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Feeling off balance? The Epley maneuver to the rescue

Feeling off balance? The Epley maneuver to the rescue

I believe in a mindful approach to life. I practice yoga. I meditate. And I try to make choices that are good for my mind, my body, and my spirit. So last Tuesday, as I found myself worrying about the election, I decided to avoid the hours (and hours) of news coverage and simply wait until morning to hear the final results. As I worked away on my computer (with the Wi-Fi off!), I could hear small tidbits of the reports from the living room where Rhoda was watching the news. The little I did catch sounded a whole lot different from what I expected, but I shut it out, went to bed at 10:00 as usual, and slept knowing that I’d cast my vote and that the final outcome was out of my hands.

On Wednesday morning, I rose quickly out of bed, and it hit me like a lightning bolt. Not the news of the election, but a severe case of an old, unwelcome visitor—vertigo was back. And it was bad. The room spun…and spun…until I was able to sit down before I fell down. Then the nausea hit me. I had tried to mentally prepare myself for the election outcome, but this physical ailment wasn’t on my list of things to deal with last week!

I am all too familiar with the terrible dizziness and queasiness of vertigo. Six years ago, a “T-bone” car accident caused floating particles in my inner ear to break loose, which is a very common cause of the vertigo condition I experienced after the wreck. But this time there was no determinable cause except for one: age. All I wanted was for the spinning to stop as soon as possible—and to stay away as long as possible! But every time I turned my head suddenly, stood up after a yoga pose, or simply got out of bed, the spinning was back in force. I dreaded every move because it seemed everything I did triggered an episode.

I’m not the only one feeling a bit traumatized after election night. My ailment was physical, but for many, the results of the election are causing people to take actions they know will only trigger another episode of upset. Just as my head is spinning, I see so many people exerting their precious energy on election results they can’t change. And the onslaught of news, emails, and social media are only feeding the flames of stress and alarm. It seems we all need a cure to get through it all, and I don’t believe focusing on the negative is the answer.

For my type of vertigo, there is a cure called the Epley maneuver. Performed by an audiologist, it’s a process that restores the floating particles in the inner ear to where they belong. Once the particles aren’t bouncing around in your ear canal and stimulating your nervous system, the sensation goes away. I was finally able to have this done yesterday, and after 20 minutes I was back on my feet again. No more balance issues. No more vertigo. As long as I sleep on my back for a few nights and don’t move my head quickly, I’m back on track. The confusion, disorientation, and dread are now history, but for the past week, getting my balance back was front and center in my life.

If the election results have you feeling off balance and worried about the future, now may be the time to find an Epley maneuver of your own. You might start by filtering out the noise from social media, the news (Why do we watch that stuff nightly before going to bed anyway?), and even the dinner table. With Thanksgiving coming up, you might start with a family rule about the table conversation—no politics or discussion on the election or the outcome. Consider replacing the politics discussion with each person around the table sharing a blessing. I am thrilled to hear Nina, my 7-year old granddaughter, share that she’s thankful for her family—especially at Thanksgiving.

For me, starting each day with yoga, meditation, and time with Rhoda helps me stay mentally and physically balanced. I wrote about my experience with yoga and the importance of focusing on controlling what you can in my blog Remember to Breathe. At the time, I was referring to investing, but I think the same guidance applies now. Shifting the focus to positive, healthy things and controlling what we can is a great way to find balance—no matter what challenges we face day to day.

Still seeking a way to restore your balance?  This email address is being protected from spambots. You need JavaScript enabled to view it.  to schedule a time to chat. I’m here to help. 

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Let Yourself Be Awestruck!

Let Yourself Be Awestruck!

The definition of the word “awe” is beautiful in itself: “an emotion that combines veneration and wonder inspired by the sacred or sublime.” Sometimes, when the world around me gets too stressful, it’s exactly what I seek out.

This past weekend, Rhoda and I drove 90 minutes to Estes Park, Colorado, on an awe-seeking mission. Our hope was to witness the pageantry of the magical elk rut in the Rockies. If you’ve never heard it, I can tell you myself: the “rutting call” or “bugling” of the elk during their mating ritual is beyond stunning. The elks’ vocal skills are amazing, covering three octaves. Starting with a high-pitched shrill and ending in low based grunting referred to as “bugling,” it’s unbelievable that this sound could come from such a huge, majestic animal.

But the sound isn’t the only awesome thing about the spectacle. The bulls, averaging 1,500 pounds each and carrying huge antler racks, move with amazing grace. And if you’re lucky enough to witness the stud of the herd fight off challengers to his “harem,” the drama is even more impressive. To keep his harem, each bull must ward off younger challengers for about six weeks, 24/7, from late August to mid October. Last weekend, Rhoda and I found ourselves standing less than 25 feet away from one of these incredible fights. I couldn’t even take pictures because my camera lens was too high powered. All we could do was stand and watch—and take cover behind a tree just in time to avoid being unintended bull challengers! The experience took me outside myself, and I came away changed.

I’m happy to say this wasn’t the first time I’ve found myself in such utter awe and experienced a similar shift in my core. I’ve witnessed a lion family with cubs frolic in Kenya, visited Colorado’s Maroon Bells at sunrise (the most photographed spot in the state), and listened to 80 people sing the Doxology in three-part harmony led by Dave Deutschendorf of the New Christie Minstrels at a recent family wedding. Each was a sacred and awe-filled moment in my life.

For me, awe is the feeling of being in the presence of something beyond human scale that transcends my current understanding of things. You may get it gazing at the Milky Way or hearing the national anthem sung by someone who can actually hit those high notes! Astronauts often report that they feel this in the extreme, experiencing a “far out” state of oneness with humanity when looking back at Earth. When I saw John Denver perform at Red Rocks amphitheatre years ago, he shouted out his awe in a moment when he could only articulate the feeling by repeating the words “far out” over and over again. John’s awe was contagious with his audience.

The current political situation has many of us stressed out. I’ve unfortunately witnessed the constant barrage of news coverage on television, radio, and social media until I had to just turn it all off. In this environment, I wonder if seeking a sense of awe might be just what the doctor ordered. If there was ever a time to focus on what really matters, this is it.

Rather than basking in the drama, and battling the pull of those around us who choose to focus on negativity, why not make a list—a high-level bucket list perhaps—of experiences that draw you out of yourself, expand your mind, and leave you awestruck? Here’s the thing: when we choose to experience awe, we enter a new dimension. The stresses of life are replaced with a deep gratitude (at least that’s how it feels to me). To be awed, you have to choose to move beyond yourself. Beyond your worries. And beyond your fears. It really is a natural “high.”

I suppose I’ve spent much of my life looking for these experiences—seeking them out and trying my best to recognize them when they happen. When they do, I give thanks, which brings even more beautiful, awe-inspiring events into my life. I believe that what matters most isn’t the latest headline, but rather how we live each moment. Appreciating our blessings and seeking out the magic and awe life has to offer can help us really focus on what matters most.

Have an awesome experience to share? Please This email address is being protected from spambots. You need JavaScript enabled to view it. and share your story. I’d love to hear it!

 

 

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Climbing the Wall of Worry

Climbing the Wall of Worry

Most investors have heard that “bull markets climb the wall of worry”—a phrase that refers to when investors continue to buy even when there’s a little (or a lot) to worry about. And it usually pays off. But how can you tell whether the stock market is in a bull phase that is “climbing the wall,” or whether the fear is justified and a bear market is just around the corner?

I’ve observed over the years that portfolios perform less well when worry and emotion are the guiding forces. (Which is the primary reason it makes sense to seek out an RIA firm to help guide objective investment decisions.) Today’s environment is full of worry. Brexit, interest rates, and the US Presidential Election have investors on edge, and investors are stressed. As a result, it can be difficult to remember this important reality: fear provides the best equity buying opportunity.

In periods of fear, Wall Street strategists have a poor record of recommending equities. They underweighted equities during the entire bull market of the 1980s and 1990s. Then they overweighted equities in the wake of the 2000 technology bubble, just in time for the so-called “lost decade in equities” when US stocks produced a negative return for more than ten years straight. Today is no different. Wall Street strategists are recommending the lowest equity allocation in the 30-year history of the data. And these recommendations are all rooted in fear. They did the same thing during and after The Great Recession (2008-2015). Those who went against the grain and took advantage of the opportunity to buy value-priced equities were handsomely rewarded.

Remember that long-term market trends are driven not by current events, but by the overall economy. From our perspective, the US economy is in pretty good shape looking forward:

  • The September jobs report includes many positive trends. More people are seeking work, a sign of growing optimism. The number of folks stuck in part-time work shrank as more of them landed full-time work. And the job gains were broad-based, showing up in many industries.

  • Inflation remains benign and interest rates remain low. However, the Fed has hinted that a small hike in the interest rate of ¼% is likely in December.

  • New motor vehicle sales are trending downa little to 17 million vehicles a year. However, that level of decline is to be expected after the large increase in sales the last few years.

  • Wages and personal income are seeing continued growth. This growth is feeding consumer spending, which lies at the core of the US economy. This dynamic is unique to the US. Australia, Brazil, and Canada are commodity-export driven. Russia’s economy is driven primarily by energy exports, and China’s is economy is driven by manufacturing exports.

  • No political leader has the power to strong-arm their ideas without the approval of Congress. Whatever happens on November 8, that balance of power should keep things in check.

All of these factors point to the fact that the US is in an under-recognized sweet spot right now. Many strategists and investors may be wearing blinders of fear at the moment, but I strongly believe that any short-term pullback in the stock market should be viewed as a buying opportunity—not a reason to run for cover.

Still worried about the economy?  This email address is being protected from spambots. You need JavaScript enabled to view it.  me to schedule a time to chat. I’m here to help.

 

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George Guerin discusses the perils of cosigning on PolicyGenius.com

George Guerin discusses the perils of cosigning on PolicyGenius.com

The following content originally appeared on PolicyGenius.com on October 6, 2016.


Cosigned a relative's loan? Here's how to deal with the default

By Paul Sisolak

Cosigning is one of those instances where acting on your emotions can place your finances at risk. You really want to help that family member, friend or loved one get approved for a loan they may not qualify for, so deciding to cosign for them can seem like an act of generosity when their chances of obtaining new credit are next to nil...

“If you’re the cosigner, you’re the co-borrower,” says Certified Financial Planner George Guerin. “You’re on the hook from it going into default. You have only one choice: Make the payments.” Thus, your most basic solution is to chip away at the debt yourself in any way you can.

... Before debt, delinquency or default ever enter the picture, carefully examine if cosigning is the right thing for you or the person you’d like to cosign for.

“If there was ever a thing to avoid, it would be not to cosign at all for a relative or friend,” says Guerin. “Circumstances change.”

If it’s a non-relative, or someone you don’t know well, Guerin recommends taking a conservative approach to ensure cosigning is the right decision for you. “I would pull their credit score,” he says. “Somebody who has a bad credit score, there’s a reason they do.”

If they have a poor FICO score, ask them about it. Don’t be accusatory, says Guerin, but if excuses are made, you may reconsider if you want to place your finances and credit at risk.

With a close family member, you may be reluctant to cosign, but you still want to help. Guerin says that fronting some money for a down payment may be a good alternative to full-on cosigning.

“It sometimes looks like tough love,” he says, “but it’s a difficult world, especially when you’re taking on someone else’s liability.”

Going into the situation with a clear perception of what cosigning is can alleviate the financial and personal strain that can be created if anything goes awry with repaying the debt. Straightforward as it may seem, misconceptions abound when it comes to the real nature of a cosigning agreement...

Click here to read the full article on PolicyGenius.com

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Till death do us part: Planning basics to protect the ones you love

Till death do us part: Planning basics to protect the ones you love

In my experience, there are two huge challenges when it comes to estate planning. First, no one (and I mean no one!) wants to talk about and tackle the “details” surrounding illness and death. And, because death and estate planning are so taboo, many people act on assumptions that are based on limited knowledge and little or no professional guidance. 

Alice and Cliff had been together for over a decade, but they’d never married. Already in their late 60s when they met, Cliff had already been retired for years. So even after they moved in together, they decided to keep their estates separate as an inheritance for their respective children. Alice was still in shock and barely functioning when she called to tell me Cliff had died after a short and intense battle with cancer. Cliff’s diagnosis had been completely unexpected, and his intense treatment of surgery, chemo, and radiation had been their only focus from the moment they received the test results until the day he died just three months later. In the whirlwind, there had simply been no time or energy to think about the details of estate and financial planning. Now that Cliff was gone, Alice needed my help to get her financial future in order—and to get “unstuck” so she could focus on her future.

I knew the first thing we needed to do was to identify Cliff’s assets, and then determine how each asset was owned and the named beneficiary for each. Alice knew where Cliff’s records were kept, but that was about it. They had always filed separate taxes, and all of their investments—including their individual IRAs, 401(ks), and brokerage accounts—were kept separately. To make matters more difficult, they had never discussed finances at this level with each other (or with me), so there were a lot of questions on the table. Was the house owned in his name only, or in joint tenancy with Alice? Who were the beneficiaries for his life insurance policy and his 401(k), IRA, and brokerage accounts? And what about Cliff’s savings and checking accounts? Did Alice even have access? Were those funds hers to use as she needed?

We started with the pieces of the puzzle that were most important to Alice’s well being: her home and her immediate cash flow. The house was originally Cliff’s, and Alice didn’t know if she was on the title or not. Unfortunately, the deed was kept in his safety deposit box. Had they been married, Alice would have had immediate, unrestricted access to the box. But because they were unmarried and he had never authorized her as a joint renter or given her access to the box, we had to take another route. By looking at the property tax bill, we were able to determine that Alice was on the title as a joint tenant with right of survivorship. This meant that the house could be easily transferred into her name by taking Cliff’s death certificate to the clerk and recorder’s office and filling out a form. One down, many to go.

Luckily, accessing their joint bank account proved just as fruitful. When I looked at the bank statement, I was relieved to see the letters “JTWROS” after their names. Alice had joint tenancy with rights of survivorship to these accounts as well. All she had to do was present the death certificate to the bank and the accounts could be transferred into her name. Within days, Alice had full access to the accounts that were used to pay the bills, including the monies from their pensions and social security benefits.

This was great news, but not everything was quite so simple. If Alice and Cliff had met with me beforehand, I would have advised them to make some important changes to Cliff’s “plan”:

While I understood their desire to maintain separate estates, marrying would have given Alice spousal benefits from Social Security totaling about $1,000/month more than she was receiving from her own Social Security income. Plus, it would have been easy to retain all of the benefits of separate estates by classifying each asset appropriately.

A portion of Cliff’s remaining assets went to his children, one of whom is in jail and has a serious drug problem. With the right planning, Cliff could have put certain contingencies on his son’s access to the money to protect the assets.

Simply naming Alice as a joint renter on the safe deposit box would have given her immediate access to important documents such as a copy of his Will, his life insurance policy, and the deed on the house. This would have made the weeks following his death much less stressful for Alice as she struggled to figure out where she stood financially.

If Cliff had been unable to make his own medical decisions, without a Healthcare Power of Attorney, Alice would have had no rights. Having a POA gives the person you designate the power to make medical decisions on your behalf. (For more on this, read my last blog Life happens! What’s your long-term game plan for handling the inevitable?)

I’m happy to report that, despite some planning shortfalls, Alice is in fine shape financially. We learned that Alice was the beneficiary on Cliff’s IRA, and that the balance of that account had been pumped up by the rollover of his 401(k) just months before he got sick. We set up a new Inherited IRA for Alice using the funds, and although it requires minimum withdrawals, at least she did not have to pay taxes on the IRA all at once. Plus, she has the freedom to take out what she needs, when she needs it, paying out taxes only at the time of withdrawal.

Regardless of your age, health, marital status, or level of assets, take steps now to protect the financial security of your loved ones. Talk to your loved ones about your wishes before you get sick, and take the necessary steps to put those wishes into action. Provide access to your estate planning documents and review them with your spouse or partner. Get a Healthcare POA. Review the beneficiaries named to each of your accounts. And once you’ve discussed your plans, meet with a competent advisor to ensure you’re making the best possible decisions. Taking the right steps today can have a significant impact on the financial security of the people you love most—more than you’ll ever know once you’re gone.

Do you have the right plans in place to protect the ones you love?  This email address is being protected from spambots. You need JavaScript enabled to view it.  me to schedule a time to review your plan. I’m here to help!    

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Life happens! What’s your long-term game plan for handling the inevitable?

Life happens! What’s your long-term game plan for handling the inevitable?

Change is rarely easy.

I confess that I was a bit devastated when Dr. Look retired. My fear of dentists goes way back to when I was a helpless kid in that dentist chair back in the earlier days of dentistry. The drill they used was loud, my teeth vibrated like a jackhammer, and I still have nightmares about the pain. Dr. Look helped me get past that trauma. As my trusted dentist for more than 25 years, I learned to trust him through many unpleasant procedures. His reassuring manner and over-the-top service endeared me to him—and him to me. Even now that he’s stopped working, we email each other periodically to catch up. I’ve reluctantly settled in to having a new dentist. It’s definitely not the same, but the change was necessary. Even though it wasn’t my own choice, it was time to move on.

In the big picture, of course, switching to a new dentist is pretty minor. The unexpected changes that have the greatest impact on our lives and wellbeing include everything from a sudden change in health—such as a cancer diagnosis or a car accident with lasting health effects—to the death of a spouse. When these things happen, many people find themselves adding stress to an already stressful situation by having to scramble madly to reorganize their lives. And while no amount of planning can eliminate the hardship of the situation, it’s times like these when having a long-term game plan in place can make all the difference in the world.

I’ve been helping clients manage life’s inevitable changes—financial and otherwise—for more 35 years. Every situation is different, but by taking just a few simple steps now, you can proactively manage the changes that will most certainly come your way in the future. Here are my tips to help you take action to keep stress to a minimum when “life happens”:

Create a Power of Attorney (POA) for your healthcare and your finances. The time may come when you aren’t able to manage your own affairs or make good decisions. When that happens, it’s vital that you have both a Durable Power of Attorney that gives someone else the power to manage your finances if you are unable to act for yourself due to mental or physical disability, as well as a Healthcare Power of Attorney that empowers someone else to make medical decisions on your behalf. You may select anyone you trust for this role (it doesn’t necessarily have to be a family member), and you may choose separate people for each type of POA. The Durable POA is critical to avoid the complications of having the court appoint someone to manage your affairs, while the Healthcare POA is critical to ensure your care is delivered according to your own wishes.

Designate a POA successor. It’s also important to assign someone as a backup if your primary go-to person is unavailable. This is called a “successor” or “contingent.” Ask this person if they are willing to serve in this capacity for you, and put them in touch with your primary person to help coordinate their efforts. Even with the backup in place, it’s important to stay in touch with both people to determine if they’re still competent to help you. Case in point: When Charlene had a stroke, her daughter was listed as her POA agent, but she had died a year earlier; and although Charlene had assigned her sister as the backup, her sister now had advanced dementia. Charlene had no other children and her niece, Millie, had no legal footing to step in. Don’t “set and forget.” Review your POA agent and successor as you (and they) age to be certain you have a capable person in place.

Simplify and organize your life. As we age, it’s easy to let tasks and possessions pile up. Dedicate time to get rid of life’s “stuff” and organize what’s left. I recently hired a professional to help me purge our basement, redesign our storage, and organize everything we decided to keep. I just couldn’t get myself motivated to do it on my own. But since I’m paying Carly to help me, the project is now moving along. If, like me, you need some help, there are many individual service organizations that help seniors downsize, organize, move, and more.

Create a clear paper trail. No amount of planning can help if your agent and your family don’t know where to find your records, including POAs. Create a clear paper trail for your finances, insurance, properties, etc., and tell the key players in your life where the trail begins. Personally, mine starts with two file drawers and a lock box in our bedroom closet. Come to think of it, I need to tell some people where the keys are!

Life is unpredictable, but how we handle small changes in life helps us handle the bigger things. By taking these simple (though not always easy) steps, you can be much better prepared for whatever life throws your way. Put your long-term plan in place for tomorrow. In the mean time, create healthy patterns to help you better manage the smaller things in life. For me, that means meditating, practicing yoga, working out, and spending quiet time with Rhoda every morning. They’re small steps, but they make my life easier and happier every day.

Need help putting together your own long-term game plan?  This email address is being protected from spambots. You need JavaScript enabled to view it. me to schedule a time to talk through the details. I’m happy to help.

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Cash-strapped in retirement? Refinancing might help.

Cash-strapped in retirement? Refinancing might help.

Recently mortgage rates dropped to their lowest rates in history. At the moment, rates are sitting at an amazing 3.25% to 3.75% for a 30-year fixed mortgage. For anyone still holding on to high-interest debt—including retirees—this is great news. Surprised to hear the word “retiree” in that statement? You’re not alone. Common wisdom has long held that retirement is not the time to rework debt, but today’s low-interest rates are anything but common, and in some cases they can be the welcome bearer of financial opportunity. That was certainly the case for Martha.

When Martha was widowed 10 years ago, she bought a townhome in a senior-citizen community that was closer to her son and grandkids. Just 58 years old at the time, she was still working and could easily afford her mortgage, car payment, and other expenses on her salary. When we met last week, however, we had some new challenges to tackle. Now 68, Martha was unwittingly thrown into full retirement when she was laid off from her job last year. Without a paycheck, her monthly income has been reduced significantly to $2,850. She’s receiving $1,750 from Social Security, $100 from her pension, and $1,000 after-tax net from an IRA withdrawal, but with a mortgage payment of $750, plus Homeowners Association (HOA) fees of $250 a month and a $175 car payment, her expendable income is very limited, to say the least.

When I first mentioned the idea of refinancing to Martha, she was surprised. “I didn’t think I could qualify now that I’m retired. Is it really possible?” I assured her that as long we could verify her income, refinancing was very possible—even if that income is coming from retirement savings rather than a salary. Working together, we came up with a great plan that puts today’s interest rates to work for Martha’s cash-strapped situation. Here’s how we did it:

The interest rate on Martha’s $100,000 mortgage is currently at 4.375%, and she owes $6,000 on her car. We started by seeking a new mortgage rate of 3.25% to 3.73% to immediately reduce her biggest monthly payment.

Choosing the lowest available rate didn’t make sense since the closing costs were quoted at $3,500, which would take a couple of years to pay back. To combat the challenge, we shopped around and were able to get a $107,000 loan at 3.625%, with low closing costs of only $1,000.

To verify Martha’s income, the lender requested an income verification letter from Guerin Financial stating the likelihood of being able to withdraw $1,000 a month from her IRA for many years to come.

To add to her monthly net income, we used the new mortgage to pay off her car loan. This put an additional $175 a month in Martha’s pocket.

We rolled Martha’s closing costs into the refinanced amount to eliminate out-of-pocket costs associated with the refinance.

By reducing her mortgage interest rate from 4.375% to 3.625% and eliminating her car payment, we were able to reduce her monthly payments by $265 a month, or $3,180 a year.

To sweeten the deal, assuming she closes in August, her first payment won’t be due until October, saving her an additional two months of mortgage payments, totaling $1,500.

The new plan makes it financially possible for Martha to stay in her townhome for much longer, and the cash savings will improve her quality of life.

If you’re in retirement now and paying 4% or more on an existing mortgage, refinancing may be a good option to help lower your monthly payments and eliminate other high-interest debt. Be sure to keep these tips in mind and, of course, work with your financial advisor to be sure refinancing is the right choice for your specific situation:

Keep your eye on interest rate changes to take advantage of the current environment.

Don’t limit yourself to refinancing your mortgage. Including a Home Equity Line of Credit (HELOC), a car loan, or other high-interest debt may save you even more money.

Shop different lenders and compare quotes. Martha’s lender was flexible with how we structured closing costs with the interest rate. A lower rate of 3.5% would have increased her closing cost by $1,000, so we opted for the slightly higher rate. 

Be sure you can verify your income. Income verification can be tricky for retirees. Consult your financial advisor to decide whether you can support income requirements and to help with the income verification process.


Need help deciding if refinancing is right for you? This email address is being protected from spambots. You need JavaScript enabled to view it.  to schedule a time to walk through the details of your specific situation.

 

 

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Money problems have you red in the face? It’s time to get out of the heat

Money problems have you red in the face? It’s time to get out of the heat

In my many years as an advisor, I’ve found that the hardest part of my job isn’t managing the numbers or dealing with the ups and downs of the market. What’s far more difficult for me is seeing a client get completely overwhelmed and embarrassed by money problems. Self-judgment. Guilt. Self-criticism. They can all rear their ugly heads. And perhaps the worst part of all is knowing that some folks are too embarrassed to share their money problems—even with their trusted advisor.

Last month, I had what seemed like an easy phone call with Jane. Her husband Gary is hoping to retire in the next few years, and she wanted to review their finances to see where they stood. The couple moved to Arizona two years ago after Jane received an early retirement package. With her husband’s $65K annual salary, her pension, and other investment income, their income is $90K a year. They owe $150K on their home, including a $110K mortgage and a $40K HELOC at 5.5% and 6% respectively. After running some ballpark numbers, I told Jane it looked like Gary could retire in about three years when he turned 65. According to my calculations, with Medicare reducing their health insurance costs and their combined pensions and IRA-401(k) withdrawals, they should be able to live quite comfortably.

The next day I received this email from Jane.

I was too embarrassed to tell you this yesterday, George, but our finances aren’t quite as simple as it seems. In fact, I expect Gary’s retirement will have to wait indefinitely as we’ve gotten ourselves into some pretty hot water financially. Our income simply isn’t enough to cover anything but our basic expenses, so we’ve used credit cards to cover ourselves. I’m mortified to tell you that we’ve racked up more than $30,000 in high-interest debt that is costing us more than $700 a month in payments. With that on top of our mortgage and home equity loan payments, etc., you can see why retirement is out of the question, at least for quite some time. We’re in a terrible mess. It’s so bad that we can’t even afford the $14,000 needed to repair our air conditioning—a tough situation in the Arizona heat. It hit 113 degrees here yesterday, but without the funds, I’m afraid we’ll just have to “tough it out.”

Though I doubt you can help at this point, I would appreciate your input. I'd prefer to communicate via email. couldn't listen to your kind voice, all I would hear is disappointment and pity. Just sending this email has me in tears.

It was heartbreaking to read her note. Clearly, Jane was terribly embarrassed about her situation—reacting as if she’d done something wrong or had gotten herself into this bad situation. While I was able to see the numbers as a financial puzzle to be solved, Jane viewed the situation as an insurmountable personal failure. The good news: I already had some very realistic solutions forming in my head. Of course, I had two distinct advantages that Jane didn’t. First, as an advisor, I’m experienced to see the forest—not just the trees. Second (and perhaps most importantly), since it’s not my own money we’re looking at, my perspective isn’t clouded by emotion and self-judgment, so I can be objective.

I immediately reached out to Jane (via email, of course!) to let her know that what she was facing was actually a small problem that she only perceived to be unsolvable. In fact, she had assets available that could be quickly and easily leveraged to address her needs. She called that afternoon, and together we kicked into gear. Here’s a high-level view of how we’ll turn down the heat:

On my recommendation, Jane immediately withdrew an additional $2,500 from the existing HELOC at the local bank. We added that amount to another $2,500 on her credit card to make the required $5K deposit on the much-needed AC repair to get it ordered. We then withdrew $14,3000 from her ROTH to cover the remaining cost of the air conditioner to get them out of the heat—literally—within the week. Whew!

We placed the remaining funds from the ROTH withdrawal into Jane and Gary’s checking account as an emergency fund to keep them from resorting to credit cards for future car repairs, home repairs, and other unbudgeted expenses.

To reduce their mortgage payments, we’re refinancing both the primary mortgage (5.5%) and the HELOC (6%) to an amortized 30-year fixed rate at 3.75%. This will reduce their payment from $1200 to less than $800 a month.

The next item on the agenda is to tackle their high-interest credit card debt, using a one-time withdrawal from Jane’s $800K IRA to pay it off. With the increase in expendable monthly income, they should be able to pay off the remaining of $11K in credit card debt by early 2017. If they’re short, we’ll make another withdrawal from the IRA next year. And they’ll keep $5,000 to $7,000 in the bank for emergencies so they don’t keep dipping into the credit card “well” to cover surprise expenses.

No matter how wise or successful you may be in other areas of your life, financial planning can feel like a dark, murky, mysterious world—and it can throw things out of perspective. To get through a trying financial situation, rest assured that no matter what your challenges, “toughing it out” may not be the only answer. Talk to a trusted financial advisor, get the guidance you need, and take control of your finances. It’s the best way to get out of the heat and stop sweating.

Feeling overwhelmed by a money challenge? Let’s schedule a time to chat and to get you on a better path forward.

 

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Post-Brexit: A new take on Independence Day

Post-Brexit: A new take on Independence Day

Ah, Independence Day! On Monday, most of us will hang out the flag, fire up the barbecue, and maybe take in a fireworks display. It’s the quintessential summer celebration in America. In Britain, not so much. Though July 4 has never given Brits a cause for joy, this summer the country has little to celebrate. The Brexit referendum has turned into a complex game of “he said-she said,” and at the moment it’s unclear how the whole thing will play out. As a result, companies are setting plans to flee the UK, the pound has hit an historic low, and analysts are predicting a near-certain recession in Britain.

The contrast to what’s happening in the US is acute. While the news of the ‘leave’ vote sent shock waves through Wall Street, the market has recovered at a speed almost as stunning as Brexit itself. After the news hit last Friday, the Dow ended down 602 (-3.5%) in one day. It was difficult not to assume the numbers would continue to fall. Instead, investors have voted that Brexit is simply no big deal…so far. As I write, the Dow is sitting just over 17,800 after a multi-day rally that has the S&P 500 less than 2% below it’s pre-Brexit close last Thursday. The ability of global markets to shrug off what many considered to be an economic disaster is the best evidence yet that investors may have finally learned one of the most important investment rules: don’t sell on bad news. Acting when you’re in a state of shock almost always has a regrettable outcome. To avoid costly mistakes, let the dust settle before taking action, and stay the course until any ramifications to your portfolio are clear.

I spoke with Jackie and Carl yesterday—long-term clients who have been retired just over 5 years. 42% of their portfolio is in stock, with the remainder in bonds and alternative investments. They’re taking a distribution of $2,500 a month ($30,000 a year) out of their $800,000 portfolio. That’s 3.8% of the $800K. As retirees, it would have been easy for Jackie and Carl to panic as the effects of the Brexit news played out on Friday. After all, they’re on a fixed income, and that $800,000 portfolio declined a little for a couple of days. But if 2008 had any positive value at all, it’s that it taught people like Jackie and Carl how to ride out a storm. When we spoke yesterday, they told me they’d been ready to batten down the hatches, but they weren’t overly concerned; they knew we’d structured their portfolio according to their needs, and they trusted its ability to survive the turmoil.

It was a smart decision. I compared the year-to-date performance of their portfolio last Thursday—just before the Brexit vote was announced—to where it sat on Monday evening—just after Friday’s and Monday’s declines of 602 and 150 points, respectively, that brought the total market decline to 5%. The good news: Jackie and Carl’s account declined just 2% during the same period. The portfolio was designed to survive the bump in the road. By the time the markets closed Wednesday, their overall portfolio was down less than 1% since last Thursday, and even better, it was actually up 3% YTD—more than enough to cover their withdrawals for the last six months and still add to their remaining balance. That’s something to celebrate on Independence Day!

As we head into the July 4th weekend, I’m reminded of the parallels between America breaking away from England in 1776 and Britain breaking away from the European Union today. If the Brits had a stock market 240 years ago and the news of America’s exit had reached the front page of The London Times, would their stock market have tumbled some 30% or more? Perhaps. But eventually things would have worked their way to a sensible conclusion.

Britain still has a lot of work to do to iron out Brexit and the resulting political and economic chaos. The European Union has some major repair work to do as well. In the near future, more pain is sure to come. Yet I expect that just as America and Britain both managed to thrive after 1776, the European Union and Britain will do the same—eventually. And so, I assure you, will the markets. “Keep calm and carry on”…and enjoy the fireworks!    

 

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Britain’s Brexit: it’s time to ride out the storm

Britain’s Brexit: it’s time to ride out the storm

“Historic.” “Seismic.” “Pure chaos.”

Those are just a few of the printable descriptors used today to describe the “Brexit,” Britain’s vote to leave the European Union. While polls leading up to the vote were close, few truly expected last night’s outcome. To put it mildly, it shook the world.

Of course, the stock markets hate surprises. We all remember watching stocks dive in 2008 after the Lehman Brothers collapse. It was gut wrenching, but perhaps mostly because it was quickly becoming clear how deep the financial crisis really was. Yesterday’s vote hit the markets hard as well. In an immediate reaction to the vote, global markets reeled. By the end of today’s trading, the Nikkei was down 8%, and the Dow was down 3.39%. And yet, it’s clear that the Brexit doesn’t have the widespread significance of the 2008 financial crisis—a fortunate fact for those of us in the US.

Sadly, it’s unlikely the UK will fare as well. Voters in the UK chose to believe the words of Boris Johnson, the populist leader of the “leave” movement and the presumptive next Prime Minister now that David Cameron has stepped down. The people were swayed by Johnson’s claims that leaving the EU would result in both control of the Britain’s borders (to reduce immigration) and greater prosperity. I think he was wrong. Britain needs the EU in order to continue being a successful economy. But economic benefits came with EU policies that repulsed many Brits. Frustration and rage were a loud voice in this vote, and the consequences may not be what the “leave” voters had in mind. Here’s what I think the Brexit vote will really mean to Britain:

  • - A recession. How deep and how long? Only time will tell.
  • - A drop in currency value, especially against the US dollar. The pound has already dropped 8%, and that number could grow.
  • - A shrinking economy. And we’ll see the usual fallout: fewer jobs, greater unemployment, and falling hom    

For those of us on this side of “the pond,” Britain’s storm should deliver much smaller waves to our shores. Here’s what we might expect:

  • - Interest rates will remain at historic lows. Janet Yellen and the Fed have taken a rate hike off the table until further notice.
  • - A US recession is unlikely. US earnings are solid, employment is up, and there are no indicators of a pending slide. As long as US consumers continue to gain confidence, this should not change.
  • - Slower growth is likely due to the stronger dollar.

Luckily, the US is not as vulnerable to the Brexit as other countries. Unlike the mostly EU countries that are Britain’s most active trading partners, only 13.4% of our economy is made up of exports. Compare that to Germany whose trade is a whopping 50%. Our economy is highly insulated from Europe and much of the rest of the world. Rising incomes and a rising economy are still in place here.

If your stocks are 50% or less of your portfolio, you should be fine over the long term. But we’ll probably see more volatility for some time as markets adjust values. If you are only invested in US-based companies who are indirectly exposed to Europe by doing business there, then your position is even stronger.

This is nothing like 2008. But if the situation begins to mirror last February, we could see a larger drop before things turn around. The Dow dropped 12.5% then and fully recovered by the end of the quarter on March 31. Today we saw a mere 3.39% drop, so the ride could get rougher. If you’re seeking advice on how to ride it out, know that we placed 50 “buys” today for stock funds and ETFs to take advantage of today’s “sale” on stocks. I have full faith we’ll be glad we did.

Remember, this too shall pass. Hang in there, focus on living your life, and know that if the riding gets too rough to handle, we’re here to answer your questions and address your concerns.    

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The jobs report (and other news that doesn’t really matter)

The jobs report (and other news that doesn’t really matter)

It was 2008 in early October, and Rhoda and I were enjoying our last couple days of basking in the beauty of Yellowstone National Park—one of our cherished times away from the office. But suddenly everything changed, and our peaceful retreat was turned upside down. My phone rang, and when I answered I was surprised by the panicked voice of my newest client: “Get me out of this market George! You have to do something!” I had no idea what had happened. I told her I’d do some research and call her back right away.

Of course, if you’ve ever visited the Yellowstone Lodge (or any lodge in a large nature area), you know my first challenge. The Lodge has intermittent Internet on a good day, and this was anything but that. Just before the market closed that afternoon, the Treasury Department announced they were going to let Lehman Brothers “fail”. There would be no bailout. In its last 30 minutes of the day, the market dropped over 150 points. The media started shouting about the panic that would likely hit on Monday since Lehman Brothers wasn’t alone—many banks had problem balance sheets that were just as bad. This was unprecedented in my lifetime, and I knew then we were in for something steeper than even the tallest peak at Yellowstone.

There was little I could do except return to Denver to be here for my clients who were terrified of what this meant to their life savings and struggling hard to figure out what it meant to them and how to move forward. In less than 8 hours I was at my desk working to find a strategy—any strategy—that might be beneficial if and when the predicted panic hit. The one thing I was sure of is that I needed to persuade my clients not to sell. It would be like grabbing for a falling knife.

The Great Recession had its beginning on that day I flew back from Yellowstone. I couldn’t fathom then that the downdraft would last until the spring of 2009. Nor could I have predicted that that after hitting bottom at 6443 in March that year that the Dow would double in less than three years. The prognosticators kept predicting lower and lower stock averages even when the Dow was at 6443. Some panicked—and lost. Those who kept cool heads analyzed the big picture, determined the context and consequence of what was happening, and made careful choices based on the facts. They were the clear winners in the end.

What happened in those years is a constant reminder to me of how to approach current events—especially those that paint a potentially ominous picture for the stock market. Will China’s economic slowdown throw the US into recession? Are slowing new job numbers powerful enough to throw us off track? Can consumers keep up their spending growth? They’re all questions to consider, and in each case we need to take the time to make careful, thoughtful decisions and not fall into the reactionary mindset that the media loves to perpetuate. (For more on that timeless topic, re-read my blog Headlines sell—but don’t let them mislead you!)

The market is having some expected jitters after last week’s Bureau of Labor Statistics report that only 32,000 new jobs were created in May—nowhere near the expected 150,000 jobs. It’s good to note that the Bureau states that number is within 115,000 jobs of possible error. Here’s a great article in the Wall Street Journal on the huge margin of error—and frequent revisions—of payroll and other data. Even so, the important facts to keep in mind are these:

  • Job growth inevitably varies significantly from month to month, especially in a recovering economy such as this one.
  • In May, despite relatively meager job growth, unemployment decreased by 0.3% to 4.7%. That’s 484,000 fewer unemployed.
  • Wage growth is on the rise at more than +2.5%.
  • Job growth is “stronger for longer” in this recovery due to the depth of the last recession.
  • Job growth will decline as the unemployment rate sinks further and employers struggle to find enough skilled workers to fill available positions.

 

Putting these numbers in context is an important piece of the puzzle as well. Some parts of the country, including Colorado Springs and Denver, are reporting a shortage of skilled labor in construction—a challenge that is holding back major construction projects. Health care, technology, and accounting are just a few examples of fields that have a bright future for jobs. At the same time, non-skilled workers are hurting, and pending minimum wage increases in many states and cities have employers on a mission to automate hourly-wage jobs.

All of this is important information, but economic growth is still driven primarily by consumer spending—and spending requires discretionary income that results from an increase in total income. Looking at changes in average or median income is fine, but ultimately it’s the change in discretionary income that matters most to the economy.

No matter how the market reacts to the job numbers—or changes in interest rates, or China’s economy, or the upcoming election—keeping these individual factors in perspective is key. To keep a cool head, look at the big picture, analyze new information with care, and keep your eye on the big picture. Speaking from experience, it’s the easiest (and often the most lucrative) way to take on even the tallest mountains.

 

Need help analyzing new information to be sure you’re on track for the future?  This email address is being protected from spambots. You need JavaScript enabled to view it.  to schedule a time to chat.    

 

 
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Want real financial news? Be sure to sidestep the bias

Want real financial news? Be sure to sidestep the bias

A few weeks ago I received this email from Suzanne:

Hi George. I read your blogs every week. Don’t you think the government manipulates the data to make it look good for them?

It’s an interesting question, and one I think about a lot. That said, I don’t believe the government is the culprit. While I don’t doubt they might choose to manipulate the data if they could, the good thing about data is that it’s objective, not subjective. But how that data is reported matters, and in the past few decades we’ve seen a major shift in both what the media reports and how they report it. Here’s an example:

In April, the US economy added 160,000 jobs, and the unemployment rate held steady at 5%. What’s the bumper-sticker headline? “US employment slows as only 160,000 jobs added in April.” But when you dig into the facts (which I consider to be part of my job), the slowdown isn’t much of news item. Why? Because the economy is finally approaching “full employment.” This means that nearly everyone who is willing to work and looking for a job has one. The unemployment rate is near an 8-year low, so it’s not expected to dip much further from its current level. And since the pool of unemployed workers is shrinking, job gains are also expected to slow down. But, of course, none of these important facts make a slick headline.

And sometimes the media simply distorts the meaning of the facts.

A headline in TheWall Street Journal last week read Balance Due: Credit-Card Debt Nears $1 Trillion as Banks Push Plastic. What an interesting take on some basic data. The following chart illustrates the increase in household liabilities that is covered in the article, but from my perspective the data tells a different story: one of healthy growth in consumer spending and a reasonable expansion of consumer debt as we emerge from the depths of the Great Recession.

 

 

Despite the Journal’s headline, debt in and of itself isn’t a bad thing. Even more, the increase in debt is more likely the result of historically low interest rates and increased consumer confidence than of banks “pushing” anything. In the face of the increase, the important question to ask is whether consumers have the ability to pay off new debt. The answer: they can and they are. Wages are up overall. Not average or median wages (which is what the media talks about) but total income, which supports this higher level of spending. That’s why consumer debt increasing is not a real problem—despite the implication by the media.

Then there’s this headline: America’s Retail Stores Continue to Fail. But this next chart shows the real story: an increase in Internet sales and a decrease in department store sales.  

 

 

The truth is that every dollar we spend online has legs, distributing its way into the economy just as much as department store sales did back in the “old days.” Where we shop is changing. My parents bought most of what we needed at Sears and the A&P store. Today, the go-to standard is Amazon.com. Patterns change, and with that change there are winners and losers. Yes, it may be tough for our minds to adjust to the shift, but the bottom line is that the media often doesn’t tell the whole story.

If I had it my way, the headlines would always be rewritten to tell the truth instead of grab reader attention. Instead of using “Balance Due: Credit-Card Debt nears $1 Trillion as Banks Push Plastic” to not-so-subtly accuse those greedy bankers of twisting the consumers’ arms, I’d edit the headline to “Consumer spending is back to healthy pre-recession levels.” Their headline draws the emotion, but mine is just as accurate.Instead of writing that “The sum, close to the all-time peak of $1.02 Trillion…could signal an easing of frugal habits ingrained by the recession,” I’d rewrite it to say, “The sum tells us something great: consumers are finally comfortable spending again after the deepest recession of our times.”

Media bias is nothing new (remember my blog Headlines sell, but don’t let them mislead you! from way back in 2014?), but it seems to get worse every day. That’s why it’s so important to look closely at the data, consider the source, and come to your own conclusions. You may even try rewriting a headline or two to help uncover the real news rather than just reading the “story.”

Have a great example of the media distorting financial news?  This email address is being protected from spambots. You need JavaScript enabled to view it.  what you’ve got. I’d love to help dissect the data to find a different perspective.

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Rental property: Is it time to take the plunge?


Real estate is red hot right now. Unlike post-2008 when it was a buyer’s market (to put it mildly!), today it’s not uncommon for sellers in “hot” areas to get multiple offers on a property and end up getting as much as 20% over the offering price. Prices are skyrocketing again and, even better (at least for the property owners), rental rates are on the upswing as well. For anyone with the assets to invest in rental property, the environment begs the question: is now the time to jump on the real estate bandwagon?

I received this email from my client Garnett last week:

Hi George.

Fred and I have been talking about purchasing a rental property using my recent inheritance from Mom as a down payment. Specifically, we are looking at houses under $200,000 in the Tacoma area where it is really a hot market right now. We’re thinking about building on these investment properties over time as a secondary income to support our retirement.

Any thoughts or ideas? I have been doing lots of research and have a great mentor who had been doing this for a long time. She has been so helpful. 

First, full disclosure: I have a thing for real estate. 45 years ago, back in 1970, I bought my first rental property. For $14K, I was able to buy a duplex in an edgy neighborhood of Colorado Springs. To make it my own, I just had to write a check for $500 to assume a $13,500 VA loan, so it was pretty easy to take on even as a young man with a young family. Over the years I kept buying houses and condos, then a warehouse, and more recently some “scrape” teardown properties in Denver. (Click here to read more about Denver’s “scrape” movement.) In the last 5 years the stakes have gotten higher, but I’ve finally found a way to simplify my role of landlord using passive real estate where the tenant, instead of the owner, is responsible for the maintenance (whoopee!), property taxes, and insurance. So yes, I believe in the value of real estate in general, but that doesn’t mean it’s right for everyone, nor that every opportunity is a good one. Here are four key questions to consider before deciding to take the plunge:

1.     Is real estate a “better” (higher return) investment for your portfolio than stocks?
Real estate is so different from stocks that this is hard to answer. That said, real estate offers tax benefits through the use of depreciation that can be used to shelter part of the generated income. Plus, the use of leverage in real estate can sometimes turn a small down payment into a sizable return. For example, say Garnett puts down $40,000 (20%) on a $200K purchase price. If the house increases in value by 5% a year, with her leverage of 5 to 1, she has the potential to make a whopping 25% a year on her investment. (5% of $200K is $10,000, which is 25% of the cash down payment of $40,000). That certainly beats the recent stock market return numbers!

2.     What are the disadvantages of real estate?

·         Lack of liquidity is always a concern—especially for older investors who may require access to liquid assets. In a “normal” market (which we’ve not seen for quite a while), it typically takes 4 or 5 months to sell and close on a property. In today’s market, that time can be much longer, which means your assets are tied up until the deal is complete.

·         Property maintenance and vacancies can create an “alligator” that eats away at cash flow. Maintenance is (or at least should be!) a given. Every homeowner knows how the costs of things like a new roof, plumbing problem, or landscaping and gardening can add up. Your tenants are likely to be much less willing to wait on repairs than you are on your own home, so unexpected costs can hit at the worst time. Also, vacancies (which happen in any market) are a reality, and whether you’re collecting rent that month or not, you have to be able to make payments on the mortgage.

·         Managing a property takes time—or money. To take care of your property and your tenants, you either have to be a landlord yourself or hire a management company at a cost of around 8% of the rent collected. If you choose to be the landlord, you have to expect and respond to calls at all hours. And if your tenant’s pipes burst while you’re on vacation, you’ll have to put your own plans on hold to deal with the situation. Be realistic about what you’re most willing to give up: time or money.

3.     What pitfalls should I avoid?
When it comes to buying property, there are many potential pitfalls, but here are a few to consider:

·         Buying when your finances aren’t in great shape. Make sure your income is stable, your consumer debt is paid off monthly, and your emergency fund is intact. If you aren’t 100% certain you can make the payments on a new property, don’t consider it an option.

·         Buying with a partner, especially a family member. Managing a rental property is stressful enough alone; bringing in a second party can easily add to this stress and, in worst cases, be too much for even the best relationships to handle.

·         Overpaying. Just as when you’re investing in stocks, it’s best to buy low and sell high. Be sure you’re viewing a property from a rational—not an emotional—perspective to be sure you’re making a wise investment. As you look, ask yourself: Would I want to live here? And, would I be willing to pay the rent that I’m asking a tenant to pay?

·         Neglecting estate planning. The more property you have, the more important estate planning is. Take the right steps to be sure your heirs don’t inherit a real estate nightmare and large legal fees.

4.     What’s the best way to fund the purchase?
Putting down 20% on a rental property is not only recommended, but it’s often required. This means a $200K home requires $40K down (plus closing costs of another $4-$5K), and the resulting loan would be $160K at about 4% interest. You shouldn’t have to pay any points at that rate, and you may be able to avoid paying a loan origination fee as well.

After exploring all of the above with Garnett, we agreed that diving into the world of rental property made sense for her, and she’s going ahead with a purchase in Tacoma. If you’re considering the leap yourself, proceed slowly, check the depth and temperature of the water before jumping, and if everything feels right, take the plunge.

 

Want help deciding is a rental property is the best next step for your own investment portfolio? Email me to schedule a time to walk through the pros and cons.

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Thinking about an annuity? Be sure you have the facts.

 

If you’ve been keeping an eye on the market lately, you know that volatility has continued. The uncertainty has created a perfect opportunity for salespeople to come knocking with an answer to the fear of losing money.

Fixed annuities can be very attractive to investors. They’re simple and pay 3% at most. That kind of annuity is a financial product designed to accept and grow the principal, and then provide scheduled payments to the individual for the rest of the person’s life. Fixed annuities are designed to deliver reliable income without the risk of outliving your money. But this is not the type of annuity Kathy is referring to.

I received this email from Kathy last week:

I've been hearing about variable annuities that go up with the stock market, and when stock market drops it doesn't. It just stays the same. I think they’re called “indexed annuities.” If this is the case why doesn't everyone have these? There has to be a catch. Can you explain so I can understand? Why are they pushing these so much? What do the sales people get for selling them?

Luckily, Kathy is wise enough to know that when something sounds too good to be true, it probably is. Yet salespeople are very skilled at making a complex product sound very simple. In reality, these products are written with complexity to disguise the truth. Here’s an example: A salesperson calls you offering an annuity that provides a “guaranteed retirement income” of 5% a year. “It’s simple,” he says. “You invest $100K, and it’s guaranteed to grow at 4 or 5%.” But what the annuity really provides isn’t nearly so simple.

If the market tanks 25% and you cash in the annuity, you would receive only $75K of your $100K. That’s not much of a guarantee. On the flip side, if you agree to accept “income” for the rest of your life, you’ll be allowed to withdraw up to 5% a year on the full “value” of your account, which is now $127,628. That means your original $100K investment will provide 5% a year in income, or $6,381 ($531.75 a month). At that rate, it will take about 16 years to recoup just your principal amount of $100,000. Assuming you took out the annuity at age 60, by the time you’re 76 you will basically break even. You may have avoided some market risk, but considering that the market grows at an average rate of 6-7%, someone is making money off your investment—and it certainly isn’t you.

But the annuity “guarantees” 5% growth, right? Here’s where the complexity (and the lack of clarity when speaking to most salespeople) comes in. Most annuities with guarantees are talking not about “cash guarantees” but “income guarantees.” And while you and I may assume “income” means what we’ve earned on an investment, in this case it refers only to what you can withdraw, or your “retirement income” before they die. In many cases, investors won’t even withdraw the full value of their principal investment. What’s that mean? You may as well have put the $100K under your mattress—NOT a strategy I recommend!!

Here are some other downsides of variable annuities:

·         Annuities lack flexibility. My clients want access to what they need when they need it. If you need to withdraw more than 5% from an annuity, you jeopardize the “guarantee” and pay other surrender penalties. In other words, you’re stuck at 5%, regardless of your needs.

·         You will pay more for spousal benefits. Withan IRA or other traditional investment account, your beneficiary receives the remaining funds after you’re gone. If you want your spouse to receive benefits from your annuity, you’ll probably have to take a discount on the withdrawal amount while you’re living. Otherwise, the insurance company would have to absorb the increased cost of insuring two life expectancies.

·         The devil is in the details. As with any investment, excess fees can limit growth and cut returns down the line. These include annual fees and administrative charges, surrender penalties, the scope of the downside risk, and more. As I told Kathy, “If it sounds too good to be true …”

So why are salespeople so anxious to sell you an annuity? It’s not your retirement they’re thinking about—it’s theirs. (For more on this hot topic, see my blog, For your nest egg, “free” advice can be costly.) Sales people usually get a 6-8% commission up front on the amount you put in. So while there’s a big incentive for them to make a sale, there simply is no such thing as a guaranteed 5% annual return annuity. (Any company that offered such a product would be out of business before you could collect on the promise!) If you’re not 100% certain you understand a product—including what exactly is guaranteed and what you can realistically expect as a return on your investment—get answers to your questions from an objective third party before buying.  

 

Considering an annuity that seems to good to be true? Let’s look at it together to see if it’s really a good solution for you. I’m here to help.

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Prince: Lessons in leaving a legacy


Everybody I talk to seems to have a Prince story…except me. I couldn’t identify “Purple Rain” even from a video of Prince performing his most recognized hit. Maybe his style or culture didn’t mesh with mine. My taste in music runs more toward John Denver, as I’ve written before. I suppose Prince and I just didn’t have much in common.

Sadly, there is something Prince had in common with over 60% of Americans and 55% of Americans with children—regardless of their age or musical preferences. He left a legacy of music, but he died without a Will. It’s difficult to imagine that a man with such wealth and a deep commitment to supporting charities had done no planning to transfer his assets. Prince had no spouse and no children, so his fortune will likely be divided among his sister and half-siblings, and they’re already in disputes about how his non-monetary assets should be handled. It’s complicated, but perhaps less devastating than when someone like you or me dies without a Will.

Prince’s heirs will be dividing up a valuable guitar collection, a vault of unpublished music, and more. But for people who leave behind $300K, $500K, or $1M dollars, their heirs often need this money to live without a parent, caretaker, or financial provider. For families with children, the situation is even more challenging—especially if both parents die at the same time, leaving behind a legal mess in which the children can suffer the most. According to a 2015 survey from Caring.com, just over half of parents have a Will. Among those who do, 60 percent haven't updated it within the last five years. Another survey revealed that more than a third of parents with kids younger than 18 don't have life insurance, and even if they do, more than half have less than $100,000 in coverage—which isn’t enough to cover future expenses like paying off the mortgage or funding the kids' college education.

Why do so few people take care of this very basic and important task? Most people without a Will say they just haven’t gotten around to making one. Or maybe we’re simply too uncomfortable confronting our own mortality. But are these valid reasons…or just excuses?

Years ago I received a call from an estate attorney whose client was the mother of a 6-year old boy named Brad. Brad’s parents divorced before his father died, leaving Brad a life insurance policy of $500,000. The problem was that there was no Will creating a Trust for Brad, so the proceeds couldn’t be paid out without the supervision of the probate court. Every time Brad’s mother needed money for summer camp or music lessons, her attorney had to petition the court and pay $500 in fees to get a $1,000 distribution. It was a mess. The estate attorney asked if I would serve as a co-trustee with Brad’s mother so the court could be petitioned to release Brad’s inheritance from the Probate Court’s costly supervision. It worked, but it cost the Trust $50,000 in court and legal fees over a 5-year period before it was clear sailing. If Brad’s father had made a Will in the first place, Brad would have had about $50K more in his Trust to pay for everything from music lessons to college. What a waste.

Death comes to all of us at one time or another, and an early, unexpected death can result in costly and complicated legal actions when a Will is outdated and circumstances have changed—or there has been no Estate Planning at all. Take a lesson from Prince and make this Estate Planning checklist part of your plan for the next month. Pay homage to yourself and your loved ones. Just do it:

  • ·         If you don’t have a Will, write one by Memorial Day.Protect your loved ones and write a Will. If your situation isn't too complicated, you can even do your own with software like WillMaker. At least it’s a start.
  • ·         If you have a Will, review your documents every 3-5 years.If the legal language isn’t clear to you, get some help. Be sure your Will clearly states who your fiduciaries are and which of your beneficiaries will receive what. If you moved from the state in which your Will was executed, it must be updated.
  • ·         Pay attention to the Personal Property Memorandum.All Wills include a reference to this memorandum, but 90% of these are blank. Fill yours out. Make your wishes clear.
  • ·         Verify your beneficiaries on other legal documents.The beneficiaries included on your IRAs, life insurance policies, and 401(k) accounts supersede those listed in your Will, so be sure they are accurate and not contradictory to your wishes.
  • ·         Make sure your Power of Attorney (POA) and Health Care Directive are up to date. If your health care POA is over 7 years old, it probably needs to be updated. Even if you have a Will in place, writing down end-of-life decisions can make all the difference for family members and other loved ones—no matter what your age. Take time now to complete The Five Wishes, a simple, online advance health care directive. Learn more in my blog Love, Loss, and Five Wishes.

Once your Estate Planning documents are complete, please send copies to our office so we have them on file. We’re usually one of the earliest calls received after a death or major health event, so we may be of help to the beneficiaries outside of what we manage for our clients at Schwab.


Need help getting you Estate Planning documents in order?Email me any time to schedule a time to chat. We’re always here to help.

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For your nest egg, "free" financial advice can be costly


For most people, the money saved in their 401(k) is their single largest retirement asset aside from the equity in their home. It’s no wonder the Department of Labor (DOL) recently made an important ruling regarding how these assets are handled by financial advisors.

In its original form, the DOL fiduciary rule required anyone selling financial products for retirement plans to act as fiduciaries—meaning they would be legally bound to always act in the best interest of the client. It even went so far as to propose banning the sale of certain high-commission products into these plans. As a fee-only registered investment advisor, I already am committed to putting our clients’ best interests above our own, so I was all for the proposed changes. I’ve seen too many people buy insurance products without knowing that the salesperson did not have the client’s best interest in mind.

A new client, Brenda, emailed me last week. At 35, she recently changed jobs, and as is often the case, an insurance company contacted her to offer her “free assistance” to help her through the transition. Even though she is relatively young, she’s been smart about funding her 401(k) and has been putting in 8% of her salary since her first day on the job, so she has just under $110K in her account. The salesman suggested Brenda roll over her existing 401(k) into an annuity inside an IRA. He also suggested she purchase a $1M term life insurance policy which would eventually be converted to permanent life insurance. And while he suggested she continue to fund the 401(k) at her new employer, he recommended additional contributions to an IRA, even though, unlike her 401(k) contributions, these would not be tax deductible. Brenda was hesitant. “I understand they get paid commissions on these insurance policies, and that they’re not always a good idea,” she wrote. “But I’ve also heard that the DOL rule that’s been in the news lately doesn’t allow anyone to sell me a policy that isn’t right for my situation. Any input? I appreciate your advice and guidance.”

The first thing I told Brenda was that the new rules don’t go into effect until at least April of 2017. Second, only retirement products such as 401(k)s and IRAs are covered by the ruling, so the $1M life insurance policy is specifically excluded from the fiduciary requirement. So while the salesman’s actions are legal (a least for the time being), they may not be entirely ethical. Here’s why:

Rolling over Brenda’s 401(k) into an annuity IRA earns the salesman an up-front commission of about $6,600 (6% of $110,000). As well, Brenda is subject to surrender penalties for 15 years if she takes out an amount over the “allowable” penalty-free rules. In contrast, by rolling over her 401(k) directly into her new employer’s 401(k) plan, Brenda would avoid these fees and commissions completely, and 100% of her retirement would be in one place with solid investment choices. As her financial advisor, I will advise her on which funds to select in her new account at no charge.

As for the recommended life insurance policy, at Brenda’s age, a term policy is what she needs—no need to pay for a convertible, commission-based product which would increase her monthly premium from $50 to $250. Plus, I know Brenda’s personal situation well, and a $1M policy is more coverage than she needs. Again, it seems that selling a higher-priced product is taking a front seat to Brenda’s real needs.

After I walked Brenda through her options, she was relieved—not only did she have a better picture of the best path forward, but she also felt she had new knowledge to make better decisions in the future. “Unfortunately, this is all a foreign language to me,” she told me. “He was so persuasive, and even though I knew enough to be wary, I didn’t have all the facts.” I assured her she wasn’t alone: most people simply don’t know what they don’t know. Not all insurance and life insurance salespeople are swindlers, but they’re usually coming from a different perspective than an independent registered investment advisor (RIA). As the old saying goes, “If you only have a hammer, you tend to see every problem as a nail.”

At Guerin Financial, we’ve been serving our clients as fiduciaries for more than 20 years. That means we offer objective, fee-only advice based on one thing only: the specific needs of each client. Whether you work with us or another advisor, take the DOL’s attention to the issue as a warning—but certainly no guarantee—and get your guidance from a fiduciary who has a lot more tools in his or her toolbox and, most importantly, is committed to always working in your best interest.

 

Looking for objective financial advice based on your real needs? Email me to schedule a time to talk. I’m always here to help.

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Taxes done? Celebrate in a whole new way this year

It’s April 20, and even if you waited until this year’s extended deadline to take care of business, hopefully your taxes are filed and your refund is on its way. If you’re like most people, your tax-induced anxiety is fading quickly, and you’ll happily forget about taxes until next spring. But if you’re one of the smarter few, you’ll do the exact opposite and celebrate the end of tax season by doing the unexpected: taking a closer look at your 2015 return.

While I’m not a CPA, our team reviews about 300 client tax returns annually. In that process, we find that whether they’ve been self-prepared or done by a professional, 50% include errors that can result in expensive repercussions—and not just when the IRS comes knocking at your door. It’s why we include tax return reviews as part of the financial planning process, and it’s why I urge you to do the same. Here are some specific examples of why looking backward to your 2015 taxes should be at the top of your to-do list:

·         Using the IRS as a savings tool offers no real savings at all.No one will deny that it feels great to get a refund, but planning for that “spring bonus” to pay down credit cards is a mistake. Melinda was receiving a $3,600 refund each year, so we recommended that she decrease her withholding by filing a new W-4 with her employer and increase her 401(k) contributions by an extra $300 a month. Because her $300 contribution is tax deductible, her actual out-of-pocket cost is just $200 a month. And 10 years from now, she’ll be much better off than if she’d kept overpaying throughout the year to receive that superficial bonus in April.

·         Understating your income can cost you—a lot.Missing a 1099Div or 1099B (Schwab’s year-end summary)? Track it down, and fast. The IRS gets a copy of these documents, so their computers will nearly always catch missing dividend income before three years is up. When Timothy sent us a copy of his 2015 tax return in March, we saw that he’d missed $4,000 in dividends and capital gains. Because we caught the error early, he filed an amended return before April 18 and paid the $1,300 tax before the deadline. If he hadn’t asked us to review his return, he would have faced an underpayment penalty plus interest for up to three years, totaling about $500.

·         Miscalculating your Schedule D tax basis can increase your taxes.Richard sent us his 2015 tax return before he filed. Smart man. According to our records, he had sold 100 shares of AT&T for $3,800, but his return reported 35 shares were sold for $3,800, and his tax basis reported was $35. In reality, his tax basis was closer to $2,500, so the capital gain was reduced from $3,755 to $1,300. If the mistake hadn’t been corrected, Richard would have also been taxed on more of his social security income. So the mistake had legs. A revised return saves Richard about $500, plus the penalties and interest he would have faced in an audit.

·         Your tax documents can expose important planning mistakes—and opportunities.When we reviewed Tammy and Jack’s return, we investigated some oddly reported dividend income on Schedule B of their 2015 tax return. Although they thought all their stocks were now at Schwab in their joint account and listed as JTWROS (joint tenants with right of survivorship), we discovered that these stocks were with a transfer agent, and they were only in Tammy’s maiden name. The stocks were worth $20,000, but if Tammy died, it would cost as much as $5,000 in legal fees to have the assets transferred to Jack. By discovering the oversight, we were able to transfer the shares to their joint Schwab account and avoid a costly mistake in the future. In another example, my client, Tom, asked us to review his father’s return after his father passed away. Our review revealed royalty income from oil wells in North Dakota—a piece of Tom’s inherited estate for which there was no other trace. What a nice surprise!

Of course, revisiting your taxes is just about the last thing you want to think about at the moment. But I promise that some diligence today has the potential to bring rewards down the road. All it takes is some attention to detail. Read your return carefully, review it with your CPA, and send us a copy. Ask questions and discuss any life changes that may impact your taxes next year. By digging deeper, you just might put more money in your pocket—and even reduce your tax-season anxiety altogether.

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How do you define Quality of Life?

Quality of life. It’s something people at every age talk about, and some go to great pains to make it happen. But how do you actually define “quality of life”? For one person, it may mean working less, downsizing as much as possible, and spending more time with family and friends. For another, it may mean working more (hopefully at a fulfilling job) to fund more travel or afford other luxuries. Regardless of your choices, money often plays a role, both before and during retirement. That’s why creating a personal financial plan to support your goals—whatever they may be—is essential. But that’s not always as easy as it sounds.

John and Judy are in the “catbird seat of life.” They’re 68 years old, still working, healthy, and mobile. They’re in the peak of their earning years with no plans to retire any time soon. Unlike a lot of Baby Boomers, they’ve done a great job saving for retirement, and their investment assets recently topped $1.5 million. But achieving a high quality of life hasn’t been that easy—at least for John. His father worked as a doctor until he was in his late 70s, so John feels pressure to keep working another decade to “add to our nest egg.” And while he loves his job, finding balance between work and play has been an ongoing challenge for him. Yes, he plays golf now and then, and he and Judy finally took a long-awaited trip to Europe last year. But his time away from the office is rare. When he does take time to relax, his outgoing personality shines. His favorite leisure activity is dining with friends—often in friends’ homes.

The last time John and I sat down to chat, I asked him what he’d like to do this year to enjoy life more. He was quick to answer: “I want to update our house,” he said. “We haven’t done any major improvements in 20 years. I love to cook, but the kitchen is outdated, and the bathrooms and floors all need updating. I’ve priced it out, and we’re looking at $75,000 to $100,000 to do it all. But where should the money for that come from?”

At 68, I knew the last thing they should consider is leveraging their HELOC (Home Equity Line of Credit). They still owe $350K on their house, and even though the interest rate is just 3.25%, their monthly payment with property taxes and insurance is $2,400 a month. As we brainstormed options, John mentioned a $100K savings account that’s sitting in the bank earning almost 0% interest. It seemed like the perfect solution. But there was a glitch: “Judy doesn’t want to touch it,” he said. “She calls it her ‘comfort money,’ and it’s the one piece of our savings that’s always been off limits.”  

As their financial advisor, I’m well aware that John and Judy have more than enough in investment assets to fund their retirement—especially since John wants to continue to work indefinitely. Plus, they can take $100K from their investments any time they need it and receive the funds in two business days, so Judy’s “comfort money” isn’t financially necessary (especially at 0% interest). But because Judy views it as money they might need for medical care, assisted living, and other late-in-life expenses, it feels emotionally necessary to her.

Last week, I met with John and Judy together to see if we could find a solution that they both could agree on. As we talked, the challenge became clear: John and Judy share a financial life, but they define “quality of life” very differently. John values entertaining friends at their home, but he’s embarrassed because the house is so outdated and uncomfortable for guests (and for him) without the renovation. Judy, on the other hand, is an introvert. “I need a financial security blanket,” she told me. “I’d rather make do with the house as it is than spend money we might need when we can’t work any longer.”

It’s not an easy situation, but I’m so glad we had the conversation. John shared about his desire to have the beautiful home he’s proud of and can entertain in, but he said he didn’t want to threaten Judy’s need for security. She understood how much it meant to him, but the fear of touching her “comfort money” made her feel paralyzed.

To assuage Judy’s fears, I showed her exactly what assets they had saved and how much John was continuing to contribute while he worked. Then we compared their savings to estimated expenses, even in a worst-case scenario. Next, we talked through her financial fears. When she learned that money from their investment account could be in their checking account in two days with no penalty—and that the invested money would grow over the next decade to provide more assets in the future—her fears began to melt. John offered to keep the budget to $75K so Judy would still have $25K as an additional security blanket. When I added that much of the work on the house would need to be done anyway if they decided to sell in the future, she decided using the savings was the right choice. Perhaps even more importantly, Judy said that having people in their home increased her quality of life as well. Mission accomplished.

Quality of life is important, no matter what your level of assets or what your age. The key is identifying what will really make you happy, and then putting a plan in place to work toward those goals—financially, physically, and emotionally. That “three-legged stool” becomes more important as we age, so the more you can do to control the things you can control today, the more likely you’ll be able to achieve your own quality of life, however you choose to define it.

 

Need some help figuring out how to improve your quality of life? Let’s schedule a time to chat.

 

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4 steps to financial spring cleaning bliss

Ah, spring. For most of us, it’s an energizing time when we feel motivated to clean out, clean up, and start fresh. Even with that motivational spirit, I confess that I have a love-hate relationship with spring cleaning. I dread the thought of it. I procrastinate diving into it. But the moment I get started, I begin to feel that sense of rejuvenation (my favorite task: cleaning the garage floor—and even painting it this year!). And when it’s all done, I absolutely bask in having a clean garage again. To walk into that space knowing everything is clean, organized, and efficient is pure spring bliss, and I’m ready to move on the garden and planting the spring flowers.

So while you’re full of all that spring energy, I urge you to set aside just an hour or two to focus on spring cleaning to simplify your finances. It’s a job that most of us neglect year after year. That feeling of accomplishment and organizational bliss may be that much easier to achieve. No broom needed. Follow these four steps and you’ll be well on your way to your own spring cleaning bliss:

  1. Shred documents you don’t need.
    While the IRS has a standard period of limitations of 3 years, we recommend holding on to your key documents for 7 years to cover all your bases. Ask your tax preparer for an electronic copy of your return and save it on a flash drive or at a secure online file hosting service such as Drop Box. Not only will you need this information in case of an audit, but your financial advisor may request a copy of your return to review it for mistakes (we find at least one error in over 50% of the returns we review) and determine the most appropriate withholding on your IRA withdrawals. Feel free to toss all those old bank statements and check registers in the shredder too. The less unneeded paper you have on hand, the more easily you can find the important stuff.
  2. Organize documents you do need.
    If your financial documents are a mess, your financial life can feel pretty messy too. And tax documents aren’t the only important papers you need to track. Some people prefer to save things in paper form using a file cabinet. Others prefer to maintain everything they can electronically. Whatever your preference, set up a system so you can easily store and retrieve information, including:

    Personal identification and documents related to major life events: Be sure your passports; security cards; marriage, divorce, and birth certificates; car titles; wills; and other important documents are safe and accessible at home or in a safe deposit box at your bank.

    Bank statements: Start by consolidating accounts, updating your bill pay service, and shredding old paper statements. Most banks offer online access to statements for more than 12 months, so there’s rarely a need to fill your files with paper statements. But be sure you know how to access up to 3 years of statements in case of a tax audit.

    Investment account statements:If you have multiple retirement or other investment accounts, be sure you have a complete list of your accounts, including login information if your accounts are online. (Be sure to share this with your financial advisor to be sure he or she has the most current and complete information.)

    Tax documents: Keep and file W-2s, 1099s, brokerage tax forms, interest receipts, and receipts for deductibles until they hit that 7-year expiration date. This email address is being protected from spambots. You need JavaScript enabled to view it. for a complete list of must-keep documents.

  3. Plan your spending for the coming year.
    Even if you have a good emergency fund in place, planning for and prioritizing expenditures can help keep your budget healthy all year round.

    Create a budget.  A recent Gallup poll revealed that two-thirds of Americans don’t have a household budget. So you’re not alone if this has slipped through the cracks. Figure out how much is available to spend on your wish list after your basic expenses are covered, set your priorities, and be sure you’re not spending beyond your means.

    Reduce debt.If you’ve racked up some debt in the past year (or more), make paying it down a top priority. Zero consumer debt is a great goal and one of the best rewards spring cleaning can offer.

    Homemaintenance projects. These can add up to big dollar signs, so planning is key. Start with deferred maintenance projects like cleaning out gutters, mending that fence, or exterior painting. And be sure to plan for large projects like a new roof or kitchen remodel. Good planning can help keep you on budget. And talk to your financial advisor if you need to leverage a HELOC or other source to fund the project.

  4. Update your estate planning documents.
    Keeping these documents current is often (and easily) neglected, so it’s a great item to include in your spring cleaning list. Check to be sure your beneficiaries are correct (I can’t tell you how many divorcees forget to make this change!). Be sure your fiduciaries (Executor, Trustee, or Health Care POA) know where they can find important documents. Complete a Personal Property Memorandum to indicate which of your heirs should receive your car, family photo albums, grandma’s china, and more. Lastly, send a copy of your will to your financial advisor so it’s available when needed.

If you’re overwhelmed, take one step at a time. If that doesn’t do the trick, get some help. When my aunt moved into assisted living and I was taking care of her finances, I hired a group who completely cleaned out the house, including sending me her financial documents and arranging an estate sale to dispose of the remainder of her household even though I was thousands of miles away. If you don’t know where or how to get help, ask your financial advisor for guidance. Whatever you do, don’t let the mess continue to grow. Make financial spring cleaning a priority and enjoy the delights of spring.

 

Need help getting started? Email me to set up a time to chat. I’m happy to help figure out where to begin…and to help you put one foot in front of the other until the job is done.

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Save Mom from the $100,000 Toaster

When Linda sat down in my office, she was almost in tears. “In the last two months, my dad has received more than 200 offers to ‘win’ sweepstakes and lotteries—and he’s probably responded to 50 of them! I don’t know how to stop the stream of mail coming in, and I don’t know how to stop him from throwing his money away!”

Unfortunately, Linda’s dad isn’t the only victim. When it comes to elder abuse, financial fraud is the fastest growing culprit. If it seems like there’s a new scam every day, it’s because there is. And while it’s easy to get frustrated with mom and dad for falling prey to these scams, a recent study by the American Association of Retired Persons (AARP) tells us why older people are such easy targets for financial fraud. Unlike younger generations, the over 60 crowd expects honesty in the marketplace. Even if they do realize they’ve been scammed, they’re less likely to take action—either because they’re embarrassed they’ve been fooled or because they’re less knowledgeable about their rights in today’s complex (and often dishonest) consumer marketplace. The AARP study also found that, because older people are more likely to be home than their younger neighbors, they are often within easy reach of devious telemarketers and home solicitors.

Stella is a perfect example. After her husband died, Stella decided to stay in her home. Her son Gary lived a few hours drive away, but he took care of her as best he could from a distance. He called multiple times a week, visited when he could get away, and was always there to handle any issues that came up for his mom—especially when it came to her failing health. Everything seemed in order. Then, one day last summer, the bank called Stella. She was shocked to hear that she was out of money and her checks for her utilities were bouncing. As soon as she called Gary, he knew it was time to get a Power of Attorney and take over his mother’s finances, but it was too little too late.

Once Gary dug into the details, he realized Stella had been the victim of a scam for years. A “company” that ran a “contest” had been plying her with prizes that had started out small—Sunbeam mixers, toasters, and knife sets—and gotten bigger and bigger over time. Of course, every time the very nice people called to tell her she’d won something new, they offered her the opportunity to pay for the chance to win an even grander prize next time. Stella had been hooked—to the tune of over $100,000.

The AARP’s study highlighted some of the characteristics that make older people vulnerable to fraud, but age-related dementia adds to the problem significantly. Research has shown that about half of adults in their 80s have either dementia or some level of cognitive impairment without dementia. If these folks are living alone, they’re prime targets for fraud.

But what does all this mean when it comes to your own parents? How do you know when to offer help? Linda was blown away by the fact that her father who had always been money-wise was writing checks to sweepstakes companies. Gary had been keeping a close eye on Stella, and he felt she was still capable of “paying a few bills” and managing her own money. Luckily Linda and Gary stepped in when they did, but by taking these basic steps, they may have been able to help avoid the fraud in the first place:

  • ·  Talk to your parents long before you need to. The earlier you talk about the potential for cognitive decline, the easier it will be to set up a future game plan together.
  • ·  Get a copy of the Durable Power of Attorney (POA). If you’ve created the document together before any signs of decline, you should already know what to expect. If you haven’t, the POA will indicate if and when you’re able to take the financial reins.
  • ·  Watch for signs of mental decline. If you think your parent may be slipping a little—or a lot—schedule an appointment together to see a neurologist. Not only can the doctor help you both understand what to expect in the short and long term, but he or she can also recommend next steps when it comes to managing finances. 
  • ·Arrange face-to-face visits. If you live far away, ask someone in the area—a close friend, sibling, or neighbor—to check in now and then to see what is going on. If they spot something suspicious, they can let you know before a small issue has time to escalate.
  • ·  Get access to bank account records online. Even if there have been no financial missteps made (yet), ask for permission to look over the expenses and deposits periodically. If something doesn’t add up, start asking questions and follow up.
  • ·  When appropriate, take over the checkbook. As soon as there is any sign of mental decline, get signatory authorization on bank accounts and agree on reasonable spending limits. Give mom an ATM card with a cash-withdrawal limit or give her a monthly allowance of cash.
  • ·  If you need help, work with a financial advisor. Don’t assume that just because mom or dad needs your help that you have the knowledge to make the best decisions. If taking over your parents’ financial lives requires more than basic bill paying, get help from a financial fiduciary.

Watching mom or dad decline is never easy. We all want our parents to be the family guardians they once were. Of course, it’s even harder for our parents to admit their own failings—especially when it comes to money. But the sooner you address the issue, the sooner you can begin to combat potential fraud. Take steps today to keep mom’s $100,000 toaster in the hungry hands of even the most convincing “sweepstakes representative.”

Need help talking to your parents about a Durable Power of Attorney or other financial issues?Let’s schedule a time to tackle the challenges together.

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Is this old bull ready for pasture?

                                                    Photo credit: John Shakespeare
 

As George Burns once said, “You can’t help getting older, but you don’t have to get old.”

I can’t think of a better example than Denver’s own Peyton Manning. His career included 18 seasons in the NFL, the most wins in history, four Super Bowl appearances, two Super Bowl wins, and he was the only starting quarterback to win a Super Bowl with two different franchises. And yet, as last season progressed, he was constantly challenged by the press. The headlines (and there were many) weren’t kind. “He’s not Manning of old, just merely old,” was a common theme. But while his passing arm may not have been what it once was, he had the unique capacity to read defenses and change at the line like no other quarterback before him. His skills delivered more than his age could take away, and in February he made history as the oldest quarterback to win a Super Bowl.

Manning couldn’t help but get older, but he certainly performed much better and much longer than anyone could have anticipated. The same can be said for another modern anomaly: today’s long-living bull market.

Considering all the fretting about the health of the stock market in the past year, it may be hard to believe that the current bull market celebrated its 7th birthday on March 9. Since most bull markets average less than 5 years, and the longest-running bull market lasted just under 10, this middle-aged market has not been treated very fairly. But just like Peyton Manning, this market has been battered by the media every time it stumbles.

By definition, a bull market remains intact until it drops by 20% or more, and neither the recent headline-grabbing drop of 10.5% nor last summer’s seemingly dramatic 12% decline has even come close. Yet when the bull turned seven earlier this month, it seemed every media outlet was predicting doom. “Dark clouds hover above this milestone birthday celebration,” said CNN, and USA Today warned that “Pitfalls Threaten a Bruised Market.” Bruised? Perhaps. But certainly not battered. Here are the facts as of Tuesday:

·         On March 9, 2009, the DOW closed at 6,547.05—its lowest point since April 15, 1997.

·         On May 19, 2015, the DOW hit an all-time record high of 18,312.

·         On March 9, 2016, the DOW celebrated its 7th birthday by closing at 17,591—not far below last springs record high.
·         On March 22, 2016, the DOW closed at 17,642—continuing its bumpy ride upward.

It’s been a long, slow road to recovery, with lots of bumps along the way. Some analysts attribute the length of the recovery to the artificially low interest rates orchestrated by the Fed—rates that can make stocks much more attractive than bonds or CDs. But I don’t believe the Fed’s reversal—or China’s downturn or the slump in oil prices—has as much impact as they’d like to think. The media misunderstands, misreports, and misleads by making assumptions that just don’t make sense in the big picture. The strength of the market is based on economic growth, plain and simple. Earnings and stock prices go up when consumers buy, and aside from a few minor sidesteps, consumers have been buying uninterrupted for the duration.

Markets don’t wind down due to age—they reverse course when there are significant changes in economic momentum. Remember 2008?  The US economy was on fire and projections were over the top. Investors were living large until, like a door slamming, the mortgage crisis hit. The economic blow brought financial institutions to their knees and took the stock market down with them. From an economic perspective, this bull is looking darned healthy. Oil prices are climbing out of damaging lows, business inventories are being backfilled after a low in January and February, and while non-US demand remains weak due to global turmoil, the US dollar seems to be weakening slightly at the moment, which is good news for US earnings. Most importantly, American consumers are spending, which is always the driving force of our own economy.

Simply put, age alone can’t whittle away at the strength of the stock market. When consumers stop spending, the bull may indeed stagger. Until then, we need to stay invested. I don’t think this “old bull” is ready to hit the ground any time soon.

Still feeling jittery about investing in an aging bull market?Let’s schedule a time to dive into the details to be sure your strategy is on track.

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Has affording a home become a pipe dream in 2016?


Buying a home is imbedded in the American Dream. But with the price increases we’ve all seen over the last 15 years—and no end in sight—buying today seems like a much bigger hill to climb then it was back in the “glory days” of 2000.

Last weekend, my friend Jim pulled out a clipping from the March 6 edition of the Denver Post. The article highlighted skyrocketing home prices in the little mountain town of Salida, Colorado. It caught his attention because Salida is the town his daughter, Olivia, has been eyeing for over a year, but she’s been hoping homes would become more affordable. Married with two little girls, Olivia and her husband are eager to buy in a small community like Salida, but Jim is concerned they’re already priced out. And if I believed everything I read, I would be too. The article painted the future of home buying as downright hopeless, saying that the average home price more than doubled over the past 15 years—from $124,600 in 2000 to $287,400 in 2015—and, even worse, that average wages didn’t keep up with house prices (not even close!). In fact, while housing prices more than doubled, wages only increased by 25%. It’s a pretty dismal tale, and Jim clearly wanted some advice. “How will they be able to afford anything decent? Has affording a home really become America’s pipe dream?”

Jim was upset by the article, and I agree that those are some scary statistics. But what bothered me most about the article wasn’t the content, but that it stopped short of telling the whole story. Of course, the headline wouldn’t be as thrilling, but if you look at the details of what’s happening, the real news may be a dream come true for today’s homebuyers. What the Denver Post article (and many more like it) didn’t take into account is how today’s low interest rates impact affordability. As I told Jim, all you need to do is compare interest rates then and now, and you suddenly see a completely different picture…one that just may have Olivia sitting pretty in a new home. Here’s the rest of the story:

·         In 2000, the average 30-year fixed rate mortgage was 8%. That means that if Olivia and her husband had put 20% down on a home priced at $99,680, their mortgage including principal and interest payment would have been $727 a month. Not bad, and very reasonable based on their household income at the time of $4,000 a month.
 

·         In 2015, the average 30-year fixed rate mortgage was 3.75%. If Olivia and her husband had bought the same house 15 years later, it would now be priced at about $229,920. If they put down 20%, their monthly payment would have been $1,061, an increase of only $334 a month compared to 15 years earlier.

Olivia and her husband both work in Salida, where wages increased 25% in that 15-year time period. This means their household income was increased by $1,000 a month, more than making up the difference in the mortgage payment. That’s not so bad is it? In fact, when you look at the big picture, that home in Salida may actually be more affordable today.

As I explained to Jim, here’s where we are today: Yes, housing prices are continually moving up, but the combination of wage increases and low interest rates make housing at least as affordable as it was in 2000, if not more so. (Nationally, wages increased by even more than in the tiny town of Salida, though housing prices in many areas increased at a higher rate as well.) So don’t let the headlines fool you: the dream is not lost. If, like Olivia, you’ve been waiting for an “affordable” time to buy, the time is now. Take advantage of historically low interest rates, be realistic about your budget so you’re not buying more than you can afford, and go make your own dream come true.

Want to run the numbers for your own potential home purchase? Let’s schedule a time to chat. I’m happy to help.

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When election time rolls around, don't shoot yourself in the foot

Alexander Hamilton and sitting vice president, Aaron Burr, in a deadly duel on July 11, 1804


The 2016 presidential election is coming at us like stampeding buffalo, and it seems there’s no reprieve from the rhetoric. Among the claims on both sides of the campaign trail is that electing [insert candidate name here] will boost the stock market, improve the economy, and put more cash in your wallet. But the question, as always, is who’s speaking the truth? If (and this is certainly a hypothetical question) your #1 concern when you walk into that voting booth is the future strength of your portfolio, how should you vote in November?

Back in 2003, when GW Bush was in his second year in the Oval Office, I met with a new client at the University Club in Montgomery, Alabama, where Stephen was a professor at the University of Alabama. After our initial greetings and social niceties, the conversation quickly shifted to how much Stephen “hated Bush” and that he couldn’t see investing in the stock market as long as Bush was in office. “As soon as a democrat is back in office, he’ll straighten out the economy and restore order to this mess, but I’m not putting in a dime.” If you dive into the details, there’s much more to the picture—so much, in fact, that it’s quite evident that regardless of who is the sitting President, the stock market is driven by well-led companies who create investment value—not by who’s in the White House.

Stephen’s verbal tirade was enough for me to know we would not be a good fit. I declined to work with him; his thinking was far too restrictive and unproductive. Not only was that a wise choice for me personally (I cherish my freedom to work with clients who think rationally and value my advice), but Stephen’s theory would not have delivered professional value either. At that time, Stephen had all his retirement assets in safe, interest-bearing money markets and treasuries paying about 4%. Since that meeting more than 12 years ago, interest rates declined to 1.8% on 10-year treasuries. Assuming Stephen stuck to his guns and stayed out of the market, his average return over this period would have been just 2.9%. The Dow average closed at 10,173 on August 31, 2003, and jumped past 17,000 this past Monday on March 7, 2016. That’s an annual gain of 6% plus 2% for dividends or a total of 8%. Stephen’s decision to restrict investment options influenced by politics caused him to lose out on returns that might have been 250% better.

Separating our financial heads from our political hearts is a difficult challenge for most of us. We’re not alone. We’ve all seen one business sector or another spend massive amounts of money to promote a specific candidate because they believe that candidate’s agenda will have a direct impact on their particular industry or the economy overall. But clearly they’re not paying attention to the data either.

Even in the most heated political climate, and regardless which party holds office, the markets seem to function pretty well. In fact, historically, the markets have tended to do quite well during political gridlock—the most recent illustration being that the DOW has doubled since the bottom of the Great Recession in 2009. So despite all the dysfunction and animosity filling our political system, the economy seems to be operating by its own rules.

Thank goodness, considering that our political history has been contentious since its beginnings. On July 11, 1804, in a duel after a long and bitter rivalry, Aaron Burr, the sitting vice-president, killed Alexander Hamilton, the former secretary of the treasury. And both men had been in duels before—Hamilton himself having participated in at least 10 known duels before the one that ended his own rather contentious history.

Of course, I’m not espousing dueling pistols to resolve political conflicts. But I do recommend taking a lesson from Stephen: no matter who you’d love to see in the White House next January (and I urge you to vote with your heart and your head), keep your investments out of the picture. Invest based on economic reality—not on media speculation about who may be running the country and what that supposedly means for the economy and the stock market. Your portfolio will thank you in the end.

Want to chat about your investment strategy—politics aside?  Let’s schedule a time to chat sometime in between the many heated presidential debates.

 

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Don't just leave money behind...leave a legacy


Baby boomers will leave behind more than $30 trillion over the next 3 decades. That’s a lot of money that holds with it the power to do great things—or nothing at all. Because while judgment, discipline, and balance are all qualities we hope for in our heirs, let’s face it: there’s a good chance we’d be rolling over in our graves if we could see what happens to all our hard-earned wealth after it passes from our hands to the next generation.

The first time I saw how quickly an inheritance could vanish was 30 years ago. A new client, Jackie, came to us for help investing a $500K inheritance she’d received from her parents. She was just 30 years old, single, and was barely getting by financially while caring for her 9-year-old son, so this gift—which was worth considerably more back in 1986—was a wonderful blessing. But while she asked for our guidance, her Hollywood friends convinced her to “invest” every penny of her inheritance in a new movie. In less than a year, the money was gone. Jackie truly believed she was making the best choice, but her lack of wisdom cost her and her son what could have been significant benefits. Instead of a new home or an education for her son, the only thing Jackie walked away with was a hard-earned lesson in finance.

Unfortunately, Jackie’s story isn’t uncommon. If Jackie’s parents had left the inheritance in a Trust for the needs of their daughter and grandson, she may have been able to go back to school to get her degree, he may have been able to attend college, or Jackie could have purchased a nice home for them to live in. Instead, the money went up in smoke.

The simple way to avoid a similar bad ending is to put regulators in place on how, when, and in what way the money we leave behind can be used. Here are 5 steps to get you started:

1.     Learn about your beneficiaries’ values and if they’ve demonstrated good judgment in their lives.
Have one-on-one conversations to discuss subjects that often never come up unless you choose to “go there.” Take your child or grandchild to lunch to chat about major life issues and important values. Have they experienced any debilitating addictions to chemical or alcohol? Is there a history of financial irresponsibility such as not paying back creditors or family members? What about the future? What education would they add if money were not a barrier? What do they wish for their children’s education? What charities do they volunteer for, give donations to, or admire?

2.     Determine how you want your assets to be used.
While the most common choice is to provide an inheritance directly, with no restrictions on how the money is spent, leaving the money in Trust may be a wiser choice. The specific Trust provisions will determine how the funds can be used. And I recommend writing a letter to the Trustee of the Trust who will have the final say in how and when funds are to be paid out. For instance, if you want your granddaughter to be able to buy a car, provide a general price range in the letter, and remember that specifications are easily updated in the future with the stroke of a pen.

3.     Identify the most appropriate Trustee.
Allison is 71 years old and widowed. She has no children of her own, but she has a stepson, Allen, who is 52 years old and not fully functional. When we spoke last week, Allison was about to name Allen as her executor. Knowing him a little and her a lot, I suggested she assign her younger cousin as her Trustee instead. When Allison passes, her cousin will be able to guide Allen’s spending and help ensure Allison’s legacy isn’t squandered. (If you don’t have a person in your life whom you feel would be right for the job, consider using a corporate trustee such as a bank).

4.     Review your Will to be sure all the pieces are in order.
Perry was recently remarried, and he and his new wife asked us to review their Wills and beneficiaries and make recommendations. It’s a good thing! Perry’s ex-wife was still listed as his beneficiary even though they’d been divorced for more than 15 years. And contact information was missing for his adult children who were also listed as beneficiaries. While it may seem obvious, it’s these details that can derail the transfer of your estate when the time comes.

5.     Work with your financial advisor and estate attorney to be sure everything is structured according to your wishes. 
All too often, a Will or Trust is never even read by the client. Be sure you understand what each document says, and be sure they’re structured honor your wishes when you’re not around to clarify.

Andy and Geraldine are a great example of wise planning. When they married in their early 60s, Geraldine had no children, and Andy had two children and three grandchildren. When Andy died at age 72, Geraldine was the beneficiary on the house and his 401(k) and IRA. The life insurance of $150K was payable to an Educational Trust for the benefit of Andy’s three grandchildren. As a result, two of his grandchildren were able to fund their degrees at top universities, and the third is now finishing a computer programming degree. The remaining money in the Trust will be paid out next year proportionately to the grandkids.Geraldine is still working and will be quite comfortable when she retires.

The most basic definition of a legacy is “a gift of property or money,” but by taking these five basic steps today, you can go a step further: Plan today to ensure you are giving a lasting gift that enables your beneficiaries to fulfill their personal and financial potential.

Need help putting a legacy plan in place?Let’s schedule a time to talk through the details and be sure everything is in place for a smooth, lasting transfer of assets.

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Aging parents? Financial planning is key

                            Photo credit: Richard Riley

Anyone in the “sandwich generation” knows just how challenging it can be to juggle the responsibilities of caring for college-aged (or younger) children while also taking on the physical, emotional, and often financial care of aging parents. With all that going on—and often an established career to boot—it’s a wonder this age group can keep all those balls in the air.

My client Melinda is a great example. A successful executive with two adult children—including a special needs child—she and her husband are both the “responsible siblings.” As she says, they are the lucky ones tasked with the care of their parents, all of whom live nearby. Melinda called me last week to chat about her own parents who are both in their late 70s. Her dad, Billy, has Alzheimer’s. Her mom, Amber, is quickly headed toward limited mobility. Melinda needed advice about what to do with the proceeds of her parents’ home, which they’re selling to move into an assisted living facility. Like many financial questions, this one is bigger and more complex than it sounds.

First, Amber and Billy have never been traditional investors. After retiring from his corporate career in engineering, Billy started his own engineering consulting business. This was certainly an investment in his and Amber’s future, but they’ve never had money in traditional stocks or bonds—and have never had to deal with the emotional consequences of a topsy-turvy market. Now that he’s fully retired, their income consists of $72K a year total from Social Security and Billy’s corporate pension of $40K annually. When Billy passes away, Amber will continue to receive 50% of the pension amount. Their only other asset is about $80K in the bank before considering the sale of their home.

While a $72K annual income (after taxes) may not sound too restrictive, the challenge (as it often is for this age group) is the increasing cost of medical and assisted living care. Billy’s care expenses—which are already on the high side—are increasing steadily as his Alzheimer’s progresses, adding an estimated $25-$30K a year to their expenses. Plus, assuming Billy passes before Amber, her income will be reduced by about $20K a year, further limiting what’s available to her.

Selling their home will add a net amount of about $650K to their available assets, but Melinda worries that won’t be nearly enough to make up the difference between their fixed income and their rising expenses. Melinda will have Power of Attorney (POA) if and when both her parents are unable to fend for themselves, so she already feels a sense of responsibility for their care.

“Shouldn’t they start investing with that money?” she asked me. “The market is down, so they could potentially increase their income significantly, even if they’re conservative about it.”

If I didn’t know Billy and Amber’s background, I might agree, but in this case, I think investing—even conservatively—would be the wrong thing to do. Here’s why:

·         Amber and Billy have never invested in the market, which means they have little to no understanding or appreciation of risk or volatility. Unlike most of us, they have never experienced a reduction in their principle. At nearly 80 years old, now is not the time to start down that road.

·         Melinda was concerned about the impact of taxes on the sale of the house. But when we reviewed the tax consequence of the sale, we determined there would be no taxable gain from the sale. Billy built the house himself and kept no receipts, but we estimated that the tax basis is about $200K, so the $500K exclusion means no taxable gain from the sale. That means they’ll bank the entire amount. Bravo!

·         Since Billy and Amber plan to rent from now on, they’ll have $650K in capital from the house sale that will be freed up to support future expenses. Even with Billy’s and Amber’s healthcare needs, those assets should last upwards of 20 to 25years.

I know Melinda was surprised at my advice, but when she assumed investing that large sum was the answer, she wasn’t looking at every piece of the puzzle. She was also surprised when I recommended that, no matter how concerned she is about her parents’ finances, she step back from their money concerns and have her mother call me directly if she wants help. “She’s too busy taking care of my dad. Plus, managing money just isn’t her thing,” said Melinda. “That’s why I need to help.”

The problem: Melinda doesn’t have the authority to make decisions for her parents. At least not yet. At the moment, Amber and Billy have Power of Attorney for each other. Not only should Melinda have a copy of the POAs to better understand when and if her authority kicks in, but she needs to be sure her siblings don’t perceive any inappropriate influence over their financial decisions until that day comes. No matter how pure her intentions, money, legal rights, and families can be a nasty mix if they’re not handled with care.

Helping your parents with their financial decisions? If you have POA, let’s set up a time to talk to be sure everything’s on track. If you don’t, be sure they’re working with a trusted advisor themselves. It can make all the difference in the future.

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Same Song, Different Verse

                           Photo Credit: Jesse Kruger

Every time the stock market goes into a swoon, the same thoughts come back to mind: Is this it? Are the market naysayers right after all? Are we heading for the bottom of the market? And most importantly: Is my portfolio going to be ok?

As I write this, the headlines are almost comical. The market’s in another upswing (a nice change from the last few weeks), and while I have no doubt we’re in for more volatility, the media is still trying to create a circus by stressing that this “run” may not last. Considering the extreme volatility we’ve seen in the past 12 months, I think we can all assume that the days of a long, predictable upward run are a thing of the past—or at least of a different time than today. But the truth about the market doesn’t sell. Here is my own perspective:

First, it may be comforting to remember that the stock market went through a similar decline as we’re seeing right now just last summer. Even more, the causes were similar. Oil prices fell to under $40/barrel for the first time since 1989, and there was worry that China’s economic slowdown would spur a global recession. The markets reacted, and we saw the first major decline of 2015 at -11.2%. Over the next three months, the market recovered, rising right back up to pre-decline levels.

Fast forward to today. Oil prices closed at an amazing $26 per barrel last week, down from $32 per barrel the week before that. And while there is some speculation that lending institutions are vulnerable to the debt of oil companies, I believe that’s overstated. Interestingly, the market is reacting in an almost identical manner (so far) to last summer:

It almost looks like a mirror: the declines are in the same ballpark at 11.2% and12%, respectively. And though it’s not clear if the recent decline is over just yet, if last August proves an illustration of what’s to come, it should be close. From decline-to-recovery, last summer’s roller coaster ride lasted just under three months from beginning to end. Considering that the current decline started in December, if it does follow the same trajectory, it should soon begin to reverse in earnest to reflect improving financials. That would dictate a much healthier stock market come March or April. I’m not in the business of predicting the future, but it will certainly be interesting to see if we really are in a copycat market.

Also (and I know I’m sounding like a broken record on this point), the current economic conditions are not predictive of a pending recession. It’s true that economists have increased the probability of a recession from a standard 5% probability to 17% (according to the latest Blue Chip survey). But as Nobel Prize-winning economic theorist Paul Samuelson wrote in his Newsweek column back in 1966, “Wall Street indexes predicted nine out of the last five recessions! And its mistakes were beauties.” Over the past 50 years, the numbers have changed, but Samuelson’s point has stood the test of time: Stock prices don’t predict recessions. Despite the wild and crazy market (remember my blog Welcome to a “wild and crazy world?), the economic data on American jobs, income, and consumer spending—which comprises 70% of the US economy—is strong. Yes, growth is slow at just 2% right now, but growth is good. Slow growth, in many ways, is even better.

Going back to those nagging questions:

·         Is this it?  No, this isn’t “it.” The US economy is continuing to grow and improve. That’s precisely why we invest for the long term and maintain properly diversified portfolios.

·         Are the market naysayers right after all?I don’t believe the market naysayers even strive to be right. In many cases, their goal is to instill fear to either sell headlines or sell a product—from gold (which fell again on Monday) to leveraged ETFs to snake oil.

·         Are we heading for a new bottom of the market? Even if we were headed for the bottom of the market, when should you sell? And when should you buy back in? Markets are cyclical—always—so as long as you’re investing for the long term, a down market should be seen as an opportunity.

Your account balance may not look very satisfying at the moment, but if you’re still working, stocks are currently “on sale” at 12% off. Think of it like yet another Presidents’ Day Sale and grab some bargains while you can. I believe the wisdom of your smart shopping will reveal itself as we move into the second half of 2016.

Of course, the most important question is this: Is my portfolio going to be ok? If you’re a prudent investor holding a properly diversified portfolio aimed at long-term growth, today’s market fluctuations shouldn’t panic you. It truly is the “same song, different verse.” So sit back, relax, and enjoy the music…I recommend headphones to overcome the media hype!

Concerned that your own portfolio isn’t built to withstand the test of time? Let’s schedule a time to dive into the details and be sure you’re on track for tomorrow.

 

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It's time for a Super Bowl game plan

Ah, the Super Bowl! As always, the excitement around the game this year started long before game day. Parties were planned and the commercials took the spotlight even before their scheduled air dates when Super Bowl Greatest Commercials 2016 drew more than 11 million viewers last week. Plus, 2016 marked a big milestone for the NFL with Super Bowl 50.

As a die-hard Broncos fan myself, I can say that for Panthers and Broncos coaches, players, and fans, the importance of this game reached epic proportions. This was the game of a lifetime in many ways. Not since John Elway’s back-to-back Super Bowl victories in the late 90s (after which Elway retired), would there be so much skin in the game. If the Broncos and Peyton Manning won, at age 39 he would be the oldest quarterback to win a Super Bowl. Of course, such a feat would raise him to patron saint status with seniors my age! Those of us in this group are inspired by the idea that the wisdom that comes with age far outweighs the physical prowess of youth. But in this case, the youthful foe was gargantuan, led by 250-pound Cam Newton who could seemingly scramble for a first down at will.

The Broncos’ first-year coach, Gary Kubiak, set the stage from the beginning of the season, saying, “We’re not playing to make the playoffs or get into the final championship game. We’re playing to win the Super Bowl.” There was a lot of doubt about that back in November when Manning threw four interceptions in a single game and was out for six weeks. Even when he came back, there were many skeptics who thought Manning should stay on the bench as backup to the talented understudy, Brock Osweiler. But Manning played again (and boy, did he!) starting with the playoffs.

Those doubts burst to the surface again early in the game on Sunday when three Bronco plays in a row were handoffs to CJ Anderson with no yardage gained. From the Broncos’ general manager John Elway, down to the coaches and the players, the focus was 100% on the present. They weren’t thinking about last November—or going to Disneyland. They kept their eyes on the ball, executed a great game plan (especially defensively), and made history with their epic win. Yesterday’s celebration parade in Denver was spectacular, with over a million people in attendance.

Of course, my passion for the Broncos pales in comparison to my passion as a financial advisor, so I can’t help but see the parallel between how the Broncos approached the season—including Super Bowl 50—and how wise investors manage their portfolios over the long-term. While investing for your retirement is no game, just like in football, there are a million opinions out there about how you should move forward, especially when “game changers” like volatility, corrections, and a slow-growing economy come into play. The media loves to talk about how investors “should” be reacting to a market that has practically defined a new normal when it comes to volatility.

At Guerin Financial, we’re not swayed. We believe that maintaining a balanced, carefully diversified portfolio will always win out over “sell and run for the hills.” And we’re certain that, at least in this area, learned wisdom will always beat out youthful bravado. Just as Broncos fans witnessed all season long, the key to the win is to stay focused on the long-term goal. That was the Broncos’ Super Bowl game plan. Now is the time to follow their lead: Set your strategy. Leverage your strengths. And execute your game plan. And while circumstances may call for some mid-game adjustments, as long as you stick to your proven strategy and focus on the end game, just as it was for Peyton Manning, the win is waiting for you in the end.


Not certain you have the right game plan in place? Call me to schedule a time to meet. I’m happy to help you build a portfolio that’s designed for the long-term win.

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It's Groundhog Day for market worries...


This time last year, I wrote about Punxsutawney Phil and our oh-so-strong desire to be able to predict the future (or find someone who can). Of course, the challenges of 12 months ago now pale in comparison. With the stock market on a daily roller coaster, oil prices fluctuating wildly, and no agreement among economists or market analysts about what’s coming down the pike, many people are desperate for answers. The good news is that there is a way to navigate this storm—and there’s no need to turn to a groundhog to see what’s in store for the market. But it’s not always easy to see things clearly when we’re in the middle of the storm.

Last week, just as the big blizzard was descending on the east coast, the market was swinging as wildly as the weather. That’s when I received this email from Susan:

“I know I shouldn’t worry about the stock market, but it’s hard to ignore what’s happening when I see the Dow dipping below 16,000. As you know, I’m hoping to retire next year. Can you tell me what this will mean for my coming retirement income? Do I need to rethink my plans? Where do you think the market will be by the end of the year? Help!”

The simple answer is “no, I don’t know.” Just as Punxsutawney Phil can’t really tell us when winter will end, no one (and I mean NO ONE!) knows where the market will be by the end of 2016—or next week. But as I told Susan, there’s no need to worry… as long as you’re investing for the long term. Here’s why:

·         In the past decade—including the financial crisis and the recession—the Dow delivered an average return of just over 4% per year.At a 4% withdrawal rate or less, Susan’s principal would have lasted fairly well even over the last 10 years. At a 5% or 6% return rate, her principal would be that much more secure.

·         Over the longer term, the Dow typically exceeds 4% annual growth. In the past 30 years—including the crash of 1987, the crash of 2008, and the recent recession—the Dow delivered an average annual return of 8.2%. This means that, as long as Susan continues on the same path, her portfolio is likely to last throughout her retirement.

·         2016 is not 2008.As I discussed in my blog 7 reasons this isn’t a case of market déjà vu, the financial system is now in fine shape, and the US economic indicators remain strong. China continues to wreak havoc on the global markets, but this too is a short-term problem. (See last week’s blog 5 things NOT to do in a down market.)

·         The Fed is working in your best interest. In light of the recent market volatility, the Fed is sure to take a conservative approach to raising interest rates. And while history isn’t a definite dictator of the future, slow rate increases have historically been better for stocks. In fact, in the years following the initial rate hike, the market has averaged more than 10% growth.

·         Stock valuations are right where they should be.Corporate earnings are in good shape, and the forward P/E for the S&P 500 is slightly below its historical average. This translates into strong value for stocks purchased today, and a stronger portfolio down the road.

Stocks were up Monday, then down slightly on Tuesday. They may be down even more tomorrow. No matter what happens, my advice is to ignore the numbers and, even more importantly, ignore the soothsayers. Even if they sound impressive over the airwaves, no one knows the future. I can certainly understand why Susan is concerned, but as long as her portfolio includes a strategic mix of diversified investments and stocks in high-quality companies, it should perform as planned in any market environment over the long term. The important thing is to stay informed, trust in the market, and whatever you do, don’t let the “groundhogs” convince you to stray from a wise, long-term approach to your investments.

Is it time to review your strategy—regardless of the market?Let’s schedule a time to review your overall plan. Knowing the facts can give you the confidence to ignore volatility and stay on track.

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5 Things NOT to do in a down market

There’s no denying it: last week was a doozy. On Wednesday, the Dow took its deepest dive of the year to date, dropping more than 3% mid-day, then bouncing back to close down “only” 1.4% at 15,767. For those of us who have gotten used to seeing Dow numbers in the high 17,000s, we got flashbacks to 2008 when the market went into a freefall. This has been the worst start of a new year ever.

The good news is that we are, in no way whatsoever, in the same climate as in 2008. As I’ve said before, while there are numerous factors impacting the market at the moment, the problem is not the US economy. And while that may not make the numbers feel any better, it does mean that we’re most likely facing a short-term down market—the industry refers to it as a “correction” if it’s around 10% or so. But as long as the US economy continues on its upward trend, most forecasts point to a full recovery. The question, of course, is “when?”

The answer is simple: No one knows. With that in mind, it’s important to remember that making a wrong move at the wrong time can do much more harm to your portfolio than any market downswing. Here are 5 things not to do to be sure you maximize the situation while keeping your risk as low as possible:

1.     Don’t doubt your portfolio. Assuming you’re working with a knowledgeable financial advisor, your portfolio should already be balanced to absorb a certain level of risk depending on your time horizon. Most of my clients are either nearing or already in retirement, so our portfolios include an average of 40-42% stocks. This means that around 60% of each portfolio is already positioned to downplay market risk. And if you do second-guess your strategy, where would you go? All the alternatives present challenges of their own. Gold is a losing proposition (read my July blog Forget the "proven" path to success and stick to the basics to learn more). Hedge funds and commodities aren’t any safer than stocks. And stuffing cash under your mattress stops future earnings in their tracks. Trust the decisions you made when the market was rising—they’re just as good today as they were last July.

2.     Don’t think short term. Unless you’re a day trader (which I do not recommend!), your focus should be on the long term. And when looking at the long-term outlook for the US economy, things are pretty darned bright. Last week, some investors panicked and shifted stocks into less volatile government bonds. There are two big issues with that strategy. First, “shifting” means selling, and by selling when the market was down, money was lost. Second, while that money is now in a “safer” place, there’s no chance to recover the loss. Shifting to bonds is a purely emotional move that doesn’t account for the fact that, inevitably, the market will rise again.

3.     Don’t get hung up on China. Yes, China has been dampening the US stock market. The lack of transparency by China’s government has scared investors who aren’t sure what to believe. As transparency increases (the shift has already begun), investors will feel more confident in the numbers, and the market should react positively. Adding to the fear factor are the misleading headlines about China. Sure, China’s economy is (as the media loves to shout) “the lowest it’s been in 25 years.” But when you consider that China was leading the entire world in growth for three decades, that claim is much less exciting. China’s economy has slowed because it’s in the midst of an economic transition, moving from a pure manufacturing model to a service model. In this scenario, earnings for established manufacturers slow, and it can take some time for the newer service-based businesses to flourish.

4.     Don’t stop investing. If you still have two or more years to go before retirement, now is the time to invest as much as you can into the market. Wall Street is having a fantastic sale! The S&P 500’s forward PE ratio stands at 14.9, its lowest since the first quarter of 2013 and well off the 17.4 level of last May when the stock market hit its record high. The recent year-over-year profit declines for the S&P 500 companies are expected to take until at least the second quarter of 2016 to improve. If that happens, then we’d have the rest of this first quarter to reposition assets to advantage.

5.     Don’t forget to utilize other assets. If you are retired and you’re already taking distributions from your portfolio, explore using other assets to cover your expenses. You’ll still have to take your required minimum distribution (RMD), but if you’re taking more than the minimum, see if you can cut back by leaning on non-stock assets such as savings accounts and CDs. The more you can keep in the market at the moment, the more opportunity you’ll have to recover from the downturn. Now may also be a good time to rethink large expenditures. My client Joe had two costly vacations planned in the next 12 months—a 2-week winter cruise that was going to cost $10,000, and a long-planned anniversary trip to Europe with his wife in August that will cost $15,000. Because Joe wants to cut back on his IRA withdrawals, he’s decided to forego the cruise. And maybe by August the market may be in recovery mode and he and his wife can head to Paris without a worry. C’est la vie.

We all know someone who made a bad choice in the past—either in 2008 or earlier—by reacting to the market numbers and acting out of fear, rather than looking at the situation from all angles and creating an appropriate, long-term strategy. One good friend of mine pulled all his money out of stocks until it was the “right time” to get back in. He’s still waiting. Another sold her home at the bottom of the housing crash, certain the market would never recover. She reinvested the cash in another house, has yet to recover the loss of more than $300,000, and has had to postpone her retirement as a result. Don’t be next year’s tale of woe: do what you can to take your emotions out of the picture, and don’t make mistakes that are sure to come back to haunt you when the market kicks back into the green.

Still concerned about the stock market and your future? Email your questions, or call me to schedule a time to talk. I’m happy to walk through the specifics of your own situation.

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Forget about keeping up with the Joneses

When the market is squirrely, it’s hard not to be concerned—especially if you’re retired and living off a fixed income.

In times like these, it’s especially important to remember that your financial circumstances are unique. Just as no one should try to “keep up with the Joneses” in good times, following anyone else’s lead in shaky times can be just as bad.

Robert and Lisa, both 70, retired 15 years ago with a strong retirement plan. They called me last week because their best friends had raised alarm bells in their heads. Robert’s old college roommate Steve and his wife Marjorie were visiting them from Florida, where the couple had moved after they’d retired five years ago. Over a glass of wine, Steve shared that he was looking for a part-time job to be able to make ends meet. He and Marjorie love their current lifestyle (they’re quite active and love to travel). Steve said they thought they were doing fine, but “with the market the way it is today,” their financial advisor had suggested they take a new approach.

The conversation got Robert and Lisa talking, and they were suddenly worried they might be in the same boat. Should they too be thinking about working? Should they be concerned? “What’s different between us and our friends?” they asked me. “We’re the same age, and we have the same issues. We’re hoping to have another 20 years to support our lifestyle. Are we being unrealistic?”

Robert and Lisa have been my clients for years, so I knew they had a good plan in place. When we met the next day, it was easy for me to walk them through the details. First, we reviewed their base monthly income. Robert and Lisa each have a pension of $1,5000 month, for a total of $3,000. In addition, they receive $2,400 a month in Social Security benefits. That means that without even diving into their retirement portfolios, they are looking at a monthly budget of $5,400. In addition, they currently have $350,000 in 401(k)s, from which they are withdrawing $1,000 a month—a conservative 4% withdrawal rate that works well in good and volatile times.

“But what about our friends?” asked Lisa. “They’re also withdrawing $1,000 a month, but their advisor is saying it’s not enough for them to live on.”

To make sense of it, we looked at Steve and Marjorie’s situation. First, Robert told me neither of their friends receive a pension. That means they’re already down $3,000 a month compared to Robert and Lisa. Also, Steve only invested in his 401(k) during the last 8 years before he retired, so his total 401(k) savings was less than $75,000 at retirement.To support their lifestyle, he and Marjorie were withdrawing $12,000 a year—a whopping 16% withdrawal rate—from the day they retired. Just five years later, that $75,000 nest egg is down to less than $15,000. Assuming Steve and Marjorie are receiving a similar amount of Social Security, with no pension and a nearly depleted 401(k), they’re likely looking at a monthly budget of less than $3,000. They spent what little they had to keep up their lifestyle, and it’s no wonder Steve is out looking for a job.

By the end of our conversation, it was easy to see that Robert and Lisa should be worry-free; they both have the luxury of a pension (which is becoming less and less common every day), and they were smart about putting away as much as they could early on to support their lifestyle post retirement. Their friends are in a completely different situation. The good news is that Steve is a highly-paid consultant whose expertise is still valued in his field, so part-time work is a good option for him. Hopefully he’ll be able to earn enough to not only support his and Marjorie’s lifestyle, but even put some more savings away for his later years when even part-time work isn’t an option.

Robert and Lisa were at ease after learning that their strategy was working just fine. But perhaps the bigger lesson learned was that, as always, “the Joneses” situation (no matter who they may be in real life!) is rarely our own. The important thing is to stay informed about your own financial picture, know what you can afford, and stick to your own budget. Whether you’re just starting your career or you’re far into retirement, that lesson can be the most valuable one of all.


Need to take a closer look at your own financial picture?Email me to schedule some time to dive into the details so we can be sure you’re on track.


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Welcome to a "wild and crazy" world!

Steve Martin and Dan Aykroyd, two wild and crazy guys, on Saturday Night Live in 1978

Even Dan Aykroyd and Steve Martin’s “wild and crazy” Festrunk brothers would probably be stunned by some of the bizarre things going on in the world today. In case you missed them, here are some recent headlines that were so unbelievable they could easily be mistaken for the plots of next year’s blockbuster movies:

·         Sean Penn interviews El Chapo—arguably the most dangerous man on the planet—before the fugitive’s arrest. Penn is viewed as both reckless (even illegal) as well as a potential accidental hero for helping bring El Chapo to justice.

·         The mother of a 17-year-old who is dubbed the “affluenza teen” after a drunken collision that left four dead goes on to help her son break parole by fleeing the country to avoid a probation hearing that may have led to jail time for him. She is imprisoned with bail set at $1 Million.

·         Donald Trump, a businessman with no political experience, leads the polls in the race for the Republican presidential nomination.

Unfortunately, that level of craziness has extended into the market news as well. These days, data that used to provide some level of clarity now seems to just add confusion. Job growth is up…but the stock market is down. The US economy is recovering…but China’s flailing economy has our markets reeling. The Fed finally raised interest rates…but mortgage rates aren’t following suit. The market is soaring one day…and plunging the next. Oil prices are down…but the impact on energy stocks and local economies in areas like North Dakota and Texas are putting a dent in consumer confidence.

All of this gives the media a lot to banter about. But in reality, no one really knows what’s going to happen tomorrow or in the next 18 months. Instead of wasting your energy listening to the media circus, here are my recommendations for maintaining your sanity—and your savings—through what’s sure to be a wild ride:

1.     Take solace in cycles.The market is cyclical. And yet many investors have great difficulty removing emotion when it comes to expected and anticipated downswings. While things are by no means “normal” lately, one thing that hasn’t changed—even since 2008—is that the market consistently goes up over time. Keeping this in mind can help keep your emotions at bay and your portfolio on track. (For more on emotions and investing, see my September 2015 blog Apples, lemmings, and why you should just stay put.)
 

2.     Keep calm.While the market is on a tumultuous ride, keep in mind where we are compared to 2008. As of today, the market is down 6% for the year. While that’s not good news, it’s a far cry from a bear market decline of 20%. Even if the market does drop further, pulling out of the market is precisely the irrational behavior that compounds the problem. Keep your eye on the long game, stay away from the media hype, and know that a good strategy is built to sustain volatility. If you still need help breathing, read last week’s blog.
 

3.     Don’t speculate.If you know any day traders, they’ve probably lost a bundle in the last few weeks. Why? Their job is to speculate on short-term opportunities. Even in the best of times, a cheap stock isn’t necessarily a good buy. And when the market is as unpredictable as it is today, speculation can be a losing game—big time.
 

4.     Take advantage of good opportunities.Of course, as Warren Buffett says, "It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price." In a down market, there will inevitably be opportunities to buy stock in wonderful companies at fair (or better!) prices. On that note, here’s another favorite Warren Buffet quote to keep in mind: "Be fearful when others are greedy. Be greedy when others are fearful."
 

5.     Consider cutting back.If you are overly concerned about the state of your portfolio, perhaps the best thing to do is strive to live on a little less for the time being. I’m suggesting delaying large spending projects until next year or when the market gets through this phase of the cycle. And when the market recovers, you’ll have that much more in your pocket to enjoy on a rainy day.

The most important thing to do in times like this is stay away from any major changes—in your life and in your investing approach. None of us can control global events or their impact on the stock market. What we can control is how we handle that impact at an individual level to maintain a solid, thoughtful strategy moving forward. At Guerin Financial, our job is to help you build a portfolio that’s aligned with your tolerance for risk and can generate adequate returns in a variety of market conditions in the years ahead. No matter how crazy things may seem, remember that we’re keeping our eye on the market precisely so you don’t have to.

On that note, here’s a classic clip from 1978 and the infamous “wild and crazy guys.” Enjoy!

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Remember to breathe...

Remember to breathe...

I’ve been practicing yoga for over 10 years. It’s amazing how many times in a typical yoga class the instructor reminds us to breathe because when we get stressed, we either forget to breathe or we go into shallow breathing. The problem is this: humans aren’t able to automatically discern when we’re being threatened. Shallow breathing is an automatic, physical response to any type of stress (including a challenging yoga pose). By learning to alter our breathing, we’re able to find that place of calm than can de-stress even the most difficult situations. That’s why I practice yoga. By the end of class, the shavasana, makes me feel refreshed and replenished for the rest of the day. It doesn’t change the circumstances, but it helps me stay calm, focused, and on track.

Most of us could benefit from some calm-breathing techniques at the moment. 2016 hasn’t started out on a very good foot—at least from the perspective of the stock market. On Monday, the Dow closed down 276 points, largely in reaction to a 7% drop in China’s market. This, on top of 2015’s flat market, has some investors wondering if their investments will recover this year—especially seniors who inevitably have less time to recover from a market downturn. That’s what prompted this email from Daniel, a 75-year-old client I’ve been working with for decades:

George,

Over the years, we’ve always focused on the long term. I get it. But at my age, “long term” is relative. Can we talk about how much the bear market impacts my portfolio and my retirement income? I trust you have the answer. I just need to hear it from the horse’s mouth so I can feel more secure moving forward.

Daniel isn’t alone. Seniors count on a certain level of return to provide monthly income, which is why a flat or down market can feel pretty scary. To keep the fear at bay, here are my suggestions, straight from the horse’s mouth!

1.     Expect the market to overreact. To keep things in balance, the market often overreacts to factors such as interest rates, global unrest (both war and economics), and the state of the US economy. But, like any pendulum, it swings back, usually at an equal rate. A huge market dip on Monday is often followed by significant gains in a day or two. Plus, even extreme swings are temporary. Yes, it’s easier to have that perspective when you have years left to recover, but regardless, chances are good that things will balance out sooner rather than later.

2.     Decide what you can live with. How you react to market swings is highly personal. “Risk tolerance” is as much about numbers (current age, life expectancy, portfolio size, etc.) as it is about your own personality. In 2015, regardless of your age or assets, it seemed there was no place to hide. The Dow aand the S&P were down. The third quarter was dismal, including a bond market correction that wiped out “safe haven” gains. In this environment, deciding you can live with volatility is key. Sure, you can pull out of the market and opt for 1% return (after your market losses), but that’s rarely wise (just ask anyone who pulled investments out of the market in 2008). If you can stomach the new-normal of constant volatility, you’ll likely be better off 12 months from now.
3.     Don’t worry too much about China. Or the Middle East. When China’s market declined 43% last summer and the US market responded, some investors panicked and pulled their money—only to watch the markets climb back up almost immediately. (For more on the China situation, see my August 26 blog. Nothing has changed.) Yes, China’s economy may be impacting the world markets, but only in the short term. The same is true whenever happenings in the Middle East—oil prices, violence, and political unrest—throw investors sideways, but things typically return to business as usual once the dust settles.
4.     The Fed is built to make rational decisions. The US Federal Reserve raised interest rates in December, which was an indicator of the growing economic strength of the US. (See last week’s blog for more on the economy.) The fact is that Janet Yellen isn’t the lone decision maker when it comes to raising rates. The process includes lots of number crunching, debate, and proven rationale. As a result, the Fed hasn’t been wrong about when to raise rates. Ever. Having their fingers pointing toward a growing economy bodes well for stocks in 2016.

5.     Control what you can. If last year’s flat market has left you with a less-than-optimal outlook on your retirement income, now may be the time to crank up your investment in stocks. Sound crazy? It’s actually an ideal way to leverage the situation and increase your growth potential. With stocks currently “on sale,” adding more to your portfolio now could potentially result in a 6, 7, or even 8% return in the coming year—which is a great way to help your portfolio catch up after last year’s lackluster performance. I believe stocks will be tomorrow’s bright spot.

Ultimately, I trust the market. I trust the wisdom of diversification and using managed portfolios that take a close look at the ever-changing factors that impact the prices of stocks and bonds and then identify hidden opportunities for delivering an optimal return balanced with risk. It’s a rare case when pulling assets out of the market makes sense. Keep emotion out of your investment decisions as much as possible and breathe, two more breaths, breathe… Namaste.

 

Finding it a challenge to keep calm? Let’s schedule a time to take a closer look at your portfolio, your time horizon, and what we can do to keep your finances on track.

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Yes Virginia, there is a Santa Claus

Every year, investors look forward to the "Santa Claus Rally," a welcome event during the week between Christmas and New Years when everyone—even the stock market—is happy.

If you think I'm making this up, I promise it's real! According to the 2016 Stock Trader’s Almanac, the Santa Claus rally has delivered positive returns in 34 of the past 45 holiday seasons, with positive returns on each of the seven days of the rally. Since 1896, the Dow Jones Industrial Average has seen Santa Claus gains of 1.7% on average, and they’ve risen 77% of the time. That’s a pretty nice present in Santa’s bag!

Of course, we all know Christmas can’t last forever, and whether the Santa Claus rally happens this year or not, it’s important to step away from make believe and take a serious, fact-based look at the economy and the stock market as we head into 2016. Knowing some basic facts can help keep you focused on what really matters and avoid getting caught up in the media hype.

·         The Fed Hike: Yes, the Fed finally raised interest rates in December, ending the decade-long era of low-to-no-interest. And while a rate increase of .25% is actually a great indicator of economic strength after the announcement’s initial stock rise reaction, they fell sharply the ensuing few days of trading. Historically, the market has reacted to every rate hike with a good bit of volatility. So what we’re seeing is par for the course. And while the market fluctuation can be frustrating, we’re still looking at long-term growth accompanied by some bounces along the way. (For more on how the rate hike affects your own finances, read my September 16 blog.)

·         Corporate Earnings:  Earnings growth is what drives stock prices going forward—not irrational stock price exuberance. While the market has declined recently, the result is a P/E ratio of about 17x—not too high, not too low, but right where it should be. Plus, disposable personal income of American consumers is up 4.1% compared to a year ago. This translates into more spending, which is a key driver of corporate earnings. That upward trajectory is a plus for earnings and, ultimately, for stock prices.

·         The Strength of the Dollar: “Strong” is usually a good thing, but our strong dollar has put a dent in US exports. This is bad news for corporations that rely on exports as a significant portion of their sales. But in the bigger picture, exports are a small enough contributor to our GDP that they don’t have the power to put much of a dent in the economy as a whole.

·         The Strength of the Economy: Economic strength is measured by a number of factors, including GDP (Gross Domestic Product—or the total dollar value of all goods and services produced in the US), and 86% of GDP is driven by private-sector activities, not government spending. The good news is that US GDP has been growing at a robust 3.4% two-year clip, which is expected to continue. In fact, the early estimates are already out for this year’s retail holiday sales, and according to MasterCard Advisors SpendingPulse, sales were up 7.9 percent this holiday season. That’s huge growth, and it means Santa wasn’t the only one happy to fill up the sleigh this year. Add booming car sales, rising housing starts, record high new job openings, further reductions in unemployment, and continued low inflation, and all indicators are pointing to a solid 2016.

In light of this level of growth (which is precisely what the Fed was reacting to when they raised interest rates), it’s only a matter of time before corporate earnings start to meet expectations again, the market settles down, and we can get back on track toward “normal” growth. Things are looking up for the economy.

Of course, if you turn on your TV, you probably won’t hear the media shouting about the strength of the economy. Their job is to grab your attention, not report positive news—even if that means keeping us awake at night. My advice: mute the sound on the television and stick to the facts. Santa Claus may have come and gone this year, but the economic “treats” may deliver in a bountiful way in 2016.

Happy New Year!


Still have questions about how the economy may impact your own outlook for 2016?Let’s schedule a time to chat. I’m here to walk you through the details.

 

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The blessings that last every day of the year

Pictured left to right: (front row) Susan, Glenn, and Danette (back row) Sue, George, and Diane

Every year at Christmas, I take time to reflect on life’s blessings. Always, I find that one of the things I value most is the opportunity to serve as a financial counselor to my clients and their families.

Some of you have been clients for decades. We’ve gone through various stages of life together, and now we’re working with your own ‘next generation,’ helping them pave their life path as they take on their first big job or buy their first home. We’ve come a long way together. Others have only recently begun working with our firm. If you’re one of these new clients, I truly hope you are finding value in our approach to helping you forge your own financial wellness.

As you know, we have a wonderful team, all of whom are pictured above at our annual holiday party. When we started on April Fools Day in 1982 (a whimsical but ultimately auspicious beginning!), we were at the same address and even had the same phone number we have today. At the time it was just three of us: me, my wife Rhoda, and an administrative assistant. Diane joined us in 1983, adding her excellent 401(k) management and RIA (Registered Investment Advisory) skills to the team. To support our growing business, Glenn joined us in 1994 to provide advisory services to select clients, which freed me up (at least a bit!) to do seminars countrywide for AT&T. Susan, Glenn’s assistant, joined us originally in 1996 as my seminar coordinator, and then moved over to support Glenn full time in 2002. Danette joined us in 2001 as our technology guru and office manager. And, last but not least, Sue came onboard a year ago as my administrative assistant. Today, our team provides financial services to about 400 individuals and families from coast to coast, and we manage over $260 Million in investment assets.

Recently I received this note from a long-term client:

“Thank you for always keeping me informed on everything financial—from the details of my own accounts to your plans on investing as we move forward. As for being overwhelmed, I'm already there! I’m glad I have you to guide me along the way.”

What a great affirmation that we’re achieving our goal of providing the “peace of mind” our clients seek every day. Thank you for being part of our Guerin Financial family. All of us look forward to continuing our work together in the years to come.

Have a wonderful Holiday, and cheers to the coming New Year!

George

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Reclaiming the essence of Christmas!

It’s about this time every year, just when the Christmas countdown hits the peak of its advertising frenzy, that commercialism seems to interfere—loudly—with the joy of the season. “Only 9 days left!!!” The way it’s shouted on every radio and television station trying to sell us goods, you would think we were facing some apocalyptic tragedy rather than Christmas day! The whole commercial aspect of Christmas has always bothered me, which is why I make a great effort to focus on the more enjoyable expressions of the season. Unlike items that are purchased at the mall, I find these traditions do much more to wrap me and mine in the true spirit of Christmas.

1.     The Nutcracker. There are lots of versions of The Nutcracker out there, but there’s nothing quite like the traditional version, including a live orchestra. I enjoy seeing audiences of all ages—from young would-be ballerinas to older grey-haired gentlemen—gasp in delight at this seasonal spectacle. Sharing this with my granddaughter, Nina, for the first time was a particularly magical experience, and her glow during the performance was transfixing.

2.     Candlelight services. Being raised Catholic, ritual was always a big part of my youth, but nothing from my past compares to the Christmas candlelight service at Mile Hi Church where Rhoda and I have been members for decades. The music is spectacular, and it’s especially magnificent when we all light candles at the end of the service and the sanctuary is aglow, symbolizing our unity in spirit. Nina will be a part of this tradition this year, and I can’t wait to share this spectacle with her for the first time and see her face when 1,000 candles are held up as we sing Silent Night together.

3.     Iskeebibbles toffee. I think treats made by people close to your heart taste best of all. Rhoda and I met Cherie and her husband, John, more than 12 years ago when we deplaned in Nairobi en route to a Kenyan photo safari. They were with us the whole time in our van, and we laughed through all the things that make such a trip both interesting and challenging. Our friendship continued, and in the last decade we’ve traveled together often—to The French Laundry in Northern California, Mendocino, Eastern Europe, Spain, Monaco, and more. Cherie’s daughter, in her early 20s, lives at home and attends day programs for her special needs. Making “Iskeebibbles Toffee” is their shared hobby during the holidays. It’s delicious, and we make sure to order some every year for housewarming gifts and for our family to enjoy.

4.     Evangelia’s baklava. Every year for 25 years we looked forward to Evangelia’s baklava, a crunchy, gooey concoction of honey, butter, sugar, spices, and nuts—the best I’ve ever had. Then, nearly 3 years ago, her husband Glenn passed away, and the Baklava stopped coming. I was thrilled when a package of her amazing treat arrived a few days ago all the way from Florida. The enclosed Christmas card read, “Merry Christmas!! Love you guys!! Thank you for taking care of me!! Enjoy…made with love for you!! God Bless You.”  Baklava takes a very long time to make, and Evangelia expresses her love through her artistry with the dough. I can’t think of a better reason to abandon my healthy diet. Besides, there are no calories if it’s made with love, right?

5.     My special gingerbread cookies. My absolute favorite tradition is making customized gingerbread cookies for my family. The first time I made them (way back in the 80s) I knew I’d found my passion. Not only does it force me to concentrate intensely to get the detail right, but I also love that I’m focused on the recipient the entire time as I work to create a cookie that really does look like them—so much so that they can usually recognize their own cookie even without their name on it. I use icing to depict hair length (that’s the easy part), type of hair (curly or straight), and features like glasses, a fat belt buckle, or heavy boots or shoes (to differentiate between men and women). Even the pets are represented, and every cookie-person gets their name on their cookie. It’s a lot of work, but it brings me so much joy!

Whatever holiday you celebrate, I hope you fill the season with traditions that warm your heart and bring great joy to you and those you love. Merry Christmas! Happy Holidays! Cheers!

George

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5 New Year's resolutions you can stick to in 2016

December is flying by at breakneck speed, and we have just 22 days until it’s time for those dreaded New Year’s resolutions. I’m fascinated by the articles about the make-them/break-them attitude most people have toward resolutions. It makes me wonder why we even bother! Statistics show that 45% of Americans make resolutions every year, and of those resolutions, a whopping 34% are money related. It’s great that so many people want to spend less, save more, get out of debt, and get smart about their finances, but when a paltry 8% report actually achieving their goals, that means 92% are failing.

That’s a lot of people who know they need to make better money choices but simply don’t know how to make it happen. And unlike foregoing that second dessert or dragging yourself to the gym in January, making better financial decisions has little to do with sheer willpower and a whole lot to do with building a clear plan to make it happen.

Here are 5 unbreakable resolutions that can help just about anyone kick off 2016 with a little more money smarts:

1.     Get your credit score—and fix it if it’s broken.Why are credit scores so mysterious? Managing your credit (FICO) score is an easy yet often overlooked piece of financial planning. A score under 740 can cost you a lot over your lifetime. Get your credit score, fix any issues, and then commit to spend and use credit in a clean way. For tips on how to improve your score, check out this article from Bankrate.

2.     Put it in writing. According to this article in Forbes, people whowrite down their goals are much more successful at achieving what they set out to do. So write down your financial goals, and then discuss them with your life partner. Better yet, set some time to do the couples exercise in my Valentine’s Day blog to be sure you’re thinking alike.
 

3.     Use autopay to leverage your expendable income. Rather than focusing on reducing debt (a common resolution) use the “set and forget” approach to cut debt while also growing your wealth:

  • Determine your expendable income and apply 50% of it to pay down debt using your bank’s monthly autopay.
  • Use the other 50% to increase your assets, beginning with contributing the maximum matchable percentage to your 401(k). Most companies will match up to 6% of your contribution.
  • Calculate the remainder, and set this as an automatic deduction to your savings to build an emergency fund of 3x your salary.

If you reach your goal before the end of the year, turn on your “income faucet” toward other investment opportunities.


4.     Get (financially) fit.I really hope you get to the gym in January… and February… and March! But the need for better fitness also applies to your finances. (Read my blog Time for a wakeup call? for more on this.) If you have trouble living within your income, a simple resolution to “do better” isn’t going to cut it. Bad habits die hard. If you’ve been struggling for years—or decades—it’s time to get help. Contact a debt counselor. Meet with a financial advisor. Maybe ask Santa for a one-hour session with an advisor. It may be the best gift you’ll ever receive.

5.     Live life to the fullest (without spending a dime). Living a full, rich life doesn't have a price tag, and it certainly doesn’t require spending money you don't have. Dedicate some time to figuring out what “living life to the fullest” means for you. For some amazing insight on the topic, read The Last Lecture by Randy Pausch or Tuesdays with Morrie by Mitch Albom. Your entire year—and possibly your life—will be better for it.

Need help making better money choices in our own life? Let’s schedule a time to chat to be sure you kick off 2016 on the right financial foot.  

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The challenge of the "perfect" holiday


Ah the holidays. It’s a season full of magic and excitement for kids of every age. Many of us look forward to it for months, and when it finally arrives, we’re instantly swept up in the romance of it all. Of course, it’s often a welcome frenzy of celebrations and gift giving and joyous occasions with family and friends. But in addition to all of the happiness it can bring, there’s a lot of pressure to make it “perfect” as well. We search for the perfect gifts, perfect decorations, and perfect outfits for perfect parties. And what’s necessary to achieve all of that perfection? You guessed it: Cold, hard cash.  

I know. I know. The holidays aren’t about money. Or at least they shouldn’t be. Dickens’s “Scrooge” is embedded in our minds from a very young age, and no one wants to be the miserly old man who hoards his fortune and his heart at Christmastime. But for anyone who hasn’t been stashing away every penny for decades, holiday spending can turn into a nightmare even worse than Scrooge’s glimpse of Christmas future. In fact, come January, for those who have unwittingly spent beyond their means, their own future can feel awfully bleak when the bills start rolling in. But how can we keep ourselves from forgetting what’s reasonable, even during “the most wonderful time of the year?”

It’s not always easy to stick to giving only what you can afford to give, but my client Kim witnessed a wonderful reminder of this golden rule on Christmas ever since she was a tiny girl. Every year, her grandparents would laugh and laugh retelling the story of how, as newlyweds, they didn’t have a penny to spare. When Christmas came that first year, they agreed to a budget of just 50 cents each, and when they exchanged their gifts on Christmas Eve, they were amazed to find that they’d given each other the exact same gift: a simple tube of toothpaste. Decades later, after they'd accumulated significant family wealth and had the luxury of exchanging much less practical gifts, they continued to put a tube of toothpaste in each others' stockings to remind themselves of their humble beginnings. It also taught Kim and her siblings a valuable lesson: only give what you can afford to share.

Bill and his wife Judy had their own way of managing a (very!) limited budget back in the 60s. Their children were just 5 and 7 years old—a time when parents inevitably want Christmas to be as magical as possible for their children. And they were broke. But when the girls came downstairs on Christmas morning to see what Santa had left under the tree, the magic was plentiful. Karen opened a beautiful doll unlike anything she’d seen in the toyshops, and Stevie opened a bright red metal bulldozer—complete with a mechanical shovel. Where had Bill and Judy “shopped”? The attic. All the toys they gave that year were re-sewn, repainted, and refurbished toys from their own childhoods. Even Santa himself could not have delivered more “perfect” gifts.

Your own budget may not be as tight as Bill and Judy’s, but all of us have limits, and by figuring out now what you can afford to spend this year, you can make the joy of the holidays last far past Christmas morning. Here are a few tips that can help fend off the post-holiday financial blues:

  • Only give what you can afford. As a basic rule, only spend what you can pay off within a month (or two at the most) after the holidays. Take a realistic look at your finances now and set a reasonable budget. Even "little" purchases can add up to a big credit debt come January, so keep track of your purchases and stick to that budget.
  • Consider “experience gifts.” Sharing experiences can be much more meaningful than exchanging expensive gifts. Replace an extravagant party with a fun-filled sledding excursion. Invite your family to enjoy Handel’s Messiah together (at least the short version!). Schedule time to watch your favorite holiday movies as a family. Or steal my idea and take your granddaughter to see a performance of The Nutcracker. Even if the activity isn’t cheap, chances are it’s less expensive than the newest techno-gadget, and the memories will last much longer too.
  • Shop in your own closet. As a husband, I can vouch for the fact that many women have a wide selection of “perfect” holiday dresses right in their own closets, and I know many men who spend small fortunes buying new clothes for big events. All of us could save a bit of our holiday budget by following the example of the Duchess of Cambridge: Kate Middleton has made headlines for “shopping in her own closet” before hitting the stores. If royalty can do it, so can we peasants!
  • Set a vacation budget that works for your home budget. Whether you’re planning to visit relatives, take a family ski trip, or head to a warm, sunny beach, traveling during the holidays can be wonderful—as long as you stay within your non-holiday budget. Just like gift giving, it’s easy to want to make every trip perfect. Find ways to make every vacation special, even if that means limiting yourself to a “staycation.”
     
  • Start budgeting early for next year’s holidays. To start out on the right foot next year, you may want to consider an old-fashioned “Christmas Fund” to save for next year. By setting a certain amount aside every month throughout 2016, you’ll have a predetermined budget for next year’s festivities. Sometimes old ideas (just like old toys) are the best ones!


Need help setting—or sticking to—a budget for the holidays? Give me a call and let’s schedule a time to chat. I’m always here to help.

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Choosing to be thankful

This year, it seems Thanksgiving couldn’t come at a better time. As I’ve watched the world events unfold over the past two weeks, it drives home the knowledge that being thankful is an active choice.
 
My wife Rhoda grew up on a small family farm outside of Harvey, North Dakota. They had some livestock and poultry but, like most farmers, 95% of their income came in once a year from the sale of their carefully nurtured crop of wheat. In 1957, just before harvest, a hailstorm hit the area and their crop was completely destroyed. Back then there was no such thing as crop insurance, so the family’s income for the entire year was washed away in a single hour. Rhoda remembers her father saying the blessing that evening before dinner. With a quivering voice, he gave thanks for what the family did have: their health, the resources to plant next year’s crop, the cows and chickens that gave them just enough income to survive, and their faith and values that were certainly tested but still present, front and center. I never met Rhoda’s father, but I wish I had. What a strong, courageous man he must have been to respond to such a tragedy the way he did. Rather than focusing on what the family had lost, he made an active choice to be thankful for what they had.

My own mother had a similar disposition. I learned the truth of it on one of my most memorable Thanksgivings when I was 12 years old. As part of our family tradition, my mother would celebrate the holiday with a few sips of my grandfather’s homemade (and quite coveted) elderberry wine with her meal. Made by my father and grandfather from our own elderberry grapes and aged at least 10 years, the elderberry wine was almost sacred in our family. It also loosened up my normally quiet mother just enough to get her talking about the past. That year I took the opportunity to ask her about her childhood. All I really knew was that her mother had passed away when she was just two years old, and I wanted to learn more. And so, as we were gathered around the table finishing dessert that night, I remember her finally telling me about her past. It wasn’t pretty.

After her mother died, she and her sister were placed in an orphanage until her father could find a new wife to take over the “mothering responsibilities.” Sadly, she was not treated well there. The few stories she shared sounded like downright abuse to me, though my mother never used the word herself. Finally, when she was four years old, she and her sister returned home to their father and his new wife, but that too was not a happy situation. As I sat there listening to her stories, I learned so much about her and who she was as a person. Like Rhoda’s father, she was steadfast about remaining thankful for what she did have. She never dwelled on her misfortunes as a little girl. She simply looked to the future and helped us do the same. To this day I’m happy I mustered my courage to ask her to share her past.

On Thursday, as you gather for your own Thanksgiving feast, you may want to take the opportunity to ask the matriarchs and patriarchs at the table to share their own stories. No matter how dramatic or tame their untold histories may be, you may gain some wonderful insight into your own family’s ability to remain thankful—even through life’s most trying circumstances.

Rhoda and I are celebrating the holiday in Akumal, Mexico, just south of Cancun. We have so much to be thankful for. At our own small celebration, I’ll be giving thanks for the many blessings we enjoy every day, for our health, and for the resources to help every one of our clients on a path toward greater security and peace of mind.  

Have a wonderful Thanksgiving.

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Saying goodbye: One of life's greatest opportunities

There are certain moments in everyone’s life that stand out as particularly memorable—not just because they are exciting like a wedding or a cherished vacation, but because they have deep meaning. Being at the side of a friend or loved one in the days, hours, or minutes before death can be one of those truly memorable, meaningful moments.

Ron, a long-time client and friend, called me last week from the airport. He was ready to board a plane to say his final goodbyes to a lifelong friend after a two-year battle with cancer. Ron had never before been at the side of a person about to make that transition, and he was looking for advice about what to say—or not say—to both his friend and his friend’s wife. “I’ve never gone through anything like this before,” he said to me. “How do I manage the long silences and the grief?”

My first suggestion was to bring a good book. “You’re right, there may be lots of silence,” I said. “But even in the silence, your friend will know you’re there. When he wakes to find you with him, he’ll feel comforted and supported. That’s what matters most.” In these moments, often just being there is enough. And even if he or she doesn’t appear to respond, expressing your love and appreciation for them in that moment goes miles in the big scheme of things.

Ron was appreciative of my input and flattering about my “wisdom.” And I was honored he called me for advice. While death can feel heavy on our hearts, especially when the person in transition is someone for whom we care deeply, it’s also a fantastic part of living. In my role as a financial advisor, I’ve been present with multiple clients in their last days. Sometimes there were last-minute financial items to attend to, but more often than not, I’ve been able to simply offer reassurance that everything was taken care of—that their surviving spouse would be financially secure, that their financial house was in order, and that they could move on without worrying about the world they were leaving behind. In others, I’ve talked with the client’s spouse and adult children to answer any questions they had about the estate plan. More than anything, I’ve been there to offer my support.

In some beautiful alignment, the day after Ron’s call, my wife Rhoda and I attended a volunteer appreciation dinner for The Denver Hospice where Rhoda plays a piano concert every Thursday. Far from a somber event, we were surrounded by happy, upbeat people all evening. It made me think again about what a life-giving opportunity it is to be near those who are at the end of life. Tina Staley, a motivational speaker and counselor, gave a wonderful speech at the dinner comparing the intentions of people at the end of their lives and what they actually do to make those intentions a reality. Here are two important points she made during her presentation:

  • 82% of people say they feel it’s important to put their wishes in writing…
                   …but only 23% have actually done so.
  • 80% of people say that if they were seriously ill, they would want to talk to their doctor about end-of-life care…
                   …but only 7% report having an end-of-life conversation with their doctor.


Luckily, I believe these numbers are soon to change because we are finally starting to make progress in advanced care and end-of-life planning. Why? First, people are becoming more educated about the importance of this level of planning. Second, there are (finally) clear, concise tools to support these conversations between patients and their physicians.

  • POLST (Physician Orders for Life-Sustaining Treatment). POLST is a standardized, portable, single-page medical order, signed by a doctor, that is immediately recognizable and used by doctors and first responders (including paramedics, fire departments, police, emergency rooms, hospitals, and nursing homes) to dictate end-of-life decisions. POLST forms are recommended for patients with life-limiting illnesses or progressive frailty with a life expectancy of less than one year.
  • Advance Directive. While POLST is designed to be used by an entire community, an Advance Directive allows an individual to document and communicate his or her wishes concerning medical treatments at the end of life to their family and medical team. Unlike the POLST, emergency medical technicians cannot honor an Advance Directive; they must do what is necessary to stabilize a person for transfer to a hospital. After a physician fully evaluates the person's condition, advance directives can be implemented. You can download Colorado’s Advance Directive here, or locate your own state’s version here.
  • The Five Wishes. The Five Wishes is a clear, concise, and easy-to-complete living will that lets family and doctors know who the patient wants to make health care decisions for them if they can't make them alone, the kind of medical treatment they want or don't want, how comfortable they want to be, how they want to be treated, and anything they’d like their loved ones to know. You can order the booklet here for just $5.00, or simply email me and I’m happy to mail you a copy at no charge. (Read more on this topic in my blog Love, Loss, and Five Wishes.)

Let’s work together to make a change. By completing these forms and having our loved ones do the same, we can help make the last days of life—either our own or those of the people we care about—memorable, meaningful, and free of difficult questions. What an opportunity indeed.

Do you need help taking this step in end-of-life planning? Let’s schedule a time to walk through the simple details. As always, I’m here to help.


 

 

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George Guerin quoted in U.S. News & World Report

What to Do When Your Spouse Is Sabotaging Your Finances

You may love your significant other, but you hate how he or she spends money. Even worse, you may feel like there's little to nothing you can do about it.

And maybe you're right. After all, you know your situation far better than anyone. Maybe a divorce, bankruptcy or foreclosure is looming.

But many experts say that if your spouse is constantly behaving in ways that are wrecking your budget, there is a thought process to adopt and steps you should take to see if you can keep your household finances from completely falling apart. So before you give up on your significant other – and the idea of ever getting your finances under control – try this first.

Change whomever is paying the bills .  There are many ways someone can mess up a household budget, or, to be blunt, commit financial abuse. If your spouse is the one mucking things up by paying bills late, then take the reins. Likewise, if your spouse doesn't pay the bills, and is going on shopping sprees and never paying attention to the bank balance, consider suggesting that he or she begin the bill paying.



"The key is to identify the problem, get help for the addict, and then take care of the financial damage as soon as possible," says George Guerin, a certified financial planner in Denver, who has also worked with clients married to gamblers.

Click here to read the full article on U.S. News & World Report

 

 

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Financial infidelity: the secret's out

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It’s no mystery that money has a way of causing rifts between couples and among family members. Whether it’s a death in the family and the resulting inheritance that creates unreasonable behavior, partners who have diverse spending habits, or the age-old problem of not enough income to cover the bills, money can create havoc and stress for almost everyone at one time or another. Yet in my many years as a financial advisor, the most extreme and destructive behaviors I’ve seen are when couples suffer from financial infidelity. And it comes in lots of forms…

Gerry thought he and his wife Gail were doing fine in every way. In their late 50s, they were both at the tail end of successful careers, and they had saved regularly—even aggressively—to ensure a comfortable retirement. Gerry had hopes of even retiring a little early. Then, with no warning, he opened the mail one day and learned that Gail had run up a $25K gambling debt. When he came to talk to me about it, he told me how incredibly deceived he felt. “How could she keep such a huge secret from me?” he asked. “I feel the same as if she’d had an affair. The deceit feels that heavy.” Of course, the damage to his trust wasn’t their only problem. With less than a decade until retirement, it was a terrible time to try to erase $25K in new debt (is there ever a good time?). At least the saga ended well. Once the problem was out in the open, Gail was able (and willing) to stop gambling cold turkey. We refinanced some of the debt into the house and were able to drop the interest rate so there was no out of pocket increase in their payments, and the $7K debt remaining was paid off from an inheritance. Today, they’re happily retired, and Gail hasn’t gambled since.

But such simple solutions aren’t always available.

Larry and Linda were both retired and living on retirement distributions and Social Security checks, but they were already pushing their limit on withdrawals. Larry handled all the finances and told Linda again and again that they were being conservative with their withdrawals. Whenever she expressed concern, his reply was, “We have nothing to worry about. You can spend whatever you want.” But when Linda surprised him with a brand new camper so they could travel during retirement, he didn’t know what to do. He had to tell Linda the truth. They couldn’t afford to increase their monthly withdrawals, so they had to cut back on their monthly expenses to make the monthly payments on the camper. Plus, they quickly learned what it cost to fill up that monster gas tank—especially on a fixed income. The camper has been sitting in storage for the last two years, and those payments are still digging a hole into their nest egg. If only Linda had known the truth about their financial situation before she had purchased such a high-ticket item.

In the case of Susan and Steve, she was a gambler and he was an alcoholic. Steve told me about Susan’s gambling addiction 5 years ago when he learned she had more than $75K in gambling debts and had to make a significant IRA withdrawal to cover the debt. To protect their remaining assets, he decided to rework their estate plan, but he wasn’t sober enough to know what he was doing (another well kept secret), so the task was never completed. After he died last year, Susan’s gambling escalated again with a new gambling partner, her adult son. Because of her dementia, her son had Power of Attorney and would call us constantly to receive more and more money to support his mother’s and his shared gambling habit. As her financial advisors, we were powerless. There was nothing we could do but watch her assets dwindle as they circled down the drain.

Financial infidelity is a reality, and in most cases it’s not intentional. Whether it’s due to addiction, dishonesty about finances, or a slew of other causes, here are five tips to keep it from causing even greater damage to your relationship, and perhaps even avoid the problem in the first place:

  1. First, get help. A gambling addiction has an obvious impact on a couple’s finances, but other addictions can be just as detrimental. Alcohol, drugs, sex, shopping, and food addictions can all wreak havoc on your bank accounts and relationship.
  2. Focus on addressing the problem. If you suspect an issue, confront your partner as soon as possible. And once it’s out on the table, rather than directing your energy toward blame, focus on taking the right steps to get your finances back on track. Meet with your financial advisor to see what can be done right away. Yes, it may be humbling, but the advisor’s job is to provide guidance. That’s why we’re here.  
  3. Communicate, communicate, communicate. Whether you’re working through a past issue or simply want to avoid financial infidelity in the first place, both you and your partner should take equal responsibility for your joint finances. Even if one of you takes the lead when it comes to bill paying and investing, put some checks and balances in place. Review your statements together every quarter and discuss any adjustments that need to be made to your saving and spending.
  4. Set financial goals together. Whether your finances are in great shape or you’re digging out of debt, take the time to talk about where you want to be financially in 5, 10, and 20 years. By ensuring you’re on the same page, it’s less likely one of you will make a decision that puts your goals at risk.
  5. Commit to financial honesty—and forgiveness. If you can trust each other to be honest about money—even if that means coming forward after making a mistake—you’re bound to have an easier path toward correcting any missteps before they get out of control. Allowing room for error in an environment of trust is the key.
     

Has financial infidelity put your finances at risk? Let’s schedule a time to analyze the damage and explore solutions that can help you get on more steady financial ground.

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This holiday season, keep money off the table

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Here come the holidays. And while the romance of the season is all about family togetherness, in reality, I see many families struggling to keep the peace during what everyone hopes to be a happy time of year. The culprit: parents and kids and money. It’s a combination that can have a serious impact on your holiday bliss.

Susan and Dave are a great example. Their son Brian worked very hard at his shipping business. His wife worked as well, but because they constantly overspent on their children, their finances were a wreck. Their credit cards were maxed out, they were often late on the mortgage, and yet they continued to spend. To put an end to the madness, Brian asked his parents to loan him $50K so he could clean up the debt and get his business on track toward profitability. Luckily Susan and Dave came to me first. “We really want to help Brian out,” said Dave. “He works so hard, but he just can’t seem to get on his feet.” Of course, as parents, Susan and Dave wanted to do what was best for their son (don’t we all?), but as their advisor, it’s my job to be sure they take care of themselves first.
 
My advice was to view Brian as any lender would. Since they knew nothing about his business, they asked me to call Brian. When I did, the fist thing I asked was if his income taxes were filed and up to date. His reply: ”They will be after the October 15 extension deadline.” Hmmm. There was red flag number one. Next, I asked him for his financial reports. He was behind on those too. There was red flag number two. Brian was running his business as poorly as his personal finances. He was a bad credit risk for any lender—including his parents.

I had to break the news to Susan and Dave. “Blame it on me,” I told them. “Tell him the truth: that you only have enough in your retirement accounts to sustain your own needs, and I assessed him as a bad risk.” By having a third-party to blame, they were able to say no without too much personal conflict. And although Brian had to shut down his business at the time, he learned a valuable lesson. He is now back on his feet—without his parents’ help—and his new business is booming. (He told me he’s even paying his taxes on time!)

Of course, not all scenarios have such a happy outcome. In their early 30s, Sophia and Mark were deep in debt with $35K sitting on high interest credit cards. They owned a home, but a HELOC was out of the question because they were “underwater” on their home mortgage and owed the bank more than their property was worth. They were embarrassed. They didn’t want anyone to know they’d mismanaged their income and had hit the end of the road financially. To avoid the shame of bankruptcy, they asked each of their parents to pitch in half, promising (of course) to reign in the spending and change their ways. Their parents agreed, and each couple contributed $17.5K to help bail them out. Sadly, five years later, Sophia and Mark divorced, and the parents bailed them out again, splitting the divorce costs 50/50. Sophia’s parents are my clients, but they only came to me after they’d put themselves under financial stress by gifting money they couldn’t afford to spare. I only wish they had talked to me before deciding to put their daughter’s financial needs before their own.

As a parent myself, I know all too well how difficult it is to be a “tough love” parent when it comes to money. Here’s my advice if your adult children ask for a “family bailout”:

  • Avoid loaning money to your adult children. Money is one of the top points of conflict in any family, and loans and bailouts only exacerbate the potential for upset.
  • If you do offer financial assistance, be as smart as any banker. Paying for private school for your grandchild? Pay the school directly rather than handing over cash. Thinking about offering a family loan? Look at the numbers. A low FICO score indicates a poor credit risk. If a bank wouldn’t provide a loan, then you probably shouldn’t either.
  • Hire a professional to evaluate business health. If your child is facing business challenges, offer to hire a professional to look at the cause and see if there’s potential for success.
  • Don’t rule out bankruptcy or house repossession. No one wants to see their kids fail, but severe, real-world consequences like these can be the best teaching tools for the long term. (And they work a whole lot better than a handout!)
  • When all else fails, bring in a third party to blame for the “no.” If you can’t say no yourself, let me or another trusted advisor be the “bad guy.” Your answer can be as simple as, “I’m sorry, but according to our financial advisor, we just can’t afford to help out. That mean old George!”

We all want our kids and grandkids to be independent, contributing members of society, but offering financial bailouts may not be the best way to achieve that goal. Not only can it put your own financial security at risk, but it also shields the borrower from the adverse consequences of poor financial decisions. Let them learn hard lessons when the time is right. Yes, it’s a “tough love” approach, but in the end I promise it will bring more peace to your family—during the holidays and throughout every year.

Need help saying “no”—or deciding if you should—to a child’s plea for financial help? Let’s schedule a time to talk through the details. I’m always here to help.

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Silly Wabbit: A Halloween Story!

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Ah, Halloween. Time for ghosts and ghouls and scary stories. And for me, fabulous childhood memories. Here’s one of my favorites:

When I was 7-years old, my Halloween costume was Bugs Bunny. I know, pretty tame compared to the zombie undead and ghoulish themes of today, but back then in the pretty small town of Rochester, New Hampshire, Halloween was more about fun costumes than true fright. Unless, of course, older kids were involved.

Every neighborhood has its gang of older boys. In my own neck of the woods, that “gang” consisted of my own older brother, and a collection of my friends’ older brothers. I think their mission in life was to torment us! That Halloween was no different. Just a couple blocks away from where I lived, there was an old dilapidated house complete with overgrown bushes and trees. It truly looked like it was a set from the Addams Family. True to the script, an old woman lived there all alone. She was a recluse, and there were few sightings of her. My whole life I’d been hearing stories about what happened to the unfortunate few who crossed her path. Of course, no one in those stories ever survived, so it was impossible to know if they were true.

On this particular Halloween, the older boys announced a contest: any kid in the neighborhood under 8 years old who would go up to Mrs. Wickety’s house (I promise, that was really her name!), knock on her door, and get invited in would get a prize of $1. Keep in mind that $1 then was equivalent to about $10 today—pretty big money for a 7-year-old! There was no way I was going to let the opportunity pass me by, but I was going to be smart about it. After all, my life depended on it.

The day before Halloween, I did my own reconnaissance. Mrs. Wickety’s house was much less intimidating in daylight, so I went there all by myself and bravely knocked on the door. (I’m certain my knees were knocking too!) Suddenly, the door opened, and there was Mrs. Wickety, in the flesh, asking what I wanted. She was very brief, but actually (and I couldn’t believe this part) nice. “I…I just wanted to ask...”
“Yes?” she demanded.
“I just wondered if you’d be giving candy to trick-or-treaters tomorrow night.”
She paused, just looking down at me. It seemed like forever until she finally spoke. “If you’re coming over, sure.” Before I left, she asked what my costume would be, and she assured me she’d be on the lookout for Bugs Bunny.

The next night, on Halloween, I’d finished trick-or-treating with my friends, and we all got together to count our candy. That’s when the older boys showed up and started teasing me about my costume, riding me hard. When they said Bugs Bunny was no match for Jimmie’s Superman—that only Superman would be up for challenge of Mrs. Wickety—I’d had enough! I leaped to my feet. “You just watch and see what Bugs Bunny can do!” They all watched in amazement as I walked straight up to Mrs. Wickety’s door and knocked. No one else came near. Even the older gang stayed safely back at the sidewalk a good 60 feet away. The door opened, and Mrs. Wickety invited me in. Once I was inside, she handed me a large candy bar, and then she did something surprising to even me. She gave me a dollar and invited me back next Halloween or anytime in between!

I walked back to the gang in triumph, and I never told my truth about this story until now—not even to my best friend Jimmie (aka Superman). Two years later, when I was 9 years old, Mrs. Wickety became my very first newspaper delivery customer. What a nice lady she was.

What do Bugs Bunny and Mrs. Wickety have to do with investing and your finances? In my eyes (now that I’m way beyond 7), quite a bit. For most of us, our biggest fear is the fear of the unknown. And people love to prey on that fear. When I was a kid, it was the gang of older boys. Today, it’s often the media. Is there really a recession (or worse) looming around the corner? I don’t think there’s anything disastrous lurking in the shadows this Halloween. I’ve done the reconnaissance, and here’s what I’m seeing today:

  • The economic expansion we’re experiencing right now began very slowly and is just now gaining its stride. GDP growth is heading over 2% for the second year in a row. That’s strong economic news.
  • The clear uptrend in the housing market is another sign of economic growth.
  • Happily, economic expansions don’t die of old age. What changes the upward path is a large shock to the economy. In the mid-1970s and early 1980s, that shock came in the form of skyrocketing oil prices. In 2008, it was the financial collapse and the loud burst of the housing bubble. This expansion is 6 years old, and there’s no pending shock in sight.


That said, we can always count on some shock in the future. A complete economic meltdown in China could cause a deep global recession, or there may be some other factor that isn’t even on the radar yet. The good news is that our team at Guerin Financial is always on watch for anything that has the potential to scare away earnings. We’ll keep the lookout—so you don’t have to sleep with the lights on.

Is there something that’s keeping you up at night (aside from ghost stories)? Let’s schedule a time to chat. I’m always here to help.

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Top 5 travel tips for seniors on a budget

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Anyone who knows me at all knows this: I love to travel. My wife Rhoda and I have been to many countries, stayed in dozens of cities, and visited with friends and family across the US. Because I wear this passion on my sleeve, I’ve become a bit of a sage when it comes to offering travel tips, and I welcome the opportunity to share my experiences and suggestions. Of course, when I’m talking to my clients—especially seniors—the conversation often includes budgeting. Because while seniors finally have the time to travel, that freedom comes with the price: a fixed income and the need to keep an eye on costs.

The good news: there are plenty of ways to see the world that don’t require breaking the bank to get there. Here’s an example:

Just yesterday I got a call from my client Vic who is planning a trip to Ecuador’s Galapagos Islands with his daughter. Vic knew Rhoda and I had been there and loved it. His daughter had already done some research and was excited about a National Geographic tour that looked amazing. The challenge: the price tag was $10K per person—or $30K for Vic, his wife, and his daughter—and about 30% more than he could really afford. His question to me: is there a less expensive option that would still provide a great experience?

This was an easy one. Without a beat, I recommended Go-Ahead Vacations. Rhoda and I have travelled with Go-Ahead a number of times, including to the Greek Isles and Kenya, and had terrific experiences—including making lifelong friends. And Go-Ahead’s price tag for their Galapagos was much more reasonable at just $6K per person. What a difference.

No matter where you want to go, I guarantee there are a plethora of options—especially for seniors. A little research can go a long way, and being smart about your travel choices can significantly cut expenses and give you more freedom to simply enjoy your trip. To get you started, here are my top 5 budget-conscious travel tips for seniors:

1.  Plan bigger trips as early in retirement as possible. Sure, you may have wanted to travel more when you were younger, but now that you can travel, declining mobility and physical demands may soon limit your ability to take certain trips. Knowing that, plan to take bigger trips early in your retirement when you’re the most physically active. Don’t let “someday” be your mantra. Do it now.

2.  Set a budget and stick to it. Travel can be expensive or inexpensive. Determine what you can afford to spend annually and fit your travel plans into your budget—not the other way around. If traveling abroad is beyond what you can afford, there are plenty of car trips in the USA that are amazing. AAA can help.

3.  Check out cost-conscious tours for seniors. www.roadscholar.org, formerly called Elderhostel, offers an 8 night/9 day trip to Paris starting at just $1,700 per person. On the higher end, Tauck offers a 10-day river cruise through the Rhine, the Swiss Alps, and Amsterdam starting at $4,700 per person. We’ve traveled with Tauck to Italy and found them to be first class in every way, though they do cost a bit more.

4.  Take out trip insurance for medical and trip cancellation. The first time I took out trip insurance, Rhoda and I were scheduled to leave for Greece the Friday after 9/11. What timing. The insurance company paid off, even though the terrorism was not in the city where we were headed. Ever since then, we don’t leave home without it!

5.  Research the travel options to be sure you’re prepared—and get your money’s worth. A complicated itinerary to Patagonia may sound fantastic, but it requires travel expertise that is specific to that area, so you may be disappointed if you go without it. Knowing about the currency and how to leverage your US dollars can help too. When Rhoda and I were in Argentina last fall, we learned that exchanging our dollars for peso in the “gray market” gave our spending a 40% boost over exchanging at a bank (see my blog Chile & Argentina: Seeing South America through the eyes of my wallet).

There are many, many options to consider, and if you’re motivated and willing to spend the time (that’s what retirement is all about!) you can find all the information you need. And if you can’t find just what you’re looking for, give me a call or send me a note. I’ll be glad to point you in the right direction if I can.

 


Not sure how to budget for your dream vacation? Call me to schedule a time to sit down and look at the numbers. Together we can figure out how to get you where you want to go.


 

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Opportunity, risk, and lessons from a Soap Box Derby

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In the 10 trading days between September 28 and October 9, the Dow made an impressive climb from 16,001.89 to 17,084.49—a 6.8% increase. As I discussed in my blog Apples, lemmings, and why you should just stay put, in a market correction like this, ups and downs are par for the course. Yet Kevin, one of our long-time clients, called me on September 28, right smack at the bottom of the recent correction, and instructed us to sell everything he had in the market and put the proceeds into cash. We tried to reason with him, but to no avail. And since the market hadn’t yet closed for the day, we sold all of the investments at close of trading. It was an unfortunate decision, but ultimately we must do what the client asks. In just 10 days, Kevin lost over a hundred thousand dollars of his hard-earned and well-saved retirement portfolio.

Why would Kevin make such a drastic choice? From his perspective, the writing was on the wall: the economy was headed into the ground, and our US dollar was on the brink of collapse. Kevin’s certainty was rooted in the “news” he receives via a constant barrage of emails that are designed to alarm and inflame the smallest economic doubts into a firestorm. (More on this from over a year ago in Headlines sell…but don’t let them mislead you!) He had made this same move back in 2008, so it didn’t surprise me as much this time around. But now what will he do? When I asked him that question point blank on the day he opted to cash out, his answer was vague: “Oh, I suppose I’ll get back in again…once the storm has passed.” The bigger question is this: If fear forces you to cash out when the market fluctuates, when exactly is the right time to reinvest? Now that the Dow is back over 17,000? Or when prices are even higher at a more bullish 18,000?

As a financial advisor, I see a vicious cycle occur over and over again: When panic drives change in strategy, it’s usually at precisely the wrong time. In fact, when Kevin called me that day, I thought, “This is probably the bottom of this correction—just like when he got out in 2008.” Of course, Kevin isn’t the only one (though I’m happy to say he’s a rarity in our practice). But what causes investors to flee right when investments are “on sale”? I’m no psychologist, but based on years of observation, my personal theory is that fear produces mental confusion that sometimes results in taking the wrong action. Here’s an example from my own life:

Back when I was 11 years old, I had built a brand new Soap Box Derby car and was practicing steering on our hill by the house. If you’ve ever made one yourself, you know there’s no motor on these cars— gravity is what generates your speed. And because every turn decreases your momentum, maintaining the straightest possible trajectory is the key to winning races. After sitting on the back of the car for a few rides down the hill, my buddy Jimmy asked for a turn in the cockpit. Happy to give him a try, I jumped on back and gave him the wheel. By halfway down the hill we’d hit a pretty good speed of maybe 20 miles an hour. That’s when Jimmy steered straight for a fence. Clearly Jimmy had either lost his marbles completely or had no clue how to steer. In a split second, I decided to leap to safety. The result: bloody knees and hands, plus (the worst of all) a monster bruise on my thigh from the golf ball in my pocket. Ouch! And the kicker: Jimmy was just kidding around; he wanted to scare me and see what I’d do. Boys will be boys, but that was a tough risk to evaluate!

With Jimmy at the wheel, I think I would make the same decision all over again. I was out of the driver’s seat and out of control. I did what I had to do to save my skin. But when it comes to investing, you are in the driver’s seat. Sure, there will be volatility at times, just like there are bumps in the road during any Derby race. But by trusting your long-term strategy, you can have faith that you will cross the finish line intact. Even better, if you have at least five years left in the market before entering your distribution phase, downtrends in the market are similar to a nice, steep straightaway toward the finish line. They provide an opportunity to gain momentum during the race. If you’re already taking distributions from your portfolio, be sure to read last week’s blog about smart sourcing. Whatever you do, I hope you take a lesson from Kevin—and one from my adventure with Jimmy, the jokester—and then think on this: if you were side by side with Kevin in a Soap Box Derby today, who do you think would win the race? (And that question comes to you straight from the Class B Soap Box Derby Champion of 1958!)

Feeling like you’re anywhere but the driver’s seat in today’s market? Let’s schedule a time to chat. I’m happy to help you take the wheel with confidence!

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Drawing income in retirement: It's about smart sourcing...

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You’re retired. You’ve arrived at a new life chapter. And now your monthly income comes not from your employer, but from completely different sources: Social Security (for more on this, see my blog Rumors, Reality, and Social Security’s 80th Birthday), pensions (one or multiples), withdrawals from IRAs (that were formerly your 401(k)s), and maybe a ROTH or brokerage account. As you move forward, the challenge has changed from saving for retirement to leveraging your assets to be sure you don’t outlive your money. The keys to success are a lot like knowing which club to use on the golf course: you need to understand which accounts to use when, the specific tax consequences of withdrawing from each source and, perhaps most importantly, the sustainable percentage of retirement assets you can withdraw over the next 25 to 35 years.

Clearly, retirement distribution strategy (also known as an income withdrawal strategy) is one of the most important pieces of everyone’s overall financial plan, which is why it’s always a focus for my meetings with retired clients. Alan and Rachel are a great example. When we met in June, we took a close look at how much income they were withdrawing from their IRAs—$2,000 gross every month, which was netting them $1,600 after federal and state taxes were withheld. The first problem was that $24,000 a year was equal to 5% of their $480,000 IRA balance. A more realistic rule of thumb is to limit withdrawals to no more than 4%, which would be $19,200 a year, or $1,600 before taxes are withheld.

The second problem was that, with the stock market drop in the third quarter, the monthly withdrawals were coming right out of their principal as the sales had to be made when the market was down, which only exacerbated the problem. Rachel was starting to worry more than any retiree should.

Over the course of the meeting, Alan told me they had $50,000 in an “emergency” savings account that was earning almost no interest. I explained that withdrawals from the savings account are non-taxable, so they would save $400 every month in taxes simply by taking the $1,600 they need to cover their monthly expenses directly from the savings account. Rachel’s concern was depleting their emergency fund. “We’ve always promised each other we’d have that as back up cash.” We talked through the fact that since retirees can’t lose their job or pension, the need for an emergency fund is reduced. I also reassured them that we could take this approach for a year only, and that the remaining $30,800 would most likely be more than sufficient to cover any unforeseen emergencies.

With that understanding, both Alan and Rachel were comfortable with the new approach, so they agreed to begin taking $1,600 a month from their savings for the next year. Those twelve months will give their IRAs time to mend from the recent correction, while also saving them $4,800 in taxes. Plus, at the lower withdrawal rate of 4%, they’re not reducing their overall principal. While a down market is never welcome news in retirement, in the big picture the timing couldn’t have been better for Alan and Rachel. Alan turns 70 in February, so he’ll be required to start taking Required Minimum Withdrawals of about $1,600 a month from his IRA when he hits 70 ½ next summer. By then the market should recover and be back on to its long-term upward track.

If you’re retired, it’s critical to reevaluate your distribution strategy periodically. Look at all your sources, get trusted advice, and do what you can to be sure your assets are leveraged efficiently. If, like Alan and Rachel, you can save some taxes too, that’s a bonus. And once your new strategy is in place, follow Rachel’s lead: turn off the news, forget about the market for a while, and take time to actually enjoy your retirement. Maybe a round of autumn golf is in order…

Need help to ensure your own distribution strategy is on track for current market conditions? Call me to schedule a review. I’m here to help.

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What exactly are you insuring with that old life insurance policy?

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Life insurance. It’s a must-have for people of every age. Perhaps because it’s such a vital piece of financial planning, many of us take it as a given. We get a policy, take comfort knowing it’s there when needed, and we promptly tuck it in a file drawer or safe deposit box and forget about it.

That’s exactly what Roland and Maria had done. They both took out adjustable life insurance policies eight years ago, around their 60th birthdays. When we sat down for their annual review, they hadn’t even planned to mention them; the premiums were manageable. Luckily, I asked what insurance they had in place. What I found was not surprising, yet all too common. Both Roland and Maria were paying the minimum premium on their existing policies (just enough to cover the expenses) and the policies were set to lapse in two years unless they upped the annual premium amounts—by as much as 400%!

Still, Roland and Maria felt it made sense to continue to fund policies, even with the increase in premiums. “Why?” I asked. I already knew the answer because I hear it from my older clients all the time. So I ventured a guess. “To pay off your mortgage when one of you dies?” Roland confirmed my suspicion. His parents had drilled into him the idea that paying off their mortgage—either before retirement or, if one of them died before then, using the death benefit from a life insurance policy—was essential. After all, paying off the mortgage means the surviving spouse can live the rest of his or her own life mortgage free.

I can relate. My own father was so obsessed with this concept that he sat me down to have ”the talk” about retirement when I was just 13 years old. (You can read the whole story about Dad’s advice in my blog What’s Your “Retirement Plan”?) Just like Roland’s parents, my father was adamant: paying off the house by retirement was his #1 goal. That was essential because Roland’s and my parents’ retirement income was about $1,500 a month. But that’s just not the case for Roland and Maria. Even if one of them dies, they have more than enough retirement income to sustain their current lifestyle while living in the house and paying the mortgage. Their annual retirement income is about $100,000 a year, including distributions from existing IRAs, pensions, Social Security, and income from rental properties.

Even if there was a life insurance policy and Roland died, I wouldn’t advise Maria to pay off the mortgage. Instead, I’d recommend that she use the tax-free proceeds to live on. That’s much better than taxable withdrawals from IRAs. As well, at the time of her own death, the house could be willed to their children, who in turn could sell the property as an inheritance, once again avoiding taxes on the assets.

Now that they understand they don’t really need the existing policies, and that by surrendering them today they’ll save the money they would have spent on increasing premiums every year, Roland and Maria have some decisions to make. (Note that this would not be the likely outcome of a policy review with their insurance agent who will be losing a sizable commission if the policies are surrendered.) Their homework: to request updated illustrations from their insurance company so we can make the most informed decision.

Ultimately, we all have choices to make, and everyone’s situation is different. For Roland and Maria, paying off their mortgage doesn’t make much sense, so paying a high insurance premium to support that old goal probably isn’t the wisest move either. But for other retirees or near-retirees who have taken on a large mortgage (over $150K) and need to reduce monthly expenses, the best choice may be to either downsize now—especially while real estate prices are up and interest rates are down—or be sure to keep that old life insurance policy in force to pay off a hefty mortgage in the future. (If downsizing is on your mind, see my blog Retirement 101: Is it time to relocate?) Whatever your circumstances, try your best to put Dad’s advice aside and be sure you know all the facts before handing over your hard-earned assets in an effort to protect your future.

Not sure how your existing life insurance policy fits into your overall plan? Let’s schedule a time to look closely at what makes the most sense for you—today and in the future.

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Time for a wake up call?

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I take my health seriously. Two decades ago I had an early wake up call after experiencing serious cardio symptoms that resulted in two angiograms. Fortunately, I’ve never had a heart attack or surgery, but after years of no symptoms, I’d gotten complacent. I was enjoying life perhaps a bit too much—eating more dessert than a person should, not exercising quite as often as I ought to, and adding on a few pounds to my ideal weight.

Of course, I wasn’t really thinking about any of that until I visited my doctor for my annual exam in March. He ran the usual battery of tests—including those that track coronary issues—and I was actually looking forward to my typical “good grades” in hopes that I could ask him to reduce my medication. What I didn’t expect was a bad test result: my total cholesterol had spiked from 144 a year ago to a whopping 198—an alarming jump for anyone with my predisposition to coronary disease. Not only did my doctor change my medication (and not in the direction I’d hoped!), but he urged me to take a fresh look at my diet and exercise habits and make some immediate changes.

As often happens in life, I found it wasn’t very difficult to turn a negative into a positive. First, I met with my trainer, Tim, and together we launched an aggressive attack on those numbers with a new workout designed to help turn fat into muscle and help me drop back down to my optimal weight. In just a few months I was able to drop 10 pounds, even after adding two pounds of muscle. The next step was addressing my diet. I met with Sarah, my nutritionist, who guided me and Rhoda through a 5-day cleanse that included protein and vegetables. No dairy, caffeine, refined sugar…or even wine! Even after the 5 days were up, I continued the reductions, with a particular focus on cutting excess sugar. I was able to tighten my belt more than a notch, and my energy level was great. When my doctor retested me in July, my total cholesterol had dropped to 136, and the other numbers also improved by 30% or more. What a contrast.

How financially healthy are you?

For me, my own fear of a heart attack was catalyst enough to drive some important and manageable changes in my lifestyle. And it worked. My question to you is this: if you think about your own financial health, how healthy are you today? Just as I was very focused in the years following my first cardio complications—but then let myself get lazy about staying on track when it came to my physical health—it’s all too easy to let our financial health slip without even realizing it.

Leo and Michelle came to see me last month. Certainly as expectantly hopeful as I was when I walked into my doctor’s office in March, they came in anticipating that their annual review would be uneventful. We looked at their portfolio, and even with the recent market excitement, they were in good shape. As early retirees, they are set up for low risk with a high level of diversity, so while there was a dip in the numbers, it was well within their threshold. We reviewed their current insurance and, again, everything looked good. But then we looked at their debt. While they had always been careful about accumulating credit card debt in the past, they’d had some unexpected expenses they hadn’t been able to pay out of pocket. Leo had some uncovered medical expenses, their daughter had a second wedding that was a “destination wedding” in Hawaii, and the time had come to replace their 10-year-old vehicle—all within the same six-month window. They’d added nearly $12,000 to an already somewhat high credit card balance. The new total: $25,000 in revolving debt. Something had to be done—and fast.

As we talked through solutions, I asked if they had any assets I didn’t know about…perhaps some property we’d never discussed. No luck there, but then Leo mentioned “Bessie.” No, this wasn’t a long-lost great aunt with an unused fortune to the rescue. “Bessie” was Leo’s prized Corvette—a 1966 convertible with only 43,000 miles on the odometer. The car had been Leo’s pride and joy for years. “But these days, I’m just not getting the same enjoyment out of it,” said Leo. Most of his car buddies had either sold their own jewels or moved out of the area. As a result, he’d only pulled it out of the garage twice in a year. While it was hard to give up, he suggested it may be the cash source they needed to undo the year’s financial damage. And boy was it! The car went to auction and delivered more than Leo had even dreamed, selling for more than $60,000. Not only are they now out of debt, but they earned a nice unexpected cushion for future emergencies.

Sure, we all know the importance of a regular physical. But few people realize that a regular financial check up is just as vital to long-term fiscal health. By digging into the details of what you’re spending, what you’re saving, if your retirement savings is aligned with your goals and needs, and how your assets are protected, you can help ensure that your money lasts as long as your body does—which I for one sure hope is a very, very, very long time.

Ready to schedule your own financial check up? Let me know a date and time that works for you and we’ll get it on the calendar.

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Today, all eyes are on Janet Yellen

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Today is the big day, and all eyes are on Janet Yellen and whether the Fed will hike short-term interest rates. It’s been a long time since December 2008—the date of the last Fed rate increase. Perhaps that’s why the media is in such a frenzy. Put simply, it hasn’t happened in a while. And whether or not Janet Yellen announces an increase this week, it’s important to remember that a rate hike is not necessarily a bad thing. Here’s why:

The Fed’s decision on whether to hike rates is based on many factors—the most important being the strength of the US economy. Yes, there’s been market volatility in the past month, but ultimately the economic indicators remain strong. That’s great news for all of us. Looking out two to three years, it’s likely the economy will continue to grow, albeit slowly, due to our relative stability compared to the rest of the world. (If you were investing in a country, would you choose the US or, say, Greece or China at the moment?)

Also, while it’s easy to assume that low interest rates were artificially bolstering stock prices prior to the recent dip, it’s more probable that the bull market was rooted in an increase in consumer spending—which drives about 70% of our economy—and the resulting projections of future earnings. Sure, the situation in China impacts exports and manufacturing, but these are both much smaller contributors to our economy than domestic consumption.

Whether the Fed raises rates today or next year, it’s important to look at the amount and frequency of rate hikes over the long term, not just what happens in the next 48 hours. It’s inevitable that rates will be increased slowly—probably a quarter % this year, followed by two more quarter % increases next year. Each move is meant to stabilize our economy and keep it on track toward recovery and growth. At the moment, the Fed can move slowly because there is no immediate threat of inflation. Going back to my November 2014 blog about Ben Bernanke, they’ve done a pretty good job of doing their job.

All that said, if there is an increase today, here’s the quick scoop on how it may impact your own finances:

  • HELOCs: Home Equity Lines of Credit will feel the first hit of any rate hike. These rates, which are currently at 3-4%, will go up as the prime lending rate rises. If you’re already in retirement, a slow increase in rates is nothing to worry about since it’s unlikely you’ll be in the house for more than another decade. As well, you may not have the resources to pay your HELOC down or off. If you’re younger and you do anticipate being in your home longer, talk to me about when it makes sense to adjust your strategy.
  • Homebuying: If you already have your ducks in a row to purchase a home soon, you’ll keep your costs down by buying before the expected rate hikes over the next year. If you’re not quite ready, don’t fret:  when mortgage rates go up, the purchase prices for homes typically decline in response. So waiting until the right time (or the right home) could be as good a choice as jumping in now. Each circumstance should be analyzed carefully to determine the best choice.
  • Stocks: The potential of a rate increase has been talked about for so long that some say it’s already part of the equation when it comes to stock prices, so there shouldn’t be too much of a market reaction. In my opinion, stock prices were valued correctly a couple of months ago. With the recent 10% correction, I believe the market is generally underpriced at the moment, making it a good time to buy stocks, regardless of what happens with the Fed. Even better, stocks tend to respond positively after an initial rate increase as illustrated here:

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Remember that when and if the Fed opts to take action, interest rates will still be near historically low levels (remember the early ‘80s when mortgage rates topped 16%?!), and this low-rate situation is unlikely to change for quite some time. A rapid change would cause a shock to the financial system, which is the last thing the Feds want to see. As always, we’ll be watching for any significant increases in inflation or wages, and we’ll continue to keep our eye on the Fed to be sure they take only small, measured steps in the coming months. If I had a crystal ball, I wouldn’t expect to see any surprises in the future.

Still concerned how changing interest rates could impact your money? I’m always happy to answer your questions or talk through your concerns.

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Back to school for grownups

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Labor Day, the unofficial end of summer, has come and gone, and now my Facebook feed is full of pictures of my friends’ kids and grandkids who are all off to a new school year—the older, college-bound kids are truly starting the next phase of their lives, and the younger set too gets a fresh start. My own granddaughter, Nina, just started first grade, and it’s wonderful to see her huge grin as she heads off to that new adventure.

All of these back-to-school activities have me thinking back on my own fresh starts. When I was in grammar school, I couldn’t wait to go shopping for my new back-to-school clothes, and I loved the anticipation about which teacher I would have, the friends I would meet, and what I would learn in the coming year. For me, high school was another story (see my blog “Going home again”…for my 50th reunion), but college brought a renewed eagerness and excitement—much of which involved football season and the hours I would spend playing with the Pride of the Rockies, a fantastic 100-member marching band. Later, as a high school teacher, I met my students with eagerness every fall, confident that I could “change their lives” much like Robin Williams’ character, Mr. Keating, did for his students in the film Dead Poets Society.

I guess it’s no wonder that I still have a lot of passion when it comes to fall “fresh starts.” New clothes. New friends. New teachers. New adventures. It’s all about new beginnings. It’s a chance to get things done and quit procrastinating—and to be sure your own life is on track.

To help identify some areas that may need a fresh perspective, here are some ABCs (and even Ds!) to help us grownups take advantage of some of that back-to-school energy:

“A” is for assets
Getting your finances in order can help bring greater confidence and peace of mind.

  • Are you saving enough for retirement? Consider upping your contributions to match your current capability to do so.
  • If you’re already retired, are you staying within a reasonable income withdrawal rate from your investment portfolio, say 4% or less?
  • Are you paying off your consumer debt monthly? If not, why not?


“B” is for body
It’s all too easy to let our personal health fall to the bottom of our list of priorities. This is a great time to kick start your healthcare regime.

  • Do you have a regular exercise routine—and are you sticking to it? If you made a New Year’s resolution that fell by the wayside, kick it back into gear.
  • Have you had your medical exams for the year? Take time to schedule visits to your doctor and dentist, as well as any recommended annual tests (yes, I’m talking mammograms and colonoscopies).
  • Do you have an advance healthcare directive? For more on the importance of this simple document, see my blog Love, Loss, and Five Wishes.


“C” is for court
No one wants to deal with the court system, but without an estate plan, the court—not you—gets to decide what happens to everything you own.

  • Do you have an estate plan in place to be sure your wishes are honored? Planning now can save your loved ones an immense amount of time, cost, and headaches later on.
  • Do you have a will? If you have dependents, this should be at the top of your list.
  • Are your Health Care Directive and Durable POA up to date? Are they accessible to the person you’ve named when needed?


“D” is for dreams
Young school kids have the luxury of dreaming about the future…but what stops us from dreaming about tomorrow as we get older? Fall is a great time to put some serious thought into your long-term goals and plans.

  • Do you have a plan in place to tackle your personal “bucket list”? If you haven’t already achieved your goals, what are you waiting for?
  • Have your goals changed? It may have been a while since you’ve thought about what you’d really like to accomplish now that you’re the age you are today.
  • What can you do now to get one step closer to making your dreams come true? Whether it’s setting aside some money to fund a trip or finally signing up for that swing class, take action now to start in the right direction.


Don’t let the school kids have all the fun. Consider writing down at least one item from the above list and make it your back-to-school goal for the year. Declare you’ll get it underway by Thanksgiving, and keep me posted on your progress. I’d love to hear what steps you’re taking today to create a better tomorrow.

Need to schedule a “back-to-school” review for your finances? Let’s schedule a time to be sure you’re on track toward your financial goals and objectives.

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