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Renting Is Worth a Look After Downsizing

By U.S. News & World Report

Homeowners in or near retirement often hear experts preach the benefits of downsizing, or selling the current home to buy a cheaper one and pocket the difference. But an alternative often gets less attention — selling the old homestead and renting the replacement. Proceeds from the sale can be a great way to add to your investment portfolio.

It may be possible to enjoy a larger return by shifting equity from a home to stocks or other assets, rather than simply using the proceeds from the old home to by a new one. Interest, dividends or capital gains from the alternative investment can be used to help pay rent and other living costs.

Erika Jensen, president of Respire Wealth Management in Houston, gives a hypothetical example of a retired couple investing $360,000 from a home sale, moving to a rental for $2,000 a month and experiencing 3 percent annual rent increases for the next 20 years. Rent would total $656,000 over that period, while the investment could grow to $1.15 million with average returns of 6 percent a year.

[See: 7 of the Best Stocks to Buy for 2017.]

If the investment were needed to produce income for rent, the investor might choose a more conservative portfolio with a smaller annual return, she says.

“Drawing income off of any investment with too much price movement can rapidly deplete the finite resource of retirement funds,” Jensen says. “However, if the retiree has sufficient income security, then the equity that used to be in the home is like gravy. It can be invested more aggressively to increase quality of life in later years or to pass on a considerable legacy to heirs. It could also be earmarked to cover potential long-term care costs or used to purchase long-term care insurance.”

Assets like stocks, bonds and mutual funds are also more liquid than home equity, making it easier to move money around as opportunities change.

Alternatively, the home proceeds could be invested in an immediate annuity paying $1,953 per month for life, according to the quote site Immediateannuities.com.

[See: 20 Awesome Dividend Stocks for Guaranteed Income.]

Experts say the first step in evaluating the rent-vs-buy option in retirement is to closely study the cost of owning any prospective new home, as well as savings from unloading the old one. Mortgage, taxes and insurance are easy to tally, but the assessment should also include a budget for major repairs like a new roof or furnace and professional lawn care that may be needed sooner or later.

A new home might grow in value over the years, but maybe not as fast as many think. That depends on location, and prices can and do drop from time to time.

One benefit of renting is it’s not a long-term commitment. It’s easy to change locations for financial reasons or personal preferences, and it’s not necessary to settle on a lifestyle for the long term.

“Don’t rush to downsize if you’re not yet certain what the future holds,” says Matt Gulbransen, owner of Callahan Financial Planning in Minneapolis. “You wouldn’t want to relocate to Florida only to realize you’re still needed back home in Minnesota. Think about your retirement plans, as well as your family’s situation. Is there an adult child who may want to move back home or an aging parent you may need to take care of?”

But downsizing to an unfamiliar area also presents risks.

“If retired or soon-to-be retired clients are thinking about relocating, I’ll recommend that they rent for a year in their target area to really get a feel for the community and weather,” says Ryan McPherson, founder of Intelligent Worth, a fee-only financial planning firm in Atlanta. “This helps avoid the financial problems and stressors that come with having to sell a newly-purchased home a few years after buying.”

[See: 10 Financial Perks of Getting Older.]

For many, renting seems like a step backward, to a time before they had the resources to own, and may view renting in retirement as a sign of financial misfortune. But carefully investing the proceeds from the sale of their homestead can give older homeowners additional financial options.

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Renting Is Worth a Look After Downsizing originally appeared on usnews.com

Don’t Settle for Student Loans to Pay for Online Education

By WTOP Staff
Online college programs are becoming a more popular choice for prospective students, with one study finding that more than 6 million students enrolled in at least one online course in fall 2015. The popularity of these courses can be attributed in part to their flexibility with working adults' schedules, students' ability to progress more quickly through online programs and, oftentimes, cheaper tuition. [See 10 low-cost online bachelor's programs for out-of-state students.]Online degrees can be beneficial to many college students, but some studies have shown online learners complete their programs at lower rates than students at traditional brick-and-mortar campuses. Individuals with student loans but no degree comprise two-thirds of defaulted borrowers. Though these numbers are not encouraging, just like for traditional programs, there are ways to reduce how much you'll need to borrow for an online program to ensure you won't become one of these statistics. Don't just settle on borrowing student loans to cover the whole cost of your program and living expenses. Instead, start thinking about how to cut costs and cover your balance in different ways, such as the following. -- Grants and scholarships: Even though you are taking an online course, you can still apply and receive grants and scholarships. But your first step should be to complete the Free Application for Federal Student Aid, commonly referred to as the FAFSA, which will allow you to receive a Pell Grant if your expected family contribution is low enough. The EFC criteria and award amounts are adjusted annually, but the 2017-2018 academic year awards range from $606 to $5,920, which could significantly lower the amount you borrow annually. Your next step is to apply for scholarships. You can start by checking online scholarship search engines, such as the Salt Scholarship Search, College Board's BigFuture and Peterson's. But don't forget to take advantage of local organizations and your school's financial aid office. Both may offer scholarships that you can't find with a national scholarship search. [Review these 10 sites to kick off your scholarship search.]For instance, organizations like the Elks Club, Knights of Columbus or the Rotary Club typically offer scholarships annually to local students. Just because you're going to school online doesn't mean you're ineligible. Visit your local library for scholarship listings, and ask around town. You might be surprised how many local organizations offer scholarships. While these scholarships typically aren't large, every little bit counts. Each dollar you receive in a scholarship is a dollar you don't have to borrow and pay interest on. -- Work-study: Another option for online students may be work-study awards. Not all students enrolled in online programs are eligible, but students at some schools -- including, for example, SUNY Empire State College and Liberty University -- are. Work-study awards are not given upfront like scholarships and grants. In most cases, they are an offer to earn up to the awarded amount if you secure an eligible work-study job. While there is a misconception that all work-study jobs must be on campus, students can work for off-campus, nonprofit or public employers as long as the work is in the public's interest. You may be able to work for a for-profit employer if the job is relevant to your course of study. No matter who the outside employer is, it will need to have an established agreement with your college for you to receive work-study funds. Remember, to be eligible for federal financial aid, you must be enrolled and pursuing a degree or certificate. If you're not working toward a credential, Pell Grants and work-study won't be option, but you may still be able to take advantage of private scholarships -- just be sure to read the eligibility criteria carefully. [Explore what to know about financial aid in online programs.]-- Pay as you go: One of the great benefits to enrolling online is the flexible schedule, which can allow you to complete your college coursework around your responsibilities. But prospective students often overlook using their part- or full-time job earnings as an option for paying for college. Almost 80 percent of college students in 2015 worked at least part time while attending classes, according to the National Center for Education Statistics. By budgeting and thinking strategically about your college costs, you can likely reduce your dependence on student loans by paying a portion out of pocket. Many -- but not all -- online programs are less expensive than traditional programs and often have shorter payment periods. Six, eight or 10 weeks are common course durations. Because of the frequency of payments in an online setting, you may be well-placed to pay as you go and possibly avoid borrowing altogether. Attending college online and avoiding student loans may be challenging, but if you are willing to put in the effort, you can limit the amount you need to borrow. More from U.S. News Q&A: Understanding Student Loan Discharge Eligibility Student Loan Refinancing Isn't Right for All Borrowers
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