As you know, buying a new home is one of the most important financial decisions you will ever make in your life, which is why it’s vital to get it right.
You’ve heard horror stories before. A young couple buying their dream home only to find out six months later that the house’s structure collapsed due to water damage. Or the first-time buyer who gets caught up dealing with a probate attorney because someone was trying to sell an inherited property before the probate process had finished. Yikes.
No matter how confident you are that the house you’re about to buy is the perfect one for you, it’s always wise to ask as many questions of the seller as possible to make sure you’re getting exactly what you paid for, without any nasty surprises. With that said, let’s take a look at some of the questions you need to ask before buying a home.
How long has the house been for sale?
It’s an almost clichéd phrase that nearly feels like you’re trying to strike up some awkward small talk, yet it’s a very valid question indeed. Knowing how long the house has been for sale is essential to all buyers for several reasons.
Firstly, it gives you a clue as to whether or not the house is reasonably priced. If the property has been on the market for too long, it’s usually an indication that the seller valued the home too high, and you should be able to negotiate down.
Secondly, if the house has been for sale for a while and seems reasonably priced, there’s probably a reason why. While it’s not a major red flag, it’s certainly a cause for suspicion, so keep your eyes peeled and maybe solicit the opinion of an extra property inspector.
What is the reason for the sale?
Another obvious yet essential question. You need to know why they are selling the property. Are they downsizing? Pursing a new job in a different city? Moving to a retirement home? It’s all valuable information that you can use to bargain with later. Also, there’s a chance the seller is leaving due to a problem in the area, such as an annoying neighbor or something of the sort.
What is included in the sale?
When viewing a property, you need to ask what is included as part of the sale and what isn’t. After all, the seller will probably be taking most of their stuff with them, so you should be aware of what the house will look like once they are gone and what you need to bring with you when you first move in.
Are there any natural hazards or dangerous substances?
This is a great question that people forget to ask. It’s always wise to enquire about any hazards that are lurking in and around the house. If this house is in a potential flood zone, you need to know about it.
In addition to this, the seller should inform you about any harmful and toxic materials in the property, such as asbestos, lead paint, and even faulty wiring that could be classed as a fire hazard. They are required to disclose these things by law, but it doesn’t hurt to ask.
Is the house in probate?
Sometimes people are looking to sell an inherited house, and they usually want to get it done in a hurry. However, probate is an obligatory process that must be carried out in full; there’s no going around it.
The pros and cons of buying a probate house
On the one hand, buying a probate house is an excellent thing because usually it means the price is much lower, as the beneficiaries typically want to get rid of it as soon as possible. This gives you an excellent opportunity to secure a massive profit on the property right out of the gate—and if you wanted, you could even renovate it and flip it for a handsome profit.
However, there are downsides. The probate process is very time consuming, usually taking weeks, months, or even years. If you decide to buy the property, just be aware that you could be in for the long run, and there’s nothing you can do about it. In addition to this, it’s typical for a probate home to be in a below-average condition as most of the previous owners are generally elderly.
This means there is a higher likelihood that the home has fallen into a state of neglect, and things may not be up to code. If they aren’t, that means an added cost for you. The best advice is to hire property inspectors to assess the structure and the electrical and plumbing systems before you sign on the dotted line.
Would you consider an offer?
Last but not least, the most important question of all: “Would you consider taking $…?”
In other words, ask for a deal. Negotiate. Barter! It’s probably the most significant investment you will ever make, so even if you shave 1% off the house price, that’s a ton of money saved.
Thanks for reading!
Written by: Mike Johnson | Exclusively for Merriman.com
Author Bio: Mike Johnson is a freelance writer and a human rights activist and an enthusiast. He is not employed or associated with Merriman. Through his extensive research and commitment to the field of law, Mike has established himself as a well-decorated writer in this field. Mike currently settles in Las Vegas, and loves starting his day with a shot of espresso and cycling through his neighborhood.
Disclosure: The material is presented solely for information purposes and has been gathered from sources believed to be reliable, however Merriman cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source. Merriman does not provide tax, legal or accounting advice, and nothing contained in these materials should be relied upon as such.
Starting Monday, January 11 through Friday, January 29, eligible City of Tacoma employees have an opportunity to buy affordable additional long-term disability insurance coverage through the City. While this benefit may not sound too exciting, it represents essential insurance coverage that can protect your income in the unfortunate event that you become disabled.
City of Tacoma employees should sign-up and take advantage of this benefit.
Who am I? My name is Geoff, and I am a financial planner with Puget Sound-based Merriman Wealth Management, LLC. I got excited after seeing the special benefits notice my wife received as a City of Tacoma employee. I do not work for the City or the vendor, and I do not receive any personal benefit from you enrolling in this extra disability coverage. I am just passionate about helping families make the best financial decisions possible and wanted to provide additional information on a topic that can seem overly complicated or may often be overlooked.
The FAQ below illustrates just how important this additional long-term disability coverage is, whether or not you have dependents:
What is disability insurance?
This type of insurance is used to protect your income and financial livelihood in the event of an untimely illness or injury.
There are two types of disability insurance: short-term and long-term. Long-term disability coverage is the most valuable because it replaces a portion of your income starting 90 days after your disability until recovery or age 65, whichever is sooner.
Don’t I already have long-term disability coverage through the City of Tacoma?
You do. However, for most employees this basic employer-paid benefit only protects 60% of the first $1,500 in monthly pre-disability earnings. This means that if you earn $6,250 a month or $75,000 a year, you will only receive $900 a month in benefits. Will $900 a month cover your bills?
How much extra income protection will this additional benefit provide me?
Up to $4,100 of extra income per month of pre-disability earnings. Combined with the basic employer-provided benefit described above, you could receive up to $5,000 of income replacement (i.e., a total of 60% of $8,333 pre-disability earnings). The employee from question two above, earning $6,250 a month or $75,000 a year, would receive $3,750 a month in benefits, which would go much farther toward being able to cover bills.
Note:Employees earning $100,000 or more would receive the maximum benefit of $5,000 a month.
What is the difference between the 90-day and 180-day waiting period options?
This waiting period, otherwise called the elimination period, is how long you have to wait to start receiving long-term disability payments from the insurance carrier. Premiums are naturally higher for the 90-day waiting period option as you will start receiving benefits earlier. The difference in premium for choosing the 90-day waiting period over the 180-day waiting period is offset by starting to receive income 3 months earlier.
How much does this benefit cost and how is it paid?
The benefit costs 0.303% of pre-disability earnings up to the pre-disability earnings cap for the 90-day waiting period option. This means the employee earning $75,000 would pay an extra $18.94 per month or $227.28 a year (i.e., 0.303% X $6,250 pre-disability earnings). Employees earning $100,000 or more a year would pay an extra $25.25 per month or $303 a year. This extra benefit far outweighs the additional premium cost.
Note: This premium cost would be deducted via payroll as a post-tax cost.
What happens if I stop working at the City of Tacoma?
Generally, you cannot keep group disability benefits like this one offered through the City of Tacoma if you leave (i.e., not portable).
If I do become disabled, how does the benefit work? How long would the benefit last?
In the unfortunate event of an illness or injury that qualifies for disability insurance benefits, you would file a claim with the disability insurance carrier that includes medical evidence of your disability. If approved, you would start receiving the above-described benefits after the waiting period until recovering from the disability or age 65, whichever comes first.
Would the benefits received from this extra policy be taxable?
Because the premium is paid post-tax rather than pre-tax where you receive a tax deduction for the premium cost, the disability payment you would receive would be tax-free. SAID AGAIN: All of the income received from this extra long-term disability coverage would not be subject to taxation. The tax-free nature of the payments further helps replace your pre-disability income (as your pre-disability income is gross income or otherwise subject to taxes).
Note: Income received from the employer-paid basic long-term disability coverage (i.e., 60% of the first $1,500 in monthly pre-disability income) would be subject to taxation. This is because your employer pays the premiums for this benefit.
What if I earn more than $100,000 a year? Do I need additional income protection beyond this extra benefit offered by the City?
Maybe. Start by asking these questions:
Does my contribution to covering household expenses exceed $5,000 a month?
Do I expect these expenses above $5,000 a month to continue for at least another year?
Do I expect my income and expenses to increase in the future?
If you answered YES to these questions (and be conservative on this), then it makes sense to consider buying an additional individual disability policy outside of your City benefits. This is especially important for households with a single earner.
An advisor can get quotes through an insurance broker to help you make an informed decision. It is also important to evaluate this decision through the lens of your overall financial plan, taking into account all of your goals and resources.
If you have questions about how much disability insurance coverage you need to protect your income or any other financial planning topics, like whether you are on track to achieve your financial goals, feel free to contact me directly at email@example.com.
Disclosure: The opinions expressed in this article are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific security. The material is presented solely for information purposes and has been gathered from sources believed to be reliable, however Merriman cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source. Merriman does not provide tax or legal advice, and nothing contained in these materials should be taken as such. To determine which investments may be appropriate for you, consult your financial advisor prior to investing. As always please remember investing involves risk and possible loss of principal capital; past performance is no guarantee of future performance. Advisory services are only offered to clients or prospective clients where Merriman and its representatives are properly licensed or exempt from licensure. No advice may be rendered by Merriman Wealth Management unless a client service agreement is in place.
Do you have a federal or local government pension? Don’t let the WEP or GPO surprise you. The Windfall Elimination Provision and Government Pension Offset, often called the WEP and GPO, are two rules that can leave you scratching your head. Not only do many people find these rules confusing, but they are also often completely overlooked, which may result in a big surprise when filing for Social Security benefits. Unfortunately, this is not one of those good surprises.
What are the WEP and GPO?
The WEP reduces a worker’s own Social Security benefit while the GPO reduces spousal and survivor benefits received from another’s work record, such as a spouse.
Who is affected?
The WEP and GPO affect individuals who qualify for a pension from non-covered (did not pay Social Security tax) employment. These are typically your federal and local government workers, such as teachers, police officers, and firefighters. Whether these jobs are non-covered will depend on the state/employer. Overseas employees may also fit under this category.
For the WEP to apply, the individual must have an additional job with covered earnings (did pay Social Security tax) that qualifies them for Social Security benefits. Thus, the WEP applies to those who have a mix of covered and non-covered employment. Specifically, they qualify for Social Security benefits and receive a non-covered pension. The GPO applies when an individual with a non-covered pension receives a spousal or survivor benefit. Are you scratching your head yet?
Dan works as a public school teacher in California, one of 15 states where teachers do not pay Social Security tax. He qualifies for a pension through the California State Teachers’ Retirement System (CalSTRS). To make extra money for his household, Dan works an additional job during the summer, where he does pay Social Security tax. By the end of his career, he has worked enough summers to qualify for a Social Security benefit. The WEP will reduce Dan’s benefit since he has both a non-covered pension from his career as a teacher and qualifies for Social Security benefits from his summer job.
How will the WEP affect my benefit?
Understanding the details of the WEP is quite complicated. To simplify, the WEP tweaks the Social Security benefit formula, resulting in a reduction of the worker’s Primary Insurance Amount (PIA). The PIA is the benefit amount one would receive at full retirement age. The amount reduced depends on the number of years with “substantial earnings” in covered employment. The Social Security Administration provides the WEP Chart as a reference to understand the potential benefit reductions based on the number of years of substantial earnings. The maximum monthly reduction is capped at $480 in 2020. The amount reduced stays constant for the first 20 years of substantial earnings before decreasing incrementally per year until it is completely eliminated upon reaching 30 years of substantial earnings.
This offers an incredible planning opportunity for those who have already accumulated a number of years of substantial earnings. If you are thinking of retiring and have accumulated 20 years of covered work, it could make a lot of sense to work for ten more years to eliminate the WEP completely. Remember, you only need to have substantial earnings, so part-time work would count as long as you make what is deemed “substantial” in that year. For someone subject to the full WEP reduction and assuming a 20-year retirement, it could be worth more than $100,000.
It is important to note that the reduction is limited to one-half of an individual’s non-covered pension. This primarily comes into play when the majority of an individual’s earnings are in covered employment but have a small non-covered pension. For example, if you had a pension of $600 per month and your Social Security benefit was $1,200 per month, your benefit will not be reduced by more than $300 (half of your pension income).
How will the GPO affect my benefit?
This rule is more straightforward to understand than the WEP. The GPO will reduce an individual’s spousal or survivor benefit by two-thirds of their non-covered pension benefit.
Sarah qualified for a pension of $2,100 per month from a government job. Her husband, Drew, worked as an engineer for a large corporation. Drew applied for his Social Security benefit at his full retirement age and receives $2,600 per month. Sarah applies for a spousal benefit once she reaches full retirement age. This benefit would generally be $1,300 (50% of her spouse’s); however, the benefit is reduced by two-thirds of her non-covered pension. In this case, she would not receive anything since two-thirds of her pension ($1,400) is greater than what her spousal benefit would be.
Let’s say Drew passed away unexpectedly. Sarah would normally qualify for a survivor benefit equal to Drew’s entire benefit of $2,600. Because of the GPO, she will only receive $1,200 since the benefit would first be reduced by two-thirds of her pension ($2,600 – $1,400).
Keep in mind the GPO only applies to the individual’s own non-covered work. If a surviving spouse is a beneficiary of a non-covered pension, their Social Security benefits will not be reduced.
These rules are tricky to navigate and important to understand for those affected. What makes it worse is that your Social Security statement will not reflect the reduction in benefits from the WEP and GPO. This means it requires work and effort on your part to figure out! The Social Security Administration has provided an online WEP and GPO calculator to help with this. It will ask for a birthdate, non-covered pension benefit amounts, and other relevant information to calculate your new benefit factoring in the rule. If you have a family member or friend with a non-covered pension, they may be subject to these two rules. Please forward this on to them or anyone else who may find it useful.
I want to acknowledge that all women are wonderfully unique individuals and therefore these tips will not be applicable to all of us equally and may be very helpful to some men and nonbinary individuals. This is written in an effort to support women, not to exclude, generalize, or stereotype any group.
I was recently reminded of a troubling statistic: Two-thirds of women do not trust their advisors. Having worked in the financial services industry for nearly two decades, this is unfortunately not surprising to me. But it is troubling, largely because it’s so preventable.
Whether you have a long-standing relationship with an advisor, are just starting to consider working with a financial planner, or are considering making a change, there are some simple tips all women should be aware of to improve this relationship and strengthen their financial futures.
Tip #4 – Ask Questions
Studies have shown that women tend to be more realistic about their own skill level. It’s not necessarily that we lack confidence—more that we lack overconfidence. I think that’s a good thing; however, it means women lacking financial expertise are more likely to feel self-conscious about asking a question that could be perceived as foolish. This can be particularly hard if there is a third party present (such as a spouse) who has a greater understanding, likes to use the lingo, and/or tends to monopolize the conversation. If necessary, don’t be shy about asking for a one-on-one meeting with your advisor so you have a chance to ask all the questions you want without someone interrupting you or changing the subject.
I would always prefer that someone ask questions rather than misunderstand, and it can be difficult to gauge a client’s level of understanding if they don’t ask questions. I have many highly-educated clients who have never had any interest in investing or financial planning, so it just isn’t their strong suit. There is nothing to be embarrassed about. I promise that an experienced advisor has heard any basic question you might ask a thousand times before. If an advisor is unhelpful or condescending when you ask a question, you should not be working with that person. There are plenty of advisors out there who are eager to share what they know with you. Sometimes the hard part can be getting us to stop talking once you’ve asked! And of course, being comfortable enough to ask questions is always easier if you like the person you are working with (see tip #1).
There are many different considerations when hiring an advisor: Are they a fiduciary? Do they practice comprehensive planning? How are they compensated? What is their investment philosophy? They may check off all your other boxes, but if you don’t like them, you are unlikely to get all you need out of the relationship. If you’re looking for an advisor you’re compatible with, consider perusing our advisor bios.
Be sure to read our previous and upcoming blog posts for additional tips to help women get the most out of working with a financial advisor.
I work with clients to create plans for spending, saving, investment, taxes, insurance, estate, and all the other items that, if managed, can lead to financial security and peace of mind. Often, after all the planning, I get the question: What else can I do to help my financial situation? While a good plan can help mitigate the ups and downs of the markets and the economy, it still can lead many to feel like they have little control over their situation. This question often stems from a sense of not feeling totally in control of your financial situation because of volatile markets, the economy—and recently, a global pandemic.
One area I have started to introduce to my clients as a financial strategy is to consider doing an evaluation and plan for their physical and mental health. The estimated average healthcare costs for a couple in retirement is $285,000. This figure can include Medicare supplement premiums, deductibles, drugs, co-pays, dental, vision, counseling, and other care services. Over the past 30+ years as I have been working with clients, I have seen firsthand how these costs are becoming an increasing burden to retirees as inflation in the healthcare industry is very much outpacing increases in incomes.
For many, chronic conditions like high blood pressure, high cholesterol, diabetes, obesity, heart disease, and auto-immune diseases are a big burden physically, mentally, and financially. My story was typical of a lot of people I see. Busy family life, high pressure jobs, and the stresses of life slowly add up. Late in my 40’s, I was diagnosed with high blood pressure and started taking medication. I thought I was in pretty good shape and didn’t give it much thought as my mom had high blood pressure all her adult life, and I thought it was hereditary. As I got into my 50’s, my cholesterol and triglycerides started steadily increasing to unhealthy levels. Like many, I ignored the slow decay of my physical and mental health. Denial was strong. I would get flashes of trying to stem the aging “tide” but would eventually fall back to poor exercise and eating habits. There were always more important things to do than focusing on my health. Between feeling the aches and pains of nearing 60 years old and waking up to the knowledge of the effect my health would have on my retirement finances, I became acutely aware that I needed to seriously focus on my health. My motivation of wanting to feel better physically and mentally was boosted by the fact that I wanted to use my retirement savings for better things than healthcare costs.
In late 2018, I got to work. First, I did an inventory of my state of health. To do this, I consulted with professionals, gathered tools and health data, and did a deep dive into educating myself about nutrition and mental wellness. I also examined my consumption of food and alcohol, my utilization of exercise, and my stress levels and other facets of improving my emotional health. Second, I set aside feelings of ego, guilt, and pride to create a realistic road map to improving my health. One of the main things I learned right away is that there is no quick fix. To reverse years of poor habits and choices, it takes a long period of time. It definitely is a marathon and not a sprint, as to do it the right way involves lifestyle changes and not diets or boot camps.
I’m eating less with mostly plant-based meals, exercising consistently, and addressing the stresses I face on many fronts. It has been fabulous! My energy levels are much higher, and I have a much more positive attitude about life in general. For many years, I felt anxious about the state of my physical and mental health and that I couldn’t get the motivation to execute a good personal healthcare plan with consistency. I’m glad the added boost of seeing improved health as a financial strategy has motivated me to create and execute the beginnings of a sound personal health plan.
We all live with the genetic lottery, and predicting our future health is difficult, but it would be ridiculous for me not to do everything in my power to live healthily and potentially not spend my hard-earned money on healthcare. I encourage everyone to create and execute a health and wellness plan to feel great physically and mentally. It also is a good financial strategy.
Our team at Merriman has been diligently following COVID-19 pandemic updates across the world and in our own communities.
We have also been hearing lots of questions from clients, prospects, friends, and family.
Can I still retire or stay retired? Am I still able to relocate as I had planned? Should I sell all of my stocks now? Should I go to cash? Should I use all the cash I have to buy in? Should I file for Social Security earlier than planned? How will I pay for a hospital stay if I need one?
If you are worried about some of these things too, I have good news.
We have partnered with America’s Retirement Forum (a nationwide non-profit dedicated to providing financial education to adults) to organize a webinar that can help.
Why trust me?
I am the Director of Advisory Services at Merriman Wealth Management and an instructor through America’s Retirement Forum. I have been helping people transition into and navigate retirement for over 20 years, and Merriman has been in the business of educating investors since our founding by Paul Merriman in 1983.
The short and long-term impacts of the COVID-19 pandemic on the economy
Why this recession may be different from what you have lived through before
5 specific steps designed to protect and maximize your retirement income in the middle of a pandemic (yes, you can implement them yourself)
6 strategies and issues to discuss with your advisor
In this time of worry, false information, and uncertainty, make the choice to spend some of your time learning about what you can do to retire well. And the best part is that you don’t have to put your health at risk or leave the house. All you need is 30 minutes and an internet connection to watch this free webinar.
Don’t delay: Some of the strategies discussed in the webinar are time-sensitive. I would hate for you to miss an opportunity or to take action without having all the facts. We want to help you avoid mistakes and take the proper steps toward securing your financial future.
Stay home, be well, and use this unprecedented time to get informed. Feel free to reach out with any questions.