May 13, 2018
Every week, Simply Money’s Nathan Bachrach, Ed Finke and Amy Wagner are answering your financial questions in The Cincinnati Enquirer. If you, a friend, or someone in your family has a money issue or problem, please feel free to send those questions to firstname.lastname@example.org
Sandra: My brother has had a number of financial set-backs in life, and while he’s thankfully doing better, his personal finances are still shaky. And now he’s trying to buy a house for the first time, so the bank wants a co-signer on the loan. How risky is this for me if I co-sign for him?
Answer: Co-signing a loan for anyone can be very risky. Before signing on the dotted line, you need to consider the risks associated with this financial decision.
Essentially, when you co-sign for a loan, you’re taking on the debt as your own. The other borrower's loan and credit information will show up on your credit report. Short-term, your credit could take an initial hit when the loan is taken out. Long-term, you may be rejected from other credit inquiries. Creditors will factor the other borrower’s debt into your own, and if the borrower misses a payment, that would negatively impact your credit score.
There is also potential that you could be sued by the lender. Some states have a rule that if the lender has not received payment from the borrower within the last 90-180 days, they can seek payment from you, the co-signer, first. If the lender does decide to move forward with suing you, you are responsible for all legal fees or costs associated with the lawsuit. If you decide to co-sign, ask the lender what your responsibilities are and how you will be notified if any payment were to be missed.
And let’s not forget, co-signing for a loan could take a toll on your relationship with your brother. If anything were to go wrong, you would be responsible. That adds a lot of stress and pressure to any relationship. If you decide to move forward, you may want to compose a private agreement between you and your brother to establish expectations. This could help iron out any discrepancies if something were to go wrong.
The Simply Money Point is that, due to the risks, we do not recommend co-signing loans. However, if you do decide to help out your brother, make sure you understand all the risks and financial consequences you’re taking on. Also, be sure to check your credit report regularly to make sure all information is accurate and up-to-date.
Devon from Mason: I’m 48 now and my goal is to retire early when I’m 58. What should I be thinking about to make this happen?
Answer: Early retirement is a great goal, but it takes an enormous amount of planning and dedication. After all, if you’re retiring early, you’re essentially going to be “unemployed” longer than a traditional retiree. So, to help you better prepare, here are a few questions you should be asking yourself:
How will you support yourself and your family? If you no longer have a job bringing in income, where is your money coming from? Investment income? 401(k)? Pension? When will you claim Social Security? Keep in mind, the answer to this question can change over time. For example, when you turn 59 ½, maybe you start pulling from your traditional 401(k) and IRA accounts… but then, once you hit “full retirement age,” you might decide to start claiming Social Security. Income distributions can be a constantly moving Rubik’s cube of decisions and strategies.
Have you prepared for financial emergencies? Life happens. It’s important to prepare for any financial struggle or downturn you may encounter. You need to be sure you have a plan in place in case of financial setbacks. Develop a contingency plan so you can feel more comfortable heading into retirement. This can be in the form of an emergency fund that has enough money to cover three to six months worth of living expenses.
Where will you get healthcare until you can start getting Medicare? If you no longer have the security of employee healthcare, will you purchase healthcare through federal and state providers? If you’re married, can you go on your spouse’s plan? Do you have enough money saved to pay your deductible? Does your budget include co-pays? Healthcare can lead people to bankruptcy. That’s why it’s an extremely important part of your financial plan for early retirement.
What does your lifestyle look like? Where will you live? What will you do all day? Who will you spend your time with? Often, pre-retirees forget about this part of retirement planning. If you want to live a happy and fulfilled life in retirement, you have to fill it with activities and people you love.
The Simply Money Point is that an early retirement is certainly doable, as long as you’re asking the right questions and planning appropriately. We recommend working with a trusted financial planner (preferably a CERTIFIED FINANCIAL PLANNER™ or Chartered Financial Consultant®) to help you iron out all the details associated with an early retirement.
Responses are for informational purposes only and individuals should consider whether any general recommendation in these responses are suitable for their particular circumstances based on investment objectives, financial situation and needs. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing, including a tax advisor and/or attorney. Nathan Bachrach and Ed Finke and their team offer financial planning services through Simply Money Advisors, a SEC Registered Investment Advisor. Call (513) 469-7500 or email email@example.com.