financial planning

Pin It Down

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Social Security is a key piece of the retirement puzzle for most people. The benefits can be worth a substantial amount of money, Each one of us must make decisions about our participation.

We advocate getting facts specific to your situation before making up your mind about what to do. There is a lot of information floating around, not all of it accurate. If you do a Google search on the term “social security” you find more than six billion references.

But there is only one Social Security Administration, and its official websites may be a good place to begin. The reality may be more complicated than indicated by articles in the media.

Recently a client wondered about whether to defer retirement benefits to age 70. Supposedly the benefit of waiting past Full Retirement Age would be an 8% increase per year, calculated to the month. But when they looked at their online benefit statement at SSA.GOV, the benefit of waiting to age 70 benefit was 17% greater than indicated by the 8% formula.

How could this be?

Social Security retirement benefits are based on your best 35 years of earnings, indexed for inflation. Working beyond Full Retirement Age would replace a low wage year from earlier in life with higher current earnings, for this client. So there were two factors working in favor of deferral, not just one.

Pin down the specific facts for your situation before making up your mind. Clients, if you would like help with this or to talk about anything else, please email us or call.


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

This is an individual example and is not representative of any specific investment. Your results may vary.

Financial Wellness

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We put a lot of time and energy into researching investments and managing portfolios. But there is more to financial wellness than being effective investors.

It is handy to understand where you are financially. Putting together a summary of what you have, and what you owe, is a great first step. What you own (your assets) less what you owe (your liabilities) is your net worth. This is a key indicator.

Not everyone is going to be great at creating and following a detailed budget. But it behooves each of us to think about where and how we spend money. At 228 Main, we don’t really have a lot of time to hector you or lecture you about spending money—you are the boss of balancing life in the present moment and preparing for the future.

When you know where you are, and understand the spending that needs to happen in your household, you can go to work on two ways to grow your net worth:

1. Reduce liabilities by paying debts off. One proven method is to pay some extra on the smallest one. When that is paid off, the amount of its payment plus the extra can be put on the next one until it is paid off, and so forth.

2. Increase assets by increasing your regular contributions to retirement or savings plans, or starting new accounts.

Once your plans are on track, there are some other niceties you might attend to, such as an emergency fund, managing your credit score, and beginning to think about your long-range goals.

What good is your money if it doesn’t connect at some point with your real life? That’s why we work to understand where you are, where you are trying to go, and the strategy and tactics you might use to get there.

Clients, if you would like to talk about this or anything else, please email us or call.


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

Simple or Complicated? You Choose

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The object of a household budget is to end up with control of your finances.

If you Google “steps in budgeting” you will find results ranging from three steps to ten steps. Each one involves accounting for all of your outlays to the penny. The process must be repeated every month, and requires ongoing work to maintain.

Budgeting works well for some people, particularly when money is tight. If you might not be able to afford food unless you pay careful attention, you probably better pay careful attention.

But another, far simpler method works for many others. You pay yourself first, and spend or save what is left over. Paying yourself first can take many forms, but the most fool-proof methods are automatic.

• 401(k) plan contributions at work, by payroll deduction.
• IRA or Roth contributions, by automatic monthly bank account transfers.
• Investment account deposits by automatic bank debits.

You may need to do some arithmetic to see if your monthly investment amounts are likely to get you where you want to go. (We can help with this.) After that is done, all you need to do is pay yourself first!

Some of you enjoy keeping careful records of spending, and we would not discourage that. At a minimum, being mindful about our outlays makes sense. But for others, the simpler method may fit in better to your real life. It is a personal choice.

Simple or complicated? You choose. Clients, if you would like to talk about this or anything else, please email us or call.


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.

The Worst State to Retire In

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It seems like everywhere you turn, there are opinions about retirement. We have not seen this particular bit of advice, so here goes.

After thought and study, we conclude that the worst possible state for retirement is… the state of confusion. Confusion may seriously impair the retirement experience.

• If we don’t understand the income potential of our lump sum balances, we may either be unnecessarily tight with our budget, or run the risk of winding up broke.

• Running out of money is a common and natural fear. Arithmetic guided by experience and knowledge may ease that concern.

• Decisions about Social Security benefits and pension payouts may have a large impact on financial security. The advice one gets at coffee break or at the water cooler may not be the best.

• Health care transforms for most people in retirement. Putting all the pieces together can be confusing. Medicare Part A, Part B, Part D, and supplemental insurance all enter into it. Personal health and financial factors play roles, too.

We advocate thoughtful approaches to major life decisions. A framework of solid information and the right arithmetic may help reduce confusion.

All in all, the state of confidence is a far better place to retire than the state of confusion. Clients, if you would like to discuss this or anything else, please email us or call.


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

Peak Experience

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You know we are endlessly fascinated by the search for investment bargains, the interplay of human behavior and the markets, and economic cycles. We enjoy talking with you, and collaborating on your plans and planning. But the pinnacle of our work is in a whole different category.

Once, a life-long friend of a close client had not been able to solve the question, “Can I afford to retire?” Mrs. S had raised two children on her own after being widowed at a young age, and was working at a job that had become onerous as she approached retirement age. For two years she had pursued the answer, but could not find it.

She needed to gain the confidence that she could retire. The resources were there, through her lifetime of diligent saving. We were able to explain the meaning of her wealth, how it could help her work toward where she wanted to go, in terms she could understand.

A year and a half after that, she called to ask another question. Would it be possible for her to own a home, or was that a pipe dream? She had spent thirty years in a modest rental duplex. Some time later she began her home search.

These questions, and others like them, are the reason we are in business. Our real work is not about making money. It is about helping clients make decisions that could change their lives.

Mrs. S was never our largest client. She never paid us the highest fees. But the personal satisfaction we felt from our work was vast.

Many will never need that much help. They come to a comfortable understanding of the meaning of their wealth without our context and perspective. We are still very happy to play a role investing their resources, and answering those financial planning questions that do arise.

Clients, if you would like to talk about these things or anything else, please email us or call.


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

 

Little Is Big

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We were working recently with a client whose spouse passed away last year. Major life changes usually require a series of conversations to get everything settled and all the adjustments made.

This conversation showed us that “little is big.” The household cash flow was just a bit shy of covering the bills. Savings on hand were slowly being eaten up, month by month. If you have been in this position, you know it feels bad. It affects your attitude in a negative way.

A simple adjustment, slightly increasing the monthly withdrawal from invested balances, fixes it so there will be a little money left over every month instead of a constant shortage. The amount isn’t material to the sustainability of her finances. It was little, but changed everything. Little is big.

The same notion applies to other things in other ways, including investment analysis. Imagine the dynamics of an industry whose business is steadily shrinking by 1% per year, compared to one that is growing by that much. The shrinking industry would tend to have too much supply, poor margins, and dispirited employees. A slight difference—a little growth instead of a little shrinkage, would change everything. Little is big.

It matters in retirement planning, too. We did some arithmetic for a client age 40 with a $180,000 retirement account balance and $9,000 per year in deposits. A 1% difference in annual returns, the difference between 7% and 8%, makes a $400,000 difference in the amount accumulated at age 65. Little is big. (This is arithmetic, not a projection nor a prediction. No guarantees.)

This raises a question: if every little thing is potentially big, how do you keep track of it all?

For us, the answer is to keep the big idea in mind, and try to make sure everything we do advances the big idea. Our big idea is to grow your bucket, and strive to make it serve you as you need. Paying attention to the little things working to advance the big idea, that we can do.

Clients, if you would like to talk about this or anything else, please email us or call.


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

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.

 

Our Alzheimer’s Project

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Mentally challenging activities and social engagement may support brain health, according to the Alzheimer’s Association.

We love doing puzzles. Some companies have bonds outstanding that are trading at half their face value because the issuing company has evident problems. Which companies have a good chance to survive and pay all the interest and principal due? Which ones are likely to go broke, with losses to bond owners?

To solve that kind of puzzle, we need to read financial statements, do analysis, search through SEC filings, study the annual reports, and review action in the bond market. And that puzzle might lead to another one: how can we quickly put $1 million or $2 million to work for you, with everyone getting an appropriate amount of the bonds at a favorable price?

You provide us with puzzles, too. When can I afford to retire? How should I balance the split between cash liquidity and long-term core investments? What are my options for the dormant 401(k)? How should I pay for a new home?

Figuring out how to maintain the infrastructure of staff and resources to manage the needs of more than a hundred investment advisory clients is another puzzle.

So we have the mental part of the prescription covered. The other piece is social engagement. How many times have you heard me say I’m in business to talk all day? We share coffee and conversation, have breakfast or lunch together, talk on the phone and by email—and increasingly through Twitter or LinkedIn.

In addition to engaging with you, the team in the office is in constant contact with one another to take care of your business.

I didn’t create the enterprise at age forty so that when I was in my sixties I would have a way to reduce the risk of Alzheimer’s. But two of my heroes worked to age 92 in their businesses, working effectively with people they enjoyed, and they were joyful and vibrant all the way.

Anyway, thank you for your role in our Alzheimer’s project. If you’d like to talk about this or any other pertinent topic, please email us or call. (You can learn more or donate to the real Alzheimer’s project at www.alz.org.)


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

Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price.

It’s Open Season!

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In recent years we have learned a lot more than we ever wanted to about two things. Potentially catastrophic health situations taught us a lesson about insurance and benefits and health care providers. We aren’t the experts—we are not telling you what to do—but we do know a thing or two.

Medicare recipients face the same basic choice that many working age people have confronted. Do you accept some limitations on the doctors and facilities and treatments you might use in return for lower costs or other minor advantages? Or do you go with more expensive arrangements that give you greater choice?

Like many important decisions, this highly personal decision would be a lot easier if we had a crystal ball. If you are healthy and stay healthy, the less expensive plan saves money. But if you want or need specialized care from premier providers, the more expensive option may be more likely to cover superior choices.

(We aren’t kidding about not being experts. Consult advocacy groups or online resources or professionals in the field. This is general information only.)

A long time ago, I was confronted with the option of joining an HMO plan, back when they were first invented. At first blush, the possibility of ever being powerless to switch to the doctors and facilities I believed would save my life was intolerable. We have always paid more to have more flexibility. This is a personal preference.

Lots of times, the centers of excellence—premier health care institutions—are simply not covered by Medicare Advantage plans or HMO’s. (Know your own plan; this essay does not replace information you need about your situation!) Care at the Mayo Clinic, Cleveland Clinic, etc. is not inexpensive.

The only point we want to make is that Medicare Open Enrollment Season, when you might switch from HMO-type Medicare Advantage Plans to Traditional Medicare, runs through December 7th. If you switch in this period, you may purchase supplemental or MediGap coverage with no questions about pre-existing conditions, regardless of health.

The moral of the story is, if your health has changed for the worse and you want more choice of medical providers, NOW is the time to dig in and figure it out. Open season comes but once a year on Medicare. You might start at www.medicare.gov to begin your education.

Clients, we usually end our stories with a request to call or email us if you want to talk more. In this case, please do not! We just told you all we know. (If you are in an employer plan, not yet on Medicare, you may face a similar situation. Talk to your HR department or benefits people.)


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

Invest Wisely, Spend Well

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A client came in, hat in hand, apologizing profusely for requesting the withdrawal of a few thousand dollars. He seemed sure the request would upset me.

I’m opposed to clients giving their hard-earned money away to scammers or nephews buying bars, so I inquired as to the use of the funds. It turns out that his home needed a modification to accommodate his wife’s changing health.

Of course, I told him that I would be upset if he didn’t use his wealth to make the home improvement. Relieved, he told me that his previous advisor would get agitated about any withdrawals from his investment accounts. It sounded as if that advisor forgot whose money it was.

We devote most of our time and attention and thoughts and words to our version of investing wisely. But what is it all for? There is no reason to be the richest person in the cemetery.

A more balanced view is captured in the short phrase, ‘invest wisely, spend well.’ We aren’t suggesting that you chop down the orchard to sell it as firewood. But it is OK to use the fruit crop to make life better for you and people you care about.

The same lesson was driven home by other friends. In their 70’s, this couple took their extended family on a vacation to a fabulous destination. In the telling, she raved about how great it was while he silently shook his head. I asked him if he had a different opinion. He said they should have started those trips twenty years before.

Many of us need to be diligent about saving and cautious about spending in our working years. Building toward financial independence in the face of everyday expenses can be a struggle. If we do it right, the struggle fades away as the years go by. At a certain point, we may need to warm up more to the idea of spending well.

Clients, we are always thinking about your long term financial position. Your situation seven or fourteen years from now matters—we plan on being here, and we plan on you being here too. But the idea isn’t to pile up the most money you can—it is to strive to have the resources to do what you want and need to do.

Invest wisely. Spend well. If you would like to discuss how this applies to you, please email us or call.


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