Liz Weston: 4 Financial Professionals You Might Be Steering Wrong

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Neither of us know everything we need to know about money, so we can turn to experts for help. However, some money professionals who provide advice are not qualified to do so – nor are they required to put our interests before theirs.

Use caution when accepting advice from the following sources.

THE TRADING COMPANY HOW LONG YOUR AUTOMATIC LOANS ARE

The dealership wants to sell you a car. To make the payments more affordable, you may be offered a six, seven, or even eight year loan.

Longer loans can result in smaller monthly payments but cost more overall because you pay more interest. You will also likely be “upside down” for several years or owe more than your vehicle is worth. As the car gets older, it can easily incur high repair costs while you are still making payments. If you had to sell the car, you would have to come up with money to pay back the loan. Alternatively, you could use the negative equity toward your next car purchase, but that would make your next loan even more expensive.

BETTER APPROACH: Limit your auto loans to a maximum of five years for new cars or three years for used cars. A 20% down payment can also help you avoid negative equity. Consider getting pre-approved a loan from your local credit union, bank, or online lender. That can help you withstand the dealership trying to push you into expensive financing.

Mortgage Proposals About How Much Home You Can Afford

Good mortgage brokers or loan officers can be invaluable in navigating a complicated process and understanding the guidelines that lenders use to determine the size of a loan to qualify for. But they cannot tell you how much of a loan you can comfortably afford. Neither can your real estate agent.

Actual affordability will depend on many factors that are not considered in your application, such as: For example, when to retire and how much to save for other goals like raising a child.

There is also your level of comfort. Some people are good at borrowing the maximum because they believe that their finances will only get better. Others prefer to borrow more conservatively.

BETTER APPROACH: Use online calculators to estimate how much you can save for retirement and other goals. Then include these numbers in your monthly expenses when using a Mortgage Affordability Calculator. Or contact an escrow advisor, e. B. a certified financial planner, an accredited financial advisor or an accredited financial advisor. “Trustee” means that you have an obligation to put your interests first. Most financial advisors are not trustees. So be sure to ask.

STOCKBROKER OVER ROLLING YOUR 401 (K)

A stock broker can tell you that rolling up your old 401 (k) account into an individual retirement account gives you a lot more investment opportunities, and it usually does. But IRAs can cost you more, and 401 (k) have better consumer protection.

Stock brokers want to sell you assets that they use to earn commissions. Typically, they are not responsible for ensuring that these investments are in your best interests. In contrast, a 401 (k) administrator is a trustee. Hence, you need to put your interests first and offer good investment options at a reasonable cost. Many 401 (k) provide access to extremely inexpensive institutional funds that are not available in an IRA.

Additionally, all of your 401 (k) balance is protected from creditors. In contrast, your protection with an IRA depends on state law. Many states only exempt an amount “reasonably necessary to provide assistance” – which in some cases means that creditors could possibly get it all.

A BETTER APPROACH: Leave the money where it is if you like the old 401 (k) ‘s investment options, or roll it into a new employer’ s plan if allowed. Otherwise, roll the money into an IRA with a discount broker. If you need help with the investment, contact an escrow advisor.

SOCIAL SECURITY VIA APPLYING BENEFITS

You can start collecting Social Security at the age of 62, but your monthly benefit will increase the longer you delay the application, until it is at its maximum at the age of 70. Several studies have shown that if they delay filing, most people will cash in more over the course of their lives. It is especially important that the higher earner of a married couple delay, as this benefit determines what the survivor receives if the first spouse dies.

Unfortunately, social security administrators sometimes advise starting early – even when social security officials are not supposed to offer advice.

For example, applicants have been told that it does not matter when they start providing benefits as the amounts paid out over their lifetime are the same. This is a misinterpretation of social security’s attempt to be “actuarially neutral” or to have the system pay out the same amount overall, regardless of when people claim benefits.

BETTER APPROACH: Use a social security entitlement calculator to find out when to start benefits. AARP has a free oneWhile more sophisticated versions start at $ 20 from Social Security Solutions or $ 40 from Maximize My Social Security.

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This column was provided to The Associated Press by the personal finance website NerdWallet. Liz Weston is a columnist for NerdWallet, a certified financial planner, and the author of Your Credit Score. Email: [email protected] Twitter: @lizweston.

SIMILAR LINKS:

NerdWallet: How Much House Can I Afford? http://bit.ly/nerdwallet-house-cost

AARP: social security calculator https://www.aarp.org/retirement/social-security/benefits-calculator.html



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