Buy or lease a car? How much should you save for retirement? Financial advisor Mark Lamkin answers some of the most common financial questions.
1. Buy vs. Lease A Car?
Leasing is best when you plan to put less than 15,000 miles per year on the car, and when you plan to replace the car every three to four years. The terms of a lease for any given car are set by the leasing company, not the dealer or the manufacturer, so the same car could be leased under different terms.
It is worthwhile to ask your dealer whether other leasing companies offer more favorable rates, but be sure you understand what you give up for that lower monthly payment. For example, a leasing company associated with the manufacturer (e.g., American Honda Finance Co.) may be more likely to refund the security deposit without a hassle, or may offer more favorable rates to repeat customers.
2. Pay off Mortgage?
I am often asked this question, and it's true you could probably out earn the cost of your first mortgage through savvy investing. Some planners dismiss the idea of paying it off to calm your worries. Nevertheless, for years when clients asked me if my mortgage was paid off, I responded with and enthusiastic yes.
Bottom line, it makes good FINANCIAL sense to keep a low interest rate mortgage. However, there is something to be said for the peace of mind knowing that you will always have a roof over your head.
3. Retirement income?
To help guide you to your number, financial firms have devised income and actuarial models that come up with a target multiple of your final year's salary. Benefits consultant Aon Hewitt says that by age 65 an average full-career worker needs to have banked 11 times annual pay. That means a household earning $75,000 a year would need to have saved $825,000. Work to age 67 and the multiple drops to 9.4 ($705,000). Retire at age 62 and the multiple rises to 13.5 ($1 million).
4. Invest Now?
Stocks often reach all-time highs without plunging immediately into soul-searing bear markets. Your mission is to find a way to invest in the market without losing a big chunk of your portfolio or having nervous breakdown.
First, bear in mind that you can often make very good money when the stock market has reached new highs. Back in October 1982 the Standard & Poor's 500-stock index beat its previous all-time high. The S&P 500 soared until Oct. 19, 1987when it fell the most in one-day in history.
Nevertheless, even after the 1987 crash, an investor who bought at the all-time high in 1982 was still sitting atop an 87% gain. And, had you bought stocks at the S&P 500's next new all-time high (338) you'd have a tidy gain today with the market benchmark at 1,650.
5. Debt Snowball?
The debt-snowball method of debt repayment is a form of debt management that is most often applied to repaying revolving credit such as credit cards. Under the method, extra cash is dedicated to paying debts with the smallest amount owed. As each smaller debt is repaid in full, the money used to pay that debt is then applied toward making additional payments on the next-smallest debt, and so on until all debts are repaid.
Lamkin Wealth Management
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