Careers & businesses end, but the need to borrow remains.

We spend much of our adult lives working, borrowing, and buying. A good credit score is our ally along the way. It retains its importance when we retire.

Retirees should do everything they can to maintain their credit rating. A FICO score of 700 or higher is useful whether an individual works or not.

For example, some retirees will decide to refinance their home loans. A recently published study from the Center for Retirement Research at Boston College noted that in 2013, 50% of homeowners older than 55 carried some form of housing debt. In 2017, it is probable that picture is unchanged. Arranging a lower interest rate on any remaining mortgage payments could bring income-challenged retirees more money each month. A strong FICO score will help them do that; a substandard one will not.¹

Most retirees will want to buy a car at some point. Perhaps buying a recreational vehicle is on their to-do list. Very few car, truck, or RV purchases are all cash. A good credit score can help a retiree line up an auto loan with lower interest payments.

Insurance companies also study retiree credit habits. Since the early 1990s, credit-based insurance scores have been fundamental to underwriting. Used in all but a few states, they play a major role in determining car insurance and homeowner insurance premiums.²

The Fair Isaac Co. (FICO) generates credit-based insurance scores, which are variants of standard credit scores. Job and income data do not matter in a credit-based insurance score. Instead, insurers add up factors from a person’s credit history to project the likelihood of that person having an insurance loss. When a retiree consistently makes bill and loan payments on time, that helps her or his credit-based insurance score. The score is hurt when bill or loan payments are missed or delinquent or when debt levels become excessive.^2,3

A strong credit rating can come in handy in other financial situations. It can help a retiree qualify for another credit card, should the need arise. If a senior wants to buy a smaller home (or move into an assisted living facility), a credit score may be a make-or-break factor. If a senior co-signs a loan for children or grandchildren, a credit rating will matter.

How can retirees boost their credit scores? Some obvious methods come to mind as well as less obvious ones. Besides paying bills on time and keeping credit card balances low, wiping out small debts can help lower a retiree’s credit utilization ratio. Asking a card issuer to raise a debt limit on a card can have the same effect, provided the monthly balance stays low and is paid off routinely.⁴

Too few retirees review their credit reports, and about 20% of individual credit reports have errors. More retirees ought to ask the three big credit bureaus – Equifax, TransUnion, and Experian – for a free copy of their credit report. Every 12 months, they are entitled to one.⁴

Credit cards held for decades should be kept active, especially if they have good payment histories. The same goes for high-limit cards. Closing these accounts out can do more harm than good to a credit rating.

Remember that good credit counts at any age. TransUnion recently surveyed baby boomers and discovered that nearly half thought their credit scores would become less important after they turned 70. As you can see by the above examples, that is not true. A high credit score can help you buy and borrow long after your working days are done.⁵

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.

1 - nytimes.com/2016/11/22/health/new-old-age-mortgage-debt.html [11/22/16]

2 - naic.org/cipr_topics/topic_credit_based_insurance_score.htm [12/30/16]

3 - kiplinger.com/article/credit/T017-C000-S015-why-your-credit-score-matters-in-retirement.html [2/9/17]

4 - fool.com/retirement/general/2016/05/13/5-ways-to-boost-your-credit-score-in-retirement.aspx [5/13/16]

5 - kiplinger.com/article/credit/T017-C000-S002-4-reasons-for-retirees-to-maintain-strong-credit.html [7/16]

Today’s impulsive moves could breed tomorrow’s regret

When emotions and money intersect, the effects can be financially injurious. Emotions can cause us to overreact – or not act at all when we should.    

Think of the investors who always respond to sudden Wall Street volatility. That emotional response may not be warranted, and they may come to regret it.

In a typical market year, Wall Street can see big waves of volatility. This year, it has been easy to forget that truth. During the first third of 2017, the S&P 500 saw only 3 trading days with a 1% or greater swing – or to put it another way, 1% swings occurred just 3.5% of the time. Compare that to 2015, when the S&P moved 1% or more in 29% of its trading sessions.¹

The 1.80% May 17 drop of the S&P stirred up fear in some investors. The plunge felt earthshaking to some, given the placid climate on the Street this year. Daily retreats of this magnitude have been seen before, will be seen again, and should be taken in stride.²

Fear and anxiety can also cause stubbornness. Some people have looked at money one way all their lives. Others have always seen investing from one perspective. Then, something happens that does not mesh with their outlook or perspective. In the face of such an event, they refuse to change or admit that their opinion may be wrong. To lose faith in their entrenched point of view would make them feel uneasy or lost. So, they doggedly cling to that point of view and do things the same way as they always have, even though it no longer makes any sense for their financial present or future. In this case, emotion is simply overriding logic.

What about those who treat revolving debt nonchalantly? Some people treat a credit card purchase like a cash purchase – or worse yet, they adopt a psychology in which buying something with a credit card feels like they are “getting it for free.” A kind of euphoria can set in: they have that dining room set or that ATV in their possession now; they can deal with paying it off tomorrow. This blissful ignorance (or dismissal) of the real cost of borrowing can dig a household deeper and deeper into debt, to the point where drawing down savings may be the only way to wipe it out.

How about those who put off important financial decisions? Postponing a retirement or estate planning decision does not always reflect caution or contemplation. Sometimes, it reflects a lack of knowledge or confidence. Worry and fear are the emotions clouding the picture. What clears things up? What makes these decisions easier? Communication with professionals. When the investor or saver recognizes a lack of understanding, shares his or her need to know with a financial professional, and asks for assistance, certainty can replace ambiguity.

Emotions can keep people from doing the right things with their money – or lead them to keep doing the wrong things. As you save, invest, and plan for your future, try to let logic rule. Years from now, you may be thankful you did.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.

1 - nytimes.com/2017/05/09/upshot/the-stock-market-is-weirdly-calm-heres-a-theory-of-why.html [5/9/17]

2 - google.com/finance?q=INDEXSP:.INX&ei=6RMeWfG_JMO7euKQkagG [5/18/17]

It may not be what you think.

How much will your family end up paying for college? Your household’s income may have less influence than you think – and some private colleges may be cheaper than you assume.

Private schools sometimes extend the best aid offers. Yes – it is true that the more money you earn and the more assets you have in a tax-advantaged college savings plan, the harder it becomes to qualify for financial aid. Merit aid is another matter, however; most private colleges and universities that boast major endowment funds support healthy, merit-based aid packages.

These scholarships and institutional grants – awarded irrespective of a family’s financial need – can reduce the “sticker shock” of a college education. A study from the National Association of College and University Business Officers found that grant-based aid effectively cut tuition and fees by an average of 48.6% in the 2015-16 academic year. If your child can fit into the top quarter of a college’s student population in terms of grades or achievement, merit aid may be a possibility. A college that might be your student’s second or third choice might offer him or her more merit aid than the first choice.¹

Relatively speaking, some universities demand more from poorer families. An analysis published in 2016 by New America noted 102 U.S. colleges with endowments of greater than $250 million that charged the poorest students more than $10,000 in tuition for the 2013-14 academic year. Out of more than 1,400 colleges and universities New America studied, hundreds expected households earning $30,000 or less per year to pay the equivalent of half or more of their earnings on higher ed.²

The state legislature of New York made a striking move this spring. It decided to waive tuition for many full-time undergraduate students at both 2-year and 4-year public colleges and universities within its borders. To qualify for this tuition break, households had to earn less than $100,000 annually – and students had to pledge to work and reside in New York state after they earned their degrees. (The annual earnings threshold will presently rise to $125,000.) Families and their students will still have to pay fees (and if needed, room and board).³

New York is not the only state making such an offer. Programs like the Tennessee Promise and the Oregon Promise have made community college tuition free in those states. Delaware and Minnesota have adopted similar plans, and Rhode Island and Arkansas also have like policies in the works. Any little tuition break helps, especially in these times. According to the Institute for College Access and Success, about 70% of college graduates in 2015 owed a great deal of money; their average education debt was $30,100.⁴

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.

1 - usnews.com/education/best-colleges/paying-for-college/articles/2016-07-07/strategies-for-students-too-rich-for-financial-aid-too-poor-for-college [7/7/16]

2 - washingtonpost.com/news/grade-point/wp/2016/03/16/these-colleges-expect-poor-families-to-pay-more-than-half-their-earnings-to-cover-costs/ [3/16/16]

3 - nytimes.com/2017/04/28/your-money/paying-for-college/as-college-deadlines-near-families-wonder-what-they-can-pay.html [4/28/17]

4 - newsweek.com/free-college-tuition-new-york-bernie-sanders-582345 [4/11/17]

Keep an eye on where it goes, as some destinations may be better than others.

You can probably envision how most of your retirement money will be spent. Much of it will be used on living expenses, health care expenses, and, perhaps, debt reduction. Beyond the basics, you will unquestionably reserve some of those dollars for grand adventures and great experiences. If your financial situation permits, you may also contribute to charity.

You just have to remember that your retirement fund is not a bottomless well. If outflows begin to exceed inflows (that is, you repeatedly withdraw more than you make back), you will face a serious financial problem.

With that hazard in mind, be wary of these four spending sieves. Some retirees fall prey to them, and all four can potentially reduce a retirement fund at an alarming rate.

Spending some of your retirement money on your adult children. According to the Federal Reserve Bank of New York, the average indebted college graduate is shouldering $34,000 in student loans. No wonder some millennials live without a car, live with a couple of roommates, or live with their parents. It is easy to feel empathy for a son or daughter in this situation, but you need not bail them out.1

You may be tempted to pay off some bills for an adult child, even some education debt – but should your retirement dollars be used for that? Frankly, no. (If you face the prospect of retiring with outstanding student loans, attack yours instead of ones linked to your kids.)

Spending some of your retirement money on your home. Should the mortgage be paid off? Does the landscaping need work? Should you put in solar panels? In asking such questions, question whether you want to assign your retirement dollars to such expenses.

Making a big lump-sum payment to erase your mortgage balance can also erase that money right out of your retirement savings. Some retirees find it better just to carry their home loans a little longer, enjoying the associated mortgage interest tax break. Certain home improvements might raise the value of your residence; others might not be cost effective.

Spending some of your retirement money at casinos. It is amazing how many retirees flock to gaming establishments. As AARP noted last year, about half of visitors to U.S. casinos are aged 50 or older. Gambling addiction is, fortunately, rare, but even casual gamblers can have a hard time walking away due to the comfort and conditions of the casino experience. Would any retiree be able to defend such spending as purposeful?2

Spending too much of your retirement money at the start of your “second act.” Often, retiree households get a little too ambitious with their travel plans or live it up just a little too much in the first few years of retirement. Either on their own or through a talk with their retirement planner, they learn that they must reduce their spending – and fast.

Aim to spend your retirement money in a way that you will not regret. Recognize these potential traps, strive to steer clear of them, and consider options that may give your retirement fund the possibility of further growth.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.
1 - tinyurl.com/ldkz9yt [4/4/17]
2 - aarp.org/money/scams-fraud/info-2016/casino-traps-older-patrons.html [2/16]