Friday Financial Five - August 22, 2014

Friday, August 22, 2014

Dan Forbes, GoLocalProv MINDSETTER™

 

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The quarter million dollar kids

Little bundles of joy are considered priceless, but the USDA helps to put together an actual price. A recent study estimates a child will cost $250,000 until reaching age 18, with college costs added on top. In an ideal world, children will continue to be more responsible for their education, creating well rounded profiles for scholarship possibilities and engaging in more rational student borrowing. They will attend the best college for a pre-determined price as opposed to attending the most expensive college that accepts them. It’s the equivalent of buying the most affordable and practical car instead of a Porsche simply because the dealership will sell it to you.

The least expensive mortgages

Mortgage applications may be on the decline but mortgage loans remain extremely affordable. GoBankingRates compared each state against the national average to figure out which states provide the most affordable mortgages. Rhode Island, which has suffered badly in just about every other recent financial list, comes out on top with an average mortgage rate around 3.4 percent. Connecticut and Massachusetts are also in the top six. The most expensive state surveyed was Nebraska, with an average rate topping 4.1 percent.

Commercial offices still lagging

While residential housing and some commercial areas show signs of health, business offices have not exactly bounced back. Despite extremely low borrowing rates and an increase in hiring, companies and government agencies are moving away from the overhead and expense of having vast office space. It stands to reason, as technology permits remote interaction between parties. Multifamily buildings and mall space have performed well in 2014, but office building investment might still limp along for the foreseeable future.

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Typical Social Security recipients cost themselves money

There appears to be more focus on educating retirees when it comes to Social Security options, with an increase in workshops and specialists available. Financial Engines recently conducted a survey to test general knowledge on the subject and more work needs to be done. A typical couple, despite confidence in their knowledge of the program, might be leaving $100,000 on the table according to the survey. It helps Social Security’s financial stability, but it’s not the most efficient use of the dollars paid in by the retirees.

Maximizing married retirement income streams

Married couples with pension options or Social Security should consider a particular strategy to maximize their income stream. As a simple example, take a state employee that may be entitled to a pension paid only during his or her life of $4,000 per month. Many married employees want income to continue for the spouse if they die, so they’ll choose a joint pension with a 50% payout. This option reduces the employee’s monthly pension to $3,600 and pays $1,800 to the spouse in the event of the employee’s death. A maximization strategy involves taking the higher monthly amount and putting some portion of the difference between the options into a life insurance policy. The employee’s death benefit would then have to provide more than $1,800 per month in spousal benefit, creating a win-win. The concept is sound but doesn’t necessarily work for all married couples.

Dan Forbes is a regular contributor on financial issues. He is a CFP Board Ambassador. He leads the firm Forbes Financial Planning, Inc in Providence, RI and can be reached at [email protected].

 

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