Retire With Ryan

As tensions run high between the U.S. and Russia over the latter’s occupation of Ukraine, many investors are worried about how this conflict will impact their retirement portfolio. On this episode, we’ll take a look at the current state of the market, stock market performance during previous wars and conflicts, as well as potential portfolio strategies that can help you weather the storm.

You will want to hear this episode if you are interested in...

• Examining the current state of the market [1:12] 
• Financial analysis of five crucial historical conflicts [3:03]
• Ways to be prepared for the potential Russian conflict ahead [10:15]

Look at the market

There are several different metrics that you can use to ascertain the current health of the stock market. While the Dow Jones average is certainly one method, I prefer the S&P 500 because we have data on that going back to 1927 that is easily searchable online. It's also a good indicator of how the stock market is doing because it represents the 500 largest companies in the United States. Currently, the S&P 500 is down 9.5% year to date and will require market correction if it hits 10%. 

However, we’ve experienced positive returns over the last three years averaging 24.01% so this current downturn could simply be the natural flow of the market. Even during the years that have ultimately turned out positive, we’ve experienced “intra-year declines” where we see drops throughout the year. At the height of COVID, we saw the S&P 500 drop as low as 30%, yet it ultimately ended the year with a 16.26% return, further proving that the current state of the market is not an invitation for drastic action but a call to be alert and prepared.

Follow the money

All the market cares about is profit. Profits are what drive the entire thing. Investors use profit information found in S&P 500 company’s fourth-quarter (Q4) reports to inform their trades and how they invest. For Q4 of 2021, 84% of S&P 500 companies have reported as of now. 78% of those companies show positive numbers across the board in their annual reports. Meaning they received more revenue and earned more profits than anticipated for the year. So it would seem most companies do have a cushion if the U.S. were to get into a prolonged war with Russia.

Another thing to consider is how many S&P 500 companies actually have exposure to Russia. To date, only ten companies would feel a direct impact if the U.S. goes to war with Russia. If none of these companies could do business in Russia, the highest revenue lost would be Philip Morris at 8%. While that may be a significant amount of money, it’s not enough to put any of these major corporations out of business. Admittedly, I don’t know the future. Things could get way worse than anticipated if war does break out. The market could also get better like when the U.S. called Russia’s bluff in Crimea. Trying to predict what’s going to happen before it happens is largely a waste of time, but there are things you can do to be prepared. Listen to this episode to learn more!

Resources Mentioned

• Yahoo Finance 
• Factset: S&P 500 (PDF) 
• J.P. Morgan S&P 500 Investment Performance Report (PDF)
• Financial Analysis of Historical Conflicts (PDF)

Connect With Morrissey Wealth Management 

www.MorrisseyWealthManagement.com/contact

When people think about retirement, they view turning 65 years old as the magic number. And I get it! Why wait a few more years if you can retire now? Surprisingly, there may be more reasons than you think. On this episode, I’m going to share with you five benefits of working past the age of 65, why these may be beneficial for you, and how to take advantage of them before it’s too late.

You will want to hear this episode if you are interested in...

• Working longer to keep saving towards retirement [1:20]
• Working longer to delay Social Security benefits [2:51] 
• Working longer to contribute to an HSA [5:22] 
• Working longer to cover your travel expenses [8:09] 
• Working longer to stay young [9:22]

Worth the wait

Many people have the mindset that they want to retire as soon as possible. However, there are plenty of good reasons to wait. For example, if someone worked until the age of 70, that’s going to shorten the amount of time they would need to live off their portfolio in retirement. Thus needing to save less than someone who retired earlier. It’s also a huge benefit if you got a late start in retirement planning. Staying in the workforce and retiring later can help you make up for lost time and save the money you’ll need for a successful retirement.

Another great reason to keep working is that it delays when you begin collecting Social Security benefits. You get an additional 8% credit per year for every year you wait until your full retirement at age 70. Meaning, if full retirement for you is age 67 and you wait until you turn 70, you would receive an additional 24% in benefits. Working longer also benefits people who earned a lower income at the beginning of their careers and are now in their peak wage-earning years. Replacing lower-income years with higher-income years can also increase your benefits.

Strike while the iron is hot

When planning for retirement, there are a handful of things that you can only do before retirement that will serve you well in retirement. One of those things is contributing to a Health Savings Account (HSA). I LOVE these things because they are currently the only triple tax-free investment account available. Triple tax-free means that you receive a deduction on your contributions, the money grows tax-deferred, and when you take it out and use it for health-related costs it’s 100% tax-free to you. You would likely be able to take advantage of this because many employers are switching to high deductible health plans. However, once you enroll in Medicare, you are no longer eligible for an HSA account. Staying employed allows you to continue making contributions to an HSA that will serve as a tax-free medical fund in retirement.

Additionally, most people wait until after they retire to take their dream vacation. While the sentiment makes sense, it could be more beneficial to take that trip while you’re still working. If you can pay for your travel while you’re still receiving a paycheck, it will be less of a hit on your finances in retirement. You also have the added benefit of using paid time off if you have it available. For more information on working past the age of 65, listen to this episode!

Resources Mentioned

• 6 Ways Seniors Can Stay Young And Active After 60 (Article) 

Connect With Morrissey Wealth Management 

www.MorrisseyWealthManagement.com/contact

If you listened to last week's episode, you know that owning bonds is a key part of asset allocation. However, the issue with that at present is their low return. This is especially challenging given the recent spike in inflation. On this episode, we’re going to talk about I bonds. A bond specifically designed to adjust for inflation! I’ll show you how they work, how you can invest in them, and potential setbacks with this kind of investment.

 

You will want to hear this episode if you are interested in...

• What is a U.S. savings bond? [1:27] 
• How does an I bond work? [2:50]
• The pros and cons of investing in I bonds [5:23]
• Purchasing and planning for I bonds [10:56]

  Bond, Savings Bond

U.S. savings bonds are issued by the U.S. government and are often considered one of the safest investments you can make. There are multiple types of U.S. savings bonds, however many of these are paying little to no interest at the present moment. For example, the 10-year savings bond has a rate of 1.954% interest, which is even an increase from a few weeks ago. Normally, this would be a decent return, but with inflation rising to nearly 7% and no signs of stopping, you’re likely looking at a negative return with this kind of investment.

Thankfully, there is a U.S. savings bond that adjusts for inflation. It's called the I bond and inflation is what the “I” stands for! Two components make up an I bond you need to be aware of. The first component is the fixed-rate currently sitting at 0%. Obviously, investors won’t get a return with that number. They need to look at the second component that is tied to inflation as measured by the consumer price index. The good news is that because inflation has been so high recently, the consumer price index rate is 7.2%, making I bonds significantly more attractive for investors.

  Weigh your options

There are numerous benefits for investors looking to diversify their portfolios with I bonds. The first is that interest is deferred for the 30-year length of the bond unless you cash it out early. I bonds are also an incredibly low maintenance investment. The interest rates adjust every six months so you only need to check on it in May and November. There is also a huge benefit to those looking to use I bonds to cover educational costs as the interest earned is federally tax-exempt when used for that purpose.

While there are many reasons to take advantage of I bonds right now, they do have a few restrictions. You can only purchase $10,000 worth of I bonds per person, per year. That limit can be frustrating for investors who have a lot of money in the bank that is earning a nominal amount of interest. While it’s certainly not a reason to avoid I bonds altogether, it simply means that I bonds shouldn’t be your only investment strategy. Another potential hiccup for I bond investors is if they are purchasing them for their grandchildren. In this case, I bonds could disqualify college students from necessary financial aid through FAFSA because it represents an asset in the student’s name. Investors should coordinate with their children before purchasing an I bond for their grandchild. Listen to this episode for more information on I bonds!

  Resources Mentioned

• Series I Savings Bonds

  Connect With Morrissey Wealth Management 

www.MorrisseyWealthManagement.com/contact

What is asset allocation? How should you approach that while saving for retirement? What about during retirement? Deciding how to invest your assets is incredibly important. On this episode, I’m going to break down your diversification options and give you my take on how to best invest for a successful retirement!

 

You will want to hear this episode if you are interested in...

• What is asset allocation? [1:21]
• Deciding which asset allocations are right for you [3:16] 
• Asset allocation and your retirement time horizon [5:57]
• Exploring your risk tolerance [7:34]
• Steps needed to create a diversified asset allocation [12:17]

  The benefits of diversification

Asset allocation is the single greatest decision that an investor has to make with one of the largest impacts on your investment portfolio. If you Google asset allocation you’ll get a lot of different answers, but it boils down to this: dividing your assets among the various asset classes such as stocks, bonds, and cash to manage the risk in your portfolio. There are also additional options for asset allocation such as real estate or commodities. Diversity amongst your assets will help smooth out any declines. For example, your portfolio will take a minimum hit if the stock market declines while the commercial real estate market remains steady. Diversification helps to protect your portfolio when the markets inevitably fluctuate. 

While you definitely should diversify your portfolio, an issue we’ve encountered over the last several years is the high correlation between these asset classes. Meaning, when stocks go down so do the real estate market and commodities like gold and other precious metals. You don’t always see this happen, but it’s definitely something to keep an eye on when choosing how to allocate your assets.

  Keeping pace with inflation

There are several different ideas when it comes to how you should allocate your assets. A typical suggestion is to subtract your age from 100 and the remaining number is the percentage of your assets you should have invested in stocks. A major problem with this method is that it’s fairly inaccurate. It would have a 65-year-old investing only 35% of their portfolio into stocks. That puts too much weight into bonds and cash and doesn’t properly account for the rising rate of inflation. Increasing the number you subtract from to 110 or 120 does give you a better chance of combating inflation, but it still leans heavily on bonds. 

Investing in bonds has a certain amount of unpredictability involved. Bond returns are based on ever-fluctuating interest rates. As we know, current interest rates are at an all-time low so the likelihood of finding a CD with a good return is as well. In my research, I couldn’t find anything higher than 1.25%. If inflation is hanging out around 7%, investing a large number of assets in bonds will put you way behind the curve. For more information on how to allocate your assets, listen to this episode!

  Resources Mentioned

• Vanguard Investor Questionnaire
• The Investment Answer: Learn to Manage Your Money & Protect Your Financial Future (Book)
• Simple Wealth, Inevitable Wealth (Book)

  Connect With Morrissey Wealth Management 

www.MorrisseyWealthManagement.com/contact

Every parent wants to provide the brightest future possible for their child. That includes helping them save for college! But sometimes the money you set aside for higher education is no longer needed. Scholarships could cover it or a change of plans could render it unnecessary, leaving you with a large pile of cash. What now? On this episode, I’ll show you six ways to use an old 529 College Savings plan so you don’t pay the penalty for an unqualified withdrawal.

You will want to hear this episode if you are interested in...

• The surprising people who can benefit from a 529 account [2:14] 
• Yes, doing nothing is an option [5:04]
• 529 accounts and student loans [6:20]
• Using a 529 account to create a legacy [7:25]
• Taking advantage of penalty-free scholarship withdrawals [8:22]
• Using the money for non-qualified expenses [9:39]

Change of plans? No problem!

So your high school senior just told you they’re starting a business instead of going to college…now what? You’re happy for them, but what do you do with all the money you saved in that 529 College Savings plan? Thankfully, you have options! At any time you can transfer the beneficiary to another qualifying family member. If you decide to make this change you’re not turning over control of the money to anyone, just naming a beneficiary for when you decide to release the money. If your name is still on the account, it's still your money. 

Also, most people don't realize they can make themselves the beneficiary of a 529 account. If you’ve been planning to continue or go back to school you can use the money to pay for your own educational costs. However, it’s not only limited to pursuing education for a career. Have you been dreaming about going to culinary school in France? Or maybe learning from the pros at a golf college? A 529 plan can be used for your passions as well as a degree.

Get the most out of your 529 plan

One of the beautiful things about a 529 College Savings plan is that it is not subject to a time or age limit. You never have to take a required distribution so if you’re kid decides to skip college to start a band, you have time to figure out your next move for the money. Some people choose to keep growing the account to build a legacy. You can leave the money in a 529 for a lifetime. Upon passing, the account will transfer to whoever is listed as the successor. The money just keeps growing! If down the road someone in your family needs help with school, it would be available. 

So what about scholarships? Are parents penalized because their child worked hard and figured out how to pay for school? Not at all. Anytime your student gets a scholarship, you can withdraw up to the amount of that scholarship to spend on anything you want. Keep in mind that you still need to pay income tax on any gains in the account. Meaning, if you’ve contributed $20,000 to the 529 account and through investment, it’s now worth $30,000, you would need to pay income tax on the $10,000 increase if you empty the account. Because a 529 uses pro-rata distribution, you can’t differentiate between principal and gains. For more 529 account tips, listen to this episode!

Resources Mentioned

• 4 Surprising Places to Use 529 Plan College Savings (Article)
• Who is a Member of the Family of a 529 Plan Beneficiary? (Article)

Connect With Morrissey Wealth Management 

www.MorrisseyWealthManagement.com/contact

Tax-planning for small businesses is a critical aspect of their success. After all, the better you plan the better things tend to work out. On this episode, I’m once again joined by tax expert Laura Caifa to discuss something new: tax reduction strategies for small businesses. We go over everything from the deductions you should keep track of to why it may be time to transition to an S-Corp. You will want to hear this episode if you are interested in...

• Everything small businesses should keep track of [1:17] 
• Deductions you should be taking 100% of the time [6:02] 
• Why a Health Savings Account is a retirement game-changer [8:41] 
• What you need to know about tax-free rental income [12:40]
• Reasons you should consider moving to an S-Corp [14:35]

What you track today could save you money tomorrow Transitioning from payroll employee to small business owner can be an overwhelming process. Especially when it comes to tax season. The best advice anyone could give in this area is to keep track of EVERYTHING. But what is the best way to do that? GOne are the days of using a shoebox to keep track of receipts. Or worse, your memory. Accounting software like QuickBooks will bring you and your accountant some much-needed stress relief. 

However, income and expenses aren’t the only things you need to keep a record of. Mileage can be a huge tax break if tracked properly through one of the many phone apps that do so. Just make sure the mileage you’re tracking is business mileage and not commuting mileage going to and from the office. Another deduction every small business owner should be tracking is meals. As of 2021, 100% of business meals are deductible if they are purchased at a restaurant. There are a slew of great apps that can save and organize your receipts and let’s be honest: why wouldn’t you want to write off every meal you can? It’s a major perk of owning your own business.

Tax seasons best-kept secrets 

While these aren’t specifically for small business owners, there are two tax strategies Laura and I talked about that I want to highlight. The first is using a Health Savings Account (HSA). Most people know how HSAs work. Any money you put into it takes a pre-tax deduction, but any money withdrawn from the account for qualified medical expenses is not taxable. However, most people are unaware that you can use an HSA as a retirement strategy. Laura and I both recommend throwing money into a high-deductible HSA qualified plan and then letting it sit. Cover any affordable out-of-pocket costs so that the account continues to grow tax-free. That way when retirement comes and income decreases, you can reimburse yourself from years prior by saving old receipts. You can even invest the money back into a stock fund if your plan allows, rather than letting it sit there earning zero interest. 

The second tax strategy is tax-free rental income. I have to admit, I was unaware of this until my conversation with Laura, but it’s one of my new favorite things. The general rule is that if you rent your residence or a residence you own for 14 days or less, the income from that rental is tax-free regardless of how much it is. Meaning you could rent out that vacant vacation home for two weeks out of the year and get a sweet tax-free boost to your income. 

Resources Mentioned

• Caiafa & Company LLC 

Connect With Morrissey Wealth Management 

www.MorrisseyWealthManagement.com/contact

Everyone has their own unique tax puzzle. Retirement can be an especially challenging time because there are many uncharted waters to navigate for new retirees. Did I pay enough taxes during the year? How can I avoid paying penalties altogether? Questions like these can seem intimidating, but they don’t have to be! On this episode, I’m joined by tax expert Laura Caiafa to give you the answers you're looking for and help you breeze through your first tax season in retirement. 

 

You will want to hear this episode if you are interested in...

• Getting to know Laura Caiafa [1:00]
• Pitfalls of paying your taxes on the back-end in retirement [2:34]
• How the IRS determines underpayment penalties [4:43]
• Best ways to avoid paying an underpayment penalty [6:21]
• Setting up quarterly estimated taxes and thoughts on intentionally overpaying [9:36]
• Exploring deductions as a new retiree [11:58] 
• The logistics of changing your residency to avoid income tax [14:23]
• Final thoughts [17:33]

  Tax professionals can help you avoid IRS headaches

Bottom line: The IRS wants their money evenly throughout the year. If you don’t pay enough taxes throughout the year or you pay late, the IRS can hit you with an underpayment penalty that averages around 3% of what you owe. You can avoid the penalty by making sure that your tax balance due at the end of the year is under $1000. The real question is why would you want to give a free gift to the IRS? As Laura said, there’s no reason to pay this penalty and it’s easily avoided with tax planning. Avoid this headache altogether by paying the correct withholding or even estimated taxes. You may have “less” money during the year, but it’s better to pay some now than lose even more money to a pointless fee.

A common question we get is “Should I intentionally overpay my taxes to avoid penalties or an end-of-year tax bill?” By intentionally overpaying, you’re giving the government an interest-free loan that gets you zero brownie points. There’s no benefit to overpaying at all, other than maybe peace of mind that you won’t owe anything when tax season comes to a close. But that’s where using a tax professional comes in handy! They can figure out roughly what you’ll need to pay the IRS and even build in an appropriate cushion to ensure you’re paying enough while keeping the majority of your money with you.

  Retirement is the perfect opportunity to re-evaluate your deductions

Unfortunately, there aren’t any deductions available just for entering retirement. Standard deductions are quite high these days, coming in at a whopping $25,000 for married couples. That makes it difficult to get the maximum tax benefit on an annual basis. Philanthropic retirees can maximize their contributions by switching between itemized and standard deductions each year. Meaning, clients can save all of their charitable giving for a year that will push them above the standard deduction, instead of constantly falling below it. 

There are also state-specific deductions on retirement income that you may be able to take advantage of. Retired teachers in Connecticut can subtract 50% of the income received from the state teacher's retirement system on their state taxes. Additionally in Connecticut, there is a subtraction modification of 28% for pension and annuity income and you can exclude Social Security income altogether on your state taxes. Other states may have similar deductions so do your research and reach out to a tax professional for more information!

 

Resources Mentioned

• Caiafa & Company LLC 

 

Connect With Morrissey Wealth Management 

www.MorrisseyWealthManagement.com/contact

If you’re approaching the age of 72 and you still have questions about Required Minimum Distributions (RMD), this episode is for you! We’ll take a deep dive into all things RMD so that you know what they are, how much you can expect to take out, and the best way to withdraw them. I’ll also give you helpful strategies to prevent RMDs from inflating your next tax bill. That way you can put more of your wealth to good use!

 

You will want to hear this episode if you are interested in...

• What is a Required Minimum Distribution (RMD)? [1:30]
• How much do you need to take out? [2:13]
• RMD aggregation rules you need to know [4:17]
• What can you do with the money from an RMD? [6:18]
• Can you avoid an RMD? [7:04] 
• How is the money from RMDs taxed? [8:21]
• How can I reduce my RMD tax bill? [9:35]

  The basics of Required Minimum Distributions

Required Minimum Distributions may sound confusing, but they are rather straightforward. RMDs are an amount of money that the IRS requires you to withdraw from your retirement accounts at the age of 72. All IRAs are subject to these required distributions except for Roth accounts. Once taxes have been paid on the amount withdrawn, the money is yours to do with what you like. Reinvesting the money into a taxable investment account may be a wise choice, but using it to enjoy your retirement is a completely valid option as well. After all, you can’t take it with you!

One thing to be aware of with RMDs are the aggregation rules. You can combine your required contributions from regular IRAs and pay with one account, but you can’t lump that in with other workplace retirement accounts like a 401k or a 403b. This is where many retirees get into trouble and even advisors can get confused. My recommendation is to roll everything into an IRA with one advisor/custodian who can keep an eye on all of your accounts to make sure everything is done correctly. The last thing you want is to pay a 50% penalty to the IRS!

  As the old saying goes…

Death and taxes may be unavoidable, but good wealth management strategies can at least lessen the blow of the latter. While continuing to work can delay Required Minimum Distributions past the age of 72, they won’t prevent them from kicking in the year after you retire. A better strategy to reduce the tax impact of RMDs is to begin taking money out as early as 65 or whenever you retire. You will likely have to pay more in taxes if you wait until you turn 72 versus paying fewer taxes over time if you start early.

Another fantastic RMD strategy for the charitably inclined is using a Qualified Charitable Contribution (QCD). QCDs allow you to donate your RMD to the 501c3(s) of your choice up to $100,000 per year, per person. That’s especially beneficial for those who can no longer itemize their taxes and are limited to writing off only $600 in charitable contributions per couple. Just make sure you donate the money through your financial institution by filling out their forms as you are unable to take receipt of the money and donate it yourself.

  Resources Mentioned

• Uniform Lifetime Table 2022 (PDF) 

 

Connect With Morrissey Wealth Management 

www.MorrisseyWealthManagement.com/contact

If you’re looking to retire in the next few years, this episode is for you. As we move into 2022 you can start your year right and get your retirement plan in order by doing a handful of simple “money moves” to ensure you’re on the right track. This is a rapid-fire, easy-to-follow episode so get out your pencil and paper and take some notes. We’ll cover reviewing your budget, paying down high-interest debt, increase contributions to your retirement plans, review your asset allocation, create an emergency fund, review life insurance coverages, and review or update your estate planning documents. It’s all on this episode. 

You will want to hear this episode if you are interested in...

• [0:56] Review your budget: How did you spend your funds in 2021?
• [2:20] Start to pay down your high-interest debt
• [4:30] Increase your contributions to your retirement plans
• [6:00] Review your asset allocation
• [8:09] Create an emergency fund
• [9:39] Review your life insurance coverage
• [11:01] Review your estate planning documents

2022 money move recommendation #2: Pay down high-interest debt

This could be holiday spending debt, or debt you’ve had for a while. High-interest debit is problematic especially as you near retirement. I personally like to address the highest interest debt first and begin making extra payments to it. As you pay off that debt, you then move your payment to the next debt in line. Some other options to help you accelerate your debt payoff are: 

You could consider refinancing your home if the interest rate you currently have is high, but be sure you calculate if it’s worth the process to incur closing costs and fees required to refinance. You could also take out a home equity line of credit, which will have a variable interest rate after a year or so, but it likely won’t be as high as your credit card rate.

Money move #7: Review your estate planning documents

Reviewing your estate planning documents is easy to put off, it’s like cleaning out the garage or the attic — you know you need to do it but it never seems to get done. If I may, can I encourage you to bump this up on your priority list? It’s very important. If you don’t have an estate plan and pass away, the disposal of your estate may not go as you wish which could make things very difficult for your beneficiaries and family. But you can do some simple things and avoid all that. What are those things?

Make sure you have a Will. Then ensure you have beneficiaries named on all of your retirement, investment, and annuity accounts. For non-retirement accounts, make sure you set them up as “transfer on death” accounts or with joint tenancy so someone else can access the account if you are unable. Also, consider setting up both healthcare and financial power of attorney.

Listen to hear all the money moves I recommend for 2022.

Resources Mentioned

• The ADP Paycheck Calculator (it’s free)
• Episode 76: Should you have an emergency fund?
• Episode 7: Should you keep your life insurance?
• Episode 9: Estate planning in 7 steps

Connect With Morrissey Wealth Management 

www.MorrisseyWealthManagement.com/contact

Subscribe to Retire With Ryan

Taking out a line of credit on your home can be a great wealth management strategy, but it can also feel like a scary process. Who should you get the loan through? How long do you have to pay it back? Why should you even do it in the first place? On this episode, I’m going to tell you the seven things you need to know about home equity lines of credit as it relates to retirement and give you the confidence to make the best decision for your financial future.

 

You will want to hear this episode if you are interested in...

• What is a home equity line of credit? [1:48]
• How do you get a HELOC? [02:56]
• How is a HELOC paid back? [4:19]
• What are the costs associated with a HELOC? [5:00] 
• Reasons why you should consider a HELOC [5:43]
• Things to consider before opening a HELOC [8:22]
• Why HELOCs are better than taking out a traditional loan [10:16]

  Defining a HELOC and the best way to get one

A home equity line of credit (HELOC) is a loan that you take out against your primary residence. You can also take out a HELOC against a rental property, but it usually works best with your main home. These types of loans require you to have equity in your home to qualify and most banks lend up to 80 or 90 percent of that value. Meaning you can take the loan out against a house with no mortgage or as a secondary mortgage. While I always recommend living a debt-free lifestyle, there are advantages to using a HELOC as your primary mortgage. Even though your house is likely one of your largest assets in retirement, none of that equity is liquid cash. Setting up a HELOC prior to retirement allows you to access that equity in the form of a loan. 

Getting a HELOC is fairly simple. My recommendation is to apply for one through a local bank or credit union because they typically have fantastic rates for these lines of credit. How much a bank will loan you depends on how much equity you have in your home and your income to debt ratio. As I mentioned earlier, you should apply for a HELOC before retirement because income usually decreases once you stop working, making you a less desirable loan candidate from the bank’s perspective. As with any loan, you will need to provide documentation of your income, assets, and tax returns, but it’s not as grueling of a process as applying for a traditional mortgage.

  The logistics of a HELOC and why it can be beneficial

Most HELOCs allow you to use the line of credit for 10 years, essentially like a credit card backed by your house. They give you a checkbook that can be used for whatever you need. You can pay your bills, pay your insurance, and even pay yourself. If there is a balance on the account at the end of 10 years they typically give a 15 year repayment period to bring it down to zero, but you can obviously pay it off before then. You also have the option to refinance a HELOC before the end of the 10 years to extend your credit line an additional 10 year period. 

The following are reasons why you should consider opening a home equity line of credit if you’re approaching retirement:

1. It can be used as a backup plan for stock market decline
2. Interest rates are very low
3. It can be used as an alternative emergency fund
4. It can be a great option to cover long-term care needs

For more information on HELOCs and things you should consider before applying, listen to this episode!

  Resources Mentioned

• Connex Credit Union 

  Connect With Morrissey Wealth Management 

www.MorrisseyWealthManagement.com/contact