New England Capital Blog

Hopefully you are enjoying your summer, whether it is at the beach, in the mountains, in your backyard, or even sitting poolside enjoying your favorite beverage.  This time of year makes it easy to fantasize about what retirement may look like – or even if you are retired – what life can look like away from “home”.

Vacations are great – everyone needs down time to recharge their batteries, reflect on the past, and look ahead to the future.  Some people prefer to travel, while others would like a “home away from home”.  At what point should you consider buying that vacation home or second home?  In part of that decision making process, there are some questions you need to answer first:

Where's a good place to buy? Take a look a market demographics, re-sale prices, weather, proximity to grocery/shopping/medical centers, traffic, etc.

"I don't trust the stock market". I've heard that a lot over my 33 year career. It may even be the way you're feeling right now. Did the negative double-digit returns of the S&P 500 at the beginning of the year (which was the worst January in the history of the stock market), only to be followed by a positive double-digit return since mid-February, leave you feeling the same queasiness as riding the Wildcat roller coaster, the oldest continuously operating wooden coaster, at Lake Compounce in Bristol, Connecticut?    As the chart below shows the S&P 500 has a positive return in 27 of the last 36 years. Of course that means we've had nine years of negative returns during that time. The average annual return for the 36 years has been over 11%. But in order to enjoy that 11% return you must have been able to endure an average, temporary, intra- year decline of 14.2%.

With the current low interest rates for mortgages and the present status of the stock market, should you be putting extra payments onto your mortgage and pay it off faster, or should you rather invest that money?  Thanks to a suggestion from a client, we will try to give you some solutions in this article.

First, let’s first start with this case study.  Teddy and Donald Smith recently re-financed their house for $200,000 for a 30 year mortgage at 3.75%.  Their monthly payment for principal and interest and is $926, which does not include taxes or homeowners insurance.   Let’s assume that they make 1 extra payment per year.  By making that one extra payment, they chop 4 years off their mortgage, finishing in roughly 26 years.  Meanwhile, Hillary and Bernie Jones took out the same mortgage, but rather then make an extra payment on the mortgage; they invested that annually for the same 30 years at a 6% rate of return.  For this same example, let’s assume that after the mortgage is paid off, Teddy and Donald save their $926/monthly for 4 year years at 6%, which the results are shown below:

The first of the year always brings with it the promise of new beginnings and the burden of self-improvement.  According to research from the University of Scranton, some 45% of Americans decide to make New Year’s resolutions.  As Ben Franklin once said, “Be always at war with your vices, at peace with your neighbors, and let each New Year find you a better man.”

On the surface, it seems too good to be true.  You have a married couple, where (let’s say) the husband has earned higher yearly income than his wife.  That means he has contributed more to Social Security over his working life.  The husband files for Social Security benefits at full retirement age (currently age 66) and then immediately files to suspend those benefits. 

As a result of this simple maneuver, the wife is now entitled to immediately receive Social Security spousal benefits equal to half of the husband’s full retirement benefits that were just suspended.  She would do this if 50% of the husband’s benefit is higher than she would have received if she had simply claimed her own Social Security payments.

Because he suspended his benefits, the husband can continue working, and wait until age 70 to start receiving Social Security checks in his own name.  Why would he do that?  Because each year of deferral allows him to accumulate more credits—effectively raising his monthly benefits 8% a year, which is considerably higher than the inflation rate.  At that time, the wife would stop claiming the husband’s benefits and start receiving her own Social Security checks.  If she was working at the time, she might have raised the amount she could claim under her own name.