financial planning

Can I Afford to Retire?

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Perhaps the biggest financial issue people try to understand is their own retirement situation. Will you have enough cash flow to live as you would like in retirement? Will you be able to retire at an acceptable age? Are you on track to retire when you want to?

We use a straightforward process to help people answer these questions. It isn’t rocket science, but it does take some thought. Our process has some fine points, but the basics are simple:

First, how much cash coming in every month will it take for you to feel like you have what you need?

Second, what will your sources of monthly income in retirement add up to? We are talking about Social Security or Railroad Retirement, pensions, rent, and other recurring monthly payments. This step does not include money from your portfolios or 401(k) type accounts.

Third, what is the monthly gap between your needs in Step One and your sources from Step Two?

Fourth, multiply that monthly gap from Step Three by twelve to get the annual shortfall. Then multiply that by twenty to understand how much permanent lump sum capital you will need in order to retire. For example, if you are short $18,000 per year, you’ll need $360,000 (which is $18,000 times twenty).

We like to estimate that you can probably earn about 5% of your investment capital each year in income and gains. So if you have capital equal to twenty times your desired income, you can potentially afford to take out 5% (one-twentieth) per year without having to spend down your capital.

About those fine points: we factor in the rising cost of living, we make estimates about future changes in Social Security and other monthly benefits, we make assumptions about rates of return. There are no guarantees on any of these things. But it always pays to take your best shot at it and plan accordingly. As retirement gets closer, your estimates will get better and better.

There are other factors as well. Sometimes spouses do not retire at the same time. Often there are plans to change residences or move. Retirement may trigger a lump sum purchase of a boat, RV, or second home. We strive to understand all the pieces of your puzzle, and plan for your specific objectives.

Clients, if we may help you improve your understanding of your retirement plans and planning, please email us or call. We love to work on this topic.


The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results.

No strategy assures success or protects against loss.

This is a hypothetical example and is not representative of any specific situation. Your results will vary. The hypothetical rates of return used do not reflect the deduction of fees and charges inherent to investing.

Investing involves risk, including possible loss of principal.

What We Learned from You

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One of the privileges of working with you is the opportunity to get to know your life stories. Over the decades, we’ve met a lot of people and heard many stories. We learned a lot about about productive financial habits and instincts from you, our clients.

We have noticed that people who are successful in retirement have some habits that helped them get there. These factors do not guarantee success, of course, but there seems to be a strong correlation. Here are three habits that seem to be key:

1. For all or most of their working careers, they invested regularly—every month, every payday. 401(k) plans, automatic deposits to Roth or other accounts…these put wealth-building on autopilot.

2. They spent less than they made. One client told us, it isn’t how much you make, it is how much you keep. We all know people who make good money and spend all of it–and others who manage to save on modest incomes.

3. They adapted to unexpected surprises without impairing their long term financial planning. Having an emergency fund, realizing that life has uncertainties…these are key to getting back on track through all kinds of times.

The three habits go a long way towards building financial security. In addition to those, some clients were apparently born with helpful investment instincts:

A. A native sense of confidence that the country works through its problems, that economic slowdowns give way to recovery sooner or later. Those who believe that seem to have an easier time waiting for markets to rebound.

B. An aversion to needing to do what everybody else is doing. Fads (or stampedes, as we call them) can be a dangerous way to invest.

We got done at the university a very long time ago. Thanks to you, however, we are always learning. One of the gratifying aspects of our work is the opportunity to pay it forward—to deliver the good news to the next generation. Clients, please email us or call if you would like to discuss this or any other topic.


The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

Case Study: The Looming Retirement of Mr. & Mrs. C

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We recently were consulted by folks who are just a few years from retirement. Mr. and Mrs. C had a chance to make a major purchase that they had long considered and would really enjoy. Some people want a camper or a boat, others a cabin…you get the picture. They wanted our help to figure out if it would fit with the rest of their plans and planning.

The process we used to help them is the same framework we use to help people understand how retirement will work for them, financially speaking. Perhaps it will be of interest to you.

There are four kinds of numbers that figure in.

  1. Monthly outgo—how much will it take to run the household in retirement, to live as you plan to live?
  2. Monthly income—what are the pieces of recurring monthly income? Monthly pension benefits, Social Security, and rental income are in this category.
  3. Planned lump sum purchases or obligations to pay. This was the thing that stumped Mr. & Mrs. C. They had a chance to lay out some money that could improve their lives a lot, and needed to know whether it would work out.
  4. Lump sum resources available. Long term savings, 401(k) plans, IRA’s, investments, and money from planned sales of assets are the main categories here.

Fortunately, Mr. & Mrs. C have expected retirement income sources that should sustain their lifestyle in retirement. Once that was determined, we could move on to sorting out the best way to handle the purchase they planned.

There are tax considerations to withdrawing retirement plan dollars, cash flow considerations from taking on debt, and opportunity costs to cashing in investments. We framed the costs and benefits of each alternative so they could figure out what they wanted to do. If you would like to talk about your situation, please call or email us to set a time for discussion.


The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

Two Ideas About Time

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Two ideas about time affect our plans and planning when it comes to investing. There is conflict between these ideas, so we need to examine them more closely.

The concept of compounding wealth over time is alluring and powerful. Something that doubles every eight years would be sixteen times the money in thirty-two years!

What does thirty-two years mean in the context of planning for a lifetime? It is the distance between age 30 and when people begin to retire. Of two people at age 60, one of them might reasonably expect to be alive thirty-two years later. You may think that thirty-two years sounds like a very, very long time. But 62 year olds will tell you that age 30 seems like yesterday. Thirty-two years clearly is a pertinent time frame for life planning.

This is key because long time horizons are generally tied to long term investment results.

The other idea about time rests in one of the ultimate truths of our existence. We may think about the past, or plan for the future, but where we live each second is RIGHT HERE, RIGHT NOW! The survival of the human species in earlier ages probably required us to be vigilant of potential threats and lurking dangers at all times. There was nothing to be gained by thinking about tomorrow if a lion was going to eat you today.

So human nature has a bias toward focusing on the present. This manifests itself in unhelpful ways in modern society. We tend to think that current trends or conditions will persist—even when they are unsustainable. Some of us seem to believe there will always be time later to take care of longer-term priorities or goals. We have trouble picturing future changes.

The focus on the present also may explain why so many lack the context and background that history can provide. We have heard people say “This has never happened before” about many things that are a recurring feature of our history. By not understanding challenges overcome in the past, today’s problems may trigger an unwarranted sense of danger.

The focus on the present is in conflict with the idea of compounding wealth over time. Our role is to try to make sure that people have what they need for the present, have a cushion for emergencies, and keep a long term focus for their long term investments.

In other words, balance is key. Call or write if you would like to talk about the balance in your plans and planning.


The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

A Money Plan that Fits You

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For 2017 we have resolved to do a better job of listening to our clients and developing plans that suit their needs and desires. We are ready!

Our new short presentation, ‘A Money Plan that Fits You,’ approaches the topic in a step by step way. It can help you understand the three main buckets or portfolio layers that we offer:

• Our core long term investments are intended to provide total returns over the long term. We research opportunities and threats to choose where and how to invest. Inherently and unavoidably, these investments fluctuate in value. That is part of good stewardship.

• Many people need or want a certain amount of ‘money in the bank.’ With this in place, they can tolerate some volatility in the rest of their plan.

• In between ‘money in the bank’ and market-sensitive investments, some people desire a balanced or middle of the road approach. This might produce medium risks and medium returns.

Your circumstances and attitudes are different from those of the next person. By using varying mixes of these three portfolio elements, we can develop a Money Plan that fits you.

Of course we do the arithmetic on your planning issues. Having a portfolio that is easy to live with may or may not get you where you want to go; we won’t kid you about the numbers. But we never forget whose money it is—yours—so decisions on how to invest properly belong to you.

We are excited (as always) about the new year and the improvements we are making. If you would like to see ‘A Money Plan that Fits You’ simply ask. We will send you the short presentation in both PDF and slideshow format. It only takes a few minutes to view.

As always, call or write for a longer discussion, or how our work might apply to your situation.


The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results.

No strategy assures success or protects against loss.

Fruition, What a Wonderful Word!

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We’re inspired by recent conversations with clients and friends whose plans, as they say, have come to fruition. Fruition—the realization or fulfillment of a plan or project—scarcely begins to describe the satisfaction and joy we’ve seen.

The recent retirees after downsizing to a maintenance-free home, going to art festivals instead of pulling weeds, having more dinners with their descendants, seeing more ball games… people going on that Alaska cruise or the tour of Italy… hobbies becoming true avocations. These are some of the plans we’ve seen come to fruition for people we are close to.

A wise person once said that a plan is a dream put into writing. We are in the business of trying to make the arithmetic work for people who would like to try to make their dreams come true. We’ve written before about the best way to retire and the point is, dreams are personal. What are you trying to do? Where do you want to wind up?

One of the privileges of long experience in our work is seeing the realization or fulfillment of plans made long ago. But life sometimes throws curve balls. So we’ve also seen adaptations and adjustments made by people who would have preferred to avoid the need for adjustments. Not everyone we love lives as long as we wished, health may be fleeting, and circumstances often present a mixed bag. The point is, sound plans usually put us in better shape to deal with the unanticipated.

Money is not the most important thing in the world. But it is also true that resources give us options we might otherwise not have. Wealth may free up our time, and time is what life is made of. Dreams and arithmetic working together may make the best things more likely. If you would like to discuss your dreams and plans in greater detail, please write or call.

The Next Best Thing to Free Money

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We are always gratified when clients find themselves with money to invest and their first thought is to put it to work with us. We pride ourselves on our ability to help clients work towards their financial goals, and believe that we provide a compelling service. But regardless of how good we might be at what we do, there are some situations where you can definitely do better with your money elsewhere.

Occasionally, younger clients who find themselves with extra money to invest will ask us whether they should contribute to their brokerage accounts or their employer retirement plan. Sometimes, their employer plan has an employer match they have not yet maxed out, which makes this question a real no-brainer. A dollar-for-dollar employer match is essentially a guaranteed, instant doubling of your investment. We might be good—but we’re definitely not that good. Even if you are unhappy with your employer plan’s performance, an employer match lets you take quite a lot of losses and still come out ahead of a more successful portfolio that doesn’t have the match.

Another situation where it makes sense to put your money elsewhere first is debt. In today’s low interest environment, you might not feel a lot of pressure to pay off cheap loans. However, if you have debt you’re paying 8, 10, or even 12% on, you should put some serious thought into paying off that debt before you invest that money in the markets.

If you pay off $5,000 of credit card debt that you are paying 12% interest on, your $5,000 “investment” will save you $50 a month, $600 a year, like clockwork. You’d be hard pressed to find any other investment that will pay you that kind of return—and if you did, it would likely have many risks associated with it. But once you pay off your debt, those interest payments are gone forever. We can’t really compete with that.

This is basic financial literacy you can use to improve your financial situation before you think about investing. As always, everyone’s situation is a little bit different, and we’re more than happy to discuss the particulars of your situation with you—even if the obvious conclusion turns out to be that you have more important places to put your money.


Investing involves risk including loss of principal. No strategy assures success or protects against loss.

Poking Holes: Find Your Strategy

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“It’s easy to poke holes in every single investment philosophy or strategy. The trick is to find the one with flaws that you’re comfortable with.” –Ben Carlson, Ritholz Wealth Management

This concise statement makes it clear: every investor faces tradeoffs.

Current Income or Long Term Growth? Some strategies focus on growth in capital over time, others focus on current cash flow. Many investors need some of each. A pure growth portfolio probably won’t pay your bills, and a pure income portfolio may not have the growth to stay ahead of inflation.

Stability of market value or long term growth? This is where we live! We have written about the high price of stability. And we have constantly communicated in every way we know how about the link between long term returns and short term volatility. Everybody we know would prefer having both stable values day to day and wonderful long term returns.

You cannot have all of both—the best we can do is some of each. But it helps to resolve this tradeoff if you make sure your income and emergency funds are sufficient for your needs. If you own the orchard for the fruit crop, you don’t need to care what the neighbor would pay you for the orchard today.

Reliability of Income or Stability of market value? This dilemma is not even recognized by most people, and rarely discussed by investment professionals in our experience. Nevertheless it is a vital point. At one extreme, the kinds of investments that assure stable values have delivered wildly varying income over the years. In the early 1980s one could gain interest of 1% a month on money in the bank. More recently, it has been difficult to get 1% per year. So the person that retired on bank deposit interest of 12% saw a lot of volatility—and deterioration—in their income over time. Meanwhile, anything you can own that produces reliable income over extended periods will definitely fluctuate in market value, sometimes sharply.

Putting it all together: As you can see, every investment strategy has flaws. The trick, as Carlson says, is to find the one with flaws that you’re comfortable with. So we need to understand what is required in the way of stability, current income, reliability of income over time, and long term growth. We can build a portfolio that strives to balance those attributes with tradeoffs that are both acceptable and likely to be successful.

Please call if we may be of service in this regard, or to update our understanding of your situation.


The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. No strategy assures success or protects against loss.

Organize Your Money: The Easy Way or the Hard Way

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Anyone with a passing interest in personal finance has read about the need to know where your money goes every month—to run your finances in accordance with a household budget. If you google “household budget” you will find millions of links. It turns out there is actually an easier way.

A typical budget would include line items for home expenses including utilities, telephone, insurance, property taxes, rent or mortgage payment; auto including payment, repairs, insurance, gasoline; personal items including health care, clothing, gifts, personal care, etc.; and so forth.

It takes a fair amount of time to determine what amounts should be budgeted in each category, and then to track your spending by category each month. Time is what life is made of—we should be careful how we spend it. Especially when there is an easier way. So simple, it fits in three words:

Pay. Yourself. First.

If you always save 10% of everything you ever make for the long haul, you probably will be able to retire at a decent age. PAY YOURSELF FIRST by electing that kind of percentage into employer retirement plan or other long-term investments.

If you put something into savings every payday, you’ll never get caught short by a broken appliance or unexpected home or auto repair. PAY YOURSELF FIRST by putting 5% of income into shorter-term savings. When your savings balance equals many months of income, you can transfer funds to long-term investments.

Depending on your circumstances, you may need to pay yourself more to reach your goals. But the 10% and 5% are a good place to start.

So with the ‘pay yourself first’ method, how much should you spend on everything else, all those other categories of things we need or want? Very simple: whatever is left over after you pay yourself first. Think twice about buying a money pit of any kind—it will imperil your goals. Spend as little as you need to on things that decline in value, like vehicles. And be careful about things that come with monthly bills, like pet horses or satellite TV. Housing and vehicles consume major fractions of our incomes, so make thoughtful decisions in those areas.

As long as you simply pay yourself first, you can get to where you want to go. Or you can do it the hard way: download one of those comprehensive budgets and get to work.


The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Investing involves risk including the loss of principal.

Persistence Pays in Many Ways

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We have noticed something so prevalent it borders on being a universal truth. In so many of life’s endeavors, persistence is the difference between success and failure.

Tenure in a career builds experience and skills and value to employers…and earning power. Building a reputation in business takes years but can pay off for decades. A friend tells us, a college degree tells potential employers one thing: a willingness to stick with something for at least four years. In a world where instant gratification is so dominant, persistence—or grit—is an asset.

Persistence usually implies effort, willpower, or self-control. But there are ways you can be financially persistent without much thought or effort.

A saver who commits to put $100 monthly into an investment or savings account will run into reasons why it would be OK to skip a month, perhaps intending to make it up later. Maybe they feel it’s not a good time to invest, the refrigerator will need replacing, or an auto repair popped up. So the commitment turns into 12 decisions each year, 120 decisions per decade, 480 decisions over a working career.

By simply setting up an automatic deposit from one’s checking account, one decision is made and it lasts for all time. It is much easier to get one decision right instead of twelve or hundreds.

Many people have 401(k)s, IRAs, or other voluntary retirement plans available to them. Here, too, inertia can help you build wealth. You sign up, and so many dollars go into the plan every payday without any sweat or effort on your part. Sometimes people nearing retirement find out they are in pretty good shape because a young person long ago put wealth-building on auto-pilot.

When you combine these automatic, systematic ways to invest with the power of compounding wealth, amazing things can happen. Call or write if you would like to discuss your situation in more detail.


The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Investing involves risk including the loss of principal.