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Advice iq larry frank   net worth, forget the home
 

Advice iq larry frank net worth, forget the home

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    Advice iq larry frank   net worth, forget the home Advice iq larry frank net worth, forget the home Document Transcript

    • Net Worth: Forget the HomeSubmitted by Larry Frank Sr. on Fri, 05/25/2012 - 12:00pmHow much are you worth? That’s a helpful number to know. But it mayno longer make sense to include your home’s value in that vitalcalculation. Real estate values have fallen so much.Why is knowledge about your net worth important? Because mostpeople only think about their income and expenses on a monthly basis.They forget about another important financial statement called thebalance sheet. The balance sheet is vital for evaluating your retirementprospects these days.What is net worth? It is everything you own minus everything you owe.Yep, that little sliver of what you actually own is what you need to live onwhen you retire and your income from gainful employment stops.To get your net worth, you add up the value of all you own. Those areyour assets. Then you subtract what you owe, known as your liabilities.Thus you have a snapshot of your financial condition. The goal is toincrease your net worth over time. A negative net worth, of course,shows you have a problem.Because of the Great Recession, plummeting prices and increasedborrowing cut U.S. home equity by more than 60%. Although therecession officially ended in June 2009, home prices have notrecovered.According to the most recent sounding through February, bythe S&P/Case-Shiller Home Price index, U.S. home prices posted anannual decline of 3.5%. This index measures 20 major metropolitanareas, ranging from New York to Dallas to Seattle. Only five of themshowed positive returns.In this type of market, it’s not surprising that many homeowners whoborrowed against their home equity have found themselves owing more
    • than their homes are worth. Homeowners with a second mortgage aremore than twice as likely to be “underwater” than are homeowners withonly a first mortgage.The good news is that housing values typically recover from downturns.But no matter which way the market heads, it’s probably not a good ideato count on the value of your home to help fund your retirement.Potential Risks of DownsizingAlthough moving to a less expensive home could be appropriate forsome people, the falling market of the last few years demonstrates thatyou may not always be able to sell your current home at the price youexpect. Transaction fees and moving expenses could also leave you withsubstantially less cash than you were anticipating.It might be more realistic to view downsizing or moving to a different areaas a personal choice rather than a way to pay for retirement. If you placetoo much emphasis on your home equity in your retirement strategy, itcould lead you to underestimate how much you may need to save for acomfortable retirement.Shifting into ReverseA reverse mortgage may allow homeowners age 62 and older toborrow against the value of their homes. They don’t have to pay back theloans during their lifetimes for as long as they continue living in them.This strategy may be appropriate for some retirees, but it also involvessubstantial fees — and the amount you can borrow is typically much lessthan the actual value of the home.Because a reverse mortgage loan must be paid back after you stop livingin the home for one year or more, it’s likely that either you or your heirsmay eventually be forced to sell it, risking exposure to the uncertaintiesof the housing market.Your home might have substantial value, but it also provides shelter andmay have sentimental value. You may be in a stronger position to makedecisions about your home if you leave it out of the retirement equation.Larry Frank, CFP, is a financial advisor in Roseville, Calif. He is theauthor of the book, Wealth Odyssey.AdviceIQ delivers quality personal finance articles by both financialadvisors and AdviceIQ editors. It ranks advisors in your area byspecialty. For instance, the rankings this week measure the number ofclients whose income is between $250,000 and $500,000 with thatadvisor. AdviceIQ also vets ranked advisors so only those withpristine regulatory histories can participate. AdviceIQ was launched Jan.9, 2012, by veteran Wall Streetexecutives, editors and technologists.Right now, investors may see many advisor rankings, although in someareas only a few are ranked. Check back often as thousands of advisorsare undergoing AdviceIQ screening. New advisors appear in rankings
    • daily.Topic:StocksReal EstateHome Buying and Selling