Managing day to day finances is one thing but planning for our financial well-being in 30 or 40 or more years is even more complex. When faced with a decision, such as refinancing a home mortgage loan, we need to consider both today's financial situation as well as what will benefit our financial situation when we retire.

Our homes are important to us in many ways – they provide shelter, we enjoy making them "our own" with decorating, gardening, and home improvements, and they are often a source of "forced" saving for retirement. In 2002, (according to the US Census Bureau) home equity represented over 40% of households' net worth. For some people, home equity is an even larger percent of their net worth; for example Black and Hispanic households – on the average – have about 60% of their net worth in their home equity.

Of course, if you plan on your home equity as part of your retirement income, then you do need to be able to access this equity. This typically involves selling your home and finding a less expensive housing option. (Reverse mortgages are another option in some cases.) This can cause a conflict because often people find they want to age in their homes and not sell them. Thus, the term "house rich, cash poor!" Just one more thing to consider when planning for retirement!

Back to the decision process for refinancing a home – when given a choice, do you decide to refinance for a 30 year or shorter duration loan?

One reader sent in this response,

You may not be getting as much of a tax break for your mortgage interest as you think. Take a look at your 2009 tax return. Did you itemize or take the standard deduction? If you took the standard deduction, you're getting no tax advantage from your mortgage interest. If you itemized, calculate what your itemized deductions would be with the new, lower mortgage interest amount if you refinanced. If your itemized deductions would be less than the standard deduction, you won't be losing much of a tax break by refinancing. But don't let the "tax tail" wag the "mortgage dog." It should be just one of the things that impact your decision to refinance or not.

When thinking about this decision, it's also useful to think about what would you do if you took the 30 year loan and had extra cash now? Would you be able to use it to pay down higher interest loans such as credit card debt? If you did this, would you just spend more and build up the debt again?

Would you be able to invest the extra cash and earn higher returns over many years? Well, this is when the crystal ball that I've misplaced would be useful!

However, as cheap as 4.625% (for a 30 year loan) is for borrowing money, you do still have to pay interest on this loan and the interest adds up. This is a known fact rather than a projection of "what might be."

I've talked to other people trying to make this decision, and interesting enough, the desire to have the home mortgage paid off when retired seems very important. Does this make economic sense? I'm not sure it does when you consider the opportunity cost of the dollars; borrowing money at 4.5% for a 20 year loan is very cheap when considering historical interest rates. But, we need to be comfortable with our financial decisions and for many of us paying off our loans goes a long way to making us comfortable.

Ultimately this is a personal decision. Consider your financial goals and values, talk about it with your spouse/partner, and then move forward. Even if it is a hard decision, with home interest rates at these low levels, it is worth the time and energy to consider whether refinancing your home loan – and at what terms – makes sense for you now.

Click on my name below to share your thoughts about this. What factors are important to you when making a decision like this?

Home mortgage rates are AMAZINGLY low right now! According to Frank Nothaft, vice president and chief economist, Freddie Mac , "Fixed-rate mortgages continued to hover at 50-year lows, .... Compared to the recent peak in 30-year fixed interest rates 13 months ago (week of June 11, 2009), current rates are a full percentage point lower. With today's rates, homebuyers would save about $1,500 in payments each year on a $200,000 loan compared to rates last June."

So, how low is low? According to Bankrate.com's July 21, 2010 weekly national survey of large lenders the national average for a 30-year fixed rate home mortgage loan is 4.74%! (How many of you remember home loans for 18% in the early '80s?)

With rates like this many people may be thinking about refinancing their current home mortgage. If you're one of these, take time to read Looking for Cash? Have You Considered Refinancing? – a Plan Well, Retire Well Blog post from October. If you decide to refinance, is your decision-making done? No, why would life be that simple!

Let's look at an example. Suzie Q and her husband, John Doe, have a current home loan of $172,000 at 6.375%; they have 22 years left on the loan. Their options are shown in the Table below:

From the Table, some things jump out. First, there's some money to be saved here! At first glance, it would seem to be a good idea to refinance for 30 years and gain $329 a month. Going to a 15 year loan would mean having to pay a higher monthly payment, but the loan would be paid off when Suzie & John plan to retire at 65 years old.

Mmmm, let's look at some more information, just to keep this interesting. Take a look at the two columns on the right.

Wow! Look at how much Suzy & John will pay in total interest costs over the lifetime of the loan. For a given loan amount, the interest rate and the number of years of the loan both affect total interest costs – and small changes in either one can lead to dramatic changes in the total interest paid!

Look at the difference between the 30 year loan and the 20 year loan. With the 30 year loan, Suzy & John will pay over $57,000 more in interest to their lender than with the 20 year loan. That's a lot of hours worked! Dropping the loan term to 15 years lowers the interest paid even more.

So, which loan should Suzie & John take? What do you think? Questions that could help them decide include:

• Do you need more cash now to pay expenses? Can you afford to pay more in monthly home payments now (for the 15 year loan)?
• How important emotionally and/or financially to you is to have your home paid for by the time you retire?
• If you had more cash now could you invest it and receive a better rate of return than 4.625%? Could you do this for 30 years?
• Would you rather pay more now and pay less in interest charges over the lifetime of the loan?
• Are there any tax disadvantages to having less home mortgage interest? Would reducing your home interest amount mean that you couldn't itemize your tax deductions – and would it matter?
• If your goal is to increase your net worth at retirement, what would you want to do?

Let's get some conversation going on this! What would you suggest Suzie Q and John Doe do, and why? Click on my name below and send me a reply. I will share answers in next week's blog post.

Update: This blog post was shared on the Carnival of Personal Finance. Reading a variety of financial blogs provides different viewpoints and ideas to help you with your personal finances.

I remember when I was 24, and in the midst of changing jobs. My former employer sent me a check. It was a little under $1000.00. I was excited; I deposited the check right away. Needless to say, I spent the money on some "urgent" need at the time. This happened once or twice more throughout the earlier part of my (and my spouse's) career. Although I knew I could have rolled the money over into an IRA, I chose to spend it instead. Had we made the decision to save the money rather than spend it, who knows how much it would be worth today? Sadly, we are not alone. Now, I am trying to make up the difference by contributing to my 403(B), 457, Roth IRA, and state pension plans.

Today, more than ever, it is important to plan for now and later. Studies suggest that less than half of Americans are saving for retirement. Of those that are saving, if a layoff happens, their retirement savings might be in jeopardy. For those of you that may have been downsized, your 401(k) statement probably looks very tempting right now. However, before you make the decision to spend it, evaluate what you will have left to depend upon during your retirement years.

Aside from not having enough income during retirement, there are tax consequences to taking early withdrawals as well. When you request that your retirement holdings be mailed to you, your company is required to withhold 20% of your gross distribution for the IRS. To avoid this, you can request a direct rollover into another qualified plan (see Rollover Chart below). If you decide to receive the distriubtion in your name, at tax time the taxable distribution amount will be included in your taxable income. If you are under age 59 1/2, you will be assessed an additional 10% tax penalty. The 20% withheld by your employer will help to cushion these taxes. However, depending on your particular tax situation, the 20% may not be enough to prevent you from owing additional taxes. There are certain exceptions that cause the IRS to waive the 10% tax penalty. These include: up to $10,000 for first-time home buyer, higher education expenses, or deductible medical expenses, to name a few. For a complete list, visit the IRS website.

The best time to prepare for an impending layoff, retirement, or any life changing event is before it happens. So, if you haven't thought about what needs to be done, here are things you can do now to hedge against unnecessarily tapping into your retirement funds early:

1. Establish an emergency fund – usually six months of your monthly expenses

2. Pay down your debt – debt, especially high interest debt, is the single largest barrier to financial security

3. Track your expenses – sometimes we can find "extra" money when we are aware of our spending

4. Develop a spending plan – this provides a clear picture of how you want your money allocated (budgeted).

5. Use credit wisely – although the goal is to lower/eliminate debt, if necessary, use a low interest credit card / line of credit for emergencies if an emergency fund is not adequate.

6. Contribute to your retirement plan – start/continue to contribute to employer/personal retirement accounts; if your employer offers matching contributions, make sure you contribute enough to get the full matching contribution.

If you are thinking about rolling over your retirement money, view the Rollover Chart to determine where your retirement proceeds can be invested. For more information on retirement plan investing, see our news releases Investments for Retirement Beyond Company Retirement Plans and Will Your Investments Move You into Retirement?

Working age people will have a new long-term care insurance option to consider beginning in fall of 2012, as a part of the health care reform law signed by President Obama in March 2010. The law includes a voluntary employment-based insurance program for the purchase of community living services (long-term care services) and for the payment of institutional long-term care services. The program is called the Community Living Assistance Services and Supports program (CLASS Act).

While many of the details (premium levels, benefit levels, and other details) are to be developed and announced by October of 2012, here are some of the main components of the program:

WHO? Working adults can participate in the program (or opt-out of the employment-based program), spouses of working people can participate if they meet the eligibility criteria, and self-employed people or people who work for an employer that does not offer the CLASS program can participate through an alternate sign-up method.

HOW? CLASS will be financed by voluntary premiums paid by payroll deductions or direct payments from individuals. Workers of a participating employer will be automatically enrolled in the program unless the employee opts out. A "Life Independence Account" for each participant will be established and administered by the Federal Department of Health and Human Services as a stand-alone insurance program. Taxpayer funds are not to be used in the payment of benefits. The CLASS program would be the first payer for individuals who also qualify for Medicaid program benefits. Persons interested in additional long-term care financing protection would be able to purchase insurance in the private long-term care insurance market. Premiums at this point are expected to be in the range of $120 per month on average.

WHAT? Benefits are planned to average about $75 per day, and the exact amount of benefit paid would depend on the degree of loss of physical or mental function. Benefits will be paid as cash benefits to the participant depending upon level of impairment. Participants will be required to pay-in the program for five years before becoming eligible for benefits, meaning that the first program benefits would be seen in 2017. Thus, this program will not benefit people who are currently retired or disabled and unable to work. The program is envisioned as a supplement to existing long-term care insurance coverage in order to allow people with physical and cognitive impairments remain independent.

More details on the program as it currently stands are available at the Kaiser Family Foundation website in their fact sheet titled "Health Care Reform and the CLASS Act."