The Perfect Storm for Retirees

Today’s retirees are unlike any other retirees in history: They’re living longer, and many of them want to spend more in retirement than previous generations. At the same time, the fear of running out of money is incredibly common, and for good reason.

The bargain made decades ago in the transition from defined benefit pension plans to the modern 401(k) gave workers control over their savings but also transferred longevity risk from the employer to the worker. As such, these days few retirees can rely on a significant pension and must make their savings last for decades. This may be even more difficult considering that we could see persistently low interest rates, higher inflation and market volatility in the coming years.

The result? Today’s retirees could face a perfect storm, and they may have to use different financial planning strategies than retirees of the past.

Low Interest Rates

The Federal Reserve recently announced that it would maintain the target federal funds rate (the benchmark for most interest rates) at a range of 0% to 0.25%. The Fed cut rates down to this level in March of last year in hopes of combating the crippling economic effects of the pandemic, and it may not raise them for years. Interest rates are expected to stay where they are until 2023. Even when they rise, they could stay relatively low for some time.

As the U.S. government borrowings increase dramatically, the motivation for holding rates down increases. This combination works in favor of immense government borrowing, but for retirees it creates an intrinsic tax in the form of persistently low rates paid on savings. Borrowers love low rates as much as savers detest them. This truth is very much in play today. This poses a problem to retirees who want to earn a reasonable rate of return while minimizing their investment risk.

The Potential for Inflation

Coupled with persistently low interest rates, retirees could face increased inflation in the coming years. Government spending increased significantly due to COVID, with the CARES Act costing $2.2 trillion and the American Rescue Plan Act costing $1.9 trillion alone. The Federal Reserve has said that there is potential for “transient” inflation in the coming months and that it would allow inflation to rise above 2% for some time. While most experts don’t think it’s likely that we’ll return to the high inflation rates of the 1970s, even a normal inflation rate is cause for concern among those nearing and in retirement. Over the course of a long retirement, inflation can eat away at savings significantly.

Consider this: After 20 years with a 2% inflation rate (the Fed’s “target” interest rate), $1 million would only have the buying power of $672,971.

The combination of low interest rates and higher inflation may drive many retirees to take on more market risk than they normally would to account for that.

Market Risk

Those nearing retirement and recently retired can expose themselves to sequence-of-returns risk if they take on too much market risk. This is when a portfolio experiences a significant drop in value while the owner is withdrawing funds, owing to nothing more than unlucky timing. This risk is actuated by the timing of the age of the individual retiree and when they plan to retire, not something anyone usually times around market levels or investment performance but rather around lifestyle or even health factors. As a result, often the portfolio cannot fully recover as the market bounces back, due to the burden of regular withdrawals, and may be left significantly reduced.

Today’s retirees live in an uncertain world with an uncertain market. No one could have predicted the pandemic or its economic effects, and similarly, no one can predict where the market will be next year, in five years or in 10 years. While younger investors can ride out periods of volatility, retirees who are relying on their investments for income may have significantly lower risk tolerance and need to rethink their retirement investment strategy.

Is There a Solution?

This leaves many retirees in a perfect storm. They need to make their savings last longer than any previous generation, but with interest rates at historic lows, they may feel pressured to subject their savings to too much market risk in hopes of earning a reasonable rate of return. The most fundamental step to take is committing to regularized, frequent reviews with your financial adviser. Depending on portfolio size and complexity, this is most often quarterly, but should be no less frequent than every six months. This time investment keeps retirees attuned to shifts in the portfolio that will sustain them for decades to come.

Finally, consider the breadth of options available to your adviser, or on the retail platform you use if you are self-managed. Sometimes having the right tool is everything in getting the job done.  Often advisers have a greater breadth of options available that can more than offset their cost. Remember there are options beyond equities. The best advisers have access to guaranteed income insurance products, market linked certificates of deposits and other “structured assets.” This basket of solutions can provide downside protection ranging from a buffer of say 10%-20% all the way to being fully guaranteed by the issuing insurer or commercial bank. Even within the markets themselves, there are asset managers who create stock and bond portfolios that focus on a specific downside target first, emphasizing downside protection above growth right from the start.

Although market risk remains, it’s true that by focusing on acceptable downside first, those portfolios are likely to weather downturns better even if they do surrender some upside as an offset. And while none of these approaches is perfect, they can work as a component to offset a portion of the market risk retirees probably need to endure for decades to come.

The article and opinions in this publication are for general information only and are not intended to provide specific advice or recommendations for any individual. We suggest that you consult your accountant, tax, or legal advisor with regard to your individual situation. Securities offered through Kalos Capital Inc. and Investment Advisory Services offered through Kalos Management Inc., both at 11525 Park Woods Circle, Alpharetta GA 30005, (678) 356-1100. SouthPark Capital is not an affiliate or subsidiary of Kalos Capital or Kalos Management.

CEO, SouthPark Capital

George Terlizzi has worked in business for more than 25 years as an entrepreneur, consultant, dealmaker and executive for early and mid-stage companies. He has substantial concentrations in finance, technology, consulting and numerous forms of transaction work. Today George advises wealth clients individually and sets the strategic vision for SouthPark Capital. George’s insatiable curiosity, action-oriented approach, and broad-ranging interests are invaluable to those he advises.


Are Financial Advisors Worth it for Medium Income Families?

Financial advice is mostly regarded as a service needed by the affluent in society. The argument is that with more money, one needs guidance on how and when to invest. However true that might be, it’s good to consider that even people with low to medium incomes have to contend with college fees, mortgages and eventual retirement among other financial obligations. So,

How much does Financial Advice Cost?

The input that financial advisors bring to the table does not come cheap. The usual fee ranges from 1% to 2% of a client’s portfolio, these kinds of charges works best for people with established wealth and assets north of $250,000. To cater to the middle class, financial planners charge hourly fees depending on the complexity of the service required.

Financial Advisors for Middle ClassFinancial Advisors for Middle Class

It’s hard to quantify financial advice because it is difficult to standardize its pricing. Some advisors charge a minimum or an initial set up fee that can be as low as $70 for budgetary advice.

A sound financial or investment plan can go for up to $400 hourly. There are firms or planners who charge a fee for ongoing service, this can be as low as $20 monthly. Others will charge a retainer and an annual fee of $600.

Middle-income earners can also take advantage of Digital Advisors; these are websites that offer financial advice at a fee. Routine monetary questions are answered for a couple of dollars. On the other hand, queries that require a great deal of effort is charged hourly at between $150 and $250 per hour.

Importance of Financial Advisors

While middle-income earners may not have vast amounts to plan for, it doesn’t make their financial decisions less sophisticated. They have to manage debts, decide on new purchases and plan on new investments. All this has to be done within the time of probably working two jobs or racking up overtime to boost the take home. This is where financial advisors come in.

  1. Steering a financial plan

They help you keep track of how and where your money is being invested. It is within their expertise to predict how such investments may change with time. They get to come up with changes that can be done to your portfolio so as to position yourself better.

With complete knowledge to your current expenses and income, your advisor can keep you from overspending on a given investment. This allows clients to free more of their income to go towards saving for future expenditures like college fees or a new car.

The investment market is riddled with new and never-ending opportunities. Some are good but not all amount to profits. A financial advisor helps in sifting through the buzz to keep clients off bad investments like pyramid schemes that plague the middle class.

  1. Protecting Client’s Investments

Every investment comes with a risk. Fidelity postulates that a safe investment is one that strikes a balance between different classes of assets. These include bonds, cash, mutual funds, and stocks. Advisors help clients to pick the right mix of products, this, in turn, diversifies their portfolio to minimize individual risks.

  1. Ensuring Investments Follow Regulations

When it comes to financial matters, it’s not easy to keep abreast of all the dos and don’ts contained in the fine print. Advisors help in navigating through the rules and regulations that govern different aspects of investments.

Apart from ensuring the client’s money is safe, the rules also lay out the expected taxation on different ventures. A planner will assist in choosing the most tax-efficient financial products.

Some financial matters may input from not only a financial planner but also attorneys. Without a qualified advisor to bring this to a client’s knowledge, they may find themselves in the murky waters of litigations all in the name of healthy finances.

In conclusion, everyone needs some financial advice at one point or another. It may be in the form of long-term rapport or independent sessions. This requires you to incur some costs. As a medium-income family, you may not afford to have an on-going relationship with a financial advisor but you can get some much-needed advice that can be accessed in sessions either online or in person.


What Is a Spousal IRA – Rules, Eligibility & Benefits

In order to contribute to an individual retirement account (IRA), you must have earned income, right?

Although that’s true for most people, the IRS makes an exception for nonworking spouses. The government acknowledges that in some households, one spouse stays home with the kids while the other generates income, so they allow both spouses to contribute to IRAs based on the joint household income. To do otherwise would put these households at an unfair disadvantage in retirement planning.

Known informally as spousal IRAs, these tax-sheltered accounts help families save more money for retirement without the burden of taxes.

Eligibility for Spousal IRAs

The “spousal IRA” is just a regular IRA — the name merely refers to the fact that the working spouse can make a contribution to an IRA held in the name of a nonworking spouse. All the same rules apply, and the stay-at-home parent opens a standard IRA in their own name.

The eligibility requirements for the spousal IRA are straightforward:

  • Marital Status: Married
  • Tax Filing Status: Married, filing jointly
  • Earnings: The contributing spouse must have compensation or earned income of at least the amount annually contributed to the nonworking spouse’s IRA. If the contributing spouse also has an IRA, annual compensation or earned income must exceed the combined contributions of both IRAs.
  • Age: The nonworking spouse must be under age 72 in the year of the contribution for a traditional IRA. There are no age restrictions on a Roth IRA for a nonworking spouse.

Understand that IRAs are owned separately, not jointly. This means the nonworking spouse owns the assets in the IRA. Once your working spouse contributes to the IRA, the money becomes yours. The IRA is in your name and opened with your Social Security number, and it remains yours even if you divorce.

How It Works: Creating and Contributing to Accounts

Once you determine that you meet the eligibility requirements, you can open an IRA through your regular investment brokerage (E*Trade and SoFi are our favorites). You open the account in your name even if your working spouse is the one who contributes to it.

Once created, you or your spouse can transfer money into your spousal IRA from your checking account. At the time of transfer, you specify which year you want the contribution to count toward.

You can then invest in any assets allowed by your brokerage. You completely own and control the account, as with all IRAs.

Contribution Limits and Deadlines

Because spousal IRAs work just like any other IRA, the contribution limits are the same. They remain unchanged from 2020 to 2021 at $6,000 per year per adult. Adults 50 and over can contribute an extra $1,000 as a catch-up contribution, for a total annual contribution limit of $7,000.

Thus, a married couple under age 50 can contribute a total of $12,000, and couples over 50 can contribute up to $14,000 per year.

You can contribute to a traditional IRA, Roth IRA, or both. The combined total can’t exceed the limit, so for example a 40-year-old could contribute $2,000 to their traditional IRA and $4,000 to their Roth IRA to max out their annual contributions at a combined total of $6,000.

The IRS allows you to contribute funds to your IRA up until the tax return filing deadline for the previous year — usually April 15, but extended to May 17, 2021, for individuals for tax year 2020. So for the first several months each year, you can make IRA contributions for either the previous year or the current one.

Income Limits and Tax Benefits

Spousal IRAs offer the same tax benefits as an account in the name of a working spouse. These tax advantages come with limits that depend on your age and income, as well as the type of IRA.

Traditional IRA

The main tax benefit of traditional IRAs is that you can deduct the contribution from your taxable income. You don’t pay taxes on the earnings until you withdraw money from the account during retirement. At that point, the amount you withdraw each year is taxed as regular income. In fact, you must start taking required minimum distributions (RMDs) once you turn 72.

No matter how high your income, you can contribute to a traditional IRA. But you only get the tax benefit of deducting your contribution if the working spouse earns less than the income limits.

If the working spouse doesn’t participate in an employer-sponsored retirement plan, such as a 401(k) or SIMPLE IRA, the deductible amount phases out for incomes between $198,000 and $208,000 in tax year 2021 (up from $196,000 and $206,000 for 2020).

If the working spouse does participate in an employer-sponsored retirement account, the income limits are lower. In 2021, the ability to deduct contributions phases out between $105,000 to $125,000 (up from $104,000 to $124,000 in 2020).

Roth IRA

When you contribute to a Roth IRA, you don’t get an immediate tax deduction. Instead, your Roth IRA contributions grow and compound tax-free, and you don’t pay taxes on withdrawals in retirement.

Unlike a traditional IRA, which requires you to begin taking minimum distributions at age 72, you are never required to take minimum distributions from a Roth IRA.

The ability to contribute to a Roth IRA starts phasing out for couples earning more than $198,000 in 2021 ($196,000 in 2020), and disappears entirely for those earning more than $208,000 ($206,000 in 2020).

What Happens to IRAs When One Spouse Dies?

When you open an IRA, you name a beneficiary for the event of your death. The IRA bypasses probate and goes directly to that beneficiary, and creditors can’t touch it. If that beneficiary dies before you do, then your IRA goes into probate to be distributed as part of your estate.

Most married couples name their spouse as the designated beneficiary for their IRA. Spouses get special treatment by the IRS, with more options available to them for handling the inherited IRA.

When you inherit your spouse’s IRA, you can do any of the following with the funds.

Roll Over Funds to Your Own IRA

Unique to married couples, you can roll over funds from your deceased spouse’s IRA to your own IRA. You pay no penalties or taxes on the money at the time of rollover. The funds simply get treated as part of your own IRA from then on.

This is usually the best option for spouses from a tax planning perspective.

Leave the Money as an Inherited IRA

Inherited IRAs follow slightly different rules.

Withdrawals continue to be treated based on your deceased spouse’s age. On the plus side, you can start taking withdrawals penalty-free, even if you’re under 59 ½, as long as your deceased spouse had been over 59 ½. The downside is that you must take required minimum distributions based on your spouse’s age, even if you are under 72.

You can, however, submit a new schedule based on your age.

If you inherit a Roth IRA, you must take RMDs on it, which is not the case with your own Roth IRA (including if you had rolled over the IRA funds to your Roth IRA).

Take All the Money Now

You can just cash out the money in your deceased spouse’s IRA. The IRS doesn’t hit you with penalties, even if you’re under 59 ½. But you do have to pay income taxes on it, which may thrust you into a higher tax bracket.

Disclaim Some or All of the Money

Don’t want the money for some reason?

If you want some or all of the IRA funds to go to your spouse’s other designated beneficiaries instead of you, you can disclaim it within nine months of your spouse’s death. In effect, you take a pass on receiving it, so it goes to the other beneficiaries instead.

This may make sense from a tax planning perspective. Or maybe you just don’t need the money, and the other beneficiaries do.

Final Word

A spousal IRA is a great way to boost household retirement savings contributions and build a bigger nest egg. Plus, it gives a nonworking spouse the chance to build up assets, rather than missing out on some of his or her potential earning power due to helping out at home. Given the retirement challenges many women face in particular, spousal IRAs can create added financial security in addition to the tax benefits.

If you or your spouse stay at home, check to see if you meet the criteria for eligibility, and consider investing through a spousal IRA.


Tips for Getting Approved for a Mortgage

When you start your home buying journey, you’ll notice advertisements of beautiful homes accompanied by happy families that make it seem like there is an abundance of lenders waiting to hand you the keys to your new home.

The truth is, getting approved for a mortgage is not always easy, and getting financed for such large amounts of money can be risky. If your home-buying fantasies have been interrupted by application denials, it’s time to take control of your borrowing power and find out what you can do to turn those “no’s” into a “yes.”

1. Document Your Income

Borrowers mistakenly downplay the importance of a stable income history, especially if they have a high credit score or large bank balance. No matter how favorable your credit and financial status may seem, you will be subject to income scrutiny. Be prepared to prove your income by providing tax documents for the last two and three years and paycheck stubs from the past few months. You may also be asked to provide a list of all your debts, including auto loans, credit cards, alimony, and student loans, and a list of your assets, including investment accounts, auto titles, real estate, and bank statements.

In addition to proving that you have adequate income to cover the loan, lenders will verify that you’ve been working in the same field for at least two years – the longer you’ve been working for the same employer, the better.

Getting a MortgageGetting a Mortgage

2. Shine Up Your Credit History

Maintaining a positive history while you apply for home loans is especially important. Lenders want to see that you have a good record of paying your bills on time. Before you apply for a mortgage, review your credit report. Give your credit a boost by keeping your credit card utilization below 30%. If you have any past debts, pay them. Lenders want to see a flawless credit history for the past 12+ months – the longer you go without a negative mark on your report, the better.

Keep in mind that lenders may re-check your credit score during the application process, so make sure all your accounts are on-time and current and avoid any other large purchases that could affect your score until after you receive an approval.

For credit repair assistance, contact Credit Absolute.

3. Two is Better than One

If you don’t have income high enough to qualify for type of loan you need, a cosigner with an adequate amount of disposable income to be considered on your mortgage may help your approval rating – regardless of whether this person will be helping you make your payments or living with you. In some cases, a cosigner with a positive credit history can help someone with less-than-perfect credit. However, he/she should keep in mind that they are guaranteeing to your lender that the mortgage payments will be paid in full and on-time.

4. Offer a Larger Down Payment

If you can pay for a percentage of the home on your own, your application for the rest of your home financing just may tilt in your favor. The larger personal investment you have in the house, the less likely you will walk away from the property and let it go into foreclosure.

Having a significant amount of cash is also a strong indicator of how you handle your finances. Banks don’t just want to hand anyone a loan; they want to provide financing to people that are guaranteed to pay them back.

5. Consider a Smaller Loan

While your pre-approval may indicate that you qualify for a loan up to $250,000, you want to tread carefully in asking for the highest loan amount. In fact, the closer you get to your limit, the more difficult it is to get approved.

If you don’t qualify for the mortgage that you want and you aren’t willing to wait, try setting your sights on a less-expensive property. Consider a townhouse instead of a house, accept fewer bathrooms and bedrooms, or move to a neighborhood further away to give you more options. For a more drastic approach, consider a different area of the country where homes are more affordable until you can trade up or build your financial history.


Working Capital Loans – Lexington Law

The information provided on this website does not, and is not intended to, act as legal, financial or credit advice. See Lexington Law’s editorial disclosure for more information.

According to PricewaterhouseCoopers, average revenues from 2018 to 2019 for businesses were up 10 percent, but many companies still struggled to convert those higher revenues to cash. When a business doesn’t have the cash flow to support daily or growth expenses for any reason, working capital loans might be an option. Find out more about working capital below to help you decide if this funding source is right for your company

What Is a Working Capital Loan?

Working capital loans are a type of funding that helps ensure businesses have the capital they need to continue operating during periods when it might be difficult to cover daily expenses while meeting new demands or growth. For example, if a business has tied up its cash flow in inventory for the holiday rush season, working capital funds can pay the bills—such as employee wages and rent—until holiday revenues are in.

It’s important to note that working capital isn’t meant to make investments or buy long-term assets such as equipment. If you need equipment, you may need to take out a secured loan for it. Working capital loans are meant to cover the standard operating expenses of the business such as regular debt payments, wages, rent and utilities.

Working capital loans help ensure businesses have the capital they need to continue operating during periods when it might be difficult to cover daily expenses while meeting new demands or growth.

Working Capital Financing Options

You can get working capital loans from a variety of sources. Some of the most common options are summarized below.

Short-Term Loan

What is it? You might be able to borrow money for a few months to help fund expenses until seasonal income comes in or a large invoice is paid.

Pros: It might be a good way to balance cash flow during seasonal upticks in expenses or downturns in income.

Cons: Because the terms of the loan are short, the lender may charge a relatively large fee to make money from the deal in lieu of interest paid out over a longer period of time.

Merchant Cash Advance

What is it? A cash advance offered by the bank or agency that handles your payment processes. For example, businesses that accept money through PayPal may be eligible for a Payment Working Capital loan.

Pros: These loans are typically easy to get if you have a solid history processing payments through that bank or agency. That’s because the loan isn’t based on your personal credit or the credit of your business. It’s typically based on how much average revenue you process through that payment method.

Cons: Typically, merchant cash advances are paid back as a percentage of your sales over time. That lowers your cash flow for the immediate future and can make it more difficult to budget for business expenses if you overcommit on the loan.

Bank Line of Credit

What is it? A revolving line of credit that you can draw from and pay back and then draw from again—similar to a credit card.

Pros: A line of credit is flexible and ongoing, which means it’s there when you need it, but you don’t have to draw on it if you don’t need to. It can also be a good way to balance cash flow if your revenue tends to fluctuate.

Cons: You may need decent personal or business credit to get approved for a line of credit. It can also be tempting to rely too heavily on it, temporarily masking serious financial problems until they might be too late to resolve.

SBA Loan

What is it? You can get certain types of loans through programs approved by the Small Business Administration. Some of these loans can be used for working capital.

Pros: While the terms and rates associated with SBA loans vary, they may be more favorable than those of traditional loans.

Cons: SBA loans can be easier to qualify for from a credit perspective, but they do have specific requirements, such as documentation. You may also be limited on what you can use the funds for.

Trade Credit

What is it? Trade credit occurs when you purchase goods on an account and pay for them later. Typically, if you pay within the agreed-upon period, you don’t pay interest on this debt.

Pros: Trade credit is low-cost and is generally a common business practice, which means it might be available to you from various vendors.

Cons: This isn’t a form of credit you can use to cover expenses other than goods purchased, but that might free up some cash for other uses.

Who Offers Working Capital Loans?

Working capital loans are offered by a variety of organizations. Banks, credit card companies and payment networks might all offer working capital loans. Some organizations specialize in this type of lending and work with businesses that can demonstrate a strong historic revenue to provide working capital loans or lines of credit.

Working Capital Loan Interest Rates and Fees

As with any type of lending, working capital loans do cost your business in the form of interest rates and fees. With a few exceptions, such as certain trade credit arrangements, working capital comes with varied rates and costs. If the lender makes money via interest, your own credit or the creditworthiness of the business may be used to determine how much interest is charged.

Some working capital loans don’t include interest. The lender instead charges a flat fee that is incorporated into the total amount paid back during the loan process.

Is a Working Capital Loan Right for Your Business?

As with any form of debt, working capital loans have benefits and disadvantages. Understanding the common pros and cons can help you determine whether working capital loans are a good decision for your business.


Working capital can provide the cash influx you need at just the right time. It’s a financial tool for helping businesses cover costs during various seasons or scale up for growth. If you’re careful about how you use the credit associated with working capital loans, they may not be as expensive as some other forms of financing.


Working capital loans come with some of the same drawbacks of any debt, including interest or other costs. But a bigger potential disadvantage is the temptation to lean heavily on working capital even when you know that your business is in trouble financially. Working capital is meant to be a temporary bridge, not a crutch your business can lean on permanently.

Pros and cons of working capital loans

Other Options for Increasing Your Work Capital

Working capital is a measurement of how well a company can use its current assets to pay its current liabilities. It’s an important statistic for you to be aware of as a business owner, because it indicates how financially healthy your company is. If you need to improve your working capital but don’t want to receive financing from a third party, consider these other ways to increase your working capital:

  • Cutting business expenses, including unnecessary travel or acquisitions.
  • Increasing income by hosting a sale or increasing prices if the market will support it.
  • Collecting past-due invoices.
  • Selling valuable business assets that may not be required at this time.

As you weigh your different options for working capital financing, don’t forget to stay on top of your business credit score and your personal credit score, too. To learn more about the latter, check out Lexington Law’s guide to credit.

Reviewed by Cynthia Thaxton, Lexington Law Firm Attorney. Written by Lexington Law.

Cynthia Thaxton has been with Lexington Law Firm since 2014. She attended The College of William and Mary in Williamsburg, Virginia where she graduated summa cum laude with a degree in International Relations and a minor in Arabic. Cynthia then attended law school at George Mason University School of Law, where she served as Senior Articles Editor of the George Mason Law Review and graduated cum laude. Cynthia is licensed to practice law in Utah and North Carolina.

Note: Articles have only been reviewed by the indicated attorney, not written by them. The information provided on this website does not, and is not intended to, act as legal, financial or credit advice; instead, it is for general informational purposes only. Use of, and access to, this website or any of the links or resources contained within the site do not create an attorney-client or fiduciary relationship between the reader, user, or browser and website owner, authors, reviewers, contributors, contributing firms, or their respective agents or employers.


Obama Hasn’t Refinanced His Mortgage in Seven Years

Last updated on August 10th, 2013

Despite a push to allow more Americans to refinance their mortgages (Harp 2.0), the Obamas haven’t taken the time to refinance their own, according to a disclosure released yesterday by the White House.

The financial disclosure revealed that as of the end of 2011, the 30-year mortgage (not sure if that means fixed or just refers to the term) tied to their south Chicago home, taken out in 2005, was still active.

Obama’s Mortgage Rate is 5.625%

Now we’ll assume he’s got a fixed-rate mortgage, even though that’s not entirely clear because no one is specifying.

And at 5.625%, that means he’s paying a rate nearly two percentage points above what mortgage rates are currently being offered at today for a 30-year fixed.

What we also don’t know is the loan amount. The disclosure only revealed that the loan amount is somewhere between $500,001 and $1 million.

Now assuming it’s not a jumbo loan, he could possibly snag a rate two percentage points lower than his current rate.

And I’m sure he would receive the most favorable terms, given his income, assets, employment history, etc. Being the U.S. president is pretty helpful.

Let’s do the math to see what he could save, using $600,000 as the loan amount.

Loan amount: $600,000
Current rate: 5.625%
Refinance rate: 3.75%

If he were to refinance his current loan, his monthly mortgage payment would drop from $3,453.94 to $2,778.69.

That’s a monthly savings of roughly $675, or $8,100 annually.

Not a bad haul for a making a phone call and submitting some paperwork.

[What mortgage rate can I expect?]

Obama Should Check Out 15-Year Fixed Rates

But since they’re already seven years into a 30-year mortgage, and have presumably paid a ton of interest, it would probably suit them best to take a look at a 15-year fixed mortgage instead.

[30-year vs. 15-year mortgage]

Rates on the 15-year fixed are closer to 3%, so assuming the Obamas can snag a rate at 3% even, their monthly payment would climb nearly $700 to $4,143.49, which I’m sure they could afford.

But they’d pay less than $150,000 in interest over the entire duration of the new loan, which would definitely save them some money. Probably a few hundred thousand for that matter.

And they’d own their house sooner, preferably before retiring.

So President Obama, if you’re reading this, you may want to consider shopping around for a refinance.

Don’t Be Lazy

All jokes aside, the takeaway from this story is that there are a ton of homeowners out there that don’t take the time to shop their mortgage rate.

Yes, it’s a pain in the you know what, and it may all seem rather daunting, but think about all the other “stuff” you subject yourself to in order to save a few bucks here and there.

In the grand scheme of things, you could save a ton of money while putting in a very little amount of work.

So if you haven’t refinanced yet, grab a calculator and take a look at rates to determine if it’s the right move for you.

Read more: When to refinance a mortgage.

About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for 15 years.


Financial Planning Lessons Regular Folks Can Learn from Professional Athletes

Baseball season is in full swing now. While the finances of baseball players and other professional athletes are not quite the same as yours or mine, what can we learn from their financial challenges? A lot, according to a financial planner for players on three pro teams.

I interviewed Scott Morrison for his take on the financial curveballs he faces while working with his clients.  He’s the President of Pennant Asset Management and a financial planner for professional athletes on teams including the New York Mets, the Chicago White Sox and the Oakland Athletics. 

Hey, Big Spenders?

Matt Goren: What is the first impression people have when you say you work with professional athletes to help manage their finances?

Scott Morrison: Athletes often carry around the “dumb jock” stereotype that they want to blow all their money faster than they receive it. Does it happen from time to time? Unfortunately, yes. But what has surprised me most is that athletes are coming in more educated now than ever before – many are frugal and want to track every penny of where their paycheck goes.  

Matt Goren: Frugal athletes is definitely not my stereotype. Is this a baseball thing?

Scott Morrison: I think the sport definitely has something to do with it. In baseball, it usually takes a while to get to the major leagues after draft day. Minor league salaries and lifestyles are, to be kind, not very luxurious, so there is a very real concern about how they will survive financially until they get called up to the big leagues. It forces players to be smart and to make their money last.

Matt Goren: We hear about some giant contracts, but they’re not very common. More often, an athlete gets a signing bonus to join the team and maybe a short contract. Professional athletes don’t normally see the big dollars until their second deal – if ever.

Scott Morrison: With athletes, we often plan as if they aren’t going to make another cent on top of their signing bonus. If and when they do make it to the big leagues and sign multiyear contracts for multimillions, then the fun can really begin. But from the start, we have to protect their initial lump sum with the correct budgets and strategies.

Their Biggest Challenge May Sound Familiar

Matt Goren: What is the biggest challenge you encounter?

Scott Morrison: Taxes! One of their biggest concerns is the amount of tax they have to pay on their signing bonuses and then again in the future on their major league contracts. Players often overlook that this large lump sum isn’t as large as it first appears.

Matt Goren: And that’s a lesson for the rest of us: Our take-home pay after taxes is much less than our gross pay. What other challenges do they have? Do you see problems with overspending?

Scott Morrison: Ultra-luxurious items are the No. 1 spending problem I run into. Aside from the designer items – the Louis backpack, the Gucci wallet, the Yeezy’s, etc. – many newly drafted athletes want to buy the Porsche and the million-dollar-plus home all with their signing bonus. I go through the taxation presentation and then, all of a sudden, they get a lot more realistic.

To be sure, not every penny needs to go into the bank – but we need a realistic approach that considers their uncertain longevity on the field. Is the boat, car and house out of the question? Absolutely not! All I’m saying is, depending on the signing bonus, maybe one or two of those items can be shelved until they are making big league salaries.

Matt Goren: Like retirement savings nest eggs, I’m sure that on-the-field money can be multiplied with sound investments. What sorts of challenges do you see there?

Scott Morrison: The biggest mistake I find that young players make is not all that different than young professionals with their retirement savings – they don’t understand the concept of putting their money to work for them, and they think it’s OK to leave their money on the sidelines. Once they see how important and beneficial it is to have their money appropriately invested, they all say the same thing: “I wish I had started earlier.”

Some Interesting Investment Choices

Matt Goren: Are there certain types of investments that athletes ask you about?

Scott Morrison: I have found an obsessiveness around real estate. So many young athletes want to dig into the cryptocurrency world as well – it’s crazy!

I also get a lot of requests from my clients asking about getting involved with childhood friends’ or distant family members’ businesses. There is always a long-lost friend or cousin who comes out of the woodwork asking for an influx of cash into their business, and it’s important for athletes to be prudent when considering those investments.  

Matt Goren: Good that they found you, then. How do you usually meet your clients?

Scott Morrison: Being a former Division I baseball player, I understand many of the complexities they are dealing with. I’ve known some of my clients since before they became professional athletes. Ultimately, the reason clients choose an adviser is because of relatability and relationships. Players want to trust their money with someone who they feel comfortable with.

Matt Goren: If you need a “pitch” to your clients at all, what would that pitch be?

Scott Morrison: Utilize a professional financial adviser who understands your situation so we can put the right guardrails in place. By working with a professional, athletes can focus on their performance on the field and – to the extent it makes sense – enjoy their money now. They’ve worked hard for their money, and we want them to enjoy it! We also want to make sure that they don’t have to work another day once their career is over if they don’t want to!

The Bottom Line for Athletes and the Rest of Us

Matt Goren: And that, to me, sounds exactly like why so many everyday people work with a financial professional.Scott Morrison: Sure, the numbers change, but the strategies for the most part don’t – depending on the risk tolerance and suitability. Ultimately, we want to preserve our clients’ wealth not just for years to come, but for generations to come. It doesn’t matter if it’s a professional athlete or a business owner, or families and individuals, I want our clients to enjoy their hard-earned assets. But no matter who it is, we want to encourage intentional, smart decisions.

Matt Goren: Agreed – thanks, Scott, for your insights! To everyone reading, you don’t have to be a big-league player to make great plays with your money. Focus on the long term, invest for your future, and avoid the temptation to buy that new yacht. If you need some coaching and guidance, make sure to reach out to a professional financial planner who can help you reach those goals.

Assistant Professor of Financial Planning, The American College of Financial Services

Matt J. Goren is an Assistant Professor of Financial Planning at The American College of Financial Services who focuses on the interplay of personal finance and psychology. In addition to teaching and developing content, he provides strategic consulting on financial literacy initiatives and hosts a personal finance radio show, Nothing Funny About Money, which was named 2018’s most outstanding consumer financial information resource by the AFCPE.