3 Moves You Need to Make BEFORE the Holiday Rush

This post 3 Moves You Need to Make BEFORE the Holiday Rush appeared first on Daily Reckoning.

Dear Rich Lifer,

We’re entering the busiest time of the holiday season, and I’m sure you have a lot going on.

But the reality is that, with the end of the year rapidly approaching, now is also the time to consider some last-minute moves that can substantially change your finances as well.

So before time runs out, I want to give you three of the best ones …

Tax Loss Harvesting

Although plenty of stocks have made big gains in 2019, others haven’t fared as well.

So if you have some open losses in your portfolio, you might consider selling them before year’s end so you can deduct the losses on Tax Day, 2020.

It works like this:


If you also booked gains this year, you’ll be able to offset them on a dollar-for-dollar basis with no limit.


If you recorded more losses than gains — or no gains at all — you can use your losses to offset some ordinary income. The maximum amount is $3,000 ($1,500 if married filing separately) … but you can carry additional losses forward for future tax years.

Doing this before year-end is a no brainer if you have losing positions that you don’t think will ever come back.

You will not only get a tax break, but you can then take the proceeds from the sale and reinvest them in better long-term choices.

Of course, even if you have underwater positions that you would like to continue holding for the long-term, you STILL might consider selling them at a loss for the tax advantage.

Why? Because as long as you wait more than 30 calendar days before buying back those same positions, the loss will count on your tax form.

The IRS applies what is known as a “wash rule.”

What Qualifies as a Wash?

Basically, they will not recognize a loss if you’ve bought replacement stock within 30 calendar days before or after you sell your losing position.

However, if you wait 31 days, you’re fine and the loss counts.

Aren’t tax laws great?

The real risk is that the stock could rebound over those 30 days and you’d miss out. But I would consider taking the chance, it all depending on the position.

You might also consider another tactic during this season of giving …

Charitable Donations

If you happened to spot some unused items while you were digging out your holiday decorations, now is a great time to take them to your local charity.

And the same thing is true if there’s a particular cause you’d like to fund.

Reason: As long as you itemize, your charitable donations will also be deductible come April 15th.

Here’s some of the fine print straight from the IRS:

“To be deductible, charitable contributions must be made to qualified organizations. Payments to individuals are never deductible.

“If your contribution entitles you to merchandise, goods, or services, including admission to a charity ball, banquet, theatrical performance, or sporting event, you can deduct only the amount that exceeds the fair market value of the benefit received.

“For a contribution of cash, check, or other monetary gift (regardless of amount), you must maintain as a record of the contribution a bank record or a written communication from the qualified organization containing the name of the organization, the date of the contribution, and the amount of the contribution.

“In addition to deducting your cash contributions, you generally can deduct the fair market value of any other property you donate to qualified organizations.”

If you want even more details, go here. But suffice it to say that this is one of those rare tax items that helps you do well by doing good.

Last but not least, one last time…

Look at Your Retirement Accounts

Some accounts — such as IRAs — give you all the way until April 15th, 2020 to sock away money for 2019. But others must be established and/or funded by December 31st.

For example, if you have access to an employer’s 401(k) plan, your contributions have to be in before New Year’s Day.

So if you’ve been slacking, there should still be time for you to get something in there for this calendar year.

Doing so will provide you with more money for the future … the possibility of matched contributions from your employer … PLUS a nice tax break on your 2019 taxes.

Self-employed? Then DEFINITELY consider opening a Solo 401(k).

I’ve written about them before, but I never get tired of saying it: Opening one could allow you to sock away as much as $56,000 just in 2019 … or even $61,000 if you’re over 50!

But again, you have only until December 31st to establish a Solo 401(k) and elect to contribute any money that is to count as your “employee” part of the overall contribution (though the money itself can go in by April 15th).

One Last Thing

This is also the time to consider implementing any changes to existing accounts — for example, converting a traditional IRA to a Roth.

As with all the other moves I described today, personal circumstances will dictate a lot of what makes sense for you personally… and you may be best served by talking to a tax professional to get more information on all the ins and outs.

But my overall point is that — despite the holiday madness — this is also the best time of the year to make important decisions that will affect you well into 2020 and beyond.

To a richer life,

Nilus Mattive

Nilus Mattive

The post 3 Moves You Need to Make BEFORE the Holiday Rush appeared first on Daily Reckoning.

What I Told My Dad About Social Security

This post What I Told My Dad About Social Security appeared first on Daily Reckoning.

Dear Rich Lifer,

It’s been a few weeks since the Paradigm Shift Summit went down in New York, and I’ve already covered a few of the many ideas and concepts I shared at that awesome event.

But there’s one I haven’t yet touched on… and it started with a question from one of the audience members.

The Set Up

I had just finished outlining how several of my favorite Social Security strategies were no longer available because lawmakers had shut them down.

Indeed, I have strong reason to believe that these various “loopholes” were closed precisely because I (and a handful of other people) popularized them in articles and letters that went out to hundreds of thousands of retirees.

My own parents got in before it was too late and I estimate they’ll grab an extra $100,000 or two out of the system because they were able to act.

Based on the feedback I’ve received over the years, plenty of other readers benefited from that information as well.

Of course, that’s no consolation to anyone considering their options these days.

Which brings me to the audience member’s question…

The Shot

“Are there still any good Social Security tricks available now?”

The answer is yes.

And one of them is completely obvious though roughly 96% of Americans do not take advantage of it.

That trick is delaying benefits until age 70.

Why would I possibly recommend this? Especially since I spend a lot of time criticizing the Social Security program?

It’s simple: While I continue to believe that our national retirement system is riddled with problems, I am also a pragmatist.

This is why, in addition to recommending other tactics that are no longer available, I advised my own father to delay taking his Social Security benefits until age 70 if possible. (Which he did.)

See, I consider Social Security to be the best fixed immediate annuity currently available.

The Smoking Gun

Remember, annuities are basically life insurance policies in reverse.

In their simplest form, you pay money upfront and then start collecting monthly fixed payments for as long as you live.

Die early, and you “lose.” Live for a long time, and you may make more than you paid up front.

The same basic principle is at work when it comes to delaying your Social Security benefits.

If anything, Social Security differs from the typical private fixed annuity because it is based on a MUCH LESS AGGRESSIVE actuarial table.

And while I always get a lot of feedback on the issue of future inflation and the overall “time value” of the money you receive from Social Security, don’t forget that Social Security does contain an inflation adjustment — as flawed as that adjustment may be.

This is something that many private annuities DON’T have.

The Fallout

So here’s an example of how delaying your Social Security benefits might work in the real world:

Scenario #1. You are able to collect $12,000 a year from Social Security at age 65.

Scenario #2. You wait an extra year and start collecting $12,680.

Just for delaying 12 months, you will now earn an extra $680 annually for the rest of your life. And your “cost” for doing so was $12,000.

To arrive at your annual interest rate, or “return on investment,” you simply divide the $680 annual payment by the initial $12,000 you “spent.”

What you’ll come up with is an annual rate of 7.1%!

To be clear, I am merely saying that by forgoing $12,000 for that one year of benefits, you are now going to receive an extra $680 a year for every additional year you live.

Now I know there are a lot of “ifs” involved. So, yes, it’s a gamble. Just about every investment decision or insurance contract is.

And obviously, if you need the money to live on then just start taking your benefits as soon as you can.

But from a mathematical standpoint, it might make sense to delay collecting — especially given the fact that interest rates remain far lower than historical norms.

If you have “longevity genes” in your family, the idea only becomes more compelling.

And that’s just based on the simple analysis.

The Resolution

There are additional reasons to favor Social Security over a regular annuity.

First, if you worked during that extra year of delaying, it’s quite possible you would have FURTHER increased your future payments because your earnings record would have also gone up.

Second, these “annuity” payments currently get favorable tax treatment in many cases, and it’s entirely possible you would get further tax benefits by delaying that extra year.

Third, Social Security’s built-in survivor benefit might also make delaying for the additional income all the more attractive to couples.

That last point is especially critical because I also told my mother to begin collecting her benefits at an earlier point than my father.

In doing so, she started getting immediate income … but also retained the ability to step up to my father’s higher benefit if she ends up widowed at any point.

So if you’ve been thinking about purchasing an annuity and you haven’t yet filed for Social Security, take a little time to work out all the pros and cons of various strategies before you make a final decision.

To a richer life,

Nilus Mattive

Nilus Mattive

The post What I Told My Dad About Social Security appeared first on Daily Reckoning.

The Best Five Minute Phone Call You’ll Make This Year

This post The Best Five Minute Phone Call You’ll Make This Year appeared first on Daily Reckoning.

Dear Rich Lifer,

I love talking about investments that can make you lots of money. But you know what I love even more? Simple strategies that can SAVE you lots of money with very little effort.

After all, even the safest investments carry risk. Meanwhile, some money-saving strategies can end up putting a lot more cash in your pockets with absolutely ZERO risk!

Take insurance. Two weeks ago I answered some popular questions on the topic but one thing I didn’t cover is just how easy it is to shop around for car insurance these days.

So let me ask you: When was the last time you actually DID THAT?

I’ll answer first …

Shopping Around for Insurance

After a year or two, I decided to re-check my options this past week.

And I used a new method this time, which I’ll get to in a minute.

First, as it turns out I’m getting a pretty darn good rate with my current carrier.

But all those commercials and billboards featuring pigs, geckos, and crazy comedian ladies aren’t lying… it is quite common to save thousands if you simply do a little research.

That was my own experience back when my wife and I left Florida.

Back then, and for our new location, Liberty Mutual was able to beat our carrier at the time (Geico) pretty handily, so we switched.

But after we recently changed up our household’s car assortment – and our premiums shot up substantially — I decided to see what else was out there.

At the risk of sounding like an ad, the process literally did take just 15 or 20 minutes with each company I investigated. Yet the savings were massive…

15 Minute Really Can Save You a Bundle

Progressive ended up being 30% cheaper than Liberty Mutual while Geico offered the same basic level of coverage at 58% less cost!

That put thousands of dollars back in my family’s pocket over the next couple years.

These days, I’m in California and back with Geico.

But I do a fresh check every couple of years.

This time, I used a relatively new website to do my check – www.thezebra.com.

After entering some basic info, it came back with quotes from a whole bunch of different carriers.

According to the results, my current policy is a little cheaper than what other places are charging.

However, if it’s been a while since you last shopped for auto insurance, I strongly recommend doing it right away.

You might quickly save yourself a grand or two over the next year.

Here are just a couple things to pay attention to …

Car insurance Variables that You Control

Obviously there’s no way for me to tell you what particular aspects your situation requires, or even what items or choices your state mandates.

What I can say is that you should look carefully at these inputs for two big reasons …

First, you might find new ways to save money even with your current carrier.

For example, a lot of people have roadside assistance through their car’s warranty or AAA, yet they’re paying for the same service on their insurance policy.

They may also be paying for rental reimbursement when they have extra cars that could provide transportation in a pinch.

You might even find that you’re paying for extra medical coverage that is redundant with your healthcare insurance.

Second, you have to use these same inputs when you get competitive quotes.

If your current policy has $500,000 in liability coverage and a $1,000 deductible … there’s no point in comparing it to a quote that has $15,000 and $250, respectively.

It seems like common sense, but you’d be surprised how many people make this mistake. That’s especially true since website quoting tools often use different default inputs.

Call me a geek, but I like using one tool and altering the choices for a while just to get a sense of where the biggest savings come from.

What I’ve personally found is that higher levels of liability coverage cost just ten or twenty dollars more a year. Deductible amounts make a bigger difference since your typical claim is for relatively minor amounts of money.

Obviously, I’ve just scratched the surface of this whole topic. But you don’t have to make it too complicated if you don’t want to.

At the very least, get a little more familiar with what specific variables are currently on your auto and homeowners policies.

Then, use an online web tool to get some competitive quotes.

If you have

Or, take some time and check in with a few big, well-known companies individually.

For that relatively minor investment of time, you might end up getting an immediate return worth hundreds – or even thousands – a year.

To a richer life,

Nilus Mattive

Nilus Mattive

The post The Best Five Minute Phone Call You’ll Make This Year appeared first on Daily Reckoning.

Clouded Insurance Quandaries Revealed

This post Clouded Insurance Quandaries Revealed appeared first on Daily Reckoning.

Dear Rich Lifer,

I was in New York City this week for the 2019 Paradigm Press Summit, where I delivered a presentation on my current market outlook and some of my favorite investment ideas for the upcoming year.

The biggest one has to do with insurance.

But I’m not about to steal my own thunder or even give you a synopsis of the speech right now. You’ll have to wait for access to the recording of the event if you didn’t watch it live to learn more about that particular recommendation.

For now, to whet your appetite, I’m going to answer several other big questions I get regarding the topic.

Let’s start with a really popular one …

Question 1

“Isn’t it simply better to forgo an insurance policy whenever you can afford to self insure?”

I think it’s safe to say that most of us generally hate paying insurance premiums or dealing with insurance companies at all.

I almost always recommend declining things like rental car insurance as long as you’re covered by your regular carrier and/or a credit card.

Likewise, I universally avoid things like item-specific insurance offered by retailers, cell phone companies, appliance sellers, etc.

And even in the major categories, you may be able to avoid having a policy.

Whether that makes sense for you depends on a number of financial and “mental comfort” factors.

For example, I know some people who own vacation homes outright and have decided not to carry homeowners insurance. That provides great savings every year … until a hurricane rips through town and they can’t afford to rebuild their dwelling.

Meanwhile, you MUST carry at least some liability coverage on your car. But many folks go without collision or comprehensive insurance on older vehicles that are paid off and not worth much money. That can be a very sound strategy … especially if you sock away the difference in premiums.

My broad recommendation is always trying to balance the value of your assets against the potential risks.

Just remember that although catastrophes are rare, they DO happen.

Case in point: Several years ago, a house two doors up from mine burned to the ground!

Question 2

“What about life insurance? Do you typically recommend it?”

Again, it depends on your age and personal circumstances.

I actually resisted getting life insurance for many years.

However, once my daughter was born I decided to get a simple term policy that would provide enough money for my wife to pay off all our outstanding debt and transition into a “life without Nilus.”

Given my age and good health when I bought the policy, the annual premium isn’t all that much and the peace of mind it provides my family is worth it.

A lot of folks also sing the praises of more complicated policies – such as whole life or variable life.

I recognize that those types of policies CAN benefit certain people, too. But given all the terms, fees, and other variables involved, I recommend doing A LOT of research before you jump into anything beyond basic term life insurance.

Speaking of research, here’s a topic that a lot of people ask about …

Question 3

“For car insurance, what’s the difference between full tort and limited tort?”

Some states give you the option to select either “full tort” or “limited tort” policies.

The simple way to explain the difference …

Full tort preserves your ability to sue anyone in any situation.

In contrast, limited tort policies essentially limit your ability to sue for anything above and beyond standard costs – in other words, nothing for “pain and suffering.” The only exceptions are really severe instances … such as an accident resulting in death or a drunk driving case.

From my own shopping experience when I lived in a state that offered buyers both choices, full tort might boost your annual premiums by 10% to 30%.

That’s because insurance companies really want you to choose limited tort. It saves them headaches and it saves their industry a ton of money.

Meanwhile, most lawyers emphatically recommend keeping full tort.

In the end, only you can decide which option makes the most sense. And that answer may also change along with your family’s circumstances.

Last but not least, here’s an interesting question that someone asked me when I last wrote about shopping around for car insurance (a task I recommend doing regularly and need to perform again myself very soon)…

Question 4

“Did anything really surprise you or catch you off guard while you were checking various quotes?”

For starters, the massive pricing discrepancies I found across different carriers for the same coverage basic terms!

On top of that, my car insurance company offered a very interesting proposal.

Essentially, they were willing to apply a discount to my quote if I agreed to have a monitoring device installed in my car. This device would feed them information about my driving habits – including how hard I applied the brakes. I assume it would have also monitored speeds travelled and other data points.

That wasn’t something I was willing to do. But it certainly gives us a sense of how technology might shape insurance in the future!

To a richer life,

Nilus Mattive

Nilus Mattive

The post Clouded Insurance Quandaries Revealed appeared first on Daily Reckoning.

How to Slice Your Cell Phone Bill in Half

This post How to Slice Your Cell Phone Bill in Half appeared first on Daily Reckoning.

Can you name any other cell phone providers other than AT&T, Verizon, Sprint or T-Mobile?

If you can’t, I don’t blame you. The ‘Big Four’ have dominated the mobile provider space for decades.

And with their dominance, they’ve been able to dictate the price of your monthly phone plan. The average starting price of an unlimited plan within the Big Four is now $68.75 a month.

Notice I said “starting” price. J.D. Power reports the average monthly cell phone bill last year was $157 up from $149 the year before.

The only good news is the price of smartphones seems to be going down. The average selling price of a smartphone worldwide has gone from over $300 in 2010 to $215 this year, according to Statista.

Even last week, the highlight of Apple’s keynote event at its corporate campus in Cupertino, California was the cheaper iPhone 11 ($699).

It’s the first cheaper new iPhone to launch since 2016.

If you look at your budget, not far behind your mortgage, car, and grocery bill is your phone bill. Too many Americans are overpaying for cell phone service these days.

Here’s how to cut your bill in half and still get great service.

Look Beyond the Big Four

If you’re not bound by a contract, then I recommend shopping beyond the Big Four service providers.

Cricket — which runs on AT&T’s network — offers unlimited plans starting at $50 a month after their autopay discount. And, like other smaller carriers, Cricket’s price includes taxes and fees, so there are no hidden fees when you get the monthly bill.

Making the move, could save you over $200 a year compared to AT&T’s unlimited plan. Plus, you typically get to keep your old number too.

Other cheaper carriers to consider are: Metro by T-Mobile (formerly Metro PCS), Ting, Consumer Cellular, Straight Talk Wireless, Walmart Family Mobile, and Republic Wireless.

Most of these budget carriers still run on the Big Four’s network towers so you don’t have to worry about losing coverage.

Pay for What You Actually Need

Another cost saver is simply looking at how much data, minutes, and text messages you use each month and choosing a more appropriate plan. Most people don’t need unlimited data.

The average person, including younger demographics, uses about 5.8GB per month, according to market research firm NPD Group. I suggest looking at your last three month’s bills and figure out how much data you actually use.

If you’re using 5GB or less, stick to a fixed data plan. A lot of budget carriers like the ones mentioned above, offer cheaper monthly plans with 8GB of high-speed data.

Go Prepaid

If you’re really on the fence about switching carriers, consider at least changing your plan to prepaid. Switching to a prepaid carrier can cut your monthly phone bill in half without sacrificing coverage.

The Tax Foundation found that, in 2017, taxes, fees and surcharges made up a full 18.5 percent of the average customer’s wireless bill.

When you move to prepaid, you typically avoid paying many of these fees. AT&T has a prepaid unlimited plan starting at $50 per month for one line and Sprint has a $60 prepaid unlimited plan.

Meanwhile T-Mobile and Verizon offer prepaid unlimited plans for $50 and $65 a month, respectively. You’d be saving anywhere from $15-20 a month compared to these carrier’s similarly priced postpaid unlimited plans.

At the very least, there will be no surprise costs. Because you pay for your service upfront, you don’t have to worry about overage charges.

Rethink Insurance

Most carriers offer premium protection plans. These plans can include extended warranties on your device, 24/7 tech support and insurance in case your device gets damaged or lost.

In most cases, whatever the basic insurance plan offered is should be enough coverage. It’ll protect you in case your phone breaks, gets stolen or you lose it.

This should cost you around $10/month. After a year, consider dropping protection altogether. Mark a date in your calendar and cancel it. Why? The replacement cost of your phone should go down significantly after one year.

Take Advantage of Autopay

The last tip I want to give you is to sign up for autopay if you can. Most wireless carriers will slash $5 to $10 off your bill if you sign up for automatic payments. T-Mobile, for instance, will knock off $5 per line. If you’re a family of four, that’s $20 a month in savings just by switching to autopay.

It’ll depend on your carrier, but it’s best to link a credit card versus your checking account or debit card. That way the money is not gone from your account, just in case you have to dispute any bills.

Follow these five tips and you’ll significantly cut your cell phone bill down.

The post How to Slice Your Cell Phone Bill in Half appeared first on Daily Reckoning.

The Importance of Understanding Mortgage Insurance

This post The Importance of Understanding Mortgage Insurance appeared first on Daily Reckoning.

Mortgage rates have been dropping for the past few months, with a 30-year fixed falling to 4% recently according to FreddieMac. And now there’s the possibility that the Fed will lower interest rates this summer. So this could be the ideal time to buy that home you’ve been eyeing.

But suppose you have credit problems or haven’t saved enough for a hefty down payment (20% for most conventional loans)?

Data from U.S. Mortgage Insurers (USMI) revealed that it could take 20 years for a household earning the national median income of $61,372 to save 20%, plus closing costs, for a $262,250 home, the median sales price for a single-family home in 2018.

And by the time you do, housing prices may have substantially increased to the point of becoming out of reach. In other words… it’s like trying to hit a moving target.

The reality is that banks are reluctant to trust potential borrowers who have poor credit or can’t invest much of their own money in a home. They want assurance that you’re a good risk and can be trusted. And in their eyes, the lower the down payment the riskier the loan.

Moreover, coming up with a 20% down payment can be a humongous hurdle for first-time buyers who don’t have much in savings or any equity in a current home.

But lack of cash doesn’t mean you can’t achieve the American Dream…

How Private Mortgage Insurance (PMI) Bridges the Gap

PMI protects the lender in case the borrower defaults on the mortgage.

The premium is based on your credit score, the loan-to-value ratio (LTV) of the home, and whether the mortgage will be fixed or variable rate.

The better your credit, the lower the premium. Another good reason to build good credit.

The LTV ratio is the amount you want to borrow compared to the value of the home securing the loan.

For example, if you hope to borrow $180,000 for a $200,000 home, the ratio would be: $180,000 ÷ $200,000 = 90%.

But if you can come up with more cash and only need to borrow $170,000, the ratio becomes: $170,000 ÷ $200,000 = 85%.

So as far as the lender is concerned, the lower the ratio… the less risk in making the loan.

The Important 78% Mark

PMI isn’t cheap. Typically, it costs 0.3% to 1.5% of the original mortgage amount each year. That means PMI at 1% for a $180,000 loan could cost you $1,800 per year, or $150 per month. The lender tacks this premium to your monthly payment.

So you want to get rid of it as soon as possible.

As you make mortgage payments the amount you owe slowly declines and your equity rises.

When the LTV falls to 80%, you can ask your lender to drop PMI. However, they are not required to do so.

But once it hits 78% (you have 22% equity in the home) they must eliminate the insurance.

So in the above example, when the mortgage drops to $156,000, the LTV falls to 78% and would be canceled. 

There are several ways to reach this mark sooner:

  • Get a new appraisal. It’ll cost you a few hundred dollars, but if your home has surged in value, the additional equity could push the LTV down to the 78% mark. For instance in our example, if the home’s value shot up to $240,000 and you owed $175,000, the LTV would be 73%… low enough to request that the PMI be dropped.
  • The same could apply if you remodel. A new screen room or upgraded kitchen, for instance, could make your home more valuable.
  • Pay a little extra each month and tell your lender to put that money towards the principal… not interest. $50, $75, $100 or so on top of your regular mortgage payment will get your loan balance down faster.

Lenders must tell you at closing how many years it will take until your mortgage is paid down enough to cancel PMI. So be sure you understand where this information is located in the loan documents.

The Downsides…

Before you sign up for PMI realize that there are some important details that the lender might overlook explaining to you in full.

For instance,

  • PMI does nothing to protect you if you can’t make the payments
  • Premiums are not tax-deductible
  • You might have to pay the first year’s premium at closing
  • The lender is the beneficiary. Your loved ones get nothing if you die
  • Reaching the 78% mark could take many years

On top of all that, it could take months to cancel the coverage once you do hit the 78% mark…

Your request must be in writing. The lender may want a certified appraisal, which you might

have to pay for, to assure the home’s value hasn’t fallen below the original estimate. They’ll also request proof that there aren’t any other debts on the property, like a home equity loan or second mortgage.    

How to Avoid PMI

There’s really no way to shop around for PMI. You have to accept what the lender offers. But you aren’t without options…

You could take out a piggyback mortgage to get you enough money for a 20% down payment.

Suppose you want to buy a home for $200,000 but only have $20,000 for a down payment.

You’d take out two separate loans for the same home. The first would be for $160,000 representing 80% of the home’s value. The second loan would be for 10%, which is $20,000.

This is also known as an 80/10/10 loan. The first mortgage is for 80% of the home’s value. You’re putting down 10%. And the second mortgage covers the remaining 10%.

Even though you won’t have PMI premiums to pay, there could be other costs that might make this strategy more expensive.

  • There will be closing costs on two mortgages, rather than one
  • The second loan will probably have a higher interest rate than the first
  • The second loan will typically be variable, which could mean an even higher interest rate in the future
  • The second loan might have a balloon provision that makes it payable in full in 15 or 20 years
  • The second loan doesn’t go away until you pay it off, whereas PMI gets canceled at some point
  • Some lenders will not permit you to borrow down payments.

There are other alternatives to conventional PMI.

For instance:

  • The FHA has loans with a 3.5% down payment and provides its own mortgage insurance
  • Your local or state government might have down payment programs
  • The VA has special low-down payment loans that don’t require mortgage insurance

In 2018, PMI helped more than 1 million borrowers purchase or refinance a home with an average down payment of 7% and as small as 3%.

Without this insurance they would have been kept from living the American Dream.

And as long as you understand the ins and outs and are willing to pay a little extra money each month, PMI could make it possible for you to buy your dream home too.

To a richer life,

Nilus Mattive

— Nilus Mattive
Editor, The Rich Life Roadmap

The post The Importance of Understanding Mortgage Insurance appeared first on Daily Reckoning.

7 Retirement Sins You Don’t Want to Commit

This post 7 Retirement Sins You Don’t Want to Commit appeared first on Daily Reckoning.

In general, Americans are pretty fearful about retirement and it’s easy to see why.

So today I want to talk about seven different things that can totally derail anyone trying to work toward more financial stability in their golden years.

Retirement Planning Sin #1: Counting on Social Security, Pensions, and Other Traditional Plans

At this point, I’ve probably written a million words on the problems with our traditional retirement systems and you’re free to read my thoughts in past articles and interviews I’ve done over the years.

But just to recap:

  • Social Security is now taking in less than it pays out and is projected to do so every year going forward…
  • Without changes, the program’s trust fund will be exhausted in 15 years and only 75% of promised benefits will be paid out…
  • Many pension plans – both governmental and private – have been suffering from similar shortfalls and systemic problems…
  • A number of pension plans are already trying to go back on the promises they’ve made to retirees…
  • And while near-term retirees will probably be the least affected group, I wouldn’t treat any guarantee as sacred.

Now, it needs to be said: These are not just abstract concepts. I’m not saying these things for shock value.  These are real issues that impact a lot of people in my own life.

For example, my father has two different state retirement plans after working in various mental health facilities for four decades.

My mother-in-law receives her retirement income from a pension provided by Dupont, her life-long employer.

And even I have a small pension from more than a half decade working at Standard & Poor’s.

I hope all of our payments keep coming as they should. But I’m telling my father, my mother-in-law, and everyone else not to just blindly depend on it!

Instead, you should always be saving and investing somewhere else on the side… just as a fall-back plan. 

Retirement Planning Sin #2: Failing to Have a Budget

For about 15 years, I urged my mom to keep track of her spending so she would have a good understanding of what her cash flows looked like.

In response, she gave me all kinds of excuses. She didn’t have time. She already had a basic idea of what she was spending. That there was no possible way to even keep track between her credit cards, her check payments, and all the various cash transactions she was making.

Then she turned 66 and got serious about retiring.

Sure, she knew what all the big numbers looked like – property taxes, car payments, etc. But did she have any idea how much was being spent eating out with her friends? Or going overboard buying Christmas gifts for my daughter?

Not really. Without that knowledge it was going to be impossible for her to design a sustainable life on a very fixed income.

Now she’s actually retired and keeps better track of the money coming in and going out because she has to. But she could have been even better prepared… and probably saved a lot more money ahead of time… if she had started sooner.

So please, if you don’t currently have a budget… one that accounts for ALL your expenses… please get one up and running.

I do this in an excel spreadsheet for my own family and we meet at the end of every year to revisit things.

But the process can be as simple as a $1 notebook from the drug store. And all you have to do is write down how much you spent and on what – no matter what payment form you use.

Then, after a few months, add up the numbers and put them into basic categories. I think you’ll be surprised at the patterns you see… and where you might have room for additional savings.

One other thing – if you share your finances with anyone else, it’s absolutely crucial that you include them in this process and that you have open and honest discussions about how the money is getting spent.

Speaking of which, there’s one major expense you might NOT be factoring in. And that’s why the third deadly sin is

Retirement Planning Sin #3: Ignoring Inflation, Especially in Health Care Costs

I’m sure you understand the general concept of inflation and you already have a sense that today’s budget might look different ten years from now simply because of rising prices.

But perhaps no single expense is rising faster – or impacting more retirees – than soaring healthcare costs.

Every year, Fidelity takes a look at how much a typical 65-year-old couple will spend on out-of-pocket healthcare costs during retirement.

This year the number was an eye-popping $280,000.

Five years ago, the number was $220,000.

That’s a 27% surge in just half a decade!

What’s more, this is assuming you have traditional Medicare coverage. Plus it doesn’t include costs associated with nursing-home care.

And that’s where things get really scary.

Unless you’re essentially destitute and qualify for Medicaid – or you’ve already purchased long-term care insurance – medical treatment outside a hospital is going to be your cost to bear.

The total outlay depends on a number of factors, including your local area. But according to Senior Living, the national average for a semi-private nursing home runs $82,128 a year!

Look, I’m not trying to depress you here. But the reality is that 70% of us will need long-term care services at some point in our lives… and sometimes it happens sooner than we think. In fact, 40% of the Americans in long-term care are between the ages of 16 and 64.

So whether you consider long-term care insurance or you simply set aside a big chunk of money and hope for the best, you at least need to consider the huge impact that health care costs will have on your family during retirement.

You’re looking at a quarter of a million bare minimum. And another $100,000 a year if long-term care becomes necessary.

That could be enough to drain even a very well-prepared retiree.

Which is why you should also seriously explore how you can protect your income and assets before they get taken or disqualify you from Medicaid.

The rules vary from state to state, and they’re always changing, but at the bare minimum you want to start thinking about this at least five years before long-term care becomes a real possibility.

For example, if you have a second home or rental real estate, you might consider signing it over to a trustworthy heir before you end up signing it over to a nursing home.

And speaking of protecting your assets…

Retirement Planning Sin #4 Is Not Using Tax Shelters!   

It doesn’t matter if you’re 30 or 60 – you should be using tax-advantaged accounts for the vast majority of your saving and investing.

Obviously, choosing which particular accounts make the most sense is going to vary based on your individual circumstances. But in general I recommend using the following process:

First, contribute enough to any employer-sponsored plan to get the maximum match…

Second, if you’re self-employed – which includes people who merely have side businesses – also consider opening a Solo 401(k) plan…

And third, use IRA accounts – traditional and/or Roth varieties depending on your goals and tax situation – to sock away even more.

This is what I do personally, and the same thing I recommend to everyone else I talk to regardless of age or income.

Retirement Planning Sin #5: Not Having “A Post-Work Plan.”

A lot of people don’t think this really matters – especially if they’re still relatively far away from retirement.

Heck, how could NOT working be hard, right? I mean, most people figure waking up without anything to do is a great problem to have.

However, I know someone who retired – from a job she didn’t even like – and she found the transition to be VERY difficult.

So much so that she had to take a class at her local senior center titled “Every Day Is a Saturday.”

In what amounted to a support group, she witnessed countless other new retirees literally breaking down because they didn’t know how to handle their newfound freedom – including a 70-year-old heart surgeon who cried profusely!

Rather than figuring this out as you go, start thinking about it now… and always keep that budget in the back of your mind, too.

There are countless resources available to retirees – free classes (even college educations in some places!)… special exercise groups… volunteer opportunities… mentoring programs… the sky is literally the limit.

The key is envisioning your future before it arrives.

And on a similar note…

Retirement Planning Sin #6 Is Being Inflexible

We never have any idea how things are going to turn out – in investing or life. So all we can do is plan for the best and prepare for the unforeseen twists and turns.

If you have a very narrow vision of what your future looks like, and you’re unwilling to change course, you’re setting yourself up for potential disappointment.

Just consider the thousands of retirees who are now discovering whole new lives in foreign countries they had never thought of visiting ten years ago!

Am I saying you should have to move to Thailand to get a comfortable retirement? Of course not. I’m simply saying that we should try to find joy no matter what… and embrace the excitement of trying new things no matter our age or circumstances.

That’s the real secret to a long, healthy, and happy life.

Which brings me to our final retirement planning sin… perhaps the biggest of them all…

Retirement Planning Sin #7: Procrastinating!

I started saving in a 401(k) the very first paycheck I got and I have increased the amount I sock away at every possible opportunity ever since then.

Two decades in, I have quite a lot in the bank already. Meanwhile, most of my friends are still treating retirement as some far-off thing.

Sure, there might be another two decades to go for anyone in my age bracket. But time flies!

That’s something to remember no matter how old you are… no matter where you’re at in terms of your goals… and no matter how much money you currently have.

To a richer life,

Nilus Mattive

— Nilus Mattive
Editor, The Rich Life Roadmap

The post 7 Retirement Sins You Don’t Want to Commit appeared first on Daily Reckoning.

This Stock is Unfathomably Cheap

This post This Stock is Unfathomably Cheap appeared first on Daily Reckoning.

Brighthouse Financial (BHF) isn’t just a cheap stock. It is an unfathomably cheap stock.

With a share price currently bouncing are $35, the insurance company is currently trading at 0.29 times book value per share.

How cheap is that?

Similar insurance companies are currently trading for 0.80 times book value.

Brighthouse chart

In order for Brighthouse to trade at their competition’s multiple, the company’s share price would need to nearly TRIPLE from $35 per share to $96 per share…

The reason for Brighthouse Financial’s absurdly cheap valuation is twofold…

First, Brighthouse’s “bread and butter” insurance business isn’t very interesting.

After all, the company primarily sells life insurance and annuities to U.S. households… YAWN.

That doesn’t exactly draw in a lot of investor interest.

Second, Brighthouse was born in the summer of 2017 when U.S. insurance giant MetLife spun-off its retail subsidiary into a separate publicly traded company.

The reason for doing the spin-off was regulatory in nature. By shedding Brighthouse, the new and smaller MetLife no longer met the size of what the government defines as “systemically important.”

That was a good thing for MetLife since it means lower compliance and reporting costs going forward.

After the spin-off, shares of Brighthouse did what shares of spun-off companies often do, they decreased in price and they have yet to recover.

Yet it’s important to note that the company is not in any sort of financial distress.

S&P, Moody’s, Fitch, and A.M. Best all have the company rated as being in fine financial shape — which points to a huge silver lining in this pessimistic valuation…

You Can’t Change The Valuation — So Exploit It!

You might be surprised to hear me say it, but the one thing that Brighthouse shareholders should say to the stock market for this pessimistic valuation is… THANK YOU!

The reason why is because the Brighthouse Board of Directors has taken this incredibly cheap valuation and turned it into an opportunity to be exploited.

Because Brighthouse Financial is in solid financial shape, the Board of Directors is able to deploy excess capital to repurchase shares of BHF in the open market at this rock bottom valuation.

And I’m not talking about a small number of shares…

The current plan that Brighthouse detailed in its corporation presentation shows the intention to repurchase $1.5 billion of its own shares by 2021. If this happens, it is going have a major positive impact on the intrinsic value per share for remaining shareholders.

At the current valuation, a repurchase of $1.5 billion of shares would allow Brighthouse to shrink its share count by an incredible 40 percent!

Now Allow Me to Crunch a Few Numbers for You…

Assuming today’s market capitalization of $4.1 billion, a 40 percent reduction in Brighthouse’s share count from 116 million shares to 70 million shares would result in a share price of $58.57 — a big improvement from today’s $35 share price.

Now remember, that $4.1 billion market cap is valuing Brighthouse at just 0.29 times book value.

Just imagine what would happen if $1.5 billion of shares are repurchased AND the stock market valuation were to also move up to a more reasonable 0.80 times book value!

At 0.80 times book value, Brighthouse Financial would trade at $11.1 billion. And if the share repurchase plan were to reduce the share count to 70 million, that would put Brighthouse Financial’s share price at $158 per share.

Yes please!

Clearly, the best thing that could happen to Brighthouse shareholders is for the market to keep this pessimistic valuation going as long as possible so that the Board of Directors can repurchase shares hand over fist.

The stock market has served Brighthouse Financial shareholders a lemon with this crazy low valuation. The Board of Directors of this company has a chance to turn that lemon into some very sweet lemonade.

Here’s to looking through the windshield,

Jody Chudley

Jody Chudley
Financial Analyst, The Daily Edge

The post This Stock is Unfathomably Cheap appeared first on Daily Reckoning.

“Dad, I Just Hit a Porsche”

This post “Dad, I Just Hit a Porsche” appeared first on Daily Reckoning.

If there’s one text you don’t want to receive from your teen driver, it’s this one:

“Hey Dad, give me a call. I just got in an accident and hit a Porsche”

You better believe I called David right away. Not because I was worried about the Porsche or the expense at all. I wanted to know that my son was alright!

Fortunately, no one was hurt. The Porsche stopped suddenly when making a turn and David barely bumped into it. From the pictures I saw, there was barely a scratch on the bumper.

Of course the jerk driving the Porsche is claiming thousands of dollars in damage along with injuries. He already has a lawyer and is trying to capitalize on the situation.

So while this incident could have been a lot worse, we’ll likely be spending a lot of time and money to clear everything up.

Fortunately, a few short years from now we won’t have to worry about this type of event anymore. And today, I want to show you how to capitalize on some big changes happening on our roadways!

The Dangers (and Expenses) of Human Drivers

Driving seems to be a theme at my house right now.

David had his accident just a few days ago. My 18-year-old daughter has been driving for a year now and is a big help with carpool when we need her. And my 16-year-old daughter is scheduled to take her road test to get her driver’s license this week!

(We worked on parallel parking last night and she’s got the hang of it!)

While I’ve been very careful to teach them as much as I can about safety, and we’ve logged hundreds of hours behind the wheel, my protective side is still worried about them.

After all, there are so many unnecessary deaths on our roads.

Just last week, one of my friends lost his brother in a tragic accident.

A couple of years ago, a friend of mine turned left in front of an unseen vehicle and was killed instantly.

And my kids felt their own sense of grief when one of their classmates died in a crash last year.

According to the National Highway Traffic Safety Administration (NHTSA), there were nearly 40,000 people killed on U.S. roads in 2017, and about 90% of those accidents were due to human error.1

Talk about unnecessary tragedy!

And that number doesn’t even begin to touch the hundreds of thousands of accidents that did not have a fatality — but still resulted in immense costs in medical expenses, vehicle repair, infrastructure repair, lost productivity and more!

Fortunately, something is being done about the dangers on our road. And you can be part of the solution while also collecting income checks and booking investment gains!

Self-Driving Cars are the Answer… And They’re Right Around the Corner!

It wasn’t all that long ago that the thought of a self-driving car sounded like science fiction. But many of today’s new vehicles are capable of operating with minimal input from a driver. And in a short time (probably only a couple of years), we will have vehicles that can completely drive themselves!

Of course, this type of technology isn’t evolving overnight.

It has taken hours and hours of programming time, vast technological resources, and plenty of trial and error to get self-driving cars on the road. And over the next few years, these investments are going to be even more intense!

Self-driving cars will need an estimated 300 million lines of programming code to handle all of the variables the road throws at them. And computer systems will need to handle more than 1 terabyte of information per second to keep cars driving safely.

(To put that number into perspective, it wasn’t that long ago you couldn’t even find a personal computer that could store one terabyte of data, much less process that much information in such a short period of time.)

With this demand for intense computer processing capabilities, semiconductor and memory chip makers are going to see demand increase sharply over the next two years. And communications firms that instantly send traffic and road condition data to fleets of cars around the country will also benefit.

Companies like Broadcom (AVGO), Micron Technology (MU), Verizon Communications (VZ) and many, many more will be launching new business units tied directly to autonomous driving technologies.

Automakers like Ford Motor (F) and General Motors (GM) will profit as an entire population shifts towards safer vehicles that have autonomous driving capabilities.

I still have a lot of questions about how insurance companies will fare once self-driving cars become the standard. Because while there will likely be fewer claims, insurance companies will also be forced to reduce prices as fewer vehicles will wind up in costly accidents.

The important thing is that many, many lives will be saved. Because self-driving cars don’t check their cell phones, get distracted by a billboard, or accidently run into Porsches while making turns.

Thanks to autonomous driving technology, the future will be much safer — and much more profitable! And we’ll be tracking the best opportunities in this ever-growing market right here at The Daily Edge.

Here’s to growing and protecting your wealth,

Zach Scheidt

Zach Scheidt
Editor, The Daily Edge

1 On the Road to Full Autonomy: Self-Driving Cars Will Rely on AI and Innovative Memory

The post “Dad, I Just Hit a Porsche” appeared first on Daily Reckoning.

Is This Cheating the Gov’t, or Is It Justified?

This post Is This Cheating the Gov’t, or Is It Justified? appeared first on Daily Reckoning.

In a recent article about “The Seven Deadly Sins of Retirement,” I said soaring healthcare costs were a major topic that seniors need to think about. I also suggested you consider ways to shelter as much money as possible from nursing homes or government-run healthcare programs.

This is not the first time I’ve said as much, and it once prompted a reader named Pat to write in with the following response …

“Nilus, I have to tell you that I have real ethics trouble with some of your recent advice on retirement: Namely, advising people to give away assets so that they can avoid the Medicaid look-back provision for long-term care.

“Why should I or any other taxpayer have to pay for someone’s care just so they can give their assets to their family?

“Having a mother who is likely to need such care, I certainly don’t think others should have to pay for it just so my siblings and I can have some of her assets.”

I take feedback like this seriously … and I always reconsider my arguments when someone calls me out.

But in this case, I stand behind my initial suggestion 100%.

After all, it’s my job to help readers preserve (and grow) their wealth using every legal means available.

Before we get into the specific case of the Medicaid look-back provision, let’s talk about the general idea of protecting your assets.

Protecting Your Assets

I have never, and will never, advocate using illegal means to hide or protect your accumulated wealth.

Because even if you put morality aside, it simply isn’t worth the risk! 

But should I stop recommending perfectly-legal tax shelters like 401(k)s, IRAs, and other special retirement accounts?

Of course not.

Or to take this completely off of me, should an accountant stop helping his clients use every available credit and deduction to lower their overall tax liability?

No way!

We don’t make the rules. We simply help people understand what the rules are and how to use them for the best possible personal outcome.

This is why I laugh whenever I hear Warren Buffett say his tax rate should be higher than it is.

Yes, he should absolutely speak his mind on the topic, and do his best to convince elected officials to change the law as he envisions it.

At the same time, nothing prevents him from writing a bigger check to the Treasury any time he feels like it. I’m sure they would have no qualms cashing it! 

So you have to wonder whether he really means it. After all, Berkshire Hathaway makes darn sure that it exploits every single advantageous element of the tax code possible. The company has a responsibility to its shareholders to do so.

In a similar vein, if you don’t like using the current rules and laws to your family’s advantage, that’s completely your choice.

But I would much rather give as much of my wealth as possible to my daughter – especially if the alternative choices are nursing homes or the government.

And here’s why I feel very ethical by preserving my wealth in this way …

The Ethics for Preserving Your Wealth

For starters, as I’ve already pointed out, there’s nothing technically (or legally) wrong with signing away all your assets to an heir and then later qualifying for Medicaid.

As to the MORAL argument, how is doing so any different than someone who gave away a good portion of their wealth to big-screen televisions or a gambling habit? 

Why should someone who chose financial responsibility feel guilty for getting to pass along the results of their discipline and hard work?

And how are they bilking the state any more than the spendthrift?

What I’ve observed time and again – and it’s a trend that seems to be accelerating – is the idea that responsible, harder-working, more-disciplined people should always, unquestionably, be there to bail out less responsible parties.

And not by choice but by force.

I see this dynamic at work in the government’s response to the real estate bust … the Fed’s record-low interest rate policies … the various bailouts … the new healthcare exchanges that were established a couple years ago … and plenty of other places.

Bottom Line

In my opinion, these approaches start with good intentions but result in serious moral hazard – a situation that encourages the very behaviors trying to be eradicated.

So, by all means, we should aim to help others whenever it’s within our means to do so …

We should absolutely obey the laws that are in place at any given time …

And we should all feel responsible for voting our consciences in an effort to shape the future as we believe it should be.

But there is absolutely no reason anyone should feel compelled to go one step beyond the letter of the law as it currently stands simply because of guilt.

Quite to the contrary, I feel it’s my ethical duty to continue giving readers the best information I can so they have the widest range of choices possible.

To a richer life,

Nilus Mattive

— Nilus Mattive
Editor, The Rich Life Roadmap

The post Is This Cheating the Gov’t, or Is It Justified? appeared first on Daily Reckoning.