 debt for graduating med students. Again that's median, so half of all medical-school grads actually have debt more than that. Many of them are in the neighborhood of more like $500,000 in the hole.

At this stage, the government again plays a big role in the supply-chain jam. One of the key problems is that the number of residencies hospitals establish for new med-school grads is almost entirely dependent on Medicare funding. The baseline for that funding hasn't changed enough since 1997 to meet demand. Teaching hospitals have been complaining about this for at least five years. But by getting into bed with the government decades ago and allowing Medicare to dictate residency spots, this was a predictable Faustian bargain.

So, you survive all of that and — yay! — you become a doctor. Think it ends there? Nope! The government keeps throwing up hurdles.

First, there's the malpractice insurance that boasts premiums of about $250,000 per year for many surgeons and specialists. And then you'll find you're never quite out of school as certifying bodies like the American Board of Physical Medicine and Rehabilitation, (ABPMR), impose a rigorous and all-too-frequent testing process that costs doctors massive amounts of time and money just about every other year. Oh, and do I need to mention the ABPMR is a government-blessed for-profit enterprise that filed tax returns last year showing $8 million in profits? And that's just one group overseeing one specialty. A physician told me earlier this year that he's thinking of hanging a sign up outside his office that says: "The doctor can't see you now, he's studying for another useless test."
All of this takes place before you can bill your first patient, or more likely, fill out your first reimbursement paperwork for an insurance company or Medicare. It's one thing to discourage unqualified people from providing life-saving care and fly-by-night schools from training them, but our current system of educating, insuring, and re-certifying doctors has gone too far for way too long. Remember, the best future doctors will be the same people with the same skills the tech sector is gobbling up for far more money and with far less formal training.

What we're left with is a system that not only leaves us short of the needed number of doctors, but also discourages those who do finish their training from going into any kind of private practice. Punching a clock at an expanded hospital facility may seem attractive to medical-school grads who have already assumed enough financial risk, but will the best innovations in patient service and care come out of that cookie-cutter atmosphere? And as acquisitive and aggressive as many major hospitals are about setting up off-site clinics, will they really reach as many people as the traditional neighborhood doctors setting up offices in their residential neighborhoods?

And, while I'm never short of criticism of Obamacare, the Affordable Care Act isn't responsible for creating this problem. Though, it hasn't done anything to fix it either — and that's a big problem.
Of course, no one wants a bunch of quacks out there pretending to know how to treat sick people. But breaking down some of these barriers won't lead to that kind of scenario by a long shot. Capping insurance liabilities, reducing the frequency of re-certification tests, opening up opportunities for more private-sector investment in residency programs, etc., are all things the government can do to get out of the darn way of potentially thousands of future doctors.
It's time to get America out of the waiting room.

Commentary by Jake Novak, supervising producer of "Power Lunch." Follow him on Twitter @jakejakeny.

Jake NovakSupervising Producer for “Power Lunch”

Even the rich are worried about their retirement savings

Tom Anderson | @bytomanderson

CNBC.com

Having a big nest egg doesn't guarantee retirement worries won't keep you up at night.
Households with at least $250,000 in investable assets are more concerned with saving and investing enough for retirement than with creating a legacy for their heirs, according to the new TIAA-CREF Affluent Investor Barometer survey, which sampled 1,242 investors in March. Even among the millionaires surveyed, only 10 percent said leaving a legacy was their top priority.

"It's not surprising that the primary concern for investors is how to generate retirement income for 30 years or more," said Sean Wilson, a wealth advisor at TIAA-CREF in New York City. "People are living longer. We tell many of our clients that they can expect to live until 95 and they need a portfolio that will last."

The TIAA-CREF report echoes the anxieties revealed by other surveys of wealthy investors.
A recent Legg Mason survey found people with $200,000 in investable assets spent 475 hours a year worrying about money and said they would need $2.5 million in retirement savings to enjoy the lifestyle they have today.

"Saving for retirement is the No. 1 priority for all my affluent clients," said Michael Chadwick, a certified financial planner at Chadwick Financial Advisors in Unionville, Connecticut, who works with many small-business owners and physicians. "My wealthiest clients are concerned with estate planning, but retirement is still the focus for most of our conversations."

Better retirement planning can alleviate many of the financial worries for the affluent and ordinary investors alike. "Clients need to figure out how much they will need in retirement, all the sources of income they will have, what they should save and the income they will need to generate to reach their goals," Wilson said.

The pitfalls that diminish a nest egg are also similar across income groups. "The three biggest mistakes affluent investors make, or any investor makes, are not saving enough for retirement, starting savings too late in life and being too conservative with their investments," Chadwick said.

Tom Anderson

Personal Finance Writer