Tips for retirees starting a new business

This was originally published on Monday, February 29, 2016, in the Pacific Daily News.  Click here to subscribe to the PDN.

Q: I am 65 years old and just retired. I have always wanted to start a small business but never found the right time. Now that I am retired I want to peruse my dream and become a small business owner. Do you have any tips to get me started in the right direction?

Congratulations on your retirement! You are among the many who have retired and now have the taste for entrepreneurship. The baby boomer generation is showing us that retirement is not bingo and crocheting. According to U.S. Money, “People age 55 to 64 accounted for 25.8 percent of the businesses started in the last year.” Starting a business is not easy, but it gives you the freedom to work on your schedule and on your terms.

Do you have a business? Take a look around and evaluate your competition. Is there anyone you would be in direct competition with? Be honest with yourself and decide if you have a business or a hobby. Is there a customer base for you? Evaluate your skills. Seek the thoughts of others if your product is what you expect it to be.

Time involvement. Depending on the type of business you are starting, you may be working 80-plus hours. Are you up for those long weeks? Some business can be done at home and on your schedule and are not as time consuming.

Financing. Depending on the type of business you are starting, financing may be a huge concern. You do not want to use up all your retirement money funding a business that may never take off. Instead, look to the bank for a loan, an investor or the Small Business Administration (SBA). They offer loans for which you may be eligible.

Connections. One thing most retirees have are connections. After many years working with others, you have built a network of professionals that you can rely on for advice and to be your customer base as well. Don’t be afraid to reach out to them.

Business structure. Does your business require you to manage people? If so, are you up to hiring and managing a team? Retirees make great mentors and this is a great way to pass on your skills and knowledge.

Technology. Today’s business is just not brick and mortar. Many businesses are e-businesses and require a website. Most of the marketing today is done through social media. There are some great software and apps that can help you run your business efficiently. Don’t be afraid to use technology if you are not used to it. Sign up for a computer class or  see if your child or your grandchild can help you out.

Asset protection. As a small business you and your company are joined. If your business goes under, so do your assets. Look at the different business structures and decide which offers the best protection for you. As a retiree on a limited income, the last thing you would want is the possibility of losing your savings.

Exit strategy. Is this a company you plan on passing over to the kids once you decide that you are done? Is it something in which they would be interested? If they don’t want to take responsibility, will you sell it or just dissolve the business? Have your plan written out and share it with your family.

Success. Do not expect your business to be an overnight sensation. Be patient and nurture it. With some changes along the way you may find that your passion and dream has turned into a lucrative business.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 20 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at moneymattersguam@yahoo.com and read past columns at the Money Matters blog at http://www.moneymattersguam.wordpress.com.

How do I reduce my monthly expenses during retirement?

This was originally published on Monday, February 22, 2016, in the Pacific Daily News.  Click here to subscribe to the PDN.

Q: I am about to retire in a few years. I have been contributing to my 401(k) and plan on withdrawing Social Security a few years after I retire so I can get the maximum payment from my Social Security. I know retirement is going to be a big change. Do you have any tips on reducing my monthly expenses during retirement?

I commend you. You sound like you are prepared for retirement. Numerous seniors are finding ways to downsize and make more with less income. Many reduce their bills and increase their spending power. These tips may make a big impact on your retirement budget:

Mortgage. If you are within a few years of paying off your mortgage you may want to consider doing so before you retire, especially if your interest rate is higher than the return on your retirement fund. In other words, would it be more beneficial to use that money to pay off your mortgage or to add it to your retirement fund? Which will give you the biggest return?

Downsizing your home. If you own your home you may want to consider downsizing to a smaller home or even to an apartment or condominium. It will be easier to take care of if you have children who are grown and independent. Make sure that the cost of acquiring a new home fits within your budget. If you are going to be purchasing another home, you may have a new mortgage. On the other hand, you can rent your home for extra income or sell it to help purchase the smaller home or add to your nest egg.

Cost of Living. Guam has a high cost of living since almost everything has to be shipped. You may want to consider moving to a state or abroad to where the cost of living is lower. Lower prices on the taxes, food, electricity and other services can help stretch your retirement budget.

Sell a vehicle. If you and your spouse had separate cars for the past years and you are both entering retirement, you may be able to utilize just one car. It would eliminate maintenance and insurance costs and the extra fuel budget.

Retirement penalties. Be sure you understand when you can start withdrawing from your retirement fund. If you withdraw too early or too late, you may be penalized with a hefty fee. As you know, there is a penalty if you withdraw Social Security too soon and you don’t get the full amount. There is also a late enrollment penalty if you postpone signing up for Medicare Parts B and D.

Health care. As we get older, medical care will get more expensive as our bodies start to age. Since we can’t really budget or predict the cost, be sure you have a little wiggle room in your budget. You may want to purchase additional insurance to help cover some of the costs that Medicare doesn’t cover. Ask your physician if there is a generic brand equivalent to medications you are currently taking.

Discounts. There are some perks to maturing. Many stores, restaurants, movie theaters and other service-driven organizations offer a senior discount. Many may not be advertised. It won’t hurt to ask; the worse they can say is “no.”

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 20 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at moneymattersguam@yahoo.com and read past columns at the Money Matters blog at http://www.moneymattersguam.wordpress.com.

Good habits today will assist retirement

This was originally published on Monday, February 9, 2016, in the Pacific Daily News.  Click here to subscribe to the PDN.

One thing we all have in common is there will be a point in our lives where we will no longer be able to work and will have to start our retirement. Having good habits today will help secure our future.

Life insurance. “Eighty-five percent of the best retirement savers had at least $100,000 in life insurance coverage,” a March 2015 CNBC.com article stated. Talk to your insurance company on which is best for you, whole-life or term-life insurance. Either way, you want to be sure that you are covered in case you become ill, incapacitated or pass away. You do not want to use your retirement money to cover these expenses.

Diversify. Mix up your investments that fit your risk tolerance. Those who are further away from retirement can capitalize in riskier investments than those who are closer to retirement. Having your investment in one type of investment is risky. Don’t put all your nest eggs in one basket. Deciding what to invest in may require some professional help.

Retirement at a dollar amount. When asked the question, “When do you want to retire?” many of us reply with an age. Sometimes we are not ready to retire exactly at 65. Your retirement is about freedom and it would be great to say, “I retired as a millionaire.” Know exactly how much you need to retire comfortably.

Focus on the long term. We put a lot into our retirement investments, and it is hard not to feel some anxiety when we see the market go on a decline. It is important not to panic and do something that you will regret later. Many investors see a dip in the market as an opportunity to acquire more equities at a lower price.

Simple investing. You do not need an expensive and complicated investment portfolio to earn a lot of money. In fact, many of those expensive investment plans come with large investment costs. Those investment costs can reduce the amount of money in your nest egg.

Estate planning. If you own real estate, you should have a living trust that ensures certain people get the assets you want to pass on to them. You should also have documents stating whom you designate as your medical caregiver in case of an emergency. These should be reviewed on a yearly basis.

Review regularly. Take a look at your retirement plan every six months or yearly. Keep track of how your investment is performing. Be adaptive and recognize that the markets change. As your life changes so do your retirement goals. Ask yourself, “Am I contributing enough?” When you re-enroll, take a look at your plan and strategy. Do they still meet your needs? If you see that your portfolio is constantly trending downward, talk to your adviser.

Stay healthy. Your health when you retire is important. As we age, health care becomes more expensive. If you retire in good health, it is likely that your medical costs will stay low and you can enjoy that retirement money.

Never stop learning. Never stop learning about investing and personal finance. The more you know, the more you can prepare for the future.

Professional help. Something as important as retirement should not be left up to guessing. Hire a professional. Taxes, bonds, stocks and other investments are complicated. Policies and laws can change, and you need someone who is knowledgeable. Don’t be afraid to ask your adviser questions. You should be able to trust your adviser and the decisions made.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 20 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at moneymattersguam@yahoo.com and read past columns at the Money Matters blog at http://www.moneymattersguam.wordpress.com.

Successful habits for creating a retirement savings account

This was originally published on Monday, February 9, 2016, in the Pacific Daily News.  Click here to subscribe to the PDN.

Retirement, whether it is near or far, should be a priority for all of us. Most people believe that you have to make a lot of money to save for retirement. You don’t have to make a million dollars to save a million dollars. What you do need are habits that create successful retirement savings.

Save early. By starting early you gain some advantages. The money you save grows through compound interest. Compound interest multiplies your savings as time passes. The longer you grow your investment the more interest it earns. By starting early you also learn more about the habit of saving.

If you did not start saving at an early age, you are not doomed. Start as soon as you can. You may have to put a little more aside but having a retirement fund is certainly better than not having one at all.

Minimize debt. This can be the hardest habit to develop. Sometimes we can’t avoid being in debt. The money could be used to purchase a car, to pay for college or to buy a home. But there are some debts that you can avoid such as credit card debt. For everyday purchases use cash not your credit card. If you do use your credit card, pay it off as soon as possible. Pay more than the minimum amount that the credit card company asks for. An extra $20 to $50 can make a huge difference when it comes to paying off a credit card debt.

Take a look at your debt-to-income ratio. Add up all your monthly debt payments and divide it by how much income you bring home in a month. Target a maximum debt to income ratio of 35 percent.

Mortgage. Buying a home is probably going to be the largest purchase you will ever make. By putting down a larger down payment than what is required you will reduce the amount you owe.

There is some debate about going into retirement with a mortgage versus no mortgage. If you try to pay off your mortgage early, you are diverting some of the money you can be investing into your retirement account. The more you put into the account, the more compound interest you will earn. But if you pay off your mortgage before you retire, you will not have to make that monthly payment and that could ease your mind when you are living on a fixed income. Do the math in terms of the investment return of your retirement fund versus the mortgage cost then make a decision when it is best to pay off your mortgage.

Automatic deduction. Make the contributions to your retirement fund automatically. Have the payments come directly out of your paycheck. If you do not have to touch the money to make the payments you will not be enticed to use it elsewhere.

Take advantage of your retirement fund. If possible contribute the maximum amount to your retirement fund. This is especially true for those who are starting a little later in life. Many people think that they can’t afford the maximum payment. If you have the amount automatically deducted from your account you really won’t miss it. You will learn to live on a little less.

If you honestly can’t make the maximum contribution, at least contribute the maximum your employer will match. Your employer’s contribution is free money that you should not be passing up.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 20 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at moneymattersguam@yahoo.com and read past columns at the Money Matters blog at www.moneymattersguam.wordpress.com.

Retirement saving comes down to habit

This was originally published on Monday, 2 February, 2016, in the Pacific Daily News.  Click here to subscribe to the PDN.

Q: My co-workers and I have been having discussions about retirement. We feel that there is more that we should be doing to be prepared. One of the biggest concerns is that we are not financially ready, even though we are contributing to our retirement plans. What is the secret to effective retirement saving?

First, please let me thank you all for reading Money Matters and for your questions and inquiries over the years. This month is Money Matters’ fifth anniversary. I enjoy responding to your questions and assisting with your financial goals. I have learned so much from you all.

I am excited to hear that people are having discussions about retirement. Retirement is a topic that continues to be one of the top concerns many of my readers share. I wish I can say that there is a secret out there, and once you discover it you are set for life.

Instead, a successful retirement comes down to having a plan and putting it in motion

Those who live their retired life comfortably have planned a very specific strategy, including what age they want to retire and planning for rising costs of living.

The one thing successful retirement savers share is that it’s just not a plan but a habit.

  • Budget: This seems clear, but many people do not create a budget. Budgets always bring up negative feelings. They are associated with being boring and restrictive. Budgets are important. A budget can track your expenses, assist in identifying areas where you can improve, and help determine how much money you can contribute to your retirement without being unable to pay for your monthly responsibilities. Paying attention to how you spend will assist in motivating you to save.
  • Share: Talk with your spouse and other loved ones about your goals for retirement. Your budget will ultimately affect them as well. By being on the same page with them, you are more likely to achieve your goal. Talking about money can be uncomfortable, but it is a talk that all households should have.
  • Calculate your needs: What do you want to do when you retire? Do you want to travel or maybe retire to an exotic location? No matter what your retirement dream is, you need to figure out how much it will cost. Invest with a purpose. What are your day-to-day expenses going to be? Are you starting up a business? How much will it cost to move? Your income will be any retirement income from your employer, social security, and your retirement investments. Your investments should match your goals. There are free online retirement calculators that can assist to determine how much you will need to save now to reach your retirement goals. Talk to your employer. Some employers offer workshops that help in budgeting and saving for retirement.
  • Emergency planning: When a financial emergency hits, it is very tempting to use your retirement fund. But that should really be your last resort. It is very difficult to build up your retirement fund. The reason it grows is the compound interest on how much you have in your account. By removing a lump sum, you will decrease the amount of interest you earn. Most analysts suggest three to six months of income put aside in case you run into financial hardship.
  • Prioritize: After paying your monthly bills, where does your money go? Do you have other plans for your money before you contribute to your retirement account? If retirement is your priority, you will most likely achieve your goal. To help, put up pictures of your retirement dreams to remind you of what you are saving for.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 20 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at moneymattersguam@yahoo.com and read past columns at the Money Matters blog at www.moneymattersguam.wordpress.com.

Social Security benefits for common-laws?

This was originally published on Monday, June 29, 2015, in the Pacific Daily News.  Click here to subscribe to the PDN.

Q:  My common-law husband and I have been living together for more than 10 years. We have two children and share the mortgage, utility payments, car notes, and almost everything else has been split fifty-fifty. We do not plan on getting legally married. Am I entitled to Social Security spousal benefits or to his survivor benefits?
A:  Your situation is not one that is uncommon. In fact, this is becoming more and more common. The Social Security Agency usually requires you to have a formal marriage to receive spousal or survivor benefits. The Social Security Agency requires that you are married for at least nine months before the date of death to be able to claim survivor benefits.
Although this is becoming a more popular choice of union, laws and benefits are slow to change.

According to the Social Security Agency website, a common-law marriage must be recognized by the state of residence. It all depends on the local state laws. Social Security rules usually follow state laws when determining eligibility for spousal and survivor benefits. If your state recognizes your union, you will qualify to receive the same benefits as someone in a traditional marriage. If not, it is not impossible but will be very difficult and costly to claim.
Eligibility for these benefits requires a lot of documentation. Documentation will include bills and expenses shared by the couple. Bank statements for joint accounts and maybe even wills. You should hire a lawyer who is more familiar with local laws. Be prepared to cut thorough a lot of red tape and paperwork. If you find out that you do not qualify for spousal or survival benefits you both should try to maximize your Social Security benefits.
• Patience is a virtue. Remember, you are eligible to receive benefits at 62 years of age but at a lower percentage than your full benefit. I recommend waiting until at least your full retirement age or even 70 years old to claim. As you get closer to that magic number of 70, your benefits start increasing. At 70, you have maxed out your benefits. Waiting till after 70 years of age does not give you any extra advantages.

• Previous Divorce. If either one of you have been previously married for at least 10 years and never remarried, you are eligible for spousal benefits. You can claim your spousal benefits at your full retirement age; then when you turn 70, file for your full Social Security benefits. If you are eligible, you will get 50 percent of what your ex-spouse’s benefit without affecting their benefits.

• Widowed from a previous marriage. If you were previously married and your spouse passed away, you could be entitled to their survivor benefits. There is no age which is optimal to start claiming your survivor benefits. You can claim survivor benefits at any age and once you reach 70 years old, you can switch to your individual benefits if it pays more.

Your children, depending on how old they are, could be eligible for either your or your husband’s survivor benefits. Just ensure that they are listed as your beneficiaries.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 20 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at moneymattersguam@yahoo.com and read past columns at the Money Matters blog at http://www.moneymattersguam.wordpress.com. 

Strategies for married couples to get the most from Social Security

This was originally published on Monday, June 22, 2015, in the Pacific Daily News.  Click here to subscribe to the PDN.

Q:  My wife and I are about the same age and we want to retire together. I have read somewhere that you can maximize how much Social Security benefits as a couple. How do I do that?

A:  Married couples have a few more choices when it comes to filling for Social Security benefits. Married couples can take advantage of situations that could possibly increase their benefits. Social Security benefits are available to you and your spouse at 62 years of age but you can delay taking your benefits until you are 70. I know that sounds like a long time to wait for money that you earned to come back to you but the life expectancy of men and women is early to mid-80s. I have mentioned this in past articles but delaying your benefits can make a big difference. There are several strategies I know, but you can also talk to a financial adviser on your specific case:

• Claim and suspend  Generally a spouse has to be collecting Social Security benefits before the other spouse can claim spousal benefits. There is a way that you can file your benefits but suspend it for a later date and let your spouse start collecting his/her spousal benefits. First you must have reached your full retirement age. If you are born in 1943 through 1954 your full retirement age is 66. From 1954 to 1960 it gradually rises until, for all those born after 1960, the full retirement age is 67. If you file for spousal benefit before your full retirement age your benefits will be much lower. An early filing could also trigger the Social Security to process both your benefits and your spouse’s. You will get both benefits but lose the ability to increase your benefits that you plan on delaying.

Your spouse has to be at least 62 years old. By filing your benefits and suspending them, your future payment will continue to grow. This strategy works best when the person with the higher income continues to work and the spouse with the lower income retires. You can maximize how much you get by suspending your benefits until you are 70.

• Maximize your survivor benefit  If your Social Security payment is higher than your spouse he/she can receive your monthly payment as his/her survivor benefit. If you start receiving benefits before your full retirement age you are limiting how much your partner receives as survivor benefits. By delaying till you reach your full retirement age or till you are 70, you are increasing how much you leave to your spouse. Many people do not realize this when they start collecting their Social Security payments at 62.

This strategy is best if your monthly Social Security benefits at full retirement age is higher than your spouse’s. It also works best if your spouse is healthy and will likely live longer than you.

• Claim now and then claim more later  If you and your spouse want to retire together and you both have reached your full retirement age and you have similar incomes you can take advantage of this strategy. It works when the person with the lower income files for the individual benefit, which can be done at age 62. Once the other spouse reaches full retirement age he or she files for spousal benefits until age 70, when that spouse starts to claim full maximum benefit. This strategy works well if you don’t mind getting a little upfront or need money sooner rather than later.

Of course the best way to maximize your benefits is to wait till you are both 70 years of age and receive your maximized benefits. But sometimes, depending on your retirement plans, your health, or other factors you may need that money sooner. Before making any decisions, it is wise to sit with a financial counselor to see which plan suites your needs and lifestyle.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 20 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at moneymattersguam@yahoo.com and read past columns at the Money Matters blog at www.moneymattersguam.wordpress.com.