A Bridge to Your Future

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Intro:
Sometimes your career doesn't turn out as planned.  When this happens it's important to have a strategy to 'bridge the gap' to retirement.

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Sometimes things don't turn out as planned.  For example, one of the most common situations that clients face is the early end to a career.  Whether through job loss or early retirement or simply because they want a new challenge, many clients need a strategy to 'bridge the gap' between today and their long term plans.

One option that many corporate high achievers choose is to start their own business.  This can be as simple as pursuing your current trade on your own or as ambitious as starting a completely new venture.  Regardless of the type of business, the transition from a corporate environment to the entreprenurial world is one that should be approached carefully.  We believe that there are several key steps that anyone considering striking out on their own should take:

Make Good Exit Decisions - corporations design their benefit packages to get people to stay, not make it easy to leave.  This means that special care must be taken to disentangle your benefits, 401Ks, stock options and other elements in a way that is most advantageous to you.

Conduct a Financial Reality Check - For most people, leaving corporate stability to be self employed increases their risk profile substantially.  This means that all aspects of your financial situation be they estate planning, insurance or asset allocation need to be inventoried, examined and if necessary modified to reflect the changed reality.

Craft a Winning Game Plan - Finally, it's critical that you create a realistic plan that takes into account self employment's less predictable cash flows.  There should be contingencies for the possibility that the new business takes longer to get off the ground or requires more capital that originally planned.

By taking these steps, being methodical and checking your logic with experienced advisors, you can minimize the stress and maximize the freedom that comes from being your own boss.

The Next Phase of Retirement Security - Securities America

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Intro:
What happens if you outlive your retirement income?  How can you make sure that you don't?  Introducing NextPhase™ a structured investment program designed for retirement.

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What happens if you outlive your retirement income?  How can you make sure that you don't?  These questions are always in the back of our minds.  But to answer them you need to know the unknowable:  how long will you live?  How long will your health last?  There are just so many uncertainties.

One way to reduce this uncertainty is to break your retirement down into many shorter time periods.   Shorter time frames are easier to plan for and you can set aside specific sums of money for each one.  By doing so, you can plan for the lifestyle and financial needs you expect to have in that period and  use that focus to structure your investing.

More certainty and better control are the goals of a program that I often recommend to clients.  NextPhase™ helps you meet your needs during retirement using pools of assets working for you over time.  Here's how it works:

While always focusing on your unique financial circumstances, we work with you to gather and divide your assets among a guaranteed income stream and up to six pools of investments that are tied to specific future time frames.  The guaranteed income stream and first pool give  you immediate, regular income, while the other pools of investments are designed to grow until they are needed. The more conservative pools are larger with shorter time horizons. The more aggressive investment pools are smaller with longer time horizons so they have the potential to grow. As time goes by, each pool is drained to fill the reservoir that provides your guaranteed, regular income stream. 

We use the NextPhase™ program because it offers you:

• The confidence that comes working within a structured plan.
• A guaranteed income designed to last for your entire lifetime.
• Freedom to spend your retirement money as you wish within your plan’s guidelines.
• A reduced level of uncertainty regarding the amount and regularity of your retirement income.  
• The ability to plan a legacy for your heirs or charitable good works. 

For many clients breaking their plans into a series of shorter periods makes good financial sense.  And so does NextPhase™.

Graphic Elements:  The graphic above will simplified and animated with the various buckets rising and falling in sequence over an investors life.  Either bars or actual buckets will be used.


The 5 benefits of Next Step will be tied to 5 separate graphics or words that will emphasize the points of Confidence, Guarantee, Freedom, Certainty and Legacy.


Other video elements will be added as well.

Personal Branding in a Social Media Age

How do clients choose a financial advisor?  Specifically, how do they sort through the hundreds of options that they have and choose to engage you?  Well for starters, they must be in conversation with you - be top of mind and they must perceive you to be highly qualified - top shelf.  In this class we will show you practical techniques for building your personal brand and projecting it to your relationships.  Particular attention will be paid to how you can establish your identity in the age of distributed social networks where reputation and word of mouth are increasingly critical to success.

About the Instructor

Bill Reeves is a Partner in Comunicato.  Comunicato specializes in helping knowledge based service professionals like wealth managers and financial institutions to use technology and tools to broaden and deepen their customer relationships.  Bill has a background in leadership at a number of financial service technology companies, helping international and US brokerages and banks develop and deploy the infrastructure to better serve their clients. Prior to that he was a strategy consulting Partner at PricewaterhouseCoopers.

There is no magic number

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Intro:
Everyone talks about "the number" you need to retire.  In this message we explain why it is more important to focus on the cash you need than any specific asset number.

Message:
Everyone talks about "the number" -  you know:  the amount that you need to save by retirement so that you can have the lifestyle you want.  Brokerage financial models specialize in this:  you plug in a bunch of assumptions that may or may not be right and out 'pops' the 'right' number.

But the 'the number' is based upon many long term assumptions - guesses, really, that may or may not be right.  Some of these assumptions you have no control over, such as what investment returns or health costs will be.  Others are much more controlled by you such as when you choose to retire or where and how lavishly you live.  Change any of these assumptions and the 'magic' number changes - often by quite a bit.

The other problem with the 'magic' number is that it tends to push us towards more risk:  after all, if you can't save any more then the obvious way to achieve 'the number' is to get a higher rate of return which means more risk.  But it makes no sense to take more risk than your circumstances allow just to hit a number that is not much more than a guess.

We believe that you should focus not on a single asset number but on the amount of cash income you need to have at any given time.  The value of your portfolio will fluctuate as markets wax and wane so it's critical to keep focused on what you actually need to live:  income.

And taking more risk than is appropriate is the last thing you should do as you plan your retirement.  If you're concerned about having enough money, change the variables that you control.  Variables like how much you save, when you retire, where you live or whether you have a part time job.  These things are under your control and you can change them far easier than you can change your market rate of return.

Don't let 'magic numbers' dominate your retirement planning - focus on the cash you need and the things that you can control.

Is risk risky if we can't see it?

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We face many financial risks:  some more visible than others.  In this message we explain why it is important for investors to have a balanced perspective on the risks that they are taking.

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Ten years ago everyone knew the stock market was 'risky' and residential real estate was a 'safe' investment. Back then, no one would have borrowed to buy stocks but people were using "no money down" loans to buy condos - it was a sure thing.

Well now we know it wasn't. It turns out that for many investors residential real estate was more risky than the stock market. So how did we get it so wrong? It may have something to do with the internet. Starting more than a decade ago, we began using on line tools to monitor our investment portfolios. Instead of getting a monthly statement or searching the stock listings in the back of the business section, we were able to instantly see our entire portfolio every day. And what we saw shocked us: stocks soared and then plunged with stomach churning frequency. If the swings weren't enough, we were assailed from every side by 24 hour financial channels, websites and radio shows shouting confusing and contradictory advice. Most of us hated this emotional roller coaster. By comparison, our homes seemed like such safe, sober investments. That's not to say their value didn't fluctuate - it did - it's just that without the instant reporting provided by the internet we couldn't see what was going on.

Experts call this the 'information risk premium'. Investments that are actively traded and reported on feel more risky because we see their daily fluctuations. By contrast, less visible assets like Hedge Funds or real estate may seem less risky simply because there is less daily attention placed on them. But visibility by itself doesn’t tell you anything about the relative riskiness of an investment. All things being equal, lots of market data combined with easy trading may turn out to be more risky if it causes you to deviate from your plan and turn fluctuations into real losses.

So what does this mean for you? First of all, relax - don't focus on day to day fluctuations - they are almost always meaningless in relation to your long term goals, second, spread your investments over multiple asset types, third, when evaluating the relative risk of a given investment, trust your plan, not your gut.

And remember: what matters is not the risk you see but the risk you take.

How do you know if your life insurance is doing its job?

How do you know if your life insurance is doing its job?

Life insurance is a complicated subject, filled with hidden pitfalls to those that don't understand it's ins and outs, which makes it hard to know just what to do.

For example, there are many different types of life insurance.  The simplest product is 'Term' life insurance:  you pay a specific premium to insure your life for a specific period of time.  But as you age that premium rises sharply.

Other forms of life insurance combine insurance with an investment feature.  The idea behind 'Whole' or 'Universal' life insurance is that you make a higher but flat payment to the insurer.  The extra money you pay each quarter is invested so that it will accumulate in what is called the 'cash value' of the policy.  And then, when you are older that money will cover the higher insurance premiums you would have otherwise paid.  Whole life policies guarantee the premiums and benefits for the duration of your life and are more expensive, Universal life policies don't so they are cheaper.

But the devil is in the details.  Whole and Universal life prices are based upon rate of return assumptions made by the insurance company.  For whole life policies this doesn't matter because the insurance company has guaranteed the benefit but for universal life policies this can be a major issue because if rates of return go low enough, the cash value in your policy will be used to 'top up' the insurance premium.  In these types of policies the money that was supposed to be set aside for later in your life can be used up quickly, forcing you to pay much higher premiums to keep your policy.

Newer products give you more flexibility while keeping premiums low:  you can  lock in your benefit for a specific period of time or can choose different investment vehicles for the cash value portion of the policy.  These 'variable' policies offer buyers more flexibility while still achieving the core insurance goal.

The bottom line is that you have many premium, investment and benefit options to choose from.  Choosing between them is an integral part of your financial game plan.  It's our job to help you make the right choice.

So, how do you know if your life insurance is doing its job?

Why are we such lousy investors? - Episode 1

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Landing Page Description:

Why does the average investor earn returns far below the market return?  It turns out that our natural instincts often lead us to make poor financial decisions.  “Why are we such Lousy Investors?” is part one of a four-part series that explains why, and what you can do about it.

Video Script:

The Center for the Research of Security Prices at the University of Chicago has records for NYSE prices dating back to 1922.  They tell us that over the past 90 years or so of booms and busts stocks traded there have earned an inflation adjusted annual average return of over 7 percent.  Yet according to an article in the Journal of Finance by Alok Kumar of the University of Texas, the typical investor earns far less on his stock investments.  Why is this?

The answer starts in dark prehistory with our cave man ancestors.  In those days scattered bands of humans hunted and gathered their way through life, following the food supply from place to place.  To survive in the land of the Mastodon and Saber Tooth Tiger required finely tuned senses and hair trigger reflexes:  the difference between lunch and being lunch was often only a few inches or seconds.  This threat environment also caused us to develop a predisposition to 'follow the herd':  in a world full of predators it was not safe be alone.  And wherever the crowd was headed was probably where the food was anyway, so it paid off to pay special attention to what your neighbor was doing.

Anthropologists tell us that the skills that helped us survive the Serengeti have been passed down to us  today.  The only problem is that today's world is no longer filled with large hairy Elephants.  It's filled with computers and investments. And the skills and tendencies that allowed our ancestors to get us here alive aren't necessarily the ones best adapted for today's complex, advanced economy.

Take for example those finely tuned senses and hair trigger reflexes:  in a world where threats are a little less obvious than a charging Rhino, they cause us to overreact:  stocks go up?  Buy!  Down a little?  Sell!  Nothing happening?  Move my money!  Our bias is for action, which makes it hard for us to be patient and tolerate the ups and downs that come with investing.

And our highly developed ability to perceive our neighbor's intentions and actions?  Well they too get us into trouble in the world of IPods and pads.  Is everyone selling?  Buying?  Flipping Florida real estate?

It's called the 'behavior gap' and it costs investors tens of billions every year.

In the next few videos I will take a closer look at the behavior gap and what we can do about it.  First, I'll take you through an example of why our impatience yields such poor results.  Then we'll talk about tools and techniques that Financial Planners use to help mitigate our natural tendencies.  Finally, we'll share with you a way of thinking about your financial affairs that will make it easier to ignore that cave man or woman that lurks inside each of us.

Is Social Security Secure?

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Landing Page Description
Everybody says Social Security and Medicare are going 'bust'.  Is it true?  In this short message we tell you what is important to keep in mind about government entilement programs.

Video Script
Everybody says Social Security and Medicare are going 'bust'.  Is it true?  

Well, no.  But it's more complicated than that.

Both programs are 'pay as you go' meaning that the only money available to pay for them comes from Social Security and Medicare tax revenues or other general government revenues.  Taken by itself, Social Security  is in fairly good shape with revenues from the Social Security tax projected to cover most payments owed to seniors. With modest increases to the retirement age to reflect our increasing life spans and perhaps some tweaks to the cost of living formula, Social Security should be here for the long run.   

But Social Security only works with Medicare.  It does you no good to get a Social Security check if you simply have to turn around and pay it all out for health care.  And here's where the story gets disturbing.  The cost of healthcare paid for by Medicare is rising far faster than inflation and incomes combined.  In fact Medicare outlays are growing so fast that eventually they will be about as large as old age pensions.  With inflation and more people eligible, experts project Medicare to double its share of national income in less than twenty years.

And the problem is that the premiums that seniors pay for Medicare only cover a small fraction of the total costs.  The rest is supposed to be covered by the Medicare tax.  But with healthcare costs spiraling ever upward the tax no longer covers it all.  This means that at some point the government will have no choice but to cut back the proportion of the premiums it pays.  The result:  more health care costs falling on the shoulders of seniors.

So you probably can count on that Social Security check coming every month, perhaps a little smaller and starting a little later.  But be prepared to pay more, much more for your health care.

Advisor Interview Questions

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The personal interview should focus on showcasing the Advisor's personality and perspective.  The italicized comments are simply guidance for the type of message outcome each question is designed to elicit.  The goal is to give a prospective client a picture of who you are and how you operate in less than 
two minutes.


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Recently Comunicato asked a few questions of (advisor) .  Here's what he (/she)  had to say.

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Why did you become a financial advisor?
Showcase values and beliefs.  Talk about clients/people.
I grew up in the business.  My father was an advisor and I watched him help people build safe and secure futures.  


I started out in Accounting but I found that what I loved most was working with people on their most important issues.  Helping someone achieve their goals is so much more fulfilling than debits and credits.




Roughly 80% of all financial advisors quit the business after a few years.  Why have you stayed?
Showcase success, expertise, enjoyment etc.
I decided from the start to treat my practice as a business.  I was going to invest in the tools, expertise and resources necessary to create the kind of value that clients deserve.  


I had a plan and I worked my plan.  I didn't give up and lo and behold it paid off.  Just like a good financial plan.  I also had some great early clients that helped me understand what it meant to be a true advisor.


Well I had an advantage, coming from Investment Banking - my earliest clients were people I'd developed strong relationships with in the Corporate world.  And they introduced me to their friends and they to theirs and so on.  The rest is history.  I've found that if you good work people will beat  a path to your door.


Can you give an example of how your work as an advisor makes a difference for people?
Specific client story.
Early on I had a client with significant health problems come to me.  He was fearful that he wouldn't be around long enough to protect his wife and kids.  We put an aggressive plan together and he made it.  Like he feared, he died young, but he died knowing his family was protected.  They're all still clients.  I'll never forget him.


What are the most important factors in building a successful financial future?
Short list, simple, clean concise.
Having a realistic plan and sticking to it over the long haul.  Covering all the bases.  Patience.  And faith, in yourself, and in your plan.


Honesty.  First and foremost telling yourself the truth and using that as the basis for your financial future.  After that:  consistency - doing the basics year in, year out.  And finally, trust.  Trust your judgment, including that of the advisors you've chosen.


Is there anything else you think someone considering a financial advisor should keep in mind?
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An advisory relationship is built on trust.  Trust in their expertise, their judgement, and most importantly:  their integrity.  

What to look for in a Financial Advisor

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Landing Page Description
The experts say that most of us need an independent financial advisor to help us plan for our futures.  But which one?  This message gives you some helpful guidelines.


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The experts say that most of us need an independent financial advisor to help us plan for our futures.  But which one?  What should you look for when selecting an advisor?  There are three key questions:

Do they know what they are doing?  Are they recognized by outsiders as being expert?  This can include expert certifications as well as being honored by trade groups.  Who are their client references?  All reputable advisors will give you references that they believe will say good things about them.  But are the references the type of people who can recognize true expertise?

Second, can you trust them to keep their promises? There two ways to gauge trustworthiness: first: how do they treat you during the selection process:  do they they follow through?  Keep their appointments? Are they patient?  Do they tell you the whole truth or just what you want to hear?  If they can't do this now when you have their full attention, that's a bad sign.  Second, what do their references say?  How did the advisor behave when things didn't go right.  It's easy to keep commitments in good times, keeping them when things are falling apart is takes courage and integrity.

Finally, will you enjoy working with them?  This is more important than it sounds.  If you don't like someone you will share with them less than you should.  Having someone that is approachable and that you are comfortable sharing intimate family details with makes for a much better relationship.  Unfortunately, there is no real way to assess this other than spending time with the person.

Selecting a financial advisor is both a professional and personal choice:  you're seeking a talented professional to help you make critical decisions but you also need someone that you like and trust.  Take your time and do your homework.

Do I need a Financial Advisor?

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Landing page description
Do you need a financial advisor?  This short message gives you 3 key things to consider before going it alone.

Video Script
Do  you really need a financial advisor?  With online brokerages and the big fund houses making it so easy to invest and trade, why does anyone need to pay fees to someone to help them manage their finances?  Julie Jason, the author of the AARP Retirement Survival Guide says there are three key criteria for anyone planning to 'go it alone' with their finances.

First, to be a 'successful do it yourself retiree', you need to have a track record as a successful investor.  A successful investor is someone with the discipline to do their own research, make buy and sell decisions, read brokerage statements and confirmations and prospectuses.  And to have consistently made money doing so.

Second, you must know how to create retirement income.  This is a separate and distinct skill from being a successful investor.  Creating retirement income requires that you understand how to generate sufficient cash income over time regardless of whether the market is 'up' or 'down'.  You must be able to sequence all of you tax deferred accounts, asset types and government programs to ensure that your cash inflow stays in balance with your outflows.

Finally, your spouse needs to have these skills.  It does no good for you to be an expert investor if your partner is overwhelmed the moment you are incapacitated.

The simple truth is this:  If both of you aren't equipped with the skills to go it alone, you should seek the help of a qualified advisor.

Investment Returns: Where Do They Come From?

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The biggest problem with investment returns is that they're posted daily.

So what?  Well it implies that what happened yesterday means something for your financial future.  People spend hours poring over last week's investment returns while the cable channels and newsletters feed the confusion by trying to explain yesterday's downturn in terms of this or that event or trend.

If this cascade of information and shouting confuses you, never fear, it confuses everyone because the short term noise is just that:  noise.  It has no meaning for the disciplined investor.

To keep from pulling your hair out at all of the short term fluctuations, you need to remember that at all times, there are three forces driving financial markets.  The first is long-term economic growth.  Global businesses are gradually expanding their operations, opening up new markets, learning to manufacture and serve their customers more efficiently, creating new products.  With billions of new customers emerging in India, China, Indonesia and elsewhere, and new technology improving the efficiency of doing virtually everything, historically, this trend has been upward since people first squatted in caves to admire cousin Zog’s first invention:  fire.

The industrial revolution, the information revolution, and whatever new revolution the Internet and iPhone are a part of are accelerating this long-term business trend.

The second force is the economic cycle, which moves from exuberant growth to panic to renewed growth in an unpredictable but inevitable cycle.  Economists have felled whole forests trying to forecast these gyrations without because they embed the decisions of billions of consumers and investors.  But most of us recognize the feeling of excitement and then becoming overextended, panic and pulling back that characterizes our lives.  Nothing goes in a straight line.

The most important thing to realize about economic cycles is that they fluctuate around the longer term upward trend.  Historically, highs have tended to be higher than the previous one, although that’s not always the case.

The third force is investor emotions, which are by far the most volatile element of investment returns, and can change hourly, daily, weekly, monthly.  You know these on a personal level; it's what you feel when you see the market go freefall.  Normally markets are like a day tripper’s fishing vessel: the number of buyers and sellers is roughly in balance, just as the number of fishermen fishing off of each side is.  But let a whale pop into view on the port side and all the fishermen rush to over – if they do so quickly enough, they push the boat far over on its side.  Investing has the same phenomenon:  shocking new information causes everyone to run to the sell or buy side of the market, tipping the markets deeply for a short period until it rights itself and gets back into balance.

But that's the point: studying the waves, studying what happened yesterday or last quarter, tells you nothing at all about the long-term viability, health or growth of the companies in your investment portfolio--despite what the talking heads happen to be screaming today.  You might get equally-valid information looking at the patterns of tea leaves or the markings on the back of that whale.

That doesn't mean the waves have no impact on investments, however.  The great investors, like Warren Buffett, look for those times when a billion investors are pushing the panic button, and take advantage of stocks selling at bargain prices.  Thousands, perhaps millions of investors had to sell during a lot of panics to make Warren Buffett a billionaire, and in his annual shareholder meetings, he acknowledges this.  The waves go in the opposite direction as well, taking prices well out of the bargain zone.

Through it all, the long-term trend is quietly making you money, moving us toward a future day when people will look back at us the way we look back at people who lived at the dawn of the Industrial Revolution.  They will wonder how we could get so excited about all these little ups and downs while the economy was steadily, visibly, reliably carrying us to a better place.

Is Investing Luck, Skill or Patience?

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Periodically, we hear about this or that person who called the market top, who predicted a major downturn--or, sometimes, a mutual fund manager who managed to beat the market by some astronomical amount.  Last year was no exception: for example, one fund was up 122.05% in --which, of course, means that its investors would have doubled their money if they'd invested at the start of the year and held on for the next 12 months.


These people are geniuses, right?

Wrong.  The simple law of averages says that somebody, somewhere, will have a streak of correct predictions or hold stocks that dramatically outperform the markets for a year or two.  Certain unsavory people who hung out at race tracks knew how to make money at this game; they would go around the track telling some people that Horse A was going to win the next race, others that Horse B was a shoo-in, and still others to put their money on Horses C, D and E.

Then, if horse D won the race, the crooked tout would go back to the people for whom he had "correctly" predicted the outcome, and offer to give them more "inside tips" for a generous fee.

To see how the normal patterns of luck can bring about even the most extraordinary results, imagine that instead of managing investment portfolios, we were talking about people who flipped coins in a huge nationwide contest.  <>On Day One of the contest, 300 million people flip their coins, and those whose coin comes up tails are out of the contest.  By the law of averages, 150 million (or so) people will be able to play the game on Day Two, and after they flip, the number of contestants will have shrunk to 75 million.

Then come Day Three 37.5 million left, Day Four, almost 19 million, Day Five, 9 or so million and by the end of three weeks only 144 people are left.  All of the ‘amateurs’ have been weeded out.  In newspaper accounts, these are all described as remarkable coin flippers who somehow managed to throw a coin in the air and have it land on heads 21 consecutive times.  This is exactly what would be predicted by the law of averages, but now, suddenly, reporters in each city are interviewing their local champion, asking about their "winning techniques."  And, of course, the local champions are starting to believe in their own remarkable coin-flipping skills, telling their friends and the press about their wrist movements and the preferred height of the coin toss.

The next day, only 72 of these highly-skilled coin flippers are left, and the following day, just 36, and as the number diminishes, as the number of consecutive flips goes up, the media attention becomes frenzied.  Eighteen, then nine, then four finalists are flown to Hollywood for the nationally-televised coin flipping face-off, and all America believes in the skills that allowed these remarkable people to consistently cause a coin to land with the head of the coin facing up.

Finally, two flips later (maybe three), there is a winner--and who can seriously believe that this person managed to get a coin to land on heads 29 or 30 consecutive times without a tremendous amount of coin-flipping skill?

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When one or two of the 8,000 mutual funds break dramatically from the pack in any one year, this is no more than what the law of averages would predict.  Yet investors flock into these funds, believing in their stellar investment skill.  The next time these winning managers confidently flip the coin, it just as likely turns up tails, the performance falls back into the pack, and experts call it "reverting to the mean", which just means that their luck ran out and they became normal again.  Investors put their money in too late to catch the first remarkable flip, but just in time to catch the fall, the return to normalcy.  It is the oldest trap in the book, and it sucks away billions from retirement accounts.

There ARE excellent fund managers, but you rarely see them break from the pack, and if they do, they will be the first to tell you that there was as much luck as skill involved.  Sometimes, a great manager will experience a terrible year, for the same reasons.  Investing is a game where you take the luck that is offered you, and inevitably you give something back when the luck runs out.  Those investors who are patient and careful and humble in the face of this reality, who don't chase the hot coin flipper right after a great run, will usually win more often than they lose--because, unlike a casino, the odds in the investment markets have, over most historical periods, tended to favor the patient investor.  The markets go up more than they go down, and so you can have more than your share of coin flips going your way with no more skill than the patience to stay invested.

Budget Blues

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You've probably been hearing a lot about Greece recently, and before that about Dubai--two countries that were in danger of defaulting on what economic geeks call 'sovereign debt,' which means the debt their governments owe to others.  Dubai had $26 Billion that couldn’t be paid and was bailed out by their cousins in Abu Dhabi.  Greece, meanwhile, had flirted with bankruptcy until the EU recently came to its rescue with a nearly $1 trillion package.

What you probably aren't hearing is that Portugal, Ireland, Italy and Spain are having similar problems, and that these problems have been visible and building for years.  All of these countries have debts that we believe are unsustainably large.  What made Greece stand out was that suddenly foreign buyers became reluctant to hold Greek debt, sending bond yields soaring.  This had the effect of making it much more expensive to fund the Greek’s huge debts which made it harder to pay its bills which made the interest rates go up more and so on.

This, of course, is exactly the fear that haunts economists when they look at us: that at some point, the world's bond buyers will lose confidence that America can and will pay its debts .  This is also the underlying fear among people who attend the Tea Party rallies around the country.

The real deficit problems in the U.S., however, are not found primarily in today’s government spending (although that is troubling) but in the amounts promised to future retirees.  David Walker, former head of the U.S. Government Accounting Office, explains that America is executing an unprecedented reverse transfer of wealth from the younger generation and unborn to the Baby Boom generation.  He points out that we are doing exactly what the Greeks have done before us:  making promises that we can’t keep until we end up in a crisis that can only be solved by making someone pay.

Take Social Security as an example.  Social Security was passed during the Great Depression when the average person's lifespan was 65.  65 also happened to be the program’s retirement year, which meant that many citizens collected no Social Security benefits at all; back then, only those who lived longer than average would get back the money that was paid into the system.  Today, average U.S. life expectancy is over 78 years and rising.  The same is true of Medicare; when it was enacted, people were expected to receive benefits for a year or two, not additional decades.  In all, if nothing changes, the Government’s General Accounting Office states that using reasonable assumptions,  “roughly 93 cents of every dollar of federal revenue will be spent on the major entitlement programs and net interest costs by 2020”.

Greece never went through anything like the current wave of Tea Party activism.  So the US may still have a chance to channel all of the anger into a solution.  But, as we are learning from European countries in much deeper trouble than us, the solution is not anger or warnings, but concrete action that addresses the real sources of fiscal imbalance--and perhaps most importantly, demonstrates a willingness to sacrifice our way back to solvency.  Walker proposes means testing for Social Security recipients, arguing that it makes no sense to send government checks to billionaires.  The government must also take drastic action to get Medicare and Medicaid back on an affordable path.  He tells us what we already know and what Greece and some of its neighbors are experiencing first hand:  what is true for families is true for countries:  if we spend above our means for long enough, we run out of money.  And likewise, the only way back from the edge for both nations and households is to spend less.

But with nations, the numbers are just a whole lot bigger.

Be Thankful You Can Save

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Save and invest, month in, month out--it sounds like a grind, especially now, when many Americans are cutting back and saving more for retirement.  But if you turn it around, you realize that just being allowed to save money and keep for yourself some of what you earn is a privilege that not everybody enjoys.

A case in point is the North Koreans, who are now participating in a government-sponsored currency exchange program.  All citizens of North Korea will be required to trade in all of their savings--that is, the bills and coins that they have collected from private activities like sewing clothes or growing food in their back lawns.  These savings are always in the form of actual money, kept in jars or boxes, because the Korean banking system doesn't take individual deposits the way banks do in the U.S., and there is no stock exchange for local citizens--or, of course, access to global investment opportunities.

At the end of this month, the old North Korean money will no longer be accepted anywhere.  It must be traded for new bills which depict the log cabin where the Dear Leader and former Communist strongman Kim Il Sung was born.

Here's the catch.  Each family will only be allowed to exchange 100,000 won--the equivalent of about $30.  That, astonishingly, represents the most any private citizen will be allowed to have in total savings after the exchange, no matter how much they had before.

This is a great time to consider how lucky we are to live in a country where we are encouraged--and allowed--to save and invest for our future.  Nobody will ever knock on our door and tell us that after a lifetime of work, the money we have set aside is no good anymore--except 30 dollars, or roughly the amount it costs to buy a large bag of rice.  That’s liberty – the freedom to choose to make our own choices and live with their consequences.

The Joys of Estate Taxation

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Most financial advisors think that our tax system is (how can we put this delicately?) not the most streamlined or user-friendly document we've ever worked with.  The U.S. Government Printing Office says that our current IRS Tax Code runs to 13,458 pages and roughly 5.8 million words.  (A little longer than ten copies of the unabridged version of Tolstoy's War and Peace.)

Most of the language is less fun to read than you might imagine, with phrases like:

"If during any taxable year any building to which section 47(d) applied ceases (by reason of sale or other disposition, cancellation or abandonment of contract, or otherwise) to be, with respect to the taxpayer, property which, when placed in service, will be a qualified rehabilitated building, then the tax under this chapter for such taxable year shall be…..

You get the picture.

But if you talk to professionals at industry conferences, they'll tell you that the messiest corner of the tax code involves the money you leave to your heirs.

For instance, there's a lot of discussion in professional journals these days about when and how it's beneficial to convert a traditional IRA to a Roth.  One factor in the decision: the rules governing inherited Roth IRAs are very different from inherited traditional IRAs.  Meanwhile, whoever is administering the money left to heirs often has the joy of calculating something called the "income in respect of a decedent."  And, in the convoluted logic of U.S. taxes, there are different tax breaks on assets that have gone up in value depending on whether they were owned as community property or joint tenancy.

Of course, when you decide who should inherit your IRA (Roth or otherwise), you simply specify this important information in your last will & testament, right?  Wrong!  (MUCH too logical!)  Under our tax code, it doesn't matter what you say about your IRA in your will.  Instead, you have to specify who will receive your IRA assets with a "beneficiary designation form"--that fun and exciting document which usually assumes (for reasons nobody has ever convincingly explained) that you want to give your retirement assets to your brothers and sisters rather than your children and grandchildren.  (A lot of times, professionals have to substitute a custom-made form for the standard one offered by the IRA account's custodian.

Not surprisingly, a lot of people forget to update these forms as their life circumstances change, as they divorce and/or remarry.  Ed Slott, a noted specialist in IRA distributions, has famously said that it is not uncommon for him to review beneficiary designations and find dead people listed as the inheritors.  (This is not ideal from an estate planning perspective.)

A good financial planning professional can help you sort through these things, updating your beneficiary forms, helping you name contingent beneficiaries (who will receive your IRA if/when beneficiaries die), sorting through all the complicated issues surrounding Roth conversions and so forth.  But lately, the most confusing part of the tax code has been the estate tax itself.

Why?  If somebody had died last December 31, $3.5 million worth of his or her assets would pass to heirs free of federal estate taxes, and for amounts above that, the federal estate tax rate maxed out at 45%.  If that same person had managed to survive until January 1, 2010, the U.S. Tax Code assesses ZERO federal estate taxes--none whatsoever--even if the deceased happens to be a multi-billionaire like Bill Gates or Warren Buffett.

It gets better.  As things stand now, if that same famous multi-billionaire were to die in January of 2011 or any time thereafter, only $1 million of the ten-figure estate could be passed on estate-tax-free, and the tax rate is scheduled to go back up higher than it was last year, to a 55% maximum rate.  Suddenly, a lot of people have to start thinking about estate taxes again.  There is also a one-year change in how to calculate the capital gains tax on the sale of inherited assets, which will almost certainly affect many more people than the inheritance tax did (don't ask).

Congress is looking at ways to fix this situation, maybe retroactively.  For now, we have to live with the complexity--which I guess we should all be used to by now.

Healthcare Reform Planning Tips

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If your goal is to get people hopping mad, just mention health care reform.  Americans have a wide range of opinions, often loudly held on the legislation.  But our question isn’t whether this law is a good idea, it’s given what has been passed:  what do we do about it?

While quite a bit is still up in the air, we now know the basic provisions:  in 2014, the bill will expand health coverage to 32 million U.S. residents who currently don't have it, mainly by allowing low-income uninsured persons to use Medicaid and paying part of their premiums.  Some of those costs will be covered by a $2,000 per employee tax on businesses with 50 or more employees who do not offer health coverage, and by adding taxes to the most expensive medical insurance plans--those which cost more than $10,200 for single coverage, or $27,500 a year for family coverage for most plans.

We don't recommend that you read this bill unless you have a serious case of insomnia.  Much of it is about detailed government policies and it’s written in incomprehensible legalese, not to mention it’s over 2,000 pages long.

The good news is that financial planners have been trying to digest all these provisions so we can give reasonable advice to our clients.  A recent article in Financial Planning, one of our leading trade magazines, offers a first hint at how planning for health care reform might look in the next few years.  Here are the basics:

The new law includes several tax increases.  Starting in 2013, the Medicare payroll tax will go up from 1.45% to 2.35% of income for single taxpayers earning more than $200,000 a year (and couples earning more than $250,000).  At the same time, people in these income levels will be hit by a new 3.8% Medicare tax on all dividends, capital gains and income from rental property.  These new taxes will be applied in a way that most of us are not familiar with; if you earn one dollar over the threshold, the higher Medicare tax counts against your ENTIRE income, not just the income you earned over the threshold amount.  And the extra Medicare tax on dividends, capital gains and rent is only applied to people with income above these threshold amounts; if your adjusted gross income is one dollar lower than the threshold, the tax doesn't apply to you--at all.

Next year, high-earning taxpayers will see dividend taxes rise from 15% to ordinary income rates (maximum: 39.6%), and capital gains taxes will rise from 15% to 20%--and, yes, this is in addition to the Medicare surtaxes.

How can you plan for this?  Anybody who has accumulated earnings in a C corporation might be advised to take as much of the money out in dividends this year as possible, paying a 15% tax and avoiding the higher taxes in 2011 and later.  People who own an S corporation might consider taking more of their income in salary and less in dividends, paying less Medicare tax in the process. But this can be tricky, since any salary increase might be subject to additional FICA taxes of 12.4%.

Another way to avoid some of the tax bite is to move money out of investments which generate high dividends or interest (corporate bonds and utilities) to muni bonds, which provide tax-exempt or tax-deferred income.  Some might also defer more income through employer sponsored retirement plans or annuities.

Meanwhile, high deductible health insurance policies will face restriction; $2,000 will be the highest deductible for small group health plans for individuals; $4,000 for families.  But existing policies will be grandfathered so long as they eliminate exclusions for pre-existing conditions, and eliminate yearly and lifetime limits on coverage.  The best way to plan for this provision is to buy a high-deductible policy now before they disappear.  People with a health savings account should consider contributing the maximum this year, and employers might switch to a high-deductible group policy now in order to contain future costs.

Speaking of which, some companies that are just above the 50-employee threshold might decide to downsize, outsource the workforce or split up their companies into parts in order to fall below the minimums.

Finally, beginning in 2016, every American must either buy health insurance or pay a $695 fine or a fine of 2.5% of income, whichever is greater.  The IRS will enforce payment, so people without health insurance should start planning their budget and seeing if they qualify for the government subsidies.

Is it possible that the health care law will be repealed before then?   Most experts doubt if there will be a complete repeal, but there might be significant changes that eliminate or soften the insurance mandates on individuals and businesses.  We are at the start of a long period of politics and gamesmanship over health care.  It would be unwise to assume that anything is certain.

So why plan?  Because having a well thought out game plan makes you more prepared for any changes that come down the pike and less likely to react to random events.

When should I retire?

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We all like options.  Like having a pickup truck and a sports car so we can both haul stuff and drive fast.  Or like having a second home at the beach and another in the mountains so we never need to compromise with the weather.  But options cost money:  the more options, the more money.  Building a financial plan is about identifying which options you want to have available to you at different periods in your life:  is paying for your child’s college important?  Private or Public?  All or some?  Building in the option to pay for all of your children’s educational expenses at a tony college gives you the most options but unless you’re very wealthy, they come at the expense of other options foregone.

The point is that a financial plan is all about prioritizing those options….the “Whens” – as in “When do I want to retire?”, the “Whats” “What does retirement mean to me?” and the “Wheres”.  Deciding on the options that are most important to us and ones we are willing to trade off is the key to defining the “Hows” – to defining your financial plan.

Deciding when you want to retire is a very personal decision that depends on your values, your satisfaction with your current job and your career prospects.  For example Values:

Are you fulfilled doing what you do right now?  Is it where you think you ought to be?  Or would you prefer to be doing something else?  Retirement and work are both a set of activities: you need to decide which activities are most important to you to do with the time you have.

Are you satisfied with your current career?  Do you love what you do?  If so, you may want to do it as long as possible, pushing retirement off.  If not, you may want to move your retirement up so you can substitute something you enjoy for something you don’t.

Even if you enjoy what you do the market for your skills may be on the wane.  What are your prospects for continuing your career?  If they look bleak, perhaps you should plan for an earlier retirement.

Once you’ve decided When you’d like to retire, you need to decide What retirement means to you.  For some people, retirement means sitting on the beach doing nothing.  For others, it means doing what you’ve always done but at a lower level of intensity and pay.  Or you might want to start a completely new career, one that pays far less but offers experiences or fulfillment that you’ve always dreamed about.  You might end up putting all of these options together:  perhaps some part time work early on, pursuing some alternatives that you didn’t have the flexibility to consider while full time and as the years pass, more and more down time.  But whatever your plans, make sure the you think carefully about the What.

Finally Where do you want to retire?  In your current home or in a smaller place?  In your home town or someplace else?  Or maybe all of the above:  your house in the suburbs and an apartment downtown or a place at the beach.  Where you plan to spend your retired years is an important consideration when planning.

When, what and where:  three simple questions that will determine how much you will need to save to meet your retirement dreams.  Your financial planning professional can help you understand the implications of these choices.

The Roth IRA Conversion Decision

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All of a sudden it seems like everybody in the financial planning world is talking about Roth IRAs and Roth conversions.  If fact, an article in Financial Planning magazine recently proclaimed 2010 “The Year of the Roth.”

So What’s the Big deal?

Well as of 2010 the rules of conversion from traditional IRA’s to Roth IRA’s have changed so that everyone, regardless of income is eligible to convert.  But does it make sense for you?  Well it depends.

I’m sure you are not surprised by that answer!  While financial modeling tools are very important in assessing the financial benefits (or not) of conversion, assessing each person’s unique circumstances is just as important.  Two people with near identical balance sheets may behave differently due to differing circumstances, perspectives, and goals.  One size definitely does not fit all!

So it is important to have a filtering process to consider factors such as The Duration of the investment:

The longer your money remains invested the greater the potential value after conversion.  Typically you will need at least 10 years to make the conversion worthwhile.

Current future tax rates:  If you expect to pay higher taxes in retirement that you would pay now that will make conversion look good.  Having money in a Roth account could give you some control over your tax bracket in retirement by avoiding a higher bracket when taking needed income from a Roth. And Roth’s do not have those pesky RMD’s which could add to the benefits of tax deferral over the life of your estate.  Of course factoring in potential tax law changes makes any tax analysis dicey at best.

Cost of Converting:  Conversion results in additional income that increases your taxes now so the cost of these taxes must be factored in.  The 2010 option does allow you to spread this cost over the 2011 & 2012 tax returns, resulting in a very short term loan from the IRS.  But if you have to pay the taxes out of the balance of the IRA, then you lose the value of future deferral and that is not a good idea.

The modeling of an IRA conversion is very complex because it involves many known and unknown factors.  Fortunately, the law allows for partial Roth conversions and even lets you change your mind until October 15 of the year after the conversion!

When Pump Priming Stops Working

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Landing Page Description:

Why hasn’t our economic recovery been more robust?  The key to an economic recovery is consumer, business, and investor confidence.  All the stimulus and pump priming in the world won’t help if people lack confidence in the future.

Video Script:

The US economy has been recovering from a very deep "Great Recession" and there has been a lot of talk about what economic policies should be pursued to promote the recovery.

The famous English Economist, John Maynard Keynes argued that economies in deep recessions like this one can suffer from 'liquidity traps' where falling confidence leads to contracting credit, leading to lower profits, leading to further declines in confidence in a downward spiral.  Thus, he argued, government needed to borrow aggressively to 'prime the pump' so that it could get pumping again.

Well today we have the spectacle of a government that has borrowed and spent so much money that the private sector pumpers can't even swim down to start pumping.  As the government has borrowed trillions the private sector has retrenched, generating cash flows that they are now sitting on.  So we have the paradox of a pump priming that is doing nothing but dropping dead money on corporate balance sheets.  The more aggressive the spending and regulating, the more frightened businesses seem to get.

I don't think this is what Mr. Keynes had in mind when he invented "Keynesian" economics.  Keynes believed that at its core, investing is about confidence.  We -  you and I - invest in companies because we believe that they will be able to grow and generate profits that cause our investment to grow in value.  If we lose that confidence, we stop investing.  Businesses operate the same way.  All businesses have a range of potential investment opportunities available to them:  expand into new markets, design a new product, put together a new promotional campaign.  They undertake these investments only if they believe that there is a good chance that the cash flow from making them will exceed their cost.

In all investment decisions there is an element of risk that the investor, must take into account:  after all no investment is certain.  With businesses it is the same:  the less risk they perceive around an investment, the more likely they are to make it.  And governments can influence business and investor perceptions of risk both up and down.  The more uncertainty there is about what tax rates, labor costs or regulations will be, the less confidence they will have that their investments will yield the projected returns.

And that's the problem that we face today:  without judging any specific policy, it can be safely said that the level of uncertainty faced by businesses over the key variables that drive their profitability have seldom if ever been under more flux than today.  Virtually every dimension that a business must consider when making a new investment is uncertain:  taxes, labor costs, energy costs, regulations, the value of currencies.

And the practical consequences of this uncertainty?  Businesses are choosing not to make those investments.  But for the companies to deliver the increases in revenues and profits assumed in the prices of securities that they own, the companies need to make these new investments and soon.  In this environment only one thing is certain:  without predictable economic policy, investors are going to be risk averse and many attractive investments will not be made.

Savings Beat Returns

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We're hearing a lot about higher savings rates, which have risen from roughly 1.5% over most of the past a decade ago to the 5% range today[i].  Higher savings rates worry economists who want us to spend our way out of the downturn.  But most financial advisors think that the return to savings habits is a terrific long-term trend.

And it illustrates a secret that financial planners and investment advisors understand all too well: investors (like you) have a lot more control than the professionals (like them) over how fast your portfolio grows.  Seemingly small changes in savings rates can have far more impact on the growth of a retirement portfolio than investment returns.

Let's take a simple example.  Suppose Jonathan has an income of $100,000 per year and manages to save 1% of his total income each year for 20 years--which would have made him a champion saver during the 2000s.  Let's assume Jonathan's salary goes go up 2% a year with the cost of living.  Finally, we'll assume that he's able to earn a very generous 8% yearly return on his portfolio.  (Important caveat: all return assumptions you read here are purely hypothetical and for illustration purposes only, and should not be regarded as an indication of what we or any other advisor might achieve in the unknowable years ahead.  For all we know, the markets may be more or less generous, and they will be so in unpredictable ways.)

The result?  In 20 years, the portfolio would be worth over $93,000.

Now let's suppose that a second person, Joanna, follows today's (much-improved) average savings rate and sets aside 7% of her income each year.  Alas, Joanna experiences a less favorable investment time period, and her portfolio goes up just 4% a year--half of what Jonathan was earning. 

Even so, after 20 years, Joanna's portfolio is worth $373,183.84--more than three times more more in retirement wealth than Jonathan's, even though Jonathan had a much higher rate of return on his portfolio. 

Of course, if Joanna were to save 10% of her income--which is what most financial advisors normally recommend--and if she were to get the same rate of return as the less thrifty person with a 1% savings rate, her terminal wealth would be almost exactly TEN TIMES as much as Jonathan's.

As you know, the numbers are never this tidy, you would never earn the same return each and every year, and most of us don't receive the same salary increase from one year to the next.  But the point, which can be made with much more complicated illustrations, is that, in general, savings rates matter more than rates of return, and seemingly small changes in savings habits can add up dramatically over time. 

No matter what the economists tell you, the higher savings rates we're seeing today are great news for America, one of the few positive changes to come out of the Great Recession of 2008-2009.

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[i] http://www.creditwritedowns.com/2010/02/chart-of-the-day-u-s-savings-rate-over-last-60-years.html

Your Other Portfolio - Part 2

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In Your Other Portfolio Part One, we learned that your capabilities and prospects are an asset just as real as a stock or a bond. As you work you turn your capabilities and future prospects into cash which pays for your living expenses and is invested to fund your retirement and other priorities. Over the span of your life, the future amount your ‘human capital’ will earn falls while your financial capital grows.

But not all careers are made equal which affects the shape and risk profile of the future earnings you can expect. For example, let’s pretend that you’re a successful NASCAR driver. You can expect to earn quite a bit racing cars. But there’s always that fear gnawing in the back of your mind: what if I have a disabling crash? How long before I get too old for this?

So what do race car crashes have to do with financial planning? Simple: a race car driver runs three risks that make predicting his future cash inflows extremely difficult:
Risk of disability – this could happen, we don’t know when.
Short career span - very few drivers make it to 50, most are out by 40.
Unpredictable results - will you keep winning? For how long?

Financial experts describe stock investments as having ‘high beta’ when a stock’s price has a lot of variability, in other words, its future is very uncertain. Likewise, a person whose future earnings are unpredictable can be said to have a career with a high ‘beta’. By contrast, someone with a job as a public school teacher has much greater income certainty, sometimes even down to the precise date of their retirement.

So if you do have a career with a high level of uncertainty it makes sense to use your financial choices to mitigate the risks your career presents you. Some of these are obvious:

1. Higher chance of early death or disability? Make sure you have enough insurance to cover these risks.
2. Short career life or unpredictable earnings? Save more to cover many more years of low or no earnings.

But even after you’ve gotten the insurance and socked away quite a bit of cash, there’s another level of planning that you should consider: risk balancing. You need to adjust your investment portfolio’s risk profile downward to reflect the high levels of career risk that you face. In other words, because your career is unpredictable, your investments should be more predictable. By doing this you can lower the chance that you find yourself ‘short’ due to circumstances.

Of course the opposite applies for those with very predictable career and earnings paths. In their case, because their career risk is low and they have a long career horizon, they can afford to save less and invest in assets with higher return and risk profiles and still achieve their financial goals.

At the end of the day your career, your house and your financial assets are all part of your wealth. It makes sense to think of them together and to make sure that each component complements the others in the achievement of your personal and financial goals.

Recognizing and balancing all of your major sources of uncertainty is the best way to get into the Financial Winner’s Circle.

Your Other Portfolio - Part 1

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You have two portfolios that generate returns:  financial assets and career assets.

You start your career with a large asset composed of potential future earnings.  The more tangible skills you acquire the more that asset grows.  Our economy says those with specialized training in medicine, engineering and law have the highest potential future earnings but clearly anyone that builds skills that are valuable increases potential value of this earning ‘asset’.

Over time you do work and get paid for it – in other words, your career asset is monetized:  turned into tangible earnings.  If you are wise, some of that money is invested and transformed into capital assets – you retirement portfolio, equity in your home which (theoretically, at least) will grow over the course of your career.  One of the fundamental jobs of a financial planner is to make sure that you keep enough of the money generated by your career asset, each year, to eventually support you in retirement (to make work optional rather than necessary) and to pay for your other goals and objectives. 

We call this savings and investing, but it's really a process of gradually turning your career asset into capital assets, so that when you decide to retire, and your career asset has been consumed, it's replaced by the ever-growing capital assets in your investment portfolio.  Tragically, millions of people never retain enough of the money generated by their career asset (never save enough) to make work optional later in life.

Your career asset is usually far more stable than the stock market; when the markets go down, you still go to work; when the markets go up, you're still earning the same income.  But as millions have found out in the recent economic downturn, your career, too, can be affected by upheavals in the economy.  When somebody is laid off, it interrupts the cash flow from the career asset, and raises a lot of "career asset management issues" that probably should have been considered all along:

Do you work in a stable, growing industry or profession? 

Do you regularly reevaluate your skills and value in the marketplace? 

When does it make sense to change jobs or careers, or get retraining? 

Will taking time out from work and paying for college courses or specialized training pay off for you? 

What free skill building opportunities can you take advantage of? 

Other issues make much more sense once you think about your career as an asset.  Life insurance is just a way to protect the future value of your career asset.  So is disability insurance.  Typically, the amount of life insurance you hold should go down over time as the value of the career asset you need to protect declines.  At the same time, the amount of disability insurance probably should rise as  you reach the later years of your career when you earn the most and are at greatest risk from disability.

People who can't wait to retire early because they're miserable in their present job may need to think about their career asset differently.  Their solution may not be early retirement but either a renegotiation of the current job (less responsibility, less stress, less income) or a career change to something much more satisfying.  As more of your career asset is monetized, as work becomes more and more optional, a lot of people are looking for a more fun way to generate income.  We call it "helping people shift from a great-paying crappy job to a crappy-paying great job"--something they would enjoy doing for many years.

With fulfilling, meaningful work, suddenly, your work-life is extended, putting less stress on the retirement portfolio, putting more fun in your life and adding years to your career asset.  Your work life is better, your personal life is better and you financial future is assured:  the holy grail of financial planning. 

Introducing the Retirement Resource Center

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Recently name was asked a few questions about firm name's activities with the Retirement Resource Center.

Can you explain to me what the Retirement Resource Center is?
The RRC is a not for profit undertaking of (firm name).  Our purpose is to provide a reliable source of financial and retirement education and advocacy for those within a few years of retirement and the newly retired.

Where did the RRC concept come from?
The RRC is a response to the enormous stresses that the 2008 financial crash placed upon those in or near retirement.  We saw people's 401K plans halved, long laid plans go up on smoke which had to have caused people a lot of anxiety.  Yet no one was coming into our offices to talk about it. 

Why do you think that was?

We concluded that people were either in denial or had given up.  It was clear to us that they didn't realize the magnitude of resources that were available to cope with the unprecedented events of 2008 and 9.  It was also clear to us that they had a healthy distrust of the "Investment industry" - they've been 'sold' so many times and were worried that by sharing their concerns this would happen again.

So what did you do? 

We decided to do something completely out of the box.  We began giving away a part of each week on a pro bono basis to give people a safe place to explore their financial concerns, free from the pressure to purchase anything.

How does the Center operate?
Typically we have a series of one hour face to face meetings between a qualifed financial advisor and an individual or couple.  We go through a series of topics:  first we acquaint ourselves with their circumstances, hopes and unique concerns.  We then collect all the information on all their investing, insurance and other financial activities and analyze it and then feed it back to them.  For most of them, this is the first time that they are seeing the whole picture at once

What is their reaction to seeing it all laid out?

It's a little like watching an old Polaroid picture develop before your eyes.  It enables them to see just what the real issues are and to let go of some of the things that they had been worrying too much about.  And once the picture is clear the rest is relatively easy, though not simple:  We have a strategy session where we go through all of their options on how to manage their financial assets and other related components like wills, insurance and taxes.  We help them organize in their minds how their finances should be managed and what outside expertise they need.

You make a special effort to focus on healthcare, don't you?

Yes, one of the most predictable and dangerous events retirees can face is a health care crisis.  We help them look explicitly at the impact of such an event.

What's the catch?  What do you want from them?

No catch.  We simply say that if they found the RRC to be useful that once their time is done, they introduce another similarly placed couple to the  program.

What has been the response to the RRC?
Nothing short of amazing.  We knew there was a need but we were initially unprepared for the scale of the response.  We increased our share of time devoted to the program from 10 to 25% just to cope with the demand.

Who underwrites the Center’s activities?
We (company name) and other like minded financial advisory firms provide the infrastructure and skilled resources to fulfill the Center's mission on a pro bono basis.

If there was one more thing that you wished that people knew about the RRC what would it be?
RRC is a safe, pressure free environment where you can honestly share your hopes and dreams and begin to build a vision of what the future could be.

How can someone who is interested in taking advantage of the Center do so?
It's simple, just contact me on myemail@mycompany.com or call me on xxx.xxx.xxxx

Why are we such lousy investors? Episode 4: Embracing your inner cave man

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Why do most of us earn investment returns far below the market? Why are we such bad investors? In the first installment of this series I explained that our tendency to make poor financial decisions is innate: it comes from our ancestors. In the second session I showed you how our behavior hurts investment returns. And last time I shared with you some strategies that financial planners use to close this behavior gap. In this final segment I'd like to give you a constructive way to think about this problem - a way for you to 'embrace your inner cave man'.

Cave men (and women) weren't all sloped foreheads and grunts, the ones that survived to be our ancestors developed effective strategies to cope with their environment. There's a lot we can learn from them that can help us ensure our financial survival.

Like that the big kill is great but it is roots and berries that keeps us alive - in the investment world it's what you do day in and day out that determines your financial survival - setting and following a consistent savings plan, keeping to a family budget, avoiding extravagant purchases. And if by chance your tribe kills a 'financial mastadon' great! But build your future around things that you can do, not things beyond your control.

Don't make bets that you can't afford to lose. I don't know this for sure but I'll bet when the tribe found one of those hairy elephants our ancestors weren't on the front line where they could be trampled. Part of the hunting band, yes, but a few steps back so as to take advantage of the fresh meat at a reasonable risk to life and limb. It's the same with our investments.

Leverage the wisdom of the tribe. For a cave man to live to a ripe old age was quite an achievement. And the 'tricks' and 'techniques' that the tribal elders had perfected were incredibly valuable. The wise cave man spent as much 'quality time' with these 'survival experts' as he could - asking them questions and getting their advice on how to navigate a dangerous world. Likewise you should take advantage of the financial, legal and tax experts available to you. While they're not necessarily older than you, they have critical expertise that can help ensure your financial survival.

So there you have it: You're inner cave man can get you into investing trouble as well as get you out.  I'll bet you never thought you could learn anything from a cave man.