Nov 152016

Why don’t you have enough money for retirement?

enough-moneyAnother reason why you might not have enough money for retirement is that all the financial advisers were wrong. They told you to put your money each pay period into mutual funds and let them manage it for you. And when it came time to retire you would have a nice nest egg.

So you invested with them. You were even allowed to direct your 401(k) funds into various mutual funds and bonds that they offered you. Strange how the choices were so limited.

Putting your money into Wall Street turned out to be bad investment. Those who kept their money in the bank or US Treasury bonds did much better than you probably did with your “managed” mutual funds.

How did you do with your investments?

This book is being written in 2015. If you were born after World War II (1945 to 1950) you are considered a “baby boomer”. Therefore, in 2008 you were between 58 to 63 years old. This was just the time when many people started to think about retirement.

The 2008 stock market crash came at a very bad time for these retirees.

2008 Stock Market Crash

In the United States the housing bubble burst in 2004 which led to a loss of values in securities tied to real estate.

This damaged investors to the extent that securities suffered large losses in the following years leading to a crash of the stock market in 2008 not seen since the Great Depression of the 1930s.

This crisis did not begin to turn around until 2012.

In turn the mutual funds where most 401(k) pension plans were invested lost much of their value.

Retirement account losses in 2008 affected the wealthy the most. If you had more than $200,000 in the stock market, you lost on average 25% of your savings.

If you had between $100,000 to $200,000 you would have suffered average loss of 21 percent in 2008. The typical account with $50,000 to $100,000 lost around 15 percent.

In 2008, the average diversified U.S. stock fund fell about 38 percent while bonds only fell 8 percent.

Unfortunately, most employees did not have their retirement money in US Treasury bonds.

Read about the 401(k) meltdown.

Why did mutual funds lose so much money?

The Mutual Fund Industry Is a Huge Scam

The mutual fund industry and the human resource departments of many companies told you to put your money into a mutual fund and let a “professional” pick and choose which stocks to buy. This has cost employees billions of dollars every year while making mutual fund employees and their companies rich.

Read more how the mutual fund industry is a scam that costs investors billions of dollars a year.

How well did mutual funds perform?

Statistics show that in the last decades that the majority of funds performed worse that simple index funds. Moreover fees have been excessive.

You would have made more money in Index funds as they are not “managed” so they have very low costs.

Most “managed” mutual funds have paid managers very high commissions and their employers very high profits.

How did they get so rich?

Mutual funds managers were encouraged to “churn” accounts (buy and sell stocks solely to create commissions) and were paid to recommend “favorite” stocks of their employers.

Again you would have done better if your money were in Treasury Bonds or index-funds because they performed better.

Well at least you have the equity in your house? Or do you?

The housing bubble burst

In many parts of the United States housing prices fell drastically in 2008-2009. What was supposed to be a good long-term investment turned into a disaster for many people.

Many retirees were hoping to be able to sell their home at a good profit and use the funds for their retirement. Instead they were struggling to make the mortgage payments on a reduced income.

The low mark was in 2012 and just now in 2015 housing prices have started to come back a little to 2009 values.

Many people still find that they are “upside down” in their home. That means that they owe more than the mortgage.

Reverse Mortgages

One solution to the problem of how to pay the monthly mortgage is to eliminate it with a “reverse mortgage”.

With a reverse mortgage you agree with the bank that you will not be paying the principal and interest every month like you do now.

In other words,

you cancel your monthly mortgage payment.

The only monthly house expenses that remain are repairs, maintenance, insurance, utilities, and taxes.

So what happens when you sell the house?

When you sell the house, the bank will want the unpaid principal plus all the unpaid interest at that time.

If you sell the house for more than you owe the bank, the difference is yours is yours to keep.

If you sell the house for less than you owe the bank, then the United States government pays the difference to the bank. You pay nothing.

You will never have to pay any more to the bank.

Who can get a reverse mortgage?

A reverse mortgage in the United States is available to seniors 62 or over with at least 50% equity in the home (this can vary). You can even pull out some cash when you get the reverse mortgage.

See HUD guidelines.

The major disadvantage is that since you are postponing paying interest, you will be paying interest on interest which slowly eats into your equity. If the interest rate is higher than the rate that the house is appreciating, at some point you will owe more to the bank than the house is worth.

But, since the United States government guarantees the loan to the bank so you will never have to pay more money to the bank.

When does the mortgage become due?

The mortgage becomes due only if you no longer live in the house as your main residence; you voluntarily want to sell or refinance the house; or the mortgage debtors die; or if you become delinquent on the taxes and fail maintain the insurance.

No one can foreclose or force you to pay off the mortgage.

Find out more about how reverse mortgages work.

 Posted by at 10:25 pm

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