Michele Clark in the News: CNBC about Downsizing Housing in Retirement

I was happy to be a resource for Sara O’Brien of CNBC for the article “Older Americans planning to downsize should brace for sticker shock” that highlights the surprises that retirees can face when downsizing.  We had a great discussion about the types of expenses people often forget, the types of housing I see clients gravitate toward, and if the cost of the square footage downsized home is dollar downsized as much as people originally had envisioned.

Why retirees might not get as much equity out downsizing as they thought

When thinking of “downsizing” people often assume that if they reduce the size of their home, the purchase price will also be lower.  That isn’t always the case.  Often times people are looking for newer homes that will require less maintenance, and may even be attracted to villa homes that include (for a fee) exterior upkeep such as snow shoveling, yard work etc.  Those types of homes cost more.  You may end up downsizing the square footage but upsize the amenities.

People often forget that they will pay a 6% sales commission to the realtor to sell their home that translates into a smaller check at the closing table than they originally thought.  For a $450,000 house, it is $27,000 less for their retirement than they were thinking. Especially considering they are also using the proceeds to buy another house.

Due to years of watching HGTV reveals people swing open a front door and expect to be wowed. Knowing this a Realtor’s marketing plan will include a list of staging ideas and home repairs designed to maximize the sales price and reduce the number of days on the market. These expenses are often overlooked because they cover more items than they used to, Pre-HGTV.

Moving expenses and the cost of setting up the new home add up as well.

Why it pays to plan in advance when thinking of downsizing

One benefit to downsizing, even if the reduction is not significant, is if you currently have a mortgage, and you move to a less expensive home, you can improve your monthly cash flow by doing away with the monthly principal and interest mortgage payments (you will still pay taxes and insurance each year.)  Or of course, if your current home is paid off, you will walk away from the closing table with equity out of the house, which is what people traditionally think of when they think of downsizing.

Another benefit is in the form of improved monthly cash flows, due to a reduction in housing costs, such as utilities, home owner’s insurance, and potentially real estate taxes.

Wine Tasting with Jan and Michele

Come to the Education Room at Total Wine and More in Manchester, MO with your financial planning and tax questions and enjoy some wine with CERTIFIED FINANCIAL PLANNER™ professional Michele Clark, CFP®, CRPC® and Jan Roberg, Enrolled Agent.

There is no prepared presentation, just a casual conversation in a small group environment; your opportunity to pick our brains. Feel free to invite family or friends who could benefit from some time with us.

Open to registered attendees only, due to the size of the room.

RSVP at Roberg Tax Solutions or call 636-264-0732.

Wine with Michele and Jan
Town and Country in Manchester Meadows
Tuesday, October 24th at 5:30 pm.
13887 Manchester Road
Ballwin, MO 63011

Hope to see you there!

Michele Clark in the News: US News and World Report about College Planning and Grandparents

I was honored to help US News and World Report recently in their article “How Grandparents Can Help Save for College”  the author of the article and I discussed how difficult it can be for families to discuss money and saving for college and different ways to broach the subject.  We also discussed how the money that a Grandparent has saved for a grandchild can sometimes hurt their financial aid prospects depending on how it is managed.  We also discussed different investment vehicles and the pros and cons of each.

Michele Clark in the News: US News and World Report about Mistakes Grandparents Make When Helping Pay for College

I was honored to help US News and World Report recently in their article “6 Mistakes Grandparents Make When Helping Pay for College”   we had a nice long conversation which was used for a couple of articles.   Discussed in this article are making sure that you do not miss tax breaks, that if you choose to use savings bonds that you title them correctly, and that you are careful about the timing of your gift to the grandchild so that you do not harm their financial aid chances.

Bonds: How do they work

Investing in Bonds

Bonds may not be as glamorous as stocks or commodities, but they are a significant component of most investment portfolios. Bonds are traded in huge volumes every day, but their full usefulness is often underappreciated and underestimated.

Why invest in bonds?

Bonds can help diversify your investment portfolio. Interest payments from bonds can act as a hedge against the relative volatility of stocks, real estate, or precious metals. Those interest payments also can provide you with a steady stream of income.  Additionally, because individual bonds have a face value and maturity date, investors like knowing how much and when to expect their investment.

Bonds as Part of Your Overall Portfolio Strategy

Bonds play an important role in your overall portfolio strategy, AKA investment mix.  As interest rates rise and bond prices are impacted, your overall portfolio allocation will be impacted as well.

For those of you who are managing a portfolio on your own and read this blog for education, or are hourly/project based clients, that will mean that you will need to monitor your portfolio and rebalance the allocation back to your original allocation/investment mix.  If you do not, then the amount of risk/projected return in the portfolio will not match the amount of risk/return you wanted in the portfolio.

For those of you who work with us on an ongoing basis for investment management/partnership based clients, we set up “target bands” according to your allocation/investment mix and make changes when your portfolio deviates from those bands.  So we do not wait until a certain time of year, we make changes as needed and only if needed.

I wrote earlier about the importance of rebalancing a portfolio and how rebalancing works.

How bonds work

When you buy a bond, you are essentially loaning money to a bond issuer in need of cash to finance a venture or fund a program, such as a corporation or government agency. In return for your investment, you receive interest payments at regular intervals, usually based on a fixed annual rate (coupon rate). You are also paid the bond’s full face amount at its stated maturity date.

You can purchase bonds in denominations as low as $100, and often in increments of $1,000 (though individual brokers may have a higher minimum purchase). Some are backed by tangible assets, such as mortgage contracts, buildings, or equipment. In many other cases, you simply rely on the issuer’s ability to pay. You can buy or sell bonds in the open market in the same manner as stocks and other securities. Therefore, bonds fluctuate in price, selling at a premium (above) or discount (below) to the face value (par value). Generally, the longer a bond’s duration to maturity, the more volatile its price swings. These factors expose bonds to certain inherent risks.

You can buy or sell bonds in the open market in the same manner as stocks and other securities. Therefore, bonds fluctuate in price, selling at a premium (above) or discount (below) to the face value (par value). Generally, the longer a bond’s duration to maturity, the more volatile its price swings. These factors expose bonds to certain inherent risks.

Bond risk factors

Although many bonds are conservative, lower-risk investments, some others are not, and all carry some risk. Because bonds are traded in the securities markets, there is always the chance that your bonds can lose favor and drop in price due to market risk; as a result, a bond redeemed prior to maturity may be worth more or less than its original cost. Much of this volatility in price is tied to interest-rate fluctuations. For example, if you pay $1,000 for a 5 percent bond, that same $1,000 might buy you a 6 percent bond the following month, if interest rates rise. Consequently, your old 5 percent bond may be worth less than $1,000 to current investors.

Since bonds typically pay a fixed rate of interest, they are open to inflation risk. As consumer prices generally rise, the purchasing power of all fixed investments is reduced. Also, there is a chance that the issuer will be unable to make its interest payments or to repay its bonds’ face value at maturity. This is known as credit or financial risk. To help minimize this risk, compare the relative strength of companies or bonds through a ratings service such as Moody’s, Standard & Poor’s, A. M. Best, or Fitch. Finally, bonds also involve reinvestment risk: the risk that when a bond matures, you may not be able to get the same return when you reinvest that money.

Corporate bonds

Bonds issued by private corporations vary in risk from typically steady utility bonds to highly volatile, high-interest junk bonds. Also, many corporate bonds are callable, meaning that the debt can be paid off by the issuing company and redeemed on a predeterminded fixed date. The company pays back your principal along with accrued interest, plus an additional amount for calling the bond before maturity.

Some corporate bonds are convertible and can be exchanged for shares of the company’s stock on a fixed date. You can also purchase zero-coupon bonds, which are issued at a discount to (below) face value. No interest is paid, but at

You can also purchase zero-coupon bonds, which are issued at a discount to (below) face value. No interest is paid, but at maturity you receive the face value of the bond. For example, you pay $600 for a 5-year, $1,000 zero-coupon bond. At the end of 5 years, you receive $1,000. Corporate bonds have maturity dates ranging from one day to 40 years or more and

Corporate bonds have maturity dates ranging from one day to 40 years or more and generally make fixed interest payments every six months.

U.S. government securities

The securities backed by the full faith and credit of the U.S. government carry minimal risk. United States Treasury bills (T-bills) are issued for terms from a few days to 52 weeks. They are sold at a discount and are redeemed

United States Treasury bills (T-bills) are issued for terms from a few days to 52 weeks. They are sold at a discount and are redeemed for their full face value at maturity. Other Treasury securities include Treasury notes, which have terms from 2 to 10 years, Treasury Inflation Protected Securities (TIPS), which have terms from 5 to 30 years, and Treasury bonds, which have a term of 30 years. Although the interest earned on these securities is subject to federal taxation, it is not subject to state or local taxes.

Other Treasury securities include Treasury notes, which have terms from 2 to 10 years, Treasury Inflation Protected Securities (TIPS), which have terms from 5 to 30 years, and Treasury bonds, which have a term of 30 years. Although the interest earned on these securities is subject to federal taxation, it is not subject to state or local taxes.

Various federal agencies also issue bonds. As with any investment, these bonds carry some risk. However, because the U.S. government guarantees timely payment of principal and interest on them, they are considered very safe. Some of these bonds use mortgages as collateral. Most mortgage-backed securities pay monthly interest to bondholders.

Municipal bonds

Municipal bonds (munis) are issued by states, counties, or municipalities, and are generally free from federal taxation (with some exceptions). Some may be completely tax free if you are a resident of the state, county, or municipality of issuance. Though municipal bonds generally offer lower interest payments compared with taxable bonds, their overall return may be higher because of their tax-reduced (or tax-free) status. Some municipal bond interest also could be subject to the alternative minimum tax. You must select bonds carefully to ensure

Though municipal bonds generally offer lower interest payments compared with taxable bonds, their overall return may be higher because of their tax-reduced (or tax-free) status. Some municipal bond interest also could be subject to the alternative minimum tax. You must select bonds carefully to ensure

You must select bonds carefully to ensure a worthwhile tax savings. Because municipal bonds tend to have lower yields than other bonds, the tax benefits tend to accrue to individuals with the highest tax burden.

Munis come in two types: general obligation (GO) bonds and revenue bonds. GO bonds are backed by the taxing authority of the issuing state or local government. For this reason, they are considered less risky but have a lower coupon rate. Revenue bonds are supported by money raised from the bridge, toll road, or other facility that the bonds were issued to fund. They pay a higher interest rate and are considered riskier. Therefore, research the project being funded to the extent possible before you invest, to make sure that it will generate sufficient income to make payments.

Monitoring your bond portfolio

Of course, you’ll want to keep an eye on your bond portfolio, as you should with all of your investments. Although other factors may affect them, bond prices are often closely tied to interest rates. When rates go up, the market price of your bonds tend to go down; when interest rates fall, your bonds generally rise in value.

Interest rates also tend to affect a bond’s current yield, which measures the coupon rate of your bond in relation to its current price. The current yield rises with a corresponding drop in the price of a bond, and vice versa. In addition, inflation, corporate finances, and government fiscal policy can affect bond prices.

The major bond-rating services offer letter grades regarding the relative strength of a corporation or bond.  Your brokerage statement or brokerage account website will often have the credit rating for your bonds.  Keep an eye on the credit rating to make sure that it is still in investment grade range which for Standard and Poor’s is BBB- or higher and Moody’s is Baa3 or higher.

Portions of this blog post are from an article prepared by Broadridge Investor Communications Solutions, Inc. Copyright 2017  But, I just had to add my own two cents!