MONEY MONDAY 1/28/19
Get excited. Today is the first official day you can file your 2018 taxes.
How will the shutdown impact refunds? No one seems to know for sure. While the IRS claims refunds will not be delayed, you need workers to issue refunds. And right now, most IRS employees are furloughed (and its funding has lapsed). They did call back 46,000 employees to help with the start of tax seaon, but they're still not getting paid.
However, at Simply Money, we would say you shouldn't be worried about this anyway since you shouldn't strive to get a refund. A refund isn't "free money." It's just the government's way of giving you back what you overpaid last year.
TOPIC A: Mortgages
From the WSJ: "A nursing student who works part time... hit pay dirt: For a roughly $610,000 home loan, a mortgage company let her verify her earnings with 12 months of bank statements and letters from clients."
Hello?!?! Crap like this (from lenders AND consumers) got us into the housing crisis and helping trigger the Great Recession. Did we learn nothing???
Good news: Unconvential loans make up less than 3% of the mortgages created, for now. Why is it notable? Because these loans are growing as traditional home sales are declining.
Beware variable rate mortgages: "The 30-year-old student received a loan at a rate of just over 6% for the first five years; it adjusts after that."
Lenders issued $34 billion of these unconventional mortgages in the first three quarters of 2018, a 24% increase from the same period a year earlier.
What makes an 'unconventional loan?' 1) They are not backed by Fannie Mae or Freddie Mac. 2) These loans are large relative to the person's income, interest only, or NOW span longer than 30 years.
During the financial crisis, many unconventional loans soured after borrowers misstated their incomes and lenders didn’t ask for documentation, earning them the nickname “liar loans.” Its why substitute teachers in Florida had 3 vacation homes.
We believe 1) in most cases, a 15 year mortgage is better than a 30 year (pay it off faster, pay less in interest)… and 2) 19% of your gross pay should go to your house payment. The housing industry likes to say it should be around 30%.
HERE'S THE SIMPLY MONEY POINT
Many mortgage lenders want you to take the biggest loan possible - not necessarily what fits your budget.
Most of the time, when people think about retirement, it's usually a kind of "cold turkey" situation: one day you're working, the next day you're retired. But have you ever thought about a "phased retirement?"
A phased retirement consists of a full-time employee moving to a part-time schedule. This can be beneficial for both the worker AND the employer: as a worker, you get a smoother transition into retirement… and the employer gets to have the older worker stick around and pass their valuable skills onto younger co-workers.
Only 9% of large employers offer an official phased retirement program - but that's expected to grow to 23% next year.
Think this might be something you're interested in? Keep these points in mind:
Review your finances and retirement plan: Working fewer hours will translate to a reduced income, and it’s important to understand how that could impact your lifestyle. On the other hand, you may decide that working on a part-time basis, rather than fully retiring, will give your retirement savings more time to compound.
Talk to your employer: Get a sense of how a phased retirement might play out at the organization you work for. Even if your company doesn't formally offer a phased plan, many managers are open to coming up with a ‘one-off’ arrangement for a valuable employee.
You might suggest working a set number of hours each week and carrying out a determined list of responsibilities
Check your benefits: Will you still have access to benefits, such as healthcare? If not, you need a plan to cover yourself until you reach Medicare elegibility (65).
Look at the impact on Social Security: If you work and receive Social Security benefits at the same time before your full retirement age, part or all of your benefit could be temporarily withheld if you earn too much. After you turn your full retirement age, you can work and receive Social Security payments without any Social Security benefit withholding.
If you are able to delay taking benefits due to your phased retirement income, the monthly amount you eventually receive will increase.