How Secure Is Employment at Older Ages? Not Very.
Nearly half of full-time workers ages 51 to 54 experience job loss after age 50 that substantially reduces earnings for years or leads to long-term unemployment, which then impacts future retirement security, according to a new report from the Urban Institute and ProPublica.
Researchers analyzed data from the 2018 Health and Retirement Study, sponsored by the National Institute on Aging and the Social Security Administration, that tracks older adults. Researchers focused on employer-related separations, such as layoffs and business closings, and examined instances that were "financially consequential" with either long periods of unemployment or sustained, substantial wage loss.
As researchers point out, older workers often have more difficulty finding jobs due to age discrimination. And when they do find a new job, it's unlikely to pay as much. Only 1 in 10 of those older workers who experience an involuntary job loss ever earn as much per week after, the report found.
“The steady earnings that many people count on in their 50s and 60s to build their retirement savings and ensure some financial security in later life often vanishes, upending retirement expectations and creating economic hardship,” the researchers wrote. “This problem will likely intensify, as more people realize they must work longer to enjoy a comfortable retirement.”
The report concluded that more research was needed to understand why many employers seem reluctant to employ older workers and to devise ways to help older workers overcome these barriers.
- Richard W. Johnson & Peter Gosselin
A trust is a legal arrangement through which an individual (or an institution, such as a bank or law firm), called a “trustee,” holds legal title to property for the benefit of another person, called a “beneficiary.” If you have been appointed the trustee of a trust, this is a strong vote of confidence in your character, judgment and maturity. However, with that comes legal liability and a significant number of duties.
Outlined below is a brief overview of some of the key duties and responsibilities of a trustee:
As a trustee, you stand in a “fiduciary” role with respect to the beneficiaries (current and future), meaning you have a legal duty to act solely in another party’s interests. As a fiduciary, you will be held to a very high standard of personal and professional conduct in administrating the benefits of the trust.
The Trust’s Terms
Read and understand the trust. The trust is your guide and you must follow its directions, whether about when and how to distribute income and principal or what reports you need to make beneficiaries.
Your investments must be prudent, meaning that you cannot place money in speculative, self-serving or risky investments. In addition, your investments must take into account the interests of both current and future beneficiaries.
Where you have discretion on whether or not to make distributions to a beneficiary, you need to evaluate his/her current needs, his/her future needs, his/her other sources of income and your responsibilities to other beneficiaries before making a decision.
Keep track of all income to distributions from and expenditures by the trust. Usually you must give an account of this information to the beneficiaries on an annual basis.
Depending on whether the trust is revocable or irrevocable and whether it is considered a “grantor” trust for tax purposes, the trustee will have to file an annual tax return and may have to pay taxes.
You cannot delegate your responsibility as trustee, but if the trust document permits it, you may hire agents to carry out certain functions. For example, you may be able to hire financial advisors to make investments, accountants to handle taxes and record keeping for the trust, and lawyers to advise you on questions of interpretation. However, as trustee, you are ultimately responsible for the actions of agents taken on your behalf.
Trustees are entitled to reasonable fees for their services. Family members often do not accept fees. Banks, trust companies and law firms typically charge fees for their services. In general, what’s reasonable depends on the work involved, the amount of funds in the trust, other expenses paid out by the trust, the professional experience of the trustee and the overall expenses for administering the trust.
Expansion of Section 529 education savings plans to cover registered apprenticeships and distributions to repay certain student loans.
A Section 529 education savings plan (a 529 plan, also known as a qualified tuition program) is a tax-exempt program established and maintained by a state, or one or more eligible educational institutions (public or private). Any person can make nondeductible cash contributions to a 529 plan on behalf of a designated beneficiary. The earnings on the contributions accumulate tax-free. Distributions from a 529 plan are excludable up to the amount of the designated beneficiary's qualified higher education expenses.
Before 2019, qualified higher education expenses didn't include the expenses of registered apprenticeships or student loan repayments.
But for distributions made after Dec. 31, 2018 (the effective date is retroactive), tax-free distributions from 529 plans can be used to pay for fees, books, supplies, and equipment required for the designated beneficiary's participation in an apprenticeship program. In addition, tax-free distributions (up to $10,000) are allowed to pay the principal or interest on a qualified education loan of the designated beneficiary, or a sibling of the designated beneficiary.
Kiddie tax changes for gold star children and others.
In 2017, Congress passed the Tax Cuts and Jobs Act (TCJA, P.L. 115-97), which made changes to the so-called "kiddie tax," which is a tax on the unearned income of certain children. Before enactment of the TCJA, the net unearned income of a child was taxed at the parents' tax rates if the parents' tax rates were higher than the tax rates of the child.
Under the TCJA, for tax years beginning after Dec. 31, 2017, the taxable income of a child attributable to net unearned income is taxed according to the brackets applicable to trusts and estates. Children to whom the kiddie tax rules apply and who have net unearned income also have a reduced exemption amount under the alternative minimum tax (AMT) rules.
There had been concern that the TCJA changes unfairly increased the tax on certain children, including those who were receiving government payments (i.e., unearned income) because they were survivors of deceased military personnel ("gold star children"), first responders, and emergency medical workers. The new rules enacted on Dec. 20, 2019, repeal the kiddie tax measures that were added by the TCJA. So, starting in 2020 (with the option to start retroactively in 2018 and/or 2019), the unearned income of children is taxed under the pre-TCJA rules, and not at trust/estate rates. And starting retroactively in 2018, the new rules also eliminate the reduced AMT exemption amount for children to whom the kiddie tax rules apply and who have net unearned income.
Congress recently passed-and the President signed into law-the SECURE Act, landmark legislation that may affect retirement planning. Many of the provisions go into effect in 2020, which means now is the time to consider how these new rules may affect your tax and retirement-planning situations.
Repeal of the maximum age for traditional IRA contributions.
Before 2020, traditional IRA contributions were not allowed once the individual attained age 70%. Starting in 2020, the new rules allow an individual of any age to make contributions to a traditional IRA, as long as the individual has compensation, which generally means earned income from wages or self employment.
Required minimum distribution age raised from 70.5 to 72.
Before 2020, retirement plan participants and IRA owners were generally required to begin taking required minimum distributions, or RMDs, from their plan by April 1 of the year following the year they reached age 70%. The age 70% requirement was first applied in the retirement plan context in the early 1960s and, until recently, had not been adjusted to account for increases in life expectancy.
For distributions required to be made after Dec. 31, 2019, for individuals who attain age 70% after that date, the age at which individuals must begin taking distributions from their retirement plan or IRA is increased from 70% to 72.
Partial elimination of stretch IRAs.
For deaths of plan participants or IRA owners occurring before 2020, beneficiaries (both spousal and nonspousal) were generally allowed to stretch out the tax-deferral advantages of the plan or IRA by taking distributions over the beneficiary's life or life expectancy (in the IRA context, this is sometimes referred to as a "stretch IRA").
For deaths of plan participants or IRA Owners beginning in 2020 (later for some participants in collectively bargained plans and governmental plans), distributions to most nonspouse beneficiaries are generally required to be distributed within ten years following the plan participant's or IRA owner's death. So, for those beneficiaries, the "stretching" strategy is no longer allowed.
Exceptions to the 10-year rule are allowed for distributions to (1) the surviving spouse of the plan participant or IRA owner; (2) a child of the plan participant or IRA owner who has not reached majority; (3) a chronically ill individual; and (4) any other individual who is not more than ten years younger than the plan participant or IRA owner. Those beneficiaries who qualify under this exception may generally still take their distributions over their life expectancy (as allowed under the rules in effect for deaths occurring before 2020).
Here is a sampling of the dozens of new state laws that went into effect in 2020. Many affect seniors.
Washington: more older residents are eligible for property tax relief, as the threshold for relief rises based upon median county income.
Minnesota: a new law requires assisted living facilities to be licensed and sets minimum standards for safety, staffing, training and protections for people with dementia.
Nevada: Employers in the private sector with 50 or more employees are now required to provide 40 hours a year for paid leave that can be used for caregiving.
Arizona: Under a new $1 million pilot program, family caregivers may apply for reimbursement of up to $1000 for home modifications and assistive technology.
Mississippi: Court-appointed guardians may now represent at-risk adults who can no longer make decisions.
Iowa: Guardianship and conservator laws were updated to better protect Iowa’s most vulnerable residents.
AB 1482: Rent control
Communities without their own rent control laws will now be covered by statewide rent control protections. The law limits rent increases to 5 percent each year plus inflation, but never above 10 percent total. The law does not apply to housing built in the 15 years prior. The limit is a rolling number so the date housing is excluded changes every year.
SB 222: Housing discrimination
This law expands existing law to protect veterans and military personnel against housing discrimination.
AB 375: Online privacy
Want to know what information companies like Facebook or Google are collecting about you. The California Consumer Privacy Act (CCPA) gives internet users more control over their data. Among other things, the law gives users the right to know what data is collected, the right to reject the sale of your information and the right to delete your data.
SB 167: Public safety power shutoffs
Requires utilities like PG&E to devise plans on reducing the negative impact of planned power shutoffs to first responders and people with disabilities.
AB 247: Tree trimming
Gives the California Public Utilities Commission more oversight over tree trimming efforts by utilities. Power companies would have to submit timely reports on their brush and tree trimming work.
Fifty-one years after the Fair Housing Act was enacted in the United States, the lesbian, gay, bisexual, transgender and questioning (LGBTQ) community is making some strides in homeownership.
Part of the reason for the gradual uptick in LGBTQ homebuyers can be traced to Marriage Equality, which is an outcrop of the civil rights movement that ushered in the Fair Housing Act, says Jeff Berger, founder of the National Association of Gay & Lesbian Real Estate Professionals, or NAGLREP.
However, housing discrimination for this community still exists. Lenders are less likely to approve same-sex couples, according to a recent study from Iowa State University’s College of Business. In fact, the same-sex couples that were approved paid more in interest and fees.
This guide aims to help members of the LGBTQ community recognize and protect themselves from housing discrimination during the home buying process.
Marriage Equality fuels home sales
Berger cites the enormous buying power of the LGBTQ community as one reason they’re significantly contributing to the real estate industry. In 2015, the U.S. adult LGBTQ population had $917 billion in combined buying power, according to an analysis by Witeck Communications.
“This is a huge number and it’s important that people realize the power this community has,” Berger says.
“From a real estate perspective, the LGBTQ community is a viable part of home sales. And we’re seeing that in the data. According to our recent survey, 49 percent of respondents reported that more married LGBTQ couples bought a house this year, a 2 percent increase from last year’s survey,” Berger says, citing a 2018 survey.
Furthermore, 62 percent of NAGLREP members reported that there are more LGBTQ homebuyers with children, which they believe is partly a result of Marriage Equality.
In 2017, more than half of all homeowners were married across all age groups. The group with the highest percentage of married couples were people ages 38 to 52; of them 67 percent were married, according to a report by Statista.
Housing discrimination based on sexual orientation persists
Organizations like National Association of Realtors have aligned with the LGBTQ community and prohibited its members from discriminating on the basis of sexual orientation as a matter of policy.
Although the real estate industry as a whole has been supportive of the LGBTQ community, discrimination based on sexual orientation still exists, says Camilla Taylor, director of constitutional litigation for Lambda Legal; a civil rights organization dedicated to the LGBTQ communities.
Same-sex partners were 73 percent more likely to be denied a loan than heterosexual couples with the same financial profile, according to the Iowa State study. The research found no evidence that same-sex couples had a higher default risk.
“First of all, there are still no explicit protections from discrimination on the basis of sexual orientation on a federal level with respect to credit,” Taylor says.
This means mortgage lenders can deny same-sex couples a home loan based on their sexual orientation with little to no legal recourse. In the meantime, the LGBTQ community can use the Fair Housing Act prohibiting discrimination based on sex as a way to protect themselves. The act doesn’t mention sexual orientation, but LGBTQ advocates argue that discrimination against a same-sex married couple constitutes discrimination on the basis of sex.
“A lender can deny applicants if John is married to Tom, but if he were married to Sally then it would be OK. That is discrimination based on sex because it’s the sex of Sally or Tom that makes all the difference,” Taylor says. “We’ve won a few court rulings at the lower-court level holding that the Fair Housing Act should be interpreted that way. But the law is still relatively unsettled.”
How to recognize housing discrimination
There are several ways you can pinpoint housing discrimination through both buying and renting.
How to protect yourself from housing discrimination
One of the most important steps to protecting yourself from housing discrimination is to find an LGBTQ-friendly agent, which you can find on the list of the National Association of Gay and Lesbian Real Estate Professionals (NAGLREP). Get referrals from family and friends and friends for the best agents in your area.
Shop around for a lender who you can be sure won’t discriminate against you. Consult your local Fair Housing Authority for more information. Discrimination may still be in violation of the Act or other state or local regulations.
Some states have housing protection laws in place for the LGBTQ community, and others only have NAGLREP chapters or no protection at all. Check out this map to determine the housing laws and resources available in your state:
In the longer term, advocates and supporters of the LGBTQ community back the proposed Equality Act. This bill, introduced to Congress in May 2017, would amend the Civil Rights Act of 1964 to ban discrimination on the basis of sexual orientation, sex and gender identity in credit and housing as well as employment, public accommodations, public education, federal funding and the jury system.
Alternative options to improve your buying power
The LGBTQ population is not only buying more houses, they’re scaling up. Some 41 percent of NAGLREP respondents believe their clients will upsize rather than downsize when they buy their next home.
Additionally, 27 percent stated that their clients would buy a second home while 48 percent stated that LGBTQ homeowners would make major renovations to their existing home. The right renovations can increase the value of your home.
To estimate the value of specific home projects, the Cost vs. Value report compares the average cost of remodeling projects with the value those projects retain at resale in particular U.S. markets.
These renovations and purchases can improve your selling power (and buying power) in gayborhoods throughout America, notably the Castro in San Francisco, Chelsea in New York, West Hollywood in Los Angeles, South Beach in Miami and East Lakeview in Chicago. This list covers just five out of dozens of predominant gayborhoods throughout the U.S., among the many where LGBTQ families make their homes.
WestCal Mortgage, Reverse is a member of the Los Angeles LGBTQ Chamber of Commerce
-Article Thanks to NATALIE CAMPISI @NATALIEMCAMPISI
Retired seniors with equity in their home, who depend on pensions rather than a bucket of financial assets, can supplement their pension income using a HECM reverse mortgage in two different ways. One way is to choose the “tenure” option under the HECM program, and receive a fixed annuity payment for as long as they remain in the house. The second way is to choose the line of credit option, using some or all of it to purchase an immediate annuity from a life insurance company.
Advantages and Disadvantages
While the HECM tenure annuity pays a little less than the life annuity at most given ages, the borrower retains ownership of the reserve account underlying the annuity. This allows him to change his mind from time to time and switch to a credit line for the reserve amount still available. And if he dies early, the tenure continues to his spouse or the remaining equity in his home goes to the estate. On a life company annuity, in contrast, early death terminates all payments unless the policy has a guaranteed payout, which would reduce the monthly annuity amount he received and make it nearly identical to the HECM tenure payment option.
On the other side of the ledger, if the borrower gets sick and has to go to a nursing home, the HECM annuity will terminate after a year of non-occupancy. That’s why it is called a “tenure payment” rather than a “life annuity”. However, the homeowner can take all remaining monies out before that year is up and then sell the house to acquire the remaining equity. With a life company annuity, in contrast, the senior could be in a nursing home indefinitely without shutting off the annuity.
Regulations that Govern
Life Annuity Purchases With HECM Funds
At an early stage, after 1998, in the evolution of the HECM, some seniors were induced to take out mortgages for the express purpose of purchasing life annuities. The duel licensed loan officer/insurance agent involved earned two commissions, and the needs of the senior were often disregarded. As a result, a law was passed that in effect prevents a lender from disbursing funds at the closing that will be used to purchase an annuity.
California Civil Code Section 1923.2(i) states that:
“A lender or any other person that participates in the origination
of the mortgage shall not require an applicant for a reverse
mortgage to purchase an annuity as a condition of obtaining
a reverse mortgage loan.”
But the law doesn’t get in the way of seniors whose retirement plan includes the purchase of a life annuity from an insurance company. They need only to take a HECM credit line at closing, then draw on the line later to pay for the annuity. This keeps the HECM transaction and the annuity transaction separate, as they should be, and allows the senior to shop for them separately.
- Thanks to The Mortgage Professor for information used here.
I was introduced by a mortgage banker to a hairdresser in West Los Angeles who needed a $200,000 loan to buy his employers salon. He only had one asset, his home. It was worth $1 million and he had a $500,000 mortgage on it. The hairdresser had been bankrupt, lost most of his credit and was currently running 90 days behind on his mortgage payments. In addition he was under age 62 and so was ineligible for a reverse mortgage. He knew that buying this salon was his last chance to break through financially and he had total confidence in his own abilities.
WestCal Mortgage, through a subprime lender, refinanced his home, at a higher rate than his current mortgage, for $750,000 giving him the $200,000 he needed plus a $50,000 cushion. Within 24 months he had increased the salons business by 50%, re-established his credit and qualified for superior loan rates and terms.
These are real stories about people like you who have benefited from a mortgage program designed by Mathius Marc Gertz. Only their names have been changed or omitted.
One hundred dollars looks a lot different depending on where you are in the United States: In Mississippi, for example, it’s worth $117, while in New York, it’s worth about $86. This is especially important to retirees on fixed incomes since there aren’t usually adjustments for geography.
That’s according to the Tax Foundation, which used data from the U.S. Bureau of Economic Analysis (BEA) to show just how far your money will go in all 50 states.
The BEA looked at regional price parities (RPPs), which express a region’s price level relative to the U.S. as a whole. The BEA analyzed prices of “all consumption goods and services, including housing rents” and found that “areas with high/low RPPs typically correspond to areas with high/low price levels for rents.”
States with the highest RPPs are Hawaii, New York and California. Sure enough, rental prices in those states are among the highest in the nation. Those with the lowest RPPs are Mississippi, Arkansas, and Alabama.
The regional price differences are significant, the Tax Foundation reports. Real purchasing power is about 35% greater in Mississippi than in New York. “In other words, by this measure, if you have $50,000 in after-tax income in Mississippi, you would need after-tax earnings of $67,500 in New York just to afford the same overall standard of living,” the report says.
There are some states are an exception to the rules. The Tax Foundation says: “Some states, like North Dakota, have high incomes without high prices.”
That matters because “adjusting incomes for price level can substantially change our perceptions of which states are truly poor or rich.” Take North Dakota and Vermont, where residents earn about the same amount: $52,000 per year. After adjusting for price parity, though, real income in North Dakota is nearly $7,000 more.
This also is worth noting for fixed income retirees who want to improve the quality of their lives without having to relocate overseas. If travel is a big part of what you want to do, it may pay to move to a state with a low RPP and travel more. See our chart below before you decide.
Across the globe, countries are facing an aging population that is unprepared to retire, and many governments are turning to reverse mortgages as an option to help fund longevity — the United States is no different.
With 10,000 baby boomers turning 65 each day for the foreseeable future, the United States needs to be a pioneer of the reverse mortgage product, and it has been.
If you look at the Canadian market, the industry is booming. HomeEquity Bank, the leading provider in Canada, saw volume grow 40% with a product that provides far less in proceeds, protections, and benefits.
In Australia, the government sees the reverse mortgage as part of the solution to help older Aussies retire and age in place comfortably. In China, which has the world’s fastest-aging population and a pension system hit by shortfalls, the government announced it will start allowing reverse mortgages for seniors nationwide.
Imagine if the United States government started looking at reverse mortgages as part of a policy strategy going forward for a population that hasn’t saved for retirement.
According to data from the Federal Reserve’s regular Survey of Consumer Finances, the average household retirement savings for those aged 64 to 75 is only $358,400, with the median being $126,000. When you factor in that Fidelity estimates the average retired couple aged 65 and over in 2018 may need approximately $280,000 saved — after tax — to cover healthcare expenses in retirement, it is obvious there is a major problem coming for the United States.
There will need to be a public policy solution to this problem, and it’s hard to argue that reverse mortgages won’t be part of the solution going forward, as the government will need to help retirees tap their own assets during retirement.
Based on these factors, the reverse mortgage industry in the United States is poised to grow. It’s not a matter of if; it’s only a matter of when.
-Thanks to John Yedinak
Marc has 36 years in financial services and 6 years in teaching.
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