Family Investment Center
Dan Danford is a gifted communicator. He has written hundreds of articles and several books. He has taught classes for high school, college, and community groups. He speaks often and served as commentator for a local ABC affiliate television station.
Dan founded Family Investment Center in 1998. In total, he’s been a successful senior officer in five different banking or investment firms since 1984. He earned a Master’s degree in Personal Finance from Kansas State University and an MBA from Northwest Missouri State University. Today, Family Investment Center manages well over $100 million for clients in a dozen states.
Dan is quoted extensively about investing. He’s written for or been quoted in the Wall Street Journal, New York Times, Chicago Tribune, Kiplinger’s, U.S. News & World Report and dozens of other newspapers, magazines, and media outlets.
Dan has served in numerous leadership positions for civic and professional boards including the Missouri Western State University Board of Governors and as treasurer of the St. Joseph Area Chamber of Commerce. He was Chairman of the Friends of the Free Clinic, a support group for the Social Welfare Board in St. Joseph.
Dan has been president of the Missouri Western State University Alumni Association and was honored in 2003 with the Missouri Western State College Distinguished Alumni Service Award.
MS, Personal Finance, KSU
BS, Marketing, MWSU
Assets Under Management:
Dan Danford / Family Investment Center
Anything by these four writers: Nick Murray for inspiration. Jonathan Clements for financial insights. Michael Kitces for business savvy. Michael Gerber for systemizing your own business model. There is a vast difference between investing and the business of investing. A lot of people enter the business because they like investing ... it takes a lot more than that to prosper as a professional. Going forward, success will depend less on personality and more on credentials, communications, and processes.
A lot of people think of investing kind of like an account at the bank. So, they automatically ask about the interest rate, or dividend, or yield. And there are many investments that pay interest (usually bonds) or dividends (stocks or various mutual funds). Many free sites on the Internet will tell you a stock's dividend payment history. Dividends are not guaranteed, and the board of directors approves the dividend amount (if any) each quarter.
For stocks, dividend payments are sometimes just part of the return for investors. Many, perhaps most, investments can also fluctuate in value and those fluctuations can add to or subtract from the dividend payments. Total return is the calculation that takes all factors into account. For a particular period, you add in all dividends and add or subtract the change in the investment’s value.
The reason this is important is because many quality stocks don’t provide regular income from dividends. Most large companies, for instance, pay a relatively low cash dividend even though the share price might be expected to rise over time. In fact, this could be good for investors because dividends are taxable and growth in share value is not until you sell the shares. Even then, the capital gains tax rate is much lower than rates for interest or dividends.
Smaller companies – those with the best growth prospects – rarely pay dividends because that extra money can be used to fuel further growth. Would you rather have a cash dividend or have the company invest in machinery to make more money? Many shareholders would prefer potential growth to taxable dividends.
It is true that large companies paying dividends represent the most stable sector of the stock market. These behemoths typically have billions in earnings and thousands of shareholders and employees. They have fewer opportunities for high growth and their revenue streams are constant enough to pay regular dividends. For investors, these are the bluest of blue chip stocks. Perfect for widows and orphans and retirees seeking some income with gentler fluctuations.
This is a great question and shows that you’ve been thinking along the right lines. The Social Security benefit at age 62 is heavily discounted from your full retirement benefit, so it pays to wait before drawing. Actually, your benefit could be another 30% higher by waiting until age 70. Those two sentences provide a foundational understanding of Social Security strategy.
Additionally, it is quite important to know that everyone’s situation is different because everyone’s earnings history is different. And it becomes even more complex by understanding that married couples are unique based on ages and both spouses’ earnings history. If either spouse is widowed or divorced, the complexities rise further. All of this is to say that you should ask a qualified planner to analyze your Social Security situation before deciding.
We have seen dramatic differences between clients who look similar without analysis. We have also seen situations where the likely outcomes between various starting dates and strategies can potentially add hundreds of thousands of dollars to lifetime benefits. For couples, it is important to note that the highest household benefit continues on after the first spouse dies; that, alone, can alter the best approach to drawing benefits.
The local Social Security office can answer your questions and compute your benefits, but they cannot offer specialized advice. In my experience, the best way to decide is to engage someone to gather your data and run some projections. After review, you can make an informed decision based on your exact circumstance. No one knows how long they will live and that’s the key variable. But a complete analysis is your best route to deciding.
Using your 401(k) or other family benefits may be a necessary part of the right strategy. But the first step is understanding what the options are and how to maximize your household benefit stream.
I understand, it's tough. I've been there myself. Every family with children faces expenses like these. It seems that juggling financial options is a normal course of family life. None of the things you mention seem eligible for a waiver of the 10% early withdrawal penalty. So, you’ll face federal and state taxes, plus an extra 10% penalty – that’s a heavy tax bite. To net $10,000, you might need to withdraw $14,000-$15,000 from your accounts. If your retirement plan is a 401(k) that offers loans, you might consider borrowing there instead of withdrawing. IRAs don’t allow loans, so that isn’t an option. Although I understand how you feel about debt, any interest charged won’t come close to the tax bite a withdrawal will incur, so a bank or finance company loan might be a tolerable option. Beyond all this, though, there’s a large opportunity cost for taking money out of the tax-free retirement account environment. How much would $15,000 grow to over the next three decades? Paying some interest might be worth it to preserve that money already set aside. As I said earlier, juggling is common with families and you'll just need to make the best decisions you can. Consider the options, make your choice, move forward. No regrets as long as you thoughtfully consider your options. Good luck!
We see this scenario all the time with clients. It’s actually quite rare for the closings of two homes to work out perfectly. And getting the second mortgage for your new home isn’t that hard for people with income or assets. The rub comes from the second part of your question; with a typical mortgage, paying it down after the first house sells won’t change the payment amount. That’s not a problem unless you genuinely seek a lower payment going forward. If you genuinely want a lower mortgage payment by using equity from your first home to reduce the mortgage for your second, what you want is a “bridge loan.” A friendly banker will loan you money to buy the second home until you sell the first. Obviously, they’ll want collateral on this loan, but an accommodating lender will likely just charge interest until you can replace the loan after the first house sells with a traditional mortgage. And, using the bridge loan will allow you to close on the first house and apply some or all the equity towards your new home. You can decide how much to borrow and what monthly payment you’d like to have.
(I have an entire podcast on mortgages here, and why a mortgage in retirement may not be a bad thing https://soundcloud.com/money-is-freedom/the-happy-side-of-mortgages.)