I might learn something new. (See You are Never Too Old) As it turns out I did learn something new. I didn't learn anything new about investing, but I did learn something new about selling financial planning services.
I realized how important it is to see investing as the boring activity it is. In fact, investing really isn't much of an activity at all. Investing is mostly inactivity.
The financial planner conducting the seminar did a great job keeping the audience engaged as he went along with his presentation. There were plenty of questions from the attendees, and many of them showed the audience was listening and learning.
One question in particular had to do with keeping a long term perspective when it came to saving for retirement. Maybe it wasn't so much a question as a protest. She didn't like the idea of sitting and waiting for her nest egg to grow. She felt like she should be doing something, taking some kind of action, doing some work to make her investments grow.
financial Monday
From time to time I like to put on my geek
hat and do some charts and graphs. This weekend was one of those financial weekends.
You've probably seen those pretty finance charts the financial planning sites are so fond of. You know the ones. You input the value of your retirement savings today and your risk tolerance. You tell it how old you are, how long you think you'll live and when you'd like to retire. Then you give it an estimate of your retirement expenses. When you click the submit button they show you a graph of how your portfolio will perform in the future.
Well, not exactly how it will perform. The charts I've seen usually have a bunch of lines, each roughly progressing up and to the right, but with fluctuating returns. You probably know the ones I'm talking about. If you don't, you're about to see some examples which will get you familiar with them.
Now
I remember why I dropped my subscription to Money Magazine. So many
times I'd open up my issue hoping to find a pearl of financial wisdom
and I'd be disappointed at some of the inane articles and advice I'd
read there.
Today they published an interview with economist Laurence Kotlikoff, who believes the financial planning software used by financial planners advises people to save too much for retirement.
You've probably seen those pretty finance charts the financial planning sites are so fond of. You know the ones. You input the value of your retirement savings today and your risk tolerance. You tell it how old you are, how long you think you'll live and when you'd like to retire. Then you give it an estimate of your retirement expenses. When you click the submit button they show you a graph of how your portfolio will perform in the future.
Well, not exactly how it will perform. The charts I've seen usually have a bunch of lines, each roughly progressing up and to the right, but with fluctuating returns. You probably know the ones I'm talking about. If you don't, you're about to see some examples which will get you familiar with them.
Are you saving enough for retirement?
Now
I remember why I dropped my subscription to Money Magazine. So many
times I'd open up my issue hoping to find a pearl of financial wisdom
and I'd be disappointed at some of the inane articles and advice I'd
read there. Today they published an interview with economist Laurence Kotlikoff, who believes the financial planning software used by financial planners advises people to save too much for retirement.
What I am saying is that online calculators advise most people to save too much. The same is true with the software that planners use. They start with the assumption that you need 70 percent to 85 percent of your current income to maintain your lifestyle in retirement.Isn't that a little like saying doctors advise smoking less because your chances of developing lung cancer may be low enough if you only smoke a little?
The three best investments for your
It's a dog-eat-dog investment world out
there today. Figuring out what's the best investment vehicle in any
given situation can be a challenge. One of the areas where people seem
to have a really tough time of it is in IRA investing.
IRA accounts are different. They have a special tax status; and that tends to throw people off when it comes to how to invest those funds.
First a quick review... The traditional IRA is a tax deferral vehicle. Money deposited into a traditional IRA is deductible, and is allowed to appreciate tax deferred. Taxes on capital gains, interest and dividends in a traditional IRA are due as withdrawals occur. And of course the expectation is your tax rate will be lower in retirement when you start taking those withdrawals. With a Roth IRA taxes are already paid on the funds you deposit, contributions are not tax deductible. But from that point forward the account is exempt from taxes.
It is because of these tax advantages that funds inside an IRA account are particularly well suited for certain types of investments.
IRA accounts are different. They have a special tax status; and that tends to throw people off when it comes to how to invest those funds.
First a quick review... The traditional IRA is a tax deferral vehicle. Money deposited into a traditional IRA is deductible, and is allowed to appreciate tax deferred. Taxes on capital gains, interest and dividends in a traditional IRA are due as withdrawals occur. And of course the expectation is your tax rate will be lower in retirement when you start taking those withdrawals. With a Roth IRA taxes are already paid on the funds you deposit, contributions are not tax deductible. But from that point forward the account is exempt from taxes.
It is because of these tax advantages that funds inside an IRA account are particularly well suited for certain types of investments.
How to research an Investment advisor
As you get to that magical point in your
life when you're about ready to let your money work for you instead of
the other way around, you might find the task of managing that nest egg a
bit daunting. Even if you've never considered it before, you might
realize you need the help of an investment advisor now.
You've come a long way. You've earned enough to secure your future. You don't want to risk making a wrong step now. You certainly want to take advantage of any strategies which will preserve your wealth while minimizing taxes. This is what investment advisors do. They're trained to help you navigate the complexity of managing your portfolio.
Investment advisors help you to get the most out of your money during the time of your life when your money is working for you.
If you decide to work with an investment advisor, whether a Certified Financial Planner, or any number of other professional designations, you will want to do a little research. Just as you would read an annual report or an investment prospectus for a prospective investment, you should seek out whatever information is on file for anyone with whom you are considering as an investment advisor.
You've come a long way. You've earned enough to secure your future. You don't want to risk making a wrong step now. You certainly want to take advantage of any strategies which will preserve your wealth while minimizing taxes. This is what investment advisors do. They're trained to help you navigate the complexity of managing your portfolio.
Investment advisors help you to get the most out of your money during the time of your life when your money is working for you.
If you decide to work with an investment advisor, whether a Certified Financial Planner, or any number of other professional designations, you will want to do a little research. Just as you would read an annual report or an investment prospectus for a prospective investment, you should seek out whatever information is on file for anyone with whom you are considering as an investment advisor.
How much is the right amount of risk?
Risk questions are everywhere: How much
stock is the right amount of stock in my portfolio given my age? Am I
too conservative if I have x% in bonds today? I'm risk averse, will I be
able to retire if I shy away from stocks? As I age, should I take some
risk off the table, be more conservative?
Boy do I wish there were easy answers to the questions of how much risk to take on.
When it comes to risk, it boils down simply to what you want to accomplish in your life and how much you're willing to roll the dice to do it.
Suppose you're risk averse. You will have to accumulate an enormous nest egg if your goal is to retire and live off that nest egg without the benefits of capital appreciation (and it's associated risk). That's the reality of inflation protected interest income. It's very expensive. Just replacing your current income would require upwards of fifty times that income in these securities. And for that you don't ever get the chance to buy that retirement vacation home or start that foundation. You just get to keep living at your same standard of living for as long as you live.
A good friend of mine called me yesterday
and let me in on a bit of potentially good news. His company has offered
him an early retirement package.
My first thought was that of how lucky he was to be offered a buyout. See, I happen to think that buyouts are a good thing at any age. He wasn't so sure.
He's been with his company for over 20 years. Except for a short stint at another company shortly after graduation, Bill hasn't worked for any other company. You might say Bill's grown roots. He's a bit, shall we say, terrified of change.
Even though I really wanted to sell him hard on why I thought it was a terrific idea to take the early retirement package, I listened to his rundown of the benefits offered in the package and decided to offer him a framework for making his decision.
I urged him to take full advantage of the services his company was offering. Employees eligible for the early retirement program were being offered both classroom and private sessions with financial planners and a career outplacement firm.
Boy do I wish there were easy answers to the questions of how much risk to take on.
When it comes to risk, it boils down simply to what you want to accomplish in your life and how much you're willing to roll the dice to do it.
Suppose you're risk averse. You will have to accumulate an enormous nest egg if your goal is to retire and live off that nest egg without the benefits of capital appreciation (and it's associated risk). That's the reality of inflation protected interest income. It's very expensive. Just replacing your current income would require upwards of fifty times that income in these securities. And for that you don't ever get the chance to buy that retirement vacation home or start that foundation. You just get to keep living at your same standard of living for as long as you live.
Early retirement?
A good friend of mine called me yesterday
and let me in on a bit of potentially good news. His company has offered
him an early retirement package.My first thought was that of how lucky he was to be offered a buyout. See, I happen to think that buyouts are a good thing at any age. He wasn't so sure.
He's been with his company for over 20 years. Except for a short stint at another company shortly after graduation, Bill hasn't worked for any other company. You might say Bill's grown roots. He's a bit, shall we say, terrified of change.
Even though I really wanted to sell him hard on why I thought it was a terrific idea to take the early retirement package, I listened to his rundown of the benefits offered in the package and decided to offer him a framework for making his decision.
I urged him to take full advantage of the services his company was offering. Employees eligible for the early retirement program were being offered both classroom and private sessions with financial planners and a career outplacement firm.
Finding a financial planner - part 2
No doubt for me the most important thing I
think about when evaluating professional services - whether it's home
remodeling or dentistry or as in this case, financial planning - is the
person's qualifications and experience.
When choosing a financial planner, I'd want to know the answers to a few important questions having to do with his/her qualifications and experience:
When choosing a financial planner, I'd want to know the answers to a few important questions having to do with his/her qualifications and experience:
- How long has this person been doing financial planning work?
- What sort of financial planning does this person specialize in?
- What professional designations or certifications does this person hold?
- Is this financial planner's experience relevant to my situation?
Finding a financial planner - part 3
An old business acquaintance reached out to
me the other day. He called me on the phone, out of the blue. I hadn't
heard from him in years.
After a prolonged chit-chat period, the small talk that always precedes the real reason for calling, Bob, (not his real name) mentions that since we last spoke he's made a career change. He's now in a financial planner.
Bob went on to say that he'd always been fascinated by the workings of personal finance and financial planning. He'd always managed his own savings and finances through the years working for one large corporation or another. Over the years he'd grown tired of the corporate runaround. He wanted to do his own thing.
A corporate restructuring presented Bob the opportunity he'd been yearning for, to do financial planning for a living. He "took the package" and enlisted with a small firm which helped him through the process of becoming a financial planner. And now here he was ready to sit down with potential clients (maybe I'd like to be one of them?) and plan out their financial futures.
After a prolonged chit-chat period, the small talk that always precedes the real reason for calling, Bob, (not his real name) mentions that since we last spoke he's made a career change. He's now in a financial planner.
Bob went on to say that he'd always been fascinated by the workings of personal finance and financial planning. He'd always managed his own savings and finances through the years working for one large corporation or another. Over the years he'd grown tired of the corporate runaround. He wanted to do his own thing.
A corporate restructuring presented Bob the opportunity he'd been yearning for, to do financial planning for a living. He "took the package" and enlisted with a small firm which helped him through the process of becoming a financial planner. And now here he was ready to sit down with potential clients (maybe I'd like to be one of them?) and plan out their financial futures.
