Grandparents are frequent targets of scams and cons. The scams leverage their status as grandparents to extract money from the seniors. The scams are so widespread and growing that the FTC has issued a warning about them. The general approach is the same. An individual claiming to be a grandchild contacts the grandparent and claims to be in some kind of distress, needing money or a credit card number immediately. Panic and urgency are keys to making the scams work. For more details read here.
“It’s everywhere. It’s an epidemic,” said Jean Mathisen, manager of the AARP’s Fraud Fighter call center, which has fielded hundreds of calls about grandparent scams so far this year.
While law enforcement officials have been cracking down on grandparent scammers operating out of boiler rooms in Canada, new criminals continue to pop up, said Steven Baker, director for the FTC’s Midwest Region.
Exactly how much has been lost to these scammers is unknown, but it’s estimated to be in the tens of millions of dollars or more. One Michigan couple lost $33,000 of their life savings when a man pretending to be their grandson called, asking for cash to help him pay a fine and post bond to get him out of a Canadian jail.
AARP has offered advice and information on Social Security for years. Recently, it compiled the questions its people have been asked over the years and tabulated the five most-asked questions about the program. Here you can find the questions and one man’s answers.
Q: If I begin receiving my Social Security benefits early at age 62 and continue to work, will my benefits increase when I reach full retirement age?
A: Many people think of the earnings test as a permanent penalty, but it is not. If you file early, the SSA will re-compute your benefits automatically when you reach your full retirement age, and you will receive credits for any months when your benefit was reduced.
Even if you did not have benefits withheld due to the retirement earnings test, credits for your work history after age 62 could boost your benefits a bit.
Apparently there’s a guy in Colorado who, along with his wife, retired by the time he was 30. He also has a blog that attracted a fair amount of attention. You can read his story in this article.
His story supports a conversation I’ve had many times. Someone will ask me, “When can I retire.” I say, “You can retire any time you want. It’s a question of lifestyle.” The gentleman in the story lives on about $25,000 annually, and says his family really can’t spend that much. So, they probably don’t do or have a lot of things in the typical retirement. They’re also not fully retired. In addition, to his blog, he has other activities, some of which bring in income. Not everyone can do this, but it’s an interesting tale, and many people can learn some lessons.
But I didn’t start saving and investing particularly early, I just maintained this desire not to waste anything. So I got through my engineering degree debt-free — by working a lot and not owning a car — and worked pretty hard early on to move up a bit in the career, relocating from Canada to the United States, attracted by the higher salaries and lower cost of living.
Then my future wife and I moved in together and DIY-renovated a junky house into a nice one, kept old cars while our friends drove fancy ones, biked to work instead of driving, cooked at home and went out to restaurants less, and it all just added up to saving more than half of what we earned. We invested this surplus as we went, never inflating our already-luxurious lives, and eventually the passive income from stock dividends and a rental house was more than enough to pay for our needs (about $25,000 per year for our family of three, with a paid-off house and no other debt).
Early in the year I reported to Retirement Watch readers that cash balances were extremely high. Many people and businesses made moves late in 2012 to avoid higher taxes they suspected could take effect in 2013. The moves generated a lot of cash from asset sales, special dividends, and the like. Money market funds and other liquid accounts were only parking places for that money. It needed to go to work elsewhere.
One place money went was the stock market, as shown by the sharp rise in U.S. stock indexes in the first two months of 2013. But the money also is moving into short-term bond funds and similar vehicles, says Sober Look. One impetus for this move is the prospect of new money market fund regulations that requires the value of shares to float instead of being fixed at $1.00. If you’re going to take the risk of a short-term bond fund, why not invest in the real deal and earn a higher yield?
What’s causing this decline? The common explanation has been a major rotation into equities. That certainly explains some of it, but there is more to the story. Some institutional investors are becoming uneasy about the impending money market funds regulation. Not only are investors paid a near zero rate on their money market holdings, they also may be subject to some NAV fluctuations in the near future. Furthermore, the NAV fluctuations may only be applied to funds holding commercial paper and not to those holding just treasury bills or treasury repo.
John Makin of AEI is strongly against the “bail-in” solution used Cyprus. Briefly, the solution avoided using taxpayer money to bail out failing banks by taking money from depositors of the institutions, effectively reducing the values of their accounts. The initial proposal was to reduce the balances of all accounts, but after protests the bail-in was restricted to larger depositors, taking upwards of 60% of balances.
Makin doesn’t seem to disagree that depositors are creditors the same as any one else who lends money to a bank. But he believes that causing depositors to lose confidence in their bank deposits and withdraw money from banks could trigger a series of events that reduce global economic growth and perhaps worse. Makin’s solution is to reduce the risk banks are allowed to take with depositors’ money.
In 1933, when the Federal Reserve Bank refused to bail out the Bank of the United States, it triggered a run on American banks. The principal was the same. No bailout for depositors in bad banks. The result of a run on the banks was a collapse in the US money supply by a third. After all, bank deposits are supposed to be a part of the money supply used to effect transactions and store value over short periods of time. The collapse in the money supply resulted in an economic collapse that ultimately morphed into the Great Depression. Let’s not even think about going there by using the Cyprus “template” for dealing with weak banks.
If the EU-ECB-IMF “troika”, the gang that can’t shoot straight, wants to subject all Euro depositors to “bail-in” they should say so. Then depositors in European banks and elsewhere can act accordingly. That is, rush into cash in times of real or perceived crisis in order to preserve their assets. That would constitute a run on Europe’s banks, starting in Greece, then in Spain, Italy and Portugal and eventually reaching France, bank that would collapse Europe’s money supply and its economy. The run and economic collapse would spread rapidly throughout the global economy.
Over the years, reverse mortgages have grown in popularity among senior Americans. A reverse mortgage allows a homeowner age 62 or older to tap the equity in the home without having to make payments for as long as he or she lives in the home. The federal government guarantees most reverse mortgages that are made up to a ceiling amount.
Defaults have increased on reverse mortgages, so the FHA is making a change. The lump sum reverse mortgage, known as a Home Equity Conversion Loan (HECM), no longer will be available with a fixed interest rate in the federal insured loans. Only variable rate loans will be available. This change will reduce the amount that can be borrowed against the home, which the FHA hopes will reduce defaults.
I’ve always considered reverse mortgages to be a last resort for those who need cash, want to stay in their homes, and don’t put a high priority on having heirs inherit a portion of the home equity. Most reverse mortgage borrowers are in their late 70s or older and tend to be female.
“The standard HECM loans have proven to have an unusual number of defaults,” said Delores Conway, associate dean and professor of real estate at the University of Rochester.
“By taking so much cash up front, homeowners have less money in later years to keep up with property taxes and other housing expenses they have to pay even with a reverse mortgage,” Conway added. “That, and falling property values, have increased defaults.”
The FHA insures some 90 percent of reverse mortgages purchased from private lenders. It says about 58,000 loans — or nearly ten percent of its reverse mortgages — were in default in 2012. That’s up from 2 percent ten years ago.
The FHA says it faces some $2.8 billion in losses from the defaults, which could force it to seek a bailout from the federal government next year.
Plastic and electronic payment methods are supposed to eliminate cash, meaning paper currency and even coins. But the Federal Reserve’s latest report says that the amount of cash in the economy actually has increased and increased substantially. The report says there is 42% more cash today than there was five years ago.
How can that be? Well, people are making more purchases through non-cash methods. The number of transactions and purchases made with cash has declined. Instead, the Fed thinks the use of cash as disaster insurance increased. It’s largely the $100 bill that’s increased in circulation. Smaller denominations are in decline. Storage of cash in case of a financial meltdown or other disaster is the likely reason. Illegal activities, such as drug dealing, also is a likely reason for the cash hoard.
Super-low interest rates in the U.S. and other major economies have created more cash in the economy, according to the report by Fed President John Williams, who earlier last week hinted that the central bank could ease its low interest rate policies as early as this summer. While keeping the cost of borrowing low has helped the economy grow, it has also seriously hurt savers, who earn little, if any, return on money they store in checking and short-term savings accounts.
Europe’s ongoing debt crisis has also been a factor: The thought that Italy or Spain’s economies could collapse any day has sent Europeans scrambling to convert some of their euros for U.S dollars. The Fed cites one study where the share of greenbacks held abroad rose from about 56% before the crisis five years ago to nearly 66% in 2012.
Most of you give to charity. Few of us are aware that there is research trying to discover the most efficient way to donate. As with most things economists study, the results often are different from what people are doing or intuitively believe would be best. Read this piece and the links if you want some fresh thinking and interesting ideas.
…Then he started talking about how you should only ever donate to one charity – the most effective. I’d heard this one before and even written essays speaking in favor of it, but it’s always been very hard for me and I’ve always chickened out. What Robin added was, once again, a psychological argument – that the reason this is so hard is that if charity is showing that you care, you want to show that you care about a lot of different things.
I understand that the Fed’s quantitative easing policy is directed at keeping support under the economy while it undergoes a deleveraging among householders. Without this offsetting action from the Fed, the economy easily could spiral into deflationary depression. But I also understand and have said that this is punishing to conservative savers and investors who’ve done the right thing for decades. They went into retirement believing they could earn 4% to 6$ interest on safe investments and were willing to live within the bounds created by that income level. But under QE, they can’t earn a yield anywhere near that without taking more risk than they want to. So, QE is a penalty on savers and investors, especially seniors.
This blog post takes a different position. It says that only a few people depend on interest income for a substantial portion of their income. Though they are hurt if they stay in safe investments, they also benefit from QE. Without QE, the values of their homes and stocks would spiral down. Jobs wouldn’t be available to many others. There would be a series of other negative effects from a lack of QE. As Ben Bernanke often says, the negative effects and costs of QE are worth its benefits.
Now that the Fed has decided to keep QE in place indefinitely instead of the stop-and-go process of 2009-2012, conservative savers and investors can plan better and avoid the volatility of the previous years.
Even seniors, one of the groups most obviously hurt by low interest rates, get only ten per cent of their income from interest payments. Bernanke has been accused of waging class warfare and forcing senior citizens to eat cat food, but the simple fact is that people who are net savers are, on average, wealthier than those who aren’t.
And what if the Fed did raise interest rates? It’s unlikely that savers would be better off in the long run, since the move would slow down the economy as a whole and perhaps even tip us back into recession. Most savers aren’t just savers, after all: they are also workers or homeowners or stock-market investors—groups that need a growing economy to prosper. Even people who live entirely off interest rely on economic growth.
So says the Mortgage Professor, Jack Guttentag, an emeritus finance professor at the Wharton School of the University of Pennsylvania. Guttentag’s main argument is that interest rates are so low that it’s a good idea to snap up the cash now. Low rates let you borrow more than you could borrow at higher rates.
Guttentag recommends taking the loan even if you don’t need the cash. You can simply establish a line of credit so the money is available in the future when you need or want it. In fact, he says the ideal strategy is to set up the largest line of credit you can now and avoid using it for as long as you can. Keep in mind you don’t qualify for a reverse mortgage unless you’re at least age 62, and using a reverse mortgage generally means your heirs will receive little or none of your home’s value.
A key factor in this calculation is the “expected interest rate.” The lower it is, the more the homeowner can borrow, and rates are quite low today.
“For example, at an expected rate of 4 percent, which has been a common rate during 2013, a senior of 62 with a home worth $300,000 can draw an initial credit line of about $174,000,” Guttentag says.”At an expected rate of 6 percent, the line drops to $140,000, and at 10 percent it falls to $54,000.” In other words, get a reverse mortgage now and you can borrow more than if you wait until rates rise, as most experts expect over the next few years.
But wait, there’s more — a second interest rate called the “accrual rate.” Like the interest rate on a regular mortgage, it is the rate charged against the loan balance. If you use the reverse mortgage to borrow a lump sum, it is a fixed rate for the life of the loan. If you take out a line of credit to draw on in the future, or select a regular monthly payment, the accrual rate is adjustable — it will rise or fall as market conditions change.