March 2013

Does $19.23 sound like a lot?

It’s only March so there are plenty of months left in the tax year to think about how the new tax rates, deduction limits, and contribution amounts will affect you.  The new maximum for IRA contributions is $5,500 in 2013, up $500 from last year.  The new maximum for 401K and 403B contributions is $17,500, up $500 from last year.  The $500 amount might seem small in the process of saving for retirement, but on the  other hand increasing your contribution over 26 pay periods is only $19.23 every two weeks.

There’s nothing like getting your tax return completed and filed to get inspired about this year’s tax planning!

September 2012

I am reading Jonah Lehrer’s 2009 book How We Decide and now it affects the way I think about most things.  A key idea in the book is that making a decision is impossible without an emotional component.  Lehrer describes the case of a man who lost his emotional feelings after having a brain tumor.  He was then incapable of making any decision, even a simple one of ordering from a menu.  The man could evaluate his options but he couldn’t choose.

One of my least favorite places to go is the cereal aisle in the supermarket.  There are too many options.  If I haven’t predetermined what I’m getting I don’t go down the aisle or I will be there way too long and not very happy about it.

There are a lot of options in financial planning, too.  Which mutual fund is best?  Or is it an exchange-traded fund?  Individual bonds or bond funds?  As a financial planner, I help people sort through their options.  We work through the data analysis and emotional involvement of making good decisions.

August 2012

Peace of mind is hard to describe but you know it when you don’t have it.  Not knowing if you are on track for retirement, feeling dubious about financial security, not sure about how much cash you should keep in your bank account but if it’s not in the bank where should it be…. these are some of the financial situations that cause worry.

It’s hard to put a dollar price on peace of mind but when you have it you know it is valuable.

Why do financial planning if it isn’t any good?

Good financial planning includes effective tax planning.  As a wise woman once said, “It’s not what you make it’s what you keep.”

Your annual tax planning checklist should include maximizing retirement contributions, eligibility for health savings accounts,  a Roth conversion evaluation, capital gains and loss strategies, and which investments are best for what kinds of accounts.  Optimizing tax planning strategies is a big help in building savings and financial security.

July 19, 2012

If you’re reading a blog post written by a financial planner, you’ve probably tried a few retirement calculators.  I would guess you have read articles or books about how to be a successful investor.  You’ve read the cookbook on how to become a multi-millionaire.

The amount of financial information available is staggering.  You can find out anything you want.  Except for the most important question: What does it mean for me?

Addressing this question, what all the financial information and calculators and analysis means for you and your unique situation, is the value provided by a fee-only financial planning professional.  That’s what we do.

July 9, 2012

Today I reviewed my household investment portfolio and in answer to the question “Am I Balanced?” the answer was yes.  I didn’t make any changes in my percentages between fixed income and equities.  I didn’t sell any mutual funds to buy exchange traded funds, or vice versa.  I didn’t add to the bond ladder.  It seems the review was pretty boring.  That’s good since one of my philosophies is that investing should be straightforward and a little boring.  Growth happens over time.  An appropriate asset allocation almost automatically supports immediate needs and wants and provides growth for the future.

June 25, 2012

I do a lot of retirement cash flow models.  These help clients forecast their income in retirement and whether they have enough in savings.

Usually, they do.

Or, they do now.  Retirement income looks good for the next few years.  It may not, however, look good in 20 or 30 years.  It’s not because the clients expect to overspend their savings.

It’s because the rate of growth in spending, thanks to inflation, outpaces growth in savings.  An all cash and fixed income nest egg is probably not going to keep pace with inflation.  A pension that is not inflation adjusted will shrink in 20 years, and it will shrink a lot in 30 years.

The risk of inflation is the reason many retirees need to own some stocks in their portfolio.  Over the long term, stocks are the tool for growth and an effective hedge against inflation.

June 18, 2012

“Not for breakfast, not for lunch,” said a wife informing her husband of his new daily schedule in retirement.  She meant he was on his own for the first two meals of the day, even if he was going to be home all day and so was she.  Thus did the wife stake out a few parameters of their new lives after her husband’s retirement.

I heard this story from the husband when we were members of a Rotary breakfast club.  He was a few years into his retirement, and it seemed to be going well.

The wife’s statement, not for breakfast, not for lunch, captures a moment that can take new retirees by surprise – retirement is a huge transition.  The wife had her own life and her own routines, and she took initiative to maintain her own schedule in adapting to major change in the household dynamic.

To create a successful retired life, it’s helpful to consider the multitude of changes that will occur.  In a household, who makes lunch is one of the details that can make or break a pleasant day.

May 2012

Do you know what’s in your portfolio?  Is is risky?  Is it conservative?  Is it appropriate for your goals?

A few days ago ending May 18 the U.S. stock market had its worst week since November 2011.  It was bad despite all the media attention about Facebook stock entering the markets.

I recommend people take a look at their portfolios, including their retirement accounts and their cash reserves, and make sure it’s all in alignment with goals and time horizons.  It’s a good idea to think about tax impacts as well.

A market downturn is not very fun but sometimes creates opportunities for rebalancing and tax planning.  Think about it.

April 19, 2012

Are we scared of getting old?  Yes!  Getting old means coping with longevity risk.

I recently heard that financial planners should project a life expectancy of 105 for clients, ten years longer than the typical 95 years old.  The extra ten years means a lot more people will run out of money before exiting the planet.  It is a frightening prospect.

There are no simple answers to this dilemma.  Maybe we should be forecasting our needs decade by decade in retirement.  What do our 70s look like?  What will our 80s look like?  What will our 90s look like?  How about the 100s?  How will we live, where will we live, and how will we pay for it?

In my family’s recent history, the seniors have faced new health challenges upon reaching their 80s.  They are also surprised to be living this long.  The earlier generation didn’t live into their 80s so what we’re experiencing is new.  If my generation is going to live another twenty years as aging seniors we better start planning now.