Q1 Earnings Season Begins

Posted by: Ryan Kimes, CFP®

Market Update – April 15th, 2019

The Week on Wall Street

Stocks broke out of a narrow range on Friday following news that two major banks grew their bottom line in the first quarter. For the week, the S&P 500 rose 0.79%; the Nasdaq Composite, 0.91%. The Dow Jones Industrial Average improved 0.50%. Turning to overseas stocks, the MSCI EAFE index declined 0.09%.[i],[ii],[iii],[iv]

The market spent much of the week in a lull as investors waited for earnings season to begin. Wall Street is paying close attention to both guidance and profit margins.


04.15.19.jpg

 Big Banks Post Solid Results

Friday, Wells Fargo and JPMorgan Chase both reported Q1 profit growth, and JPMorgan Chase announced record revenue.[v]      

 

This was welcome news. Analysts have tempered some of their expectations entering this earnings season, recognizing that slowing global growth, tariffs, and dollar strength may be affecting corporate profits. The dollar rallied 6.2% in Q1.[vi]

Inflation Picks Up

The Consumer Price Index rose 0.4% in March, the most in 14 months. This matched the consensus forecast of economists polled by MarketWatch, who believed rising gas prices would affect the number.

 

Even with this March jump, annual inflation remained relatively tame at 1.9%.[vii]

What’s Ahead

Note that U.S. stock and bond markets will be closed on Good Friday (April 19).

 

THE WEEK AHEAD: KEY ECONOMIC DATA

Thursday: March retail sales.

Friday: March housing starts and building permits.

 

Source: Econoday / MarketWatch Calendar, April 12, 2019

The content is developed from sources believed to be providing accurate information. The forecasts or forward-looking statements are based on assumptions and may not materialize. The forecasts also are subject to revision. The release of data may be delayed without notice for a variety of reasons, including the shutdown of the government agency or change at the private institution that handles the material.

 

THE WEEK AHEAD: COMPANIES REPORTING EARNINGS

Monday: Citigroup (C), Goldman Sachs (GS)

Tuesday: Bank of America (BAC), BlackRock (BLK), Comerica (CMA), IBM (IBM), Johnson & Johnson (JNJ), Netflix (NFLX), UnitedHealth Group (UNH)

Wednesday: Abbott Labs (ABT), Alcoa (AA), Bank of New York Mellon (BNY), Morgan Stanley (MS), PepsiCo (PEP), U.S. Bancorp (USB), United Rentals (URI)

Thursday: American Express (AMEX), Honeywell (HON), Manpower (MAN), Philip Morris (PM), Schlumberger (SLB), Travelers Companies (TRV), Union Pacific (UNP)

 

Source: Morningstar.com, April 12, 2019

Companies mentioned are for informational purposes only. It should not be considered a solicitation for the purchase or sale of the securities. Any investment should be consistent with your objectives, time frame and risk tolerance. The return and principal value of investments will fluctuate as market conditions change. When sold, investments may be worth more or less than their original cost. Companies may reschedule when they report earnings without notice.


[i] https://quotes.wsj.com/index/SPX

[ii] https://quotes.wsj.com/index/DJIA

[iii] https://quotes.wsj.com/index/COMP

[iv] https://quotes.wsj.com/index/XX/990300/historical-prices

[v] https://www.cnn.com/2019/04/12/investing/wells-fargo-bank-earnings/index.html

[vi] https://finance.yahoo.com/news/5-best-stocks-buy-ahead-122412306.html

[vii] https://www.marketwatch.com/story/higher-gas-prices-boost-cost-of-living-in-march-but-inflation-still-soft-cpi-shows-2019-04-10

 

Gains Conclude a Great Quarter

Posted by: Ryan Kimes, CFP®

Market Update –April 1st, 2019

The Week on Wall Street

Stocks ended last week higher as volatility slowed, completing their best quarter since 2009. A Friday tweet from Treasury Secretary Steven Mnuchin encouraged investors, referring to “constructive” discussions in the ongoing U.S.-China trade negotiations.[i]

The S&P 500 gained 1.27% for the week. The Dow Industrials and Nasdaq Composite both exceeded that advance: the Dow rose 1.60%; the Nasdaq, 1.42%.[ii],[iii],[iv]

Foreign shares went the other way. The MSCI EAFE index following international stocks retreated 0.91%.[v]


03.29.19.jpg

 

2019 Could Be a Big Year for IPOs

One of the ride-share pioneers, Lyft, closed on its initial public offering (IPO) on Friday, and a glance at the IPO calendar shows that as many as 226 companies could soon go public, with Uber and Airbnb possibly among them.[vi]

 

This IPO wave may be a signal of a market top, or it may point to a comeback for risk appetite, which could be healthy for the overall market.

 

Should some big-name IPOs stumble, it may deter others from moving ahead, which may influence the market psychology. Conversely, an enthusiastic reception may help support further market advances.

 

Good News for the Housing Market

The Fed’s dovish tone has also influenced home loan rates. Freddie Mac’s latest Primary Mortgage Market Survey shows an average interest rate of just 4.06% on a 30-year, fixed rate mortgage, compared with 4.28% a week earlier and 4.95% in December.[vii]

 

This news is especially significant given the recent pickup in existing home sales. They jumped 11.8% in February, the biggest monthly gain in more than three years.[viii]     

 

Tax Tip

The federal income tax filing deadline is Monday, April 15, 2019. However, residents of Maine and Massachusetts have until Wednesday, April 17 to file their 2018 tax return. April 15 is Patriots' Day, and April 16 is Emancipation Day.[ix]

 

THE WEEK AHEAD: KEY ECONOMIC DATA

Monday: February retail sales.

Wednesday: ADP’s snapshot of March private sector hiring.

Friday: The Department of Labor’s March jobs report.

 

Source: Econoday / MarketWatch Calendar, March 29, 2019

The content is developed from sources believed to be providing accurate information. The forecasts or forward-looking statements are based on assumptions and may not materialize. The forecasts also are subject to revision. The release of data may be delayed without notice for a variety of reasons, including the shutdown of the government agency or change at the private institution that handles the material.

 

THE WEEK AHEAD: COMPANIES REPORTING EARNINGS

Tuesday: GameStop (GME), Walgreens Boots Alliance (WBA)

Thursday: Constellation Brands (STZ)

 

Source: Morningstar.com, March 29, 2019

Companies mentioned are for informational purposes only. It should not be considered a solicitation for the purchase or sale of the securities. Any investment should be consistent with your objectives, time frame and risk tolerance. The return and principal value of investments will fluctuate as market conditions change. When sold, investments may be worth more or less than their original cost. Companies may reschedule when they report earnings without notice.

[i] https://www.marketwatch.com/story/stocks-end-higher-sp-records-strongest-quarter-in-a-decade-2019-03-29

[ii] https://quotes.wsj.com/index/SPX

[iii] https://quotes.wsj.com/index/DJIA

[iv] https://quotes.wsj.com/index/COMP

[v] https://quotes.wsj.com/index/XX/990300/historical-prices

[vi] https://www.cnbc.com/2019/02/04/a-giant-ipo-wave-is-coming-as-unicorns-whet-investor-appetite.html

[vii] http://www.startribune.com/us-mortgage-rates-post-biggest-drop-in-decade-to-4-06-pct/507781302/

[viii] https://www.nar.realtor/newsroom/existing-home-sales-surge-11-8-percent-in-february

[ix] https://www.efile.com/tax-day-deadlines/

 

Treasury Yields Drop, Scaring Investors

Posted by: Ryan Kimes, CFP®

Market Update – March 25, 2019

The Week on Wall Street

Friday, the yield of the 3-month Treasury bill exceeded the yield of the 10-year Treasury note for the first time in 12 years. For some analysts, this “inverted yield curve” may imply a short-term lessening of confidence. (Treasury yields move inversely to Treasury prices.)[i]

As a result, the S&P 500 ended the week 0.94% lower. The Nasdaq Composite fell 0.80%, and the Dow Industrials lost 1.19%.[ii],[iii],[iv]

In contrast, the MSCI EAFE index following international stocks rose, gaining 0.52% for the week.[v]


03.25.19.jpg

Fed Sees No Hikes in 2019

On Wednesday, the Federal Reserve held interest rates steady, but lowered its estimate of 2019 economic growth to 2.1%.

 

Last December, the central bank forecast two rate hikes in 2019. It now expects to leave rates unchanged this year, with one quarter-point hike projected for 2020.

 

This pivot may acknowledge a slight change in economic conditions. The Fed’s latest policy statement noted that the “growth of economic activity has slowed from its solid rate in the fourth quarter.”[vi]

      

Oil Hovers Near $60

At Friday’s closing bell, a barrel of West Texas Intermediate (WTI) crude oil was valued at $58.85 on the New York Mercantile Exchange (NYMEX). Its value briefly climbed to $60 earlier in the week.

 

Month-over-month, the price of WTI crude has risen nearly 5%. Historically, higher oil prices can have a significant impact on retail gasoline prices.[vii]

 

What’s Next

A U.S. delegation is scheduled to accompany Treasury Secretary Steven Mnuchin to China this week for further trade negotiations. Finally, Brexit will not occur this Friday, as the European Union has extended the United Kingdom’s deadline in response to Prime Minister Theresa May’s request.[viii],[ix]

 

THE WEEK AHEAD: KEY ECONOMIC DATA

Tuesday: The Conference Board’s latest reading on consumer confidence.

Thursday: February pending home sales, and the federal government’s second estimate of fourth-quarter Gross Domestic Product (GDP).

Friday: Reports on consumer spending and new home sales, and March’s final University of Michigan consumer sentiment index, another measure of consumer confidence levels.

 

Source: Econoday / MarketWatch Calendar, March 22, 2019

The content is developed from sources believed to be providing accurate information. The forecasts or forward-looking statements are based on assumptions and may not materialize. The forecasts also are subject to revision. The release of data may be delayed without notice for a variety of reasons, including the shutdown of the government agency or change at the private institution that handles the material.

 

THE WEEK AHEAD: COMPANIES REPORTING EARNINGS

Monday: Winnebago (WGO)

Tuesday: KB Home (KBH)

Wednesday: Lennar (LEN), Lululemon Athletica (LULU), Paychex (PAYX)

Thursday: Accenture (ACN)

Friday: Blackberry (BB), CarMax (KMX)

Source: Morningstar.com, March 22, 2019

Companies mentioned are for informational purposes only. It should not be considered a solicitation for the purchase or sale of the securities. Any investment should be consistent with your objectives, time frame and risk tolerance. The return and principal value of investments will fluctuate as market conditions change. When sold, investments may be worth more or less than their original cost. Companies may reschedule when they report earnings without notice.


[i] https://www.bloomberg.com/news/articles/2019-03-22/u-s-treasury-yield-curve-inverts-for-first-time-since-2007

[ii] https://quotes.wsj.com/index/SPX

[iii] https://quotes.wsj.com/index/NASDAQ

[iv] https://quotes.wsj.com/index/DJIA

[v] https://quotes.wsj.com/index/XX/990300/historical-prices

[vi] https://www.cbsnews.com/news/fed-rate-hikes-none-in-2019-federal-reserve-projects-no-rate-hikes-slower-growth-this-year 

[vii] https://money.cnn.com/data/commodities 

[viii] https://www.cnbc.com/2019/03/20/trump-says-china-tariffs-could-stay-in-place-amid-trade-deal-talks.html

[ix] https://www.nytimes.com/2019/03/21/world/europe/brexit-extension-eu-uk.html

Avoiding the Early Withdrawal Penalty

Posted by: Ryan Kimes, CFP®

Educational Update – March 20, 2019

An IRA, or Individual Retirement Account, is a tax-advantaged account that is subject to special rules regarding contributions and withdrawals. One of the central rules of IRAs is that withdrawals prior to age 59½ are generally subject to a tax penalty.

Yet, policymakers acknowledged that extenuating circumstances might require access to these savings. In appreciation of this, the list of exceptions for waiving this penalty has grown over the years.


adults-affection-arms-around-1586481.jpg

Penalty-Free Withdrawals

Outlined below are the circumstances under which individuals may withdraw from an IRA prior to age 59½, without a tax penalty. Ordinary income tax, however, is generally due on such distributions.[i]

Death – If you die prior to age 59½, the beneficiary(ies) of your IRA may withdraw the assets without penalty. However, if your beneficiary decides to roll it over into their IRA, they will forfeit this exception.[ii]

Disability – Disability is defined as being unable to engage in any gainful employment because of a mental or physical disability, as determined by a physician.[iii]

Substantially Equal Periodic Payments – You are permitted to take a series of substantially equal periodic payments and avoid the tax penalty, provided they continue until you turn 59½ or for five years, whichever is later. The calculation of such payments is complicated, and individuals should consider speaking with a qualified tax professional.[iv]

Home Purchase – You may withdraw up to $10,000 toward the purchase of your first home ($20,000 for a married couple). You cannot have owned a home within the last two years.

Unreimbursed Medical Expenses – This exception covers medical expenses in excess of 10% of your adjusted gross income.

Health Insurance – After a job loss, there are rules in place that allow the purchasing of health insurance, without penalty.3

Higher-Education Expenses – Funds may be used to cover higher-education expenses, such as tuition, student fees, textbooks, supplies, and equipment. Only certain institutions and associated expenses are permitted.3

Active Duty Call-Up – Reservists who make an IRA withdrawal during a period of active duty of 180 days or longer do not have to pay a 10% early withdrawal penalty.3

As always, be sure to speak with a tax professional about your specific situation.


[i] https://www.marketwatch.com/story/gearing-up-for-retirement-make-sure-you-understand-your-tax-obligations-2018-06-14

[ii] https://www.investopedia.com/articles/personal-finance/102815/rules-rmds-ira-beneficiaries.asp

[iii] https://money.usnews.com/money/retirement/slideshows/ways-to-avoid-the-ira-early-withdrawal-penalty

[iv] https://www.investopedia.com/articles/retirement/02/112602.asp

 

Dow, S&P, NASDAQ All Rise

Posted by: Ryan Kimes, CFP®

The Week on Wall Street

The big story last week was the sudden grounding of Boeing 737 Max 8 and 9 passenger jets in dozens of countries. The financial effects of this ban could potentially impact the airline industry and segments of the economy for months.[i]

While the news created a headwind for the Dow Industrials, stocks managed to post solid gains for the week. The Nasdaq Composite rose 3.12%; the S&P 500, 2.46%; the Dow, 2.25%.[ii],[iii],[iv]

Bullish sentiment was also evident overseas. Looking at the MSCI EAFE index, international stocks advanced 1.93%.[v]

03.19.19.jpg

Trade Meeting Delayed

Wall Street expected President Trump and Chinese President Xi to discuss trade issues this month. Thursday, Bloomberg reported that their talk had been postponed, with no firm date ahead.[vi]

Muted Inflation

The latest Consumer Price Index showed just a 1.5% rise in overall consumer costs in the year ending in February.

 

This number does not suggest an overheating economy. During a 60 Minutes interview last week, Federal Reserve Chairman Jerome Powell said the central bank did “not feel any hurry” to make a rate move.[vii]

 

Tax Tip

If you turned 70½ last year, April 1 is your final deadline to receive your initial Required Minimum Distribution (RMD) from a traditional IRA, SEP-IRA, SIMPLE IRA, or employer-sponsored retirement plan. If you take your initial RMD from these retirement accounts this year, you must receive your second RMD from them by December 31, 2019.[viii]

 

THE WEEK AHEAD: KEY ECONOMIC DATA

Wednesday: The Federal Reserve wraps up its two-day policy meeting.

Friday: February existing home sales.

 

Source: Econoday / MarketWatch Calendar, March 15, 2019

The content is developed from sources believed to be providing accurate information. The forecasts or forward-looking statements are based on assumptions and may not materialize. The forecasts also are subject to revision. The release of data may be delayed without notice for a variety of reasons, including the shutdown of the government agency or change at the private institution that handles the material.

 

THE WEEK AHEAD: COMPANIES REPORTING EARNINGS

Tuesday: FedEx (FDX), Michaels Companies (MIK)

Wednesday: General Mills (GIS), Micron Technology (MU)

Thursday: ConAgra Brands (CAG), Darden Restaurants (DRI), Nike (NKE)

 

Source: Morningstar.com, March 15, 2019

Companies mentioned are for informational purposes only. It should not be considered a solicitation for the purchase or sale of the securities. Any investment should be consistent with your objectives, time frame and risk tolerance. The return and principal value of investments will fluctuate as market conditions change. When sold, investments may be worth more or less than their original cost. Companies may reschedule when they report earnings without notice.

[i] https://www.cnbc.com/2019/03/13/boeing-shares-fall-after-report-says-us-expected-to-ground-737-max-fleet.html

[ii] https://quotes.wsj.com/index/SPX

[iii] https://quotes.wsj.com/index/DJIA

[iv] https://quotes.wsj.com/index/NASDAQ

[v] https://quotes.wsj.com/index/XX/990300/historical-prices

[vi] https://www.bloomberg.com/news/articles/2019-03-14/china-u-s-said-to-push-back-trump-xi-meeting-to-at-least-april

[vii] https://www.reuters.com/article/us-usa-economy-inflation-idUSKBN1QT1MF

[viii] https://www.irs.gov/newsroom/tax-time-guide-seniors-who-turned-70-and-a-half-last-year-must-start-receiving-retirement-plan-payments-by-april-1

Stocks Drop on Growth Concerns

Posted by: Ryan Kimes, CFP®

The Week on Wall Street

As in February, investors spent most of the first full trading week of March hoping for new details in U.S.-China trade negotiations. While they waited, stock benchmarks drifted downward. From Monday’s open to Friday’s close, the S&P 500 lost 2.55%, while the Dow Industrials took a 2.66% fall, and the Nasdaq Composite weakened 3.12%. The MSCI EAFE index tracking developed markets outside the U.S. and Canada fell 1.09%.[i],[ii],[iii],[iv]

 

Why did stocks lose momentum? In a hint that global economic growth might be slowing, the European Central Bank abruptly reduced its 2019 Gross Domestic Product forecast for the eurozone from 1.7% to 1.1%. A disappointing reading on U.S. hiring also raised questions.[v]

03.13.19.jpg

 

Perplexing Jobs Data

According to the Department of Labor, the economy generated only 20,000 net new jobs in February. This was the smallest monthly gain since September 2017. Nevertheless, the unemployment rate fell to 3.8%, while underemployment declined sharply to 7.3%. (These decreases could reflect furloughed federal employees returning to work.) The average wage rose 3.4% in 12 months, the largest year-over-year increase in a decade.

 

Harsh winter weather may have impeded hiring last month, and February’s payroll growth could be revised in the Department of Labor’s next report.[vi]  

      

Earnings Season Recap

The fourth-quarter reporting season is all but over. FactSet notes that the S&P 500 has seen earnings growth of 13.4% in Q4, marking the fifth straight quarter with a double-digit rise.[vii]

 

Final Thought

Stocks lost ground last week, breaking a long string of weekly advances. The extended rally partly reflected optimism that the U.S.-China trade dispute would soon be resolved, but a deal may or may not happen. The week offered a reminder that Wall Street sees both ups and downs. Day-to-day market fluctuations should not cause you to alter your long-term approach.   

 

THE WEEK AHEAD: KEY ECONOMIC DATA

Monday: January retail sales.

Tuesday: The Consumer Price Index, tracking monthly and yearly inflation.

Thursday: January new home sales and February retail sales.

Friday: The University of Michigan’s initial March consumer sentiment index, measuring consumer confidence.

 

Source: Econoday / MarketWatch Calendar, March 8, 2019

The content is developed from sources believed to be providing accurate information. The forecasts or forward-looking statements are based on assumptions and may not materialize. The forecasts also are subject to revision. The release of data may be delayed without notice for a variety of reasons.

 

THE WEEK AHEAD: COMPANIES REPORTING EARNINGS

Tuesday: Dick’s Sporting Goods (DKS)

Wednesday: Smart & Final (SFS)

Thursday: Adobe Systems (ADBE), Broadcom (AVGO), Dollar General (DG)

 

Source: Morningstar.com, March 8, 2019

Companies mentioned are for informational purposes only. It should not be considered a solicitation for the purchase or sale of the securities. Any investment should be consistent with your objectives, time frame and risk tolerance. The return and principal value of investments will fluctuate as market conditions change. When sold, investments may be worth more or less than their original cost. Companies may reschedule when they report earnings without notice.


[i] https://quotes.wsj.com/index/SPX

[ii] https://quotes.wsj.com/index/DJIA

[iii] https://quotes.wsj.com/index/NASDAQ

[iv] https://quotes.wsj.com/index/XX/990300/historical-prices

[v] https://www.cnbc.com/2019/03/07/stock-market-us-china-trade-jobless-claims-in-focus.html

[vi] https://www.usatoday.com/story/money/2019/03/08/jobs-report-just-20-000-added-february-economists-expected-181-000/3098383002/

[vii] https://insight.factset.com/earnings-insight-q418-by-the-numbers-infographic

Markets Remain Mostly Unchanged

Posted by: Ryan Kimes, CFP®

The Week on Wall Street

Stocks lost a little ground as February gave way to March. While domestic and overseas political developments made headlines, the market stayed relatively calm: from Monday’s open through Friday’s close, the S&P 500 ceded just 0.17%, finishing the week at 2,803.69. [i],[ii],[iii]

The Dow declined 0.65% in five trading sessions to 26,026.32, while the Nasdaq finished the week 0.06% higher at 7,595.35. The MSCI EAFE index of international stocks rose 0.24% for the week. , ,

Volatility has dropped in the past few weeks. Wall Street has grown less anxious about the possibility of new tariffs and higher interest rates this year.

03.06.19.jpg

Planned March Tariffs Delayed

Earlier in the week, President Trump opted to postpone the 15% increase in tariffs on many Chinese imports slated for the start of March. He did not announce a new deadline. Thursday, U.S. officials said the deadline had been suspended “until further notice.”

As we noted two weeks ago, the White House had indicated that it might postpone new tariffs if substantial progress was made with China on trade talks.[i]  

What’s Next

U.K. lawmakers will vote on a revised Brexit deal on March 12. If they reject it, they have two options left. They can either ask the European Union to push back the March 29 Brexit deadline or choose to leave the E.U. without a deal.[ii]

 

Tax Reminder

March 15 is the deadline for most partnerships and S corporations to send in their 2018 federal tax returns or extensions. (Some states that tax corporate income set different due dates.)[iii]


THE WEEK AHEAD: KEY ECONOMIC DATA

Tuesday: The latest new home sales numbers from the Census Bureau.

Wednesday: Payroll-processing giant ADP releases its February national employment

Friday: The Department of Labor releases its February job market snapshot.

Source: Econoday / MarketWatch Calendar, March 1, 2019

The content is developed from sources believed to be providing accurate information. The forecasts or forward-looking statements are based on assumptions and may not materialize. The forecasts also are subject to revision. The release of data may be delayed without notice for a variety of reasons, including the shutdown of the government agency or change at the private institution that handles the material.

 

THE WEEK AHEAD: COMPANIES REPORTING EARNINGS

Monday: Salesforce (CRM)

Tuesday: Kohl’s (KSS), Target (TGT), Urban Outfitters (URBN)

Wednesday: Abercrombie (ANF), Dollar Tree (DLTR)

Thursday: Burlington Stores (BURL), Costco (COST), Tech Data (TECD)

Source: Source: Morningstar.com, March 1, 2019

Companies mentioned are for informational purposes only. It should not be considered a solicitation for the purchase or sale of the securities. Any investment should be consistent with your objectives, time frame and risk tolerance. The return and principal value of investments will fluctuate as market conditions change. When sold, investments may be worth more or less than their original cost. Companies may reschedule when they report earnings without notice.


Is Paying Off A Low-Interest Mortgage a Good Idea?

Posted by: Ryan Kimes, CFP®


For many families, a home loan constitutes a significant portion of their household debt. As a result, some people choose to reduce this debt as much as possible before entering retirement. In fact, nearly one in three retirees have mortgage debt, and 17% of those paying off debt say that their mortgage is a top financial priority.

But, not all debt is equal. Interest rates have been historically low in recent years, so depending on your rate, your mortgage may be the cheapest form of debt you hold. As such, using your extra money in different ways could make sense. Because everyone’s financial situation is different, many factors can affect choosing whether to pay off your mortgage.


house-1407562_640.jpg

As you assess your own mortgage, here are 5 common questions to consider:

1. Have you maxed out contributions to tax-advantaged accounts?

Preparing to have the income you need in retirement is important yet, only 46% of retirees believe they have enough money.[i] If you and your financial representative feel comfortable with your retirement savings, you may be able to devote income to extra mortgage payments. However, the final years before retirement are your last opportunity to boost your contributions. If you still have room to save, you may want to bypass paying off your mortgage and put those additional funds into tax-advantaged accounts.

 

2. Will paying down the mortgage affect your taxes?

If you itemize your taxes, then your mortgage interest payments may be deductible. Once you stop making mortgage payments, you can no longer deduct that interest. Further, choosing to pay off your mortgage, either before or after you retire, also brings a different set of tax strategies to consider. If you can still benefit from deducting interest on your taxes, then you may want to continue doing so. Keep in mind that it’s important to view your financial situation from a complete perspective before making any tax decisions.[ii]

 

3. Do you have adequate cash reserves?

Emergency savings are critical for an effective, long-term financial strategy. Unexpected life events, like unemployment, a sudden illness, or home repair, can strain household finances. To adequately prepare, you should aim to have at least 3 to 6 months of cash reserves on hand.[iii] By doing so, you’ll be better able to cover major expenses without having to liquidate investments or go into debt. If you do not already have an emergency reserve or need to set aside more money consider boosting your savings before paying down your mortgage.

 

4. Do you have other debt?

People in the U.S. are carrying lots of debt, which can threaten their financial strategy. In fact, the average person with debt holds at least $38,000 (excluding mortgages), and 45% of retirees carry non-mortgage debt.[iv] If you find yourself in a similar financial situation, you may want to put extra money toward other debt. Further, if any of those liabilities have interest rates higher than your mortgage, then you’ll keep more money in the long run by paying down that debt today.

 

5. Will paying off your mortgage bring happiness?

Most financial decisions have emotional components, which is why understanding your long-term goals is important when making a strategy. For some people, knowing that they own their home, free and clear, outweighs other financial considerations. If being able to pay off your mortgage early aligns with your financial goals, it may be the best decision for you.

The Takeaway

Choosing to pay off a mortgage requires carefully looking at your financial life and prioritizing which strategies make sense. With careful attention to your unique needs, you can make sound decisions that support your long-term goals. If you have any questions or would like to discuss this topic further, I’m happy to help you clarify the opportunities available to you.

[i] https://www.transamericacenter.org/docs/default-source/retirees-survey/tcrs2018_sr_retirees_survey_financially_faring.pdf

[ii] https://www.thebalance.com/mortgage-interest-deduction-before-and-after-retirement-2388985

[iii] https://www.investopedia.com/terms/c/cash-reserves.asp

[iv] https://news.northwesternmutual.com/planning-and-progress-2018

https://www.transamericacenter.org/docs/default-source/retirees-survey/tcrs2018_sr_retirees_survey_financially_faring.pdf