Financial Considerations for Seniors
Moving from the world of employment and a steady paycheck to a reality of pensions, Social Security and Medicaid can come as a shock to retirees who must contend with reduced income and new financial actualities. Financial advisers suggest that senior citizens investigate their fiscal status carefully before making any drastic economic changes or decisions.
There are a number of money management options that seniors should review in order to help them manage their finances more efficiently. Analysts remind retired individuals that not all suggested alternatives are applicable to every situation but seniors should carefully review each proposal to ascertain those which apply to their particular circumstances.
Peter Macaluso, vice president of the Retirement Services Division at Franklin Mutual Group Insurance (FMI) suggests that seniors make it a practice to pay off their credit cards at the end of each month. He notes that this practice will save the credit card owner the costs associated with the credit cards’ high interest rates which increase the debt. With reduced income, seniors are at a greater risk of getting into a high-interest form of debt when they can’t pay off their cards at the end of each month. Macaluso also advises seniors to take out a personal loan, with a lower percentage rate, when necessary, to pay off the credit card debt.
Elle Kaplan of Lexion Capital Management LLC is expresses her reservations regarding investing in annuities, especially for seniors who may not recognize the hidden fees associated with this type of investment. Annuities provide limited tax deferments and death benefits but the money is often locked in, unavailable to investors who may need the cash to take care of emergencies or other unexpected expenses. This is a major drawback, especially for seniors who may invest in annuities without fully understanding the implications of keeping their savings unaccessible for several years.
Retirees should carefully review the cost of a life insurance policy verses the value of the policy. Financial consultants urge seniors to investigate the cash surrender value of a life insurance policy versus the cost of the annual premium payments before signing on for such a policy.
Home Equity Conversion Mortgages (Reverse Mortgages) can offer real cash relief for retirees who want or need a monthly income or a lump sum payout. The Federal Housing Administration (FHA) - insured product offers seniors aged 62 and over assured alternative sources of income based on the equity in their home. Payment is not due until the borrower no longer lives in the house. The Department of Housing and Urban Development (HUD) regulates the industry and provides resources which ensure that potential borrowers have access to legitimate lending institutions for the HECM loan. HUD requires that potential borrowers undergo counseling with an approved HECM counselor before a lending institution can grant the Reverse Mortgage loan.
Financial advisers note that there are fees, insurance payments and interest rates associated with the loan which potential borrowers must take into account. In addition, many advisers suggest that, although seniors are eligible to take out a Reverse Mortgage at age 62, they should wait a few years to get a better return on their investment. The Reverse Mortgage, however, is a secure product which can offer financial relief to many retired people.