A number of years ago while in my garden I was tending to my raspberry patch. It had been a long winter and I feared that many had not survived the cold Wisconsin winter. In the spring, the vigorous plants shot through the soil and in just a few months I had a glorious stand of robust plants. To my chagrin, the tall, leafy canes were lacking berries. I didn’t even see any flowers blossoming. For two weeks I would go out and check the patch to see if there were any signs of blossoms or berries and each time I went out, I can back in to the house disappointed. Had something happened? I began to question what the winter had done to them or if I had prevented their fruiting in any way. After all, this was a pretty easy variety to grow and ever-bearing nonetheless. Just as […]
A few days ago my mailbox was graced with the postcard you see at the top of this post. In case the print is too small it’s essentially an offering for a free dinner at a local restaurant while the dinner’s hosts plan to offer a seminar on achieving more retirement income. My initial reaction was to laugh at the card, and then my laughter changed to concern. How many individuals were sent this malarkey? Here are some of the “finer” bullet points from the list of discussion topics: Avoid the long delays and costs of probate Opportunities and solutions to help protect your assets for the future Avoid significant tax losses when passing on your assets It became apparent that this free dinner seminar was nothing more than a sales pitch for a company to sell life insurance and annuities to unsuspecting individuals. A search on the Internet provided […]
I am always advocating creating a plan for your financial life – but why plan? Maybe we can identify some factors which may motivate you to develop plans for your life, incorporating financial factors with the rest of your life. Following are some of the more important factors that you may want to think about: It is a way to prepare for the inevitable future. This fits in with one definition of planning, which is “intelligent cooperation with the inevitable.” Planning identifies problems and points the way to solutions. Taking a systematic, thorough look at the situation and thinking about the future possibilities can bring these things to light. It helps us to do first things first. In other words, it provides a rationale for assigning priorities. Should we save more for retirement, or for college? Should we pay off our home mortgage? Planning helps to coordinate your various goals […]
As individuals near retirement there may be a need for additional income in order to support their living expenses in retirement. On this blog we have discussed creating income streams in retirement with annuities, Social Security optimization, and withdrawal strategies in qualified accounts. For some individuals these streams of income may not be enough. Another potential vehicle to assist with providing income in retirement is a reverse mortgage. Reverse mortgages are where an individual or couple uses the equity in their home to received monthly income payments. Generally, once the owners pass away or sell the home, the loan is paid off with the remaining equity in the home. There’s also a limit on the amount a homeowner can borrow. The most popular form of a reverse mortgage is the home equity conversion mortgage (HECM) offered by the Department of Housing and Urban Development (HUD). To qualify, individuals must be […]
At some point in our lives the question arises as to whether or not it makes sense to keep some of the insurance we have. Please understand that this post is not about encouraging the reader to drop any insurance coverage, but perhaps give some perspective on whether or not it makes sense to do so. Consider the case of life insurance. Generally, the younger we are the more life insurance makes sense. When we’re young we have many years until retirement and have high human capital; the ability to earn great amount over our working lifetime. Our financial capital is very small; we haven’t accumulated any assets such as retirement savings. As we age, our human capital decreases. Our financial capital increases and is high when we retire. Thus the need for life insurance diminishes. It’s at this point that an individual can consider letting their term insurance policy […]
If you’re like most investors systematically saving for retirement through their employer or with an IRA chances are you’re taking advantage of dollar cost averaging. Dollar cost averaging is a method of investing a specific dollar amount, generally monthly, no matter how the market is reacting. It’s also a way for an investor to fully fund a retirement account without requiring the maximum amount allowed in one shot. For example, let’s assume that an investor under the age of 50 wants to save to an IRA. The maximum contribution to the IRA for 2015 is $5,500. Should the investor want to save monthly and still invest the maximum allowed for the year, he would simply divide by 12 and invest a sum of $458.33 monthly. The beauty of this strategy is that the investor takes advantage of market swings, whether high or low. If the market is considerably high (as […]
I wanted to write a short post this week letting our readers know that even though the majority of them may not be located in the state of Illinois, we are generally still able to help and work with you should you want to use or services. Here are a few ways that we can make your experience working with us as “local” and as professional as possible. We use email – a lot. This is arguably the main way we communicate with clients. It’s not that we’re above using the phone, but with our schedules we are frequently out of the office. Email lets us stay in contact with you regardless of where we’re at. We use video conferencing. Whether we’re in the office or traveling for business we can easily have a face to face conversation with you if you’d like to put a face with the name. […]
Over your working career is possible you’ll accumulate multiple retirement accounts if you switch jobs frequently and there’s also the possibility that you’ll have multiple IRAs depending on if you’ve moved switched advisers, or wanted to give a fledgling adviser their first sale. Eventually, annual statements start pouring in from all of these accounts and it can be difficult and stressful to keep track of all of the accounts and where your money is being held. For example, you may have to 401(k) plans from two previous employers in addition to the plan you have with your current employer. You may also have two or three IRAs that you’ve opened over the years and whether or not their traditional or Roth can complicate things even more. Here’s a way to organize your retirement account and reduce your stress when it’s time to receive statements. Consider combining your old 401(k) plans […]
This week, several anxious individuals will sit in front of a computer screen at a testing center and will answer 170 questions over a six hour span. These folks are sitting for the national CFP® exam that’s given every March, July, and November. Question topics range from life insurance and annuities to taxation, investment planning, estate planning and ethics. Successful exams takers will be allowed to use the prestigious marks (assuming all other requirements are met). If you’re one of these folks – first of all congratulations! You put in a lot of hard work, studying, and relinquished personal time in order to be successful. You should be proud. But I would also encourage you to not fall to the temptation of thinking, “you’ve made it.” In other words, I hope the exam has taught you that there’s so much we don’t know as planners and the CFP® is merely […]
Before you sign a contract or buy a product consider the following before choosing your financial planner. Make sure they’re a CFP®. At the very minimum, a CERTIFIED FINANCIAL PLANNER™ has the met the education, exam, ethics and experience requirements in order to be qualified to discuss your financial planning needs. Anyone can call themselves a financial planner, but not everyone is a CFP®. This should be the starting point of your search. Just because the planner is a CFP®, doesn’t mean you should automatically work with them.
Recently I had a chance to have some fun with some of my undergraduate students. Polling my entire class I asked them to make a list of wants (not needs) that they frequently spent money on. Answers varied from smartphones (and the respective bill), cable and satellite TV, dining out, coffee shops, beverages (you know which ones), and appearance (spending extra to dye hair, pedicures, etc.). Here’s a list of how each expense was broken down as told by the students. In other words, it was their numbers not mine.
Traditionally when we think of investing our minds turn to stocks, bonds, mutual funds or real estate. While these may or may not be the best investments for an individual’s portfolio there is one investment that is almost always the right choice for any individual – human capital. Human capital is an individual’s worth of their own potential. Coined by economist Theodore Schultz, human capital can be invested in like any other asset in order to add value to an individual’s life through earnings, health, and quality of life.
Asset allocation and diversification are not the same. Perhaps some readers may benefit from a brief explanation of the two and how it may impact your investments. An investor may have excellent diversification but poor asset allocation and vice versa. Let’s start with asset allocation. When we speak of asset allocation we’re talking about how we’re going to invest in a particular category of investments called asset classes. That is, we are choosing which assets are going to be in our portfolio. Generally, assets classes that investors may choose from are stocks (equities), bonds (fixed income), cash, commodities, and real estate.
Admittedly, this is a pretty deceiving headline. We see headlines like these every day in the newspapers, TV and from colleagues at work. The truth of the matter is that there are certainly going to be assets classes that will behave horribly while other asset classes do extremely well. The point is, neither you nor I (or anyone else) will accurately be able to predict which ones will do better than others. For every person that says stocks will have a meteoric rise in 2015 there will be just as many that will say to avoid them. You’ll have others saying that bonds are doomed while others will sing their praises. Buy gold, sell gold; buy real estate, sell real estate. The point is no one knows which asset classes will do well and which ones will fall.
Goal planning is the real “meat” of financial planning. That is to say, once you’ve covered the issues of organizing your information, developing and improving your net worth, and providing for the safety issues, it is now time to consider exactly what you would like to do with your money and your life. This is a very personal set of decisions – no one person makes the same choices. Perhaps you’d like to open your own business, and become your own boss. Maybe all you’d like to do is to finish working after 30 years and spend your time playing with your grandchildren. Or maybe you’ve finished up college and now you’re beginning to earn some money, and so you’re planning on starting a family and buying a home. Setting your goals is very important as you begin a savings and investing plan, because without a goal in mind, it […]
For many folks, attaining age 70 ½ means the beginning of required minimum distributions (RMDs) from their 401k, 403b as well as traditional IRAs. There are however, some individuals that will continue to work because they want to or (unfortunately) have to and still want to save some of their income. At age 70 ½ individuals can no longer make traditional IRA contributions. They are allowed to make contributions to a Roth IRA as long as they still have earned income. Earned income is generally W2 wages or self-employment income. It is not pension income, annuity income or RMD income.
Sometimes when we need more money for a specific goal in the future such as retirement, college, a down payment on a home or an emergency fund we may feel that before these things can happen we need to make more money. We may feel that once our incomes are up to a certain level that we’ll be able to afford to save for those goals. It may not be necessary to earn more in order to achieve the above goals. For many folks the solution is simply to prioritize between wants and needs. In other words, learning to distinguish between the wants and the needs in your life and then reallocating your money to fund retirement or college goals without having to ask for a raise or get a second job.
Listed below are a few time-honored maxims that we’ve all heard. Perhaps we’ve even heard these from very trusted sources – like our Mothers. As you’ll see, it’s not always good advice… In the interest of full disclosure, my own Mother did not give me any of this advice. She tended to stay with the “wait an hour after eating to go swimming” variety of advice. One of my favorites was always given as I was leaving the house during my younger years: “Have fun. Behave!” I once pointed out to her the fallacy involved there but she didn’t see the humor. :-) At any rate, those rules have served me well through the years – thanks, Mom!