Allan Roth is the founder of Wealth Logic, an hourly based financial planning firm in Colorado Springs, Colo. He has taught investing and finance at universities and written for Money magazine, the Wall Street Journal and others. His contributions aren’t meant to convey specific investment advice.
I read an article this week that I just had to pass along. It was part of the “Caregivers Newsletter,” a product of Gary Barg. He and his team also publish a monthly magazine called “Today’s Caregiver.” Their official website is: www.caregiver.com (http://www.caregiver.com)
I started reading both the magazine and the newsletter while I was caregiver for my mother. Thoughts and ideas from his stories, and those of his contributors, really helped me through some problem areas. I was fortunate enough to meet him at a Caregiver Conference he brought to Orlando a few years ago. He is one of those special people that just doesn’t come along every day. Gary got involved in the caregiving business many years ago the same way most of us do – he took care of his parents. Since most people have no idea what they’re getting into when they become a caregiver, it didn’t take him long to figure out that caregivers needed some help. He started Today’s Caregiver magazine and now he is off and running.
Please take the time to read this article, especially if you are a part of the family of a caregiver, but also if you just happen to be the friend of someone that has taken on this additional 24 hour per day, 7 days a week responsibility. And remember, you may also be a caregiver one day.
I hope you will put to good use some of the do’s and don’ts discussed in this article written by Lisa Lopez. Her short bio says she is a Grants Research Manager at a nonprofit organization in Greensboro, NC. Lisa and her family have been caring for her 68-year-old father for more than a year. She is an avid writer of short stories, plays, screenplays and essays. She has a Masters of Public Affairs from the University of North Carolina at Greensboro. She lives with her husband, two dogs and five cats. But on top of that, she is a caregiver.
Do you know any caregivers that could use a little support?
7 Essential Do’s and Don’ts for People Caring for Caregivers
By Lisa Lopez
One year ago, my father was diagnosed with Wernicke–Korsakoff syndrome, a form of dementia resulting from chronic alcohol abuse. My dad, who worked hard his entire life, raised a family and built a strong reputation in his community, spent the last 10 years of his life succumbing to this terrible disease that befalls so many. After the official dementia diagnosis, I was appointed his guardian and my family and I made the excruciating decision to place him in an assisted living facility. This past year, I’ve experienced everything from anger to guilt, from optimism to despair.
Since becoming one of my dad’s caregivers, the people I’ve leaned on the most are my friends. Somehow, my friends just get it. I don’t need to tell them what questions to ask, when to ask them or when to leave me alone. In the beginning, however, my husband and some other close family members had to be reminded how to react to the very fragile and stressed side of me.
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I have been a Certified Financial Planner since 1986. Fortunately, many things have changed over the years and I can truthfully say the tools we use are vastly superior to when I first started. The first financial planning software we purchased back in 1986 cost $25,000. That software almost had the capabilities of the financial planning apps you see on most of the free websites these days! Of course like most software now, we never really purchase it – we only pay to use it. The changes come so fast that it has to be that way. The good news is now we can update our client’s plans easily.
That expensive software in 1986 did a great job of producing a plan – normally 100 pages or so – that was obsolete by the time the client even got to see it. We made projections that showed investments in things like the stock market that went up exactly the same amount every year. Of course that never happened. The markets change continuously.
At that time, we gave financial advice. Think of it this way. Let’s say you had to take a boat trip across the ocean. You have never tried to pilot a boat across a body of water like that before, so you would probably get some advice on how to make the trip. You consult someone that knows how to make the trip and they tell you if you are leaving from point “A” and want to go to point “B” you should take a compass heading of X number of degrees and that should take you straight there. Also, if you travel at a speed of 20 knots per hour you will arrive at point B in Y amount of time.
Anyone that has ever navigated any type of vessel will tell you that while the advice you received may have been technically correct, you have very little chance that your trip would actually happen that way. Winds can easily blow you off course. Currents can easily change your direction. Bad weather can produce heavy seas that leave you with little control of your vessel. And that idea of traveling at a certain speed probably isn’t going to happen either. Heavy seas will slow you down. Smooth seas and a good following wind may increase your speed. Also, you need to consider that each time you make some type of correction because you think you are off course, you might actually have made a bad decision that put you even further off course than if you had done nothing!
It’s a good thing to get advice before you start your trip, but it would probably be better to have someone you can trust with you along your journey, advising you what to do as things change. That way you are almost certain to get from point “A” to point “B”.
The future of financial planning is financial advising. It is helping you get from where you are financially now to wherever you would like to be. Life has a way of making sure it is never a straight line. Things change. Good financial plans are built to be dynamic. They can change with your ever-changing situation and goals.
The question is not “How did I do last month or last year?” it is “How do I get from where I am now to my financial goals?” If you don’t have a financial plan, especially if you’re nearing or in retirement, you need to get one. If you have a financial plan and you’re not on a program of having it updated regularly, you may have drifted off course.
The switch to financial advising is bringing more professionalism to financial planning. But it is even more important that everyone understands that it is really financial advising that can aid you in reaching your financial goals.
Dana Anspach has been About.com’s MoneyOver55 Expert since 2008. She is also a contributor to MarketWatch as one of their RetireMentors, and the author of the book Control Your Retirement Destiny (Apress 2013), which is written specifically for the 50+ crowd to provide practical, how-to knowledge on what to do to get your finances in order to prepare for a transition out of the workforce.
Many people have a difficult time adjusting to the idea that index investing is actually better for them than trying to find someone who can sell them something that will beat the market, or who can beat the market for them. The statistics suggest it is highly unlikely either will actually happen.
Read the article, and see what a seasoned financial planner and columnist for people over 55 has to say.
What Is The Difference Between Active and Passive Investing?
by Dana Anspach
Active investing is like betting on who will win the Super Bowl, while passive investing would be like owning the entire NFL, and thus collecting profits on gross ticket and merchandise sales, regardless of which team wins each year.
Active investing means you (or a mutual fund manager or other investment advisor) are going to use an investment approach that typically involves research such as fundamental analysis, micro and macroeconomic analysis and/or technical analysis, because you think picking investments in this way can deliver a better outcome than owning the market in its entirety.
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– more aptly titled –
“How do I turn that lump of 401(k) money into a monthly income to pay my bills for the rest of my life?”
It wasn’t that long ago that when someone retired they received a pension. A pension was for a fixed sum that came to the mailbox once a month for the rest of their lives. In 1978 when the law that enabled the 401(k) plan came into being, almost 50% of all workers had a pension. As more and more companies became aware of just how much providing pensions would really cost as workers retired younger and lived longer, they started to figure out ways to shift the burden of paying for retirement to the employee. Presently, only about 14% of all workers are covered by a pension.
Along with reduced pensions and the shift of savings responsibility from the employer to the employee, another large problem came along. That problem was a lack of knowledge by the employer and/or the employee of just how much an employee needed to save in order to accumulate enough money for financially successful retirement. Things have been further complicated by the complete lack of education on how to save, along with how much to save, for a successful retirement.
So where are we now? It has been more than 35 years since the 401(k) was introduced. A small portion of the clients that are getting ready to retire and seeking the advice of financial planners will have either a pension or a partial pension when they retire. Almost all have money in a 401(k) plan. Most of the people I speak with have savings of anywhere from $100,000 to around $1 million. Ironically, how much they have saved does not seem to directly correlate with how much they have earned.
I was working for a bank when the 401(k) was introduced. As a young banker, already covered by a pension plan, I wasn’t too concerned about what a 401(k) had to offer. The 401(k) was introduced as a way to save “extra” money for your retirement. At that point I was far more worried about having enough money to pay my bills each month than trying to save “extra” money – for anything. I had no way of knowing that in a few short years the pension plan would be gone. Even when the pension plan was replaced, there was no emphasis placed on the fact that now I was the one responsible for my retirement. Certainly there was no guidance on how much I would need to save to have any type of retirement at some point in my life.
Because of all that I have a great deal of empathy for anyone that comes to me with the question, “Do I have enough money to retire?” How does anyone really know the answer that question?
About 10 years ago my older clients started coming to me with thoughts that they were about ready to retire and wanted to know how to set up a retirement income. In short, they had been accumulating money all of their lives and now they were ready to start using that accumulation to pay their real-world expenses. My training in that area was weak, so I started to check for resources to get caught up on the subject. I soon found out why my training was so weak. Almost no one had really done any research on how an individual could take a lump sum of money and turn it into a cash flow for the rest of their lives. About all the work that had been done in the past was handled by pension plans and insurance companies. As most people know, most of the time these two sources have really meant insurance companies. Unfortunately, the monthly paycheck generated by the insurance companies was usually fairly low and potential retirees needed more cash flow. The idea of turning a lump sum into a monthly cash flow that would last an individual or couple for the rest of their lives, without turning the money over to someone like an insurance company, had not been well developed.
There have always been wealthy individuals that were able to use periodic withdrawals to provide income that would support them, but these individuals really had no danger of running out of money. Since my clients would face a real risk of depleting their money before they died, I needed more information.
I started out by examining how the insurance companies were able to give a guaranteed amount of income to individuals for the rest of their lives. Pretty much it all boiled down to two things: higher than normal fees and pooled risk. The fees guaranteed their service would be profitable and the pooled risk meant that as long as they had enough people in their program, no individual customer would ever run out of money. You have to remember, though, that the concept of pooled risk means that if a customer dies early, say 6 months after retiring, the rest of the money stays with the insurance company to fund the pool for other people that will live past their life expectancy. Most individuals love the idea that they cannot outlive their money, but are not enamored by the fact that if they die early the insurance company gets to keep their money instead of their heirs!
Over the past few years we have started to see a myriad of new “concepts” about how to live off of your money. The one we are most familiar with probably is the 4% withdrawal rate. The idea here is that if you had a portfolio that was 50% stocks and 50% bonds, you would be able to withdraw an amount equivalent to 4% each year plus inflation and would have a high certainty you would never outlive your money.
Since the last crash of the stock market and the economic downturn, interest rates have been so low that one of the leading thinkers on the subject is suggesting that the rate be lowered to 3%. That means on a $1 million portfolio you would have to live on $30,000 per year. So much for feeling wealthy because you are a millionaire!
There are several other theories out there. One says that you should put your money into 5 buckets. Each bucket is designed to last 5 to 7 years and you are not allowed to take any money from the other buckets until the time has elapsed. The idea behind this theory is that the money that is segregated in the outlying buckets can be invested far more aggressively because it has time to ride out the ups and downs of the market.
Other theories tend to deal with some other facets of retirement such as the thought that many people will actually spend less in retirement than we believe. Some studies purportedly show that even including medical expenses, overall retirement expenses drop significantly as we age. Others ideas deal with concentrating more on the first decade after retirement. The theory here is that what happens in the first decade can significantly affect how much money will be available for the rest of retirement. The results are obvious. If there is a severe turn down during the first decade of retirement it will have a large impact, but if your entire portfolio is conservatively invested for the first 10 years and the market has significant upturn during that time, you have needlessly lowered your standard of living for your entire retirement.
So where am I now?
I believe your retirement income really has 2 parts. The first part consists of your core expenses. These expenses are what you need every month just to live your life at your basic lifestyle. Good examples are utilities, food, what it cost to keep a roof over your head, basic medical expense, auto expense, all your insurance coverages, etc. These are the things that you really need to pay no matter what. These expenses are your “core” expenses. You need enough money automatically coming to you each month to cover these core expenses.
The 2nd part of your expenses are things that you either know or believe you will need on an irregular basis. These consist of things like replacing your car, a new roof on your home, or remodeling your kitchen. Normally with this type of expense, you have the luxury of being able to choose when to pay it.
With these two types of expenses, you need to decide what the lowest amount you ‘could get by on’ is, and what amount would be ideal. Now you have a range of expenses that goes from bare-bones to wonderful.
Once we have a range of expenses, we can design a starting place for your retirement based on all of your income sources and all of your expenses. If the assets and income are reasonable when compared to the expenses, we can use existing computer programs to design a program with a high probability of success. We have to remember, though, that this is only a starting point. The analysis needs to be redone on a regular basis, with updated facts. If need be, we must make adjustments. Our goal is to remain within the parameters of assets, cash flow, risk, and expenses.
What all the research has proven so far is that no one really knows. No one knows what the stock market will do. No one knows what the bond market will do. No one knows what the economy will do. And I think we can all agree that no one knows what our government will do!
With this really means is there is no perfect program you can select right now that will set up your retirement for the next 30 to 50 years. Think back to 30 years ago – could you have predicted what would happen? It also means that what really needs to done is to continually manage your financial life to make sure you stay between your bare-bones expenses and your dream expenses. Your retirement is just like your working life. It is going to take twists and turns. Sometimes your income will be higher than others – sometimes it won’t. Sometimes you will have extra money to do a bit more travel or splurge on something extra. There will also be times when you have to tighten your belt and do with a little less.
I like to think of your retirement like driving down a highway with a clear centerline and those little markers along the edge of the highway that drive you crazy when you get too close to the edge. My job as an advisor is to keep you on the highway. We can move from side to side on the highway and know we will reach our destination safely.
We must set up parameters and understand that changes will happen. We don’t know what we don’t know, and we never will. Therefore, we can only work with what we know now and change it as we go along. As long as you the client and the planner work together, and make small changes when we hit the markers on the edge of the road, we can avoid running the car off the road and into the forest of total destruction.
No magic, no crystal ball—just solid management.
If you are one of the very few people that DOES NOT have problems controlling all the projects they have and the amount of time they have to do them, feel free to skip this great article published in Business Insider titled “26 Time Management Hacks I Wish I’d Known at 20” put together by Max Nisen. For the rest of us it just might save us a little frustration!
http://www.businessinsider.com/time-management-and-productivity-hacks-2013-4?op=1
Another year has flown by and many people are making New Year’s resolutions that will fade well before January ends. Prognosticators are out in droves telling us what will happen with everything from how we will dress to when the world will end. There will be people in the financial circles telling us the economy and the stock market will go up, or the economy and the stock market will go down. And, of course it will. The truth is no one really knows the future.
When it comes to investing there seems to be quite a lot we don’t actually know so I thought it would be a good time for us to review a great article by Allan Roth titled “5 things to know you don’t know about investing.” Some writers have the gift of explaining things simply so we can all ‘get it’. Allan is certainly one of those writers! Some of you have already seen this article since it is now in my handouts for our ‘Get Acquainted’ meetings. The wonderful message in the article is not only that you and I don’t know these things, but that no one does. So if you happen to be talking to a friend, neighbor or even a person that claims to be an expert, and they start to act like they know all about those things – hang on tight to your wallet and run away quickly.
A little knowledge about what you don’t know can be a very powerful thing. I hope you enjoy the article!
http://www.cbsnews.com/news/5-things-to-know-you-dont-know-about-investing/
By Ellen Breslow
Nov. 18, 2013
Clients shopping the exchanges will likely be confused at the variety of options and requirements they have to deal with. Help them out with this primer on how to navigate the exchanges, the information needed, how to qualify for premium subsidies, and tips for getting the best coverage for the money.
Open enrollment is upon us, and with it, the dawn of the new health insurance exchanges. As an advisor, it’s critical that you understand what is involved in gathering information on these plans, enrolling through the website, and determining your client’s eligibility for a premium tax credit. You’ve heard about how difficult the health insurance websites are to navigate and understand; here is your opportunity to add value to your client’s health care planning by assisting in the process.
State or federal?
The first component to consider is where the client lives (see the figure) and whether the exchange is state run, federally run, or run by a combination of the two. This will impact where your client goes for information and enrollment.
The 34 states or so that have defaulted to a federal government-run exchange will access information at healthcare.gov. Other exchanges will have their own websites, and most likely, additional enrollment data will be required. The standard information is the same, and as an advisor, that is where you’ll want to focus.
Source: Brookings Institution; data from the Commonwealth Fund
Client information
Although the federal government and state exchanges have a means by which your client can compare plans, it will allow comparisons between only the costs of plans. For example, after completing a generic questionnaire, healthcare.gov will display plans under provider, metal level (bronze, etc.), and cost. However, it won’t address the differences among the plans from the assorted providers. Before you can help clients plot a course through the exchange, they should pull together the following information:
Remember that this questionnaire is also an application for enrollment. What’s available depends on where the applicants live. Everyone needs a Social Security number so that citizenship status can be verified. If a dependent doesn’t have a Social Security number, a reason must be provided.
Premium subsidy eligibility
One of the major benefits that the public health insurance exchanges offer is premium subsidies. To qualify for a subsidy, income sources and requirements must be met—hence, the necessity of supplying this information on the enrollment application.
Eligibility for premium subsidies depends on modified adjusted gross income (MAGI) and, for early retirees, the extent to which MAGI can be effectively managed. Here’s an easy way to understand the MAGI calculation:
The tables below will give you an idea of how premium subsidies work. Table 1 gives you an idea of what levels of MAGI fall into the federal poverty level (FPL). The subsidies are available on a sliding scale for those whose income doesn’t exceed 400% of the FPL. Premium calculations are based on silver plans.
Source: HealthPocket
Table 2 outlines the MAGI threshold for subsidies. Subsidies are a percentage of modified adjusted gross income. Premiums will not exceed this percentage of MAGI—up to 9.5% of 400% of FPL.
Source: HealthPocket
Whether your client qualifies for a subsidy or not, the application process will be the same, although there shouldn’t be any income verification requirements. Once an application is submitted, the client will be able to see all levels of plans that are available in the area where he or she resides.
Review existing plans
Although an individual may find a plan where the cost seems to be within acceptable limits, what the plan offers in the way of coverage will differ and network providers will vary from plan to plan. All metal plans will cover the essential health benefits (10 categories of coverage including preventative services); however, there may be other things to consider:
Deadlines
There is a six-month enrollment window for the public health insurance exchange plans. In order to meet the January 2014 deadline and meet the individual mandate for establishing coverage, enrollment may be completed by March 31, 2014.
This article is reprinted with the permission of Horsesmouth.com. To learn more go to Horsesmouth.com. Ellen Breslow is the managing director of www.eabhealthworks.com. She spent her 26 year career as a managing director of Citi Smith Barney’s Global Wealth Management division, most recently as the creator of the Retirement Resources Group, focusing on healthcare advisory for clients and prospects of Smith Barney and Citi Family Office. She is a graduate of Lehigh University.
Several years ago USAA, my automobile insurance company, sent out some instructions on how to set your car rear-view mirrors so you can eliminate the blind spots that normally occur when you are driving and another car is on one side or the other. I’m sure you’ve had it happen to you – you are cruising along and for whatever reason you want to change lanes. You check your rear-view mirror – nothing there to worry about. You check your side mirror – nothing there either. You put on your turn signal and start to change lanes. Then it happens, a loud car horn sounds and you jump back into your lane muttering to yourself, “where the (expletive deleted) did he come from?”
That’s exactly the spot you can eliminate if your mirrors are set properly.
I got in touch with USAA to try to have them send me a copy of the instructions so I could share them with you. No one there could find them, but a search of the Internet did bring some results. Here’s the information from the combined versions of Car and Driver Magazine and wikiHow.
It turns out that this information was first published in a paper by the Society of Automotive Engineers (SAE) in 1995. The paper advocates adjusting the mirrors so far outward that the viewing angle of the side mirrors just overlaps that of the cabin’s rear-view mirror. This can be disorienting for drivers used to seeing the flanks of their own car in the side mirrors. But when correctly positioned, the mirrors negate a car’s blind spots. This obviates the need to glance over your shoulder to safely change lanes as well as the need for an expensive blind-spot warning system.
The only issue is getting used to the SAE-recommended mirror positions. The cabin’s rear-view mirror is used to keep an eye on what is coming up from behind, while the outside mirrors reflect the area outside the view of the inside rear-view mirror.
Here is a link to the wikiHow site to get the actual steps for how to set your mirrors: http://www.wikihow.com/Set-Rear%E2%80%90View-Mirrors-to-Eliminate-Blind-Spots
Car and Driver says, “Those who have switched to the SAE’s approach swear by it, however, some drivers can’t adjust to not using the outside mirrors to see directly behind the car and miss being able to see their own car in the side mirrors. To them we say, “Have fun filling out those accident reports.”
If you watch any of the financial or news channels, you have certainly seen the gold and silver commercials –there’s one in every break! Their job is to scare you to death and entice you into making what could be a very poor financial decision. They come on and tell you that the world is coming to an end, and the only way to protect yourself is to buy gold or silver (depending on which one they are selling of course!)
Do you ever wonder where all the money comes from to pay for those commercials? By the time I tell you this story I will be willing to bet you can figure that out.
We can have a debate about the merits or non-merits of using precious metals in an investment portfolio. The long and short of that might come down to the simple fact that there are no good or bad investments, because just about everything you can invest in does well at times and poorly at others. But that’s not what I will be talking about today. My story deals with how you can play this game and start out with such a disadvantage you may never catch up.
A good friend and client of mine recently got a case of “gold fever.” Nothing I said could dissuade him from taking some of his hard-earned money and investing in gold. The salesman convinced him to spend his money on gold coins. The actual price tag of the coins was $33,778. The total of the gold in those coins was approximately 15.25 ounces. He paid $2,215 per ounce. The spot price of gold on the date was $1,391. Why did he pay over 59% more for gold than the spot market price on that day?
The answer in a nutshell is gold coins.
Normal markup for gold bullion is from 2 to 10%. If you’re around the 2 to 5% range, that wouldn’t be bad but he was at a 59%markup! What seems to get lost somewhere in the sales presentation is that when you purchase coins, you are not only buying the gold, you are paying for the numismatic value of the coins as well. Just what is numismatic value? In its simplest form it is the added value that a coin brings because of its value as a collectible or as a piece of art. So about half of that 59% was established based on how rare and how pretty the coin might be. The rest of the cost comes from the simple fact that the spread – the range between how much a dealer pays for a coin and how much it sells for – is from 17 to 33%. My friend spread on this particular order was a mere 24.94%.
So how much were those coins worth when valued approximately 2 months later? $20,630.20 — a loss of $13,148.55, or 39%! What about the spot price of gold on the same day the coins were valued? $1,361 – down $30 from where it was when he purchased the coins – that’s about a 2% loss. The selling company provided the value for the coins when they were appraised. We have no idea what they would actually sell for in the open market. The value of gold bullion was very easy to find for the same dates on the Internet.
The moral of the story? If you decide you want to buy gold – or any precious metals – make sure you truly understand what you are buying and how much it will cost so you don’t start out so far down it would take a huge market rally just to get you back to what you paid!
