Month: May 2018

Summer is here and now is the perfect time to evaluate progress on those resolutions that kicked off the New Year. Just as we make fitness commitments and resolutions – often with summer as a target goal – getting financial fitness goals into shape is also an important and timely exercise!

First, focus on your larger financial muscle groups. In other words, look at where you spend the most money as that is where your changes can have the biggest impact. For many families, the three largest monthly expenses are housing, childcare, and food. (In fact, these may comprise 80% of your entire spending plan!) If you’re trying to save money, I always recommend that you seek ways to reduce your spending without making big changes in your lifestyle. Reducing your housing costs is a great example of this, and mortgage rates continue to be near historical lows, so if you have not (or have not been able to) refinance, be sure to take another look at any options that may be available to you.

Next, it’s time for some interval training. Getting your finances in order can feel overwhelming, so break goals and tasks down into manageable pieces and dedicate an hour each week to getting on track. For example, if you want to transition to an online money management tool, it’s easy to procrastinate gathering all of your statements and bills together. Instead, just take what arrives in the mail each week and set those items up in a new account. Put in just a little time each week, and in just over a month, you’ll be fully up and running.

Next, remember to take regular breaks to recuperate and recharge. Taking control of your finances is like exercise, and sometimes we all need to take a day off from the gym. You need to give yourself a break in order to stay focused and feel ready for the next steps. Schedule rewards for steps taken and goals reached – a dinner out or a local day trip that doesn’t break the budget. Create incentive to stay on track, and your finances will be in much better shape by summer, fall or whatever your timeframe is!

Some financial areas – like education and retirement planning – require more exertion and can be easy to avoid because of that. That’s why you really need to give these your best effort and take care of them before you run out of energy. If you start by funding these goals first with automatic paycheck deductions or bank account transfers, you’ll have the harder exercise out of the way when you have the most energy. Decide what your targets are and make savings the foundation of your financial fitness routine.

Finally, work with a professional to help you achieve your goals by hiring a personal (financial) trainer! Just like a fitness trainer, a financial planner can design the right program for you, make sure you are taking the right steps, and help you achieve your goals.

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Springtime has finally arrived! As you start to enjoy the long, warmer days and put aside a day for spring cleaning, make sure that you give your finances a spring cleaning as well!

Start by addressing those dusty old boxes or files full of well-aged financial documents that you no longer need. It’s finally time to throw out those yellowed cancelled checks, decade-old credit card and bank statements and former apartment leases with addresses that you can barely still remember. Holding on to tax returns from 2002 or earlier? It’s generally safe to get rid of your old returns and associated records if they are at least seven years old. Make sure that you shred sensitive documents to protect yourself from identity theft! (For a clear and simple guide on how long you need to retain financial documents download our free guide on What to Keep and What to Shred.)

If you rent a safe deposit box that you have not visited in a while, this is a great time to swing by your bank to make an annual inventory of its contents. Original titles, deeds and negotiable securities (i.e., older bond certificates) are best kept here. Store your original will in the box, but make sure that you have a copy at home as well. However, keep only copies of government-issued IDs and insurance policies in the vault. Make sure that an inventory of the box’s contents, as well as the keys, are in a place where your family could find them in case of an emergency. Put with it an emergency contact list for financial issues, which may include names and phone numbers for your insurance agents, estate planning attorney and investment manager.

Next, it’s finally time to track down any stray investment and bank accounts. I recently checked-in on a long-forgotten savings account and was excited to discover $200 sitting in it. However, I was shocked to discover that the bank had started charging a $5 fee each month, which far out-paced the meager 1% interest I was earning, so I immediately closed the account. If you have changed jobs in the past few years, you may still have retirement accounts sitting in your previous employer’s plan, so take the time to transfer these funds to a retirement account that you can more actively monitor and manage.

Moving on to more fun tasks, gather up any gift cards that have been taped to refrigerator since last Christmas (or the Christmas before that) and put them to use! Spending them on something for yourself is the easiest solution, but if you are never going to use that $25 gift card to the Mitten Hut from Grandma then donate it, re-gift it, or sell it on eBay or to a gift card reseller like Plastic Jungle.

Finally, incorporate a financial aspect to clearing clutter out of your home, too. Dedicate the funds you’ll earn from a garage sale to a fun activity like a night on the town or a day at the ballpark. It makes it easier to part ways with your long un-used snowboard and will help to keep you motivated as you clean out your house in celebration of springtime!

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Smart Credit Management

Financial advice and credit advice are not always the same. For example, transferring and consolidating high-interest credit card debt to a 0% APR credit card might make financial sense, but does it make sense for your credit?

Rarely is anything ever taught about credit, and credit is somewhat counter-intuitive. Have you ever heard someone say that you do not have enough credit to qualify for a loan? Huh? You mean you have to have a debt to get more debt?

Establishing credit, and thus, a credit score enables you to qualify for a mortgage, loan, credit card and even security clearance for a job. The information below will help demystify your credit score and provide valuable tips for improving your credit and avoiding pitfalls.

What is a credit score? A credit score is a measurement for lenders to determine how much risk they take on to lend you money. Your credit score is generated from a statistical analysis that assesses “creditworthiness,” and FICO is the standard used. FICO looks at a mix of secured and unsecured credit, your payment history, and has a scale of 300 to 850. This credit score does not care about income or size of debt payments, but it does care about the percentage of debt in use and that you make your payments on time.

Credit scores also have no memory. Your credit score is pulled as of a point in time based on all the information available from the three credit bureaus. The score can be different every time it is pulled, so if you had a great score five years ago, it means nothing for a score pulled today. Credit scores are more heavily weighted on recent items.

You can get a gauge of your credit score for free once every year at, but this report will not contain FICO score. To get your FICO score, you’ll need to have to pay a credit monitoring service, though many do offer brief free trial periods. A number of services now offer free FICO score estimates, but remember these Fake-o-Scores are only estimates and may differ from the scores provided to lenders. Self-pulled scores are considered soft inquiries and will not hurt your credit score. Hard inquiries, those made by others who are trying to approve you for credit, can impact your score if too many happen within a 12-month period. The good news is that multiple mortgage and auto loan inquiries are rolled together and will not adversely impact your score if they are all done within 30 days of the initial inquiry for that loan. If the inquiries are spread out over more than 30 days, the hard inquiries can reduce your credit score up to 50 points, which can mean real money in today’s market.

The Most Common Mistakes?

1. Joint credit cards. The biggest mistake couples make is to have all credit cards (revolving credit) and unsecured credit jointly named. There is no reason to have both of your names on your credit cards. If something bad happens to one of you, both of your credit scores are negatively impacted.

2. Closing old credit cards. Debt ratios and account seasoning (the age of a given account) are important components of your credit score: approximately 45%. When you close old credit card accounts, your debt usage ratios go up, and you shorten the average age of your credit file, which will negatively impact your score.

What should you do?

Keep separate credit cards. You can pay them off from a joint account.

Rotate your credit cards. Keep your cards active by rotating your use of cards. The amount you charge does not matter; charge a coffee at Starbucks. In a bad economy, lending standards tighten, and credit lines are reduced or closed if not active. Even if they are not closed, credit card companies may eventually stop reporting inactive accounts to the credit bureaus. Again, this loss of payment history will reduce the average age of your available credit and hurt your credit score.

Pay off your credit card each month and on time. For assessing credit, your debt ratio is Dollars in Use/Credit Available. You want to keep your debt ratio as low as possible.

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Achieve Your Financial Goals

It’s time for a fresh start! Don’t dwell on last year’s setbacks – it was a tough financial year for many. Instead, look at concrete steps to move into a fresh year of healthy finances with manageable goal-setting and simple steps that everyone can do and won’t overwhelm.

1. Set realistic goals!

If you haven’t yet set goals – set a few! But important – set yourself up for success rather than failure, by making sure they are manageable!

You don’t necessarily even need a calculator for this one, but be sure to think about 3 – 5 financial goals you’d like to accomplish over the next twelve months. Keep them real and manageable so that you won’t be easily thrown off-track or discouraged. Perhaps two more easily attainable and shorter term goals to give you an opportunity to check them off the list and feel success – followed with another two more challenging. Maybe they include buying a new car, paying off your credit card or finally making a meaningful contribution to your retirement savings. Be sure to attach a number to your goals. This makes them real and helps you figure out the game plan for setting those funds aside. If you are in a relationship, ask your spouse or partner to do the same, then sit down to compare your goals. If your main priority is to become debt-free next year while your partner’s focus is taking a 3-week trip to Bali , this is the time to understand what each of you want and jointly set some priorities.

2. Create some accountability for yourself.

Like many New Year’s resolutions, it’s easy to lose track of what you are striving for as soon as the calendar turns to February. So take the opportunity to set up some benchmarks and check-in points for yourself ASAP if you haven’t already. Set your computer to remind you about your goals on the last day of every month, or schedule a quarterly call with your financial planner, accountant or spouse — whoever can best help you stay on track throughout the year. Cut your goal into digestible quarterly achievements to stay focused and motivated. For example, if your goal is to have $5,000 cash in an emergency fund, you’ll probably want to have accumulated close to $2,500 by June 30th. If you need to do smaller amounts, spread it out – whatever is easy to manage!

3. Pay yourself first

If the financial roller coaster of the past year showed us anything, it’s that we all likely need more than we thought to retire. Regular, automated paycheck deductions for retirement savings are one of the very best financial habits you can create for yourself, and this is the perfect time to get started or see if you can increase how much you are saving. Even if it’s just $25 per paycheck, directing money towards your tax-advantaged retirement account (generally provided through your employer) will help you build substantial savings over the years to come and show you how painless and easy it can be to become a disciplined saver.

You can use this same concept to direct money to your Top 3 goals. Set up separate or subaccounts in advance and be sure to name them with their intention. Put a positive spin on your goals. Seeing an account named “New MommyMobile” is certainly more fun than “Savings” and clearly states when you are “allowed” to use it (a common problem when we have general savings…we get scared whenever we actually spend some). “House Surprises” instead of “Emergency Fund” lets you feel good when you have to pay the plumber. Determine the amount you want to save in advance and direct deposit into each fund. You may want to jumpstart each one with some cash from your current savings, in case the water heater breaks next month. Send the money to its goal before you even see it.

4. Lock yourself away for a mandatory afternoon of savings

We’ve all seen the commercials about how we could save hundreds on our auto insurance, and you may even suspect that it’s true, so why haven’t you called yet!?! Pick an afternoon to check how much you might be able to save on all of those pesky recurring charges that you haven’t bothered to check in on. Lock yourself in a room and call around to find out if you are getting the best and most appropriate rate on your auto insurance, cell phone plan, cable tv, gym membership and anything else that you pay for on a monthly basis. Be sure to scour your credit card statements for anything that you are still paying for, but stopped using long ago (like unread magazine subscriptions) and cancel those services, too. Find just $42 in monthly savings, and you’ll end the year with any extra $500 in your pocket, without making one single change to your lifestyle!

5. Understand your credit picture

With consumer credit still incredibly tight, it is more important than ever to actively manage your credit profile. Start with your credit reports, which you can get free once per year from Scour them for inaccuracies and promptly write dispute letters for any errors that may be negatively impacting your credit. Next, check in on your credit scores. While you’ll need to pay for access to get precise numbers, a number of free websites, such as Credit Karma are offering increasingly accurate FICO score estimates. Be sure to check out the impressive free credit report card tool from It gives you a letter grade for each facet of your credit score and offers actionable tips on how you can improve.

Significant new credit card laws are also taking effect in February, so check in with each of your lenders to confirm any rate or fee changes that may effect you — some lenders have increased interest rates by more than 10% on millions of Americans in anticipation of the new laws taking effect. While you have them on the phone, this is the perfect time to ask for a rate reduction no matter what interest rate you are currently being charged. Rate reduction = instant savings!

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“We’d like to take a REAL family vacation… that does not involve visiting relatives!” I can’t tell you how many times I hear couples dreaming out loud about this in a financial planning session. “Just one week in Hawaii…”

Here’s your end of the year challenge: Commit to making it happen by this time next year. Seriously!

I know, everything right now is doom and gloom about the “recession,” the second Great Depression, the mood swings of the stock market…..does that mean Family Fun has to go on hold while we vigilantly watch each dollar and sit home to make sure we don’t overspend?

I sure hope not.

You may ask, “Isn’t it irresponsible to take the gratification of a vacation rather than save for your child’s education? Is that selfish?” If you do not understand your spending enough to know that you can take a vacation without long-term consequences, then guilt may have a place in your situation. But, no matter what, if you plan ahead, you will be able to take a family vacation you can feel good about in any economy.

How to Vacation Without Guilt:

  • Start with making a conscious choice. Sit down with your partner and DECIDE that you are going to take a family vacation. Get on the same page before the saving starts.
  • CLEAR your mind of any preconceived notion of where you will go (we’ll get to that part later).
  • Determine HOW MUCH money you feel comfortable spending on a trip that you would take within a year. This means the amount you could spend without guilt. Remember that finances change all the time — so this is about what amount do you feel comfortable spending this next year. Future years are a different story and whatever you’ve spent in the past does not count. You are only focused on what makes you comfortable this time around. This is where it is extremely helpful if you understand your full financial picture. If you are worried about a job loss, then maybe your number is lower. If you have a solid Emergency Fund and good Retirement savings, maybe it is a larger number. For this example, let’s say it is $5,000.
  • Decide WHEN you want to go. Let’s say August 2009. BLOCK your calendar now even without knowing the details. This eliminates the easy “scheduling” excuses to forgo a vacation.
  • If you are starting from zero, CALCULATE what this means in terms of monthly contributions to an account. Let’s assume there is no “interest” on the account since you keep it in a checking or savings account in cash. To go on a trip in 8 months that costs $5,000, you would need to set aside $625 a month. Check-in: Does that sound like a lot of money to you, or just the right amount? Could you “afford” more? Do you need to change this number? Remember, this is about finding the amount that will let you take a satisfying vacation without worry!
  • START the money flow. Set up a separate (untouchable) account dedicated solely to your Family Vacation. The best way to make sure you take a vacation and make sure you don’t fall victim to the “we have to save for other things” mentality that keeps many parents in their living room is to allocate funds directly to a Vacation/Travel Account. Either do direct deposit from a paycheck or set up a monthly transfer to this account from your checking account.
  • Now that you have set up the funds you get to decide WHERE and HOW LONG you want to go. This is the fun part. You know what you can spend, so you can start exploring. Take your investment number (e.g., $5,000) and divide it by the number of days you want to vacation. So if I want to take a 7-day vacation, I would have $714 a day ($5,000/7) to spend. Start investigating airfare (divide cost across the # of days), hotels, and activities to see what fits. While Hawaii tops many West Coasters’ lists, depending on your “number,” you may have to go another route if funds are tighter this year. Maybe your family vacation is a week at home touring the Bay Area sights you’ve always wanted to see.
  • Once you decide where your vacation is, FIND pictures and visual reminders or your destination. You don’t have to pay for the trip yet (you can book it at whatever lead time is appropriate for your trip), but you will have selected a destination. HANG UP the pictures in a prominent place in your home. Seem silly? Move on to #9 before you judge…
  • Now back to your monthly spending. Decide if there are trade-offs you will need to make to be able to meet your vacation investment number. What behaviors are you willing to change for the next 6-9 months (not forever!) to meet your vacation goal? Write down your commitments for the changes you will make. Have your partner do the same. HANG UP these statements next to your vacation pictures (from #8). This will keep you focused on your vision when short-term spending decisions get cloudy or tempting.
  • When vacation time arrives, RELAX and enjoy this cherished family time knowing that you have given yourself full permission to spend a chosen investment without any guilt.

I advocate for setting yourself up for a secure financial future while also creating lasting memories and experiences along the way. In the midst of the financial angst of late, make sure you remember to forecast for family fun, too!

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Investors are well aware that financial markets go up and down.  That is the essence of business and economic cycles.  What is difficult for individual investors to master is how to act in the face of market advances and declines.  Unfortunately, most people become very tolerant of risk and increase their exposure to the stock market when the market is advancing.  Similarly, they avoid risk and clip their exposure to stocks when markets are declining, or after a large correction.  It is human nature and “recency bias” that create this visceral response to market perturbations.  Recency bias occurs when investors believe that the most recent performance of their investment portfolios will continue indefinitely in the future.  It is just one factor that results in investors consistently underperforming the stock market.

Brad M. Barber  and Terrance Odean, in their 2011 study “The Behavior of Individual Investors,” conclude that individuals routinely underperform benchmarks through 1) selling winning investments and holding losing investments, 2) being heavy influenced by most recent past returns (repeating investment behavior that coincides with pleasure and avoiding behavior that is painful), and 3) holding undiversified portfolios.

Dalbar studies have also shown that most individual investors typically trail the market rate of return, and they typically do so by a fairly wide margin.

The message from Dalbar since its first study in 1994 is that investment results are more dependent on investor behavior than fund performance and that mutual fund investors who tend to buy and hold are more successful than those who attempt to time the market.

Investors who attempt to time the market are often acting irrationally out of fear of a potential loss. Stocks and investment funds happen to be the only assets that people buy less of when they become less expensive. Let’s think about buying food at the supermarket, if the price of steak rose considerably, you would be more inclined to reduce your purchase of steak or buy something else, but if the supermarket suddenly reduced the price of the steak by 30%, you would stock up. However, you do the opposite when it comes to stocks and other investments. The stock market can foster a gambling mentality. When you are on a roll you hate to stop, but that is exactly when you should cash some chips in.

So how does an investor counteract the tendency to time the market and invest based on most recent results? Rebalancing is great way to fight the effects of recency bias. Rebalancing to your target asset allocation is a mechanistic and unemotional way to fight these counterintuitive emotions. I sometimes get an odd look from my clients when I suggest that they rebalance after a market run-up. “Why would I want to do that, the market is hot?” might be a typical comment. But that is exactly why rebalancing is so important. It removes the emotions, market noise, and other extraneous factors, and reminds the investor of their original financial plan and goals.

The best value-added proposition a financial advisor provides is to set the target allocation and then monitor and adjust it based on the client’s personal goals and life events. The asset allocation is set within the investment policy statement and the portfolio is rebalanced yearly, or as needed, after large market advances or declines. The asset allocation is revisited periodically, at least every 3 years, and is adjusted in response to a client’s retirement goals, change in health or marital status, or market valuations.

Rebalancing in this way, will not only help the client attain rates of return closer to the respective benchmarks for his or her portfolio, it can actually be a source of additional return. In a recent article in Financial Planning magazine, “Portfolio Rebalancing: Get It Right,” Allan Roth underscores the incremental benefit of rebalancing. His analysis shows that “over the past 15 years, the portfolio that stuck to its allocation earned 1.54 percentage points more each year than the average portfolio that tried to time asset classes.”

Rebalancing is just one area where advisors add incremental return and why it is essential for our clients to commit to the annual review and rebalance exercise. Emotions can be hard to control, let your re-balancing take them out of the mix, so you can maximize your long range returns.

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A common mistake investors make is to continue to contribute to their Roth IRA even though they are no longer eligible. Most people will start a Roth IRA when there income is lower and mistakenly think that they can continue to make annual contributions; but unfortunately, the IRS limits Roth contributions at higher income levels. Luckily, there are ways to continue to build these accounts, regardless of income. Here is what you need to consider if you want to increase your investments to Roth accounts.

First off, what is a Roth?

A Roth account is a great way to save on your tax bill to Uncle Sam. Roth accounts are unique in that they are only taxed once. When you contribute to the account you are adding after-tax dollars, the money then grows tax-free, and it is not taxed when it is withdrawn. (Earnings may be taxed and or penalized if they are taken prior to 59 ½ or within 5 years of the first contribution to the account.)

Why should I invest in a Roth?

A Roth account is particularly valuable when contributions are made when your tax bracket is relatively low, and you have a long time for the money to grow. For example, let’s say you start to contribute to a Roth IRA at age 20 and contribute $5,000 a year until age 30. Even if you do not contribute to it at all after age 30, your balance, assuming a rate of return of 8%, at age 65 would be roughly $1,070,900. You only paid taxes on the $50,000 of contributions and will never pay taxes on over $1M worth of growth. That is the power of tax-free compounding.

Who can contribute?

Generally, you can contribute to a Roth IRA if you have taxable compensation, are less than 70 ½ years of age, and your Modified Adjusted Gross Income is less than:

  • $191,000 for married filing jointly
  • $129,000 for single, head of household, or married filing separately and you did not live with your spouse at any time during the year, and
  • $10,000 for married filing separately and you lived with your spouse at any time during the year.

The maximum contribution is the lessor of $5,500 ($6,500 if you are age 50 or older), or your taxable compensation.

If you have income over these amounts, you are disqualified from adding to your Roth account. (In addition, you will also be over the limit for a deductible traditional IRA.)

If my income disqualifies me from contributing to my Roth IRA, do I have any other options?

Yes. You have three options a Roth conversion, Roth 401K, or backdoor Roth conversion.

Roth Conversion

Even though you are unable to contribute to a Roth, there are no income limits to Roth conversions, so you may decide to convert your traditional IRAs to Roth IRAs and take advantage of your investment growing tax-free with no future required minimum distributions. A conversion would make sense if you expect your tax rate to be higher in the future and are willing to pay the taxes on the conversion with funds outside of the IRA account.

Roth 401K

Another way to build some tax-free investment growth via a Roth is to sign up for your Roth 401K if your workplace offers the option. Unlike the Roth IRA, the Roth 401K has no income limitations for eligibility. Since we prefer income that will be taxed at relatively low rates to fund a Roth, it may make sense to contribute after-tax payroll deductions to the Roth 401K up to point where your taxable income puts you in the top of the 25% income tax bracket, after which point, any additional contributions could be made to the traditional 401K, so as to keep you in the 25% marginal tax bracket. This not only helps diversify the taxability of your investments but also provides added flexibility for your withdraws in retirement.

Note that you will likely want to roll over the Roth 401K at retirement and or prior to age 70, as the Roth 401K does require that you take annual RMDs (Required Minimum Distributions) during your lifetime, whereas the Roth IRA does not.

Back door Roth conversion

Another way to add funds to your Roth IRA is through a “backdoor” Roth conversion. Here is how it works. You make a non-deductible contribution (after-tax dollars) to a traditional IRA and then, convert the IRA to a Roth IRA. If done correctly, this conversion will result in minimal taxation.

Ex: Tony and Tina make over $225K a year. They are in their 40s and want to build some tax-free funds into a Roth for their retirement. They each make a $5,500 contribution to a traditional IRA in January which has a zero balance, as they have already converted all of their traditional IRA accounts. Six months later, they convert the funds to their Roth account. The tax impact of the conversion will be based on the difference in the value of the account at conversion and the original $5,500 contribution.

When would you not want to do a backdoor conversion?

  • If you have substantial traditional IRA assets which have been deductible, the back door conversion becomes tougher as the pro rata rule comes into play. The pro rata rule aggregates all of the existing IRA balances and taxes the conversion based on the ratio of deductible funds to the total. For example, say that Lars has $94,500 in several traditional IRAs in which he contributed deductible pre-tax money. He makes a contribution of $5,500 to a non-deductible IRA this year and then converts the $5,500 account using the backdoor strategy. If he did not have any existing IRAs, the conversion would likely not be a huge taxable event (depending on the account value when he converted that year). However, since the total IRAs are now $100,000 and his conversion amount is $5,500, 94.5% of his IRAs are deductible, so $5,198 of his conversion would be taxable.
  • If you are going to need the funds within 5 years, this strategy will not be optimal, because a backdoor Roth is considered a conversion and not a contribution. Converted funds will incur a 10 percent penalty if withdrawn within five years unless you are age 59 ½ or older.
  • As always with a Roth, if you are in a higher tax bracket now then you expect to be in retirement, you may want to keep the money in the traditional IRA.
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With a crying baby or a two-year-old throwing a tantrum you may feel ready to retire on some days! You may also have a hard time conceptualizing the relaxing vision of your “Retirement.” Alas, the day will come when our little ones have grown up, and we will all be enjoying a new kind of independence—-one that will hopefully last a long time! The question is, “Will you be ready?”

While “ready” can come with many emotional factors such as the empty nest and exiting the social network of the workplace, as a financial planner, I will focus on the financial aspects of “ready.”

First, let me define retirement. You may immediately think of the outdated images of older people sitting in Adirondack chairs reading books and wistfully gazing at the sea. We’ve all seen this picture in any number of advertisements targeted to retirees. Ahhh….how peaceful.

In reality, though, as we consider our generation, we have had our children later, we are living longer, and we will likely want to lead very active lives as we continue to age. When I talk about retirement, I really just mean that time when you are going to rely upon — and draw upon —- your accrued savings whether that is from a 401K, your IRAs, or just money from a brokerage or savings account that you have invested.

To know if you are “ready,” you have work to do before you get to the money part. Do you know what you want from this time that society calls retirement? Have you painted this picture in your mind? I challenge you to ponder what you might want for your future. If you have read my column in the past, you know that I am a strong proponent of creating a vision —- that is, really setting aside time in a serene place to feel and envision what you want to create. I recommend that you and your spouse do this separately — and then compare your answers about what your retirement will look like. It makes for very lively date night conversation!!

Once you know from a lifestyle perspective what you want to do, feel, and “have,” the next part of being “ready” is to attach costs to this vision. The purpose of doing this exercise is ultimately to answer the question, “How much money will I need for retirement?”

This question alone keeps many financial planners in business since the art of calculating this need is not easy. And, the resulting numbers are astronomical (think Millions). The list of factors and considerations that impact the amount is long. A few questions you will need to be able to answer before any planner can help you are:

What age to you anticipate you want to retire? Do you have a goal of retiring at age 50 or do expect to keep working through until your mid-sixties or beyond? Again, this is the age where you would start to rely on your assets accumulated.

How much income do you want? This is hard to get your head around, so start with your income today. Are you comfortable? I will guess that you will want at least as much as you make now, if not more. While you may reduce your expenses in retirement (home costs may be eliminated, you may relocate to a less expensive area, you no longer have to save for your children), you will have much higher health insurance costs, and you will probably want to travel or do other exciting activities that require cash.

Will you have additional income? What is your confidence level in the existence of a social security system? Do you envision yourself working part-time or starting a business? Do you have cash flow from other investments such as real estate? Are you fortunate enough to have a pension? Are you confident it will still be available when you retire?

As you can see, getting “ready” to retire is a process you can start right now. While your idea of retirement will probably change many times as you have more birthdays, the practice of creating the vision, assigning value and ensuring you are contributing enough money toward your goal is one that will serve you well in any area of your financial plan. Make sure you get ready now.

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Remember your first paycheck and how shocked you were when you noticed how much was being taken out for taxes?  My son had the shock of his life when he saw his first paystub for his summer internship at Textron, Inc.   Although he instructed his HR department to withhold the minimum amount out of his paycheck due to his small amount of income (he is getting paid $16.50/hr.), his effective Federal tax rate was well over 20%.

It turns out that his housing and relocation subsidy of $2,500 had an automatic withholding of 25%.  Per federal tax law, if you have any supplemental wages, outside of your regular salary, the federal government can withhold taxes at a different rate.  Supplemental wages generally include commissions and bonuses, sick leave payments, reimbursements of nondeductible moving expenses, and taxable fringe benefits.  There are two methods of withholding, but if the supplemental wages are paid separately, they may be taxed at the IRS flat supplemental rate which is 25 percent. Supplemental wages are also subject to Social Security, Medicare, and FUTA taxes.

So in my son’s case, since the company paid him a lump sum of $2,500 for relocation expenses, that amount had 25% automatically deducted from his first paycheck.  Going forward, he will have a lower amount withheld, and then he will get a large refund when files his 2014 tax return.  My son was not happy that he would have to wait for the tax refund, but he will ultimately get most of this money back in the end.  For more info on supplemental wages click here.

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Can We Still be Smart Investors?

Any other week would be a better one in which to write a financially-themed article. While this article will be in the November issue, the context from which I write is immediately following the announcement that the House of Representatives voted NO on the Bailout plan. We all know that this sent the stock market tumbling, causing many people to feel fear— perhaps the first real time in our generation’s adult life (except maybe some from the dot com bust but that was “fun money” before we had families!!).

While a revised Bailout Plan will likely pass and a few more banks may fall by the time this is published, the events of the past few weeks have made many people question whether or not they are handling their money the “smartest” way.

As a fee-based financial planner who does not manage portfolios, I cannot recommend individual stocks or funds to buy and sell. Nor do I think that will help the families with whom I work at this juncture. I can, however, help you take a macro-perspective on what is smart for you and your family.

“Smart” begins with the basics:

  1. What is your family’s vision and what are you creating?
  2. What is your relationship with money? How do you handle fluctuations? How anxious are you?
  3. What are your financial goals? When do you need the money?


You’ve heard me say it time and time again if you read my column with regularity. What is the life you want to create for your family? What does it look like? How do you define success?

Are you living in a hillside cottage with a large yard or do you have an apartment with a home in Tahoe? Do you pick a new country to visit with your children every year? Do you want to settle into a community where you will root for the next 20+ years? Do your children walk to the locale public school or will they be attending a private school?

The vision you create for your family trickles down to the types of investments you make also called an investment vehicle (such as stocks, bonds, mutual funds). Before you can decide into which vehicle you will invest, you need to know for what you want the money.


A fascinating area of financial planning is how people relate with money. This alone can fill pages upon pages of articles and keep me reading for weeks (I am endlessly intrigued by this topic). At the very fundamental level, you have to know what is commonly talked about in the financial planning world as your “risk tolerance.” I find that concept hard to grasp, so with my clients I like to hear more about what keeps them up at night. What makes them anxious?

Is it any negative movement in a 401k or is it not having enough money in cash in a savings account? Do they ride out the drops like the one on Sept 29th with grace and ease saying “it’ll come back” or “this is expected” or do they run for the bank and hide their money in their mattress? Everyone is different and understanding your level of anxiety with investment fluctuations is an imperative input factor to deciding how to invest.


Taking your vision and translating it into financial goals is where I find the financial planning process helps the couples with whom I work the most. This makes the softer airy vision a dollars and cents reality. Smart investing requires that you know:

The amount the goal will cost
The Time horizon over which you are investing (that is, when do you need the money)?
The amount of money you are starting with for the goal
The amount you are contributing along the way

All of these factors will let you know what the return you need for your money will be. To say that another way, it will tell you how much you have to make each year on the investment to reach the goal. And different investment vehicles offer different possibilities for returns. Holding investments in cash will probably stay within a few % points, while stocks can jump all over the chart — in both directions. To get higher returns, you also will take on higher risk. The return you need combined with your personal tolerance for fluctuations will determine the investment vehicle.

For example:
If you already have $100,000 that you want to put toward a home down payment in one year, you only need a very conservative investment vehicle. Keeping that cash in a money market account would give you the best assurance that your money will be there when you want it.

I see many clients who come to me with next year’s house down payment in stocks or equity mutual funds. Perhaps that is how they built up the money or maybe they just like to participate in the market. In a week like the ones of late, however, a portfolio may drop 10%, making a $100,000 down payment now a $90,000 one. For the exceptionally daring individual, this may be okay, but as a financial planner, I advise people to match their investment vehicles with their time horizons.

If you want access to your money soon, keep it in a cash-equivalent vehicle. This way the market can jump all over the place and you can rest assured that you have what you need when you need it (caveat from the recent events: up to the FDIC insured limits of $100,000 – or more if you set up a certain kind of account designed to expand this limit) . The longer you have before you need the money, the more fluctuations you can likely tolerate. So while you may not be thrilled that your 401k invested in a mix of mutual funds, for example, has decreased, you will likely have more tolerance if you do not need the funds for another 30 years.


Granted there are those among us who will feel compelled to switch to other asset classes if ours are not performing just because of their personality and risk tolerance. Whether or not this is the smart way to go depends on your personal situation only. To help you handle the next bump, I encourage you to be prepared to act with knowledge and not emotion. The best way to do this is to partner with a financial professional who can help you ride out these rough times and stick with a “system” that works for your anxiety level and your goal achievement timeline. With a plan in place, you can approach the times when everyone else seems to panic with the desired calmness that comes with real knowledge of your own smart investing strategy.

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