Although retirees can tap into their home equity through a reverse mortgage to create a steady income and improve their cash flow, they are advised to make a number of considerations before making a decision, according to this article on Motley Fool. For example, closing costs for reverse mortgages are higher than those for regular mortgages. Retirees who get a reverse mortgage will continue to pay maintenance, home insurance and property taxes.
Investors whose stock allocation has increased over the years because of the robust market should consider selling some of these investments, according to this article on Kiplinger. That's because the prolonged bull market conditions signify that market correction is very likely soon and could mean substantial losses. Selling stocks also creates an opportunity for clients to rebalance and diversify their portfolio, especially for those who are approaching retirement. However, clients should factor in the tax consequences of selling these investments before making any decision.
Self-employed clients are advised to push themselves to build their nest egg, as they have no employers who will support them to save for retirement, unlike regular workers, according to this article on Barron's. They should consider setting up an automatic savings plan to get started, and opt for a Roth IRA, which provides tax-free income in retirement, or a SEP-IRA or a Solo 401(k). “If you have both a SEP-IRA and a Solo Roth 401(k) you can toggle between them,” says a certified public accountant. “In a year when you have a lot of income, maybe use the SEP-IRA so you can get the tax deduction on your contribution. In a year you earn less and the tax deduction isn’t worth as much to you, fund your Solo Roth 401(k).”
A Roth IRA is an excellent retirement savings vehicle for clients, especially to younger workers who have a longer time horizon to build their nest egg, according to this article on CBS Moneywatch. Although a Roth IRA offers no upfront deduction on the contributions, investment gains in the account are exempt from capital gains taxes and investors face no federal and normally state income taxes when they start taking distributions in retirement. As such, a longer time horizon means bigger gains, as the account will have more time to grow tax-free through compounding.
A 66-year-old worker who intends to defer his Social Security retirement benefit until 70 would not see a reduction in his benefit even if he sees a $20,000 drop in income this year, according to this article on Forbes. That's because the retirement benefit will be based on the highest 35 earning years, and his current earnings will still likely be among the highest.
