Money Over 55

Ok, we had a guy call in to our firm a few weeks ago inquiring about our services. One of my colleagues returned the call.

The guy started off asking my colleague why it was that I talk about Social Security. He said,

"Obviously she doesn't watch television or read anything of value, or she would know that Social Security will be gone in five to ten years."

He also said:

• Inflation doesn't matter to people like me because I own my house outright. Inflation is for young people.
• I just want someone to give me an investment scheme or strategy that gives me 6-7% conservatively.
• I don't need a plan. I'm successful. I own my house outright. And I have $1.2 million in the bank. Plus I got out of the market two years ago because I'm smart.

If it would have been me, I would have politely said he was not a good fit for our services and exited off the phone as quickly as possible. My colleague is a little more patient and asked the guy a few questions.

He found out he is 62, married, and they spend about $100,000 a year. There will be some healthcare expenses and taxes on top of that. As he believes Social Security won't be there his portfolio will need to produce all of the income he needs. Using some back-of-the-napkin numbers, With $1.2 million earning 6% and withdrawing a total of $120,000 a year, the money lasts about 15 - 16 years. So that gets him to 77.

What the guy doesn't realize is that a plan can show him how to use that money and withdraw it in the most efficient way possible so that $1.2 million becomes like having $1.4 or $1.6 million.

But heck, he's so successful what difference would an extra couple hundred thousand make?

What he needs to do is:

1. Consider a Social Security strategy.
2. Next, he needs to look at inflation and life expectancy and run some scenarios based on different outcomes. Yes, his house is paid off, but does he think health care costs will stay fixed? And what about services like lawn care, home cleaning and other personal services that are in greater demand as one ages? I'm afraid he's in for a surprise.
3. Then he needs to look at withdrawal rate strategies for creating retirement income.

But heck, apparently I must not watch TV or read anything of value, so why listen to me? :-)

In my recent contribution to MarketWatch I address market predictions and gut feelings. With research available that slices and dices investments into every statistic you can imagine, it is amazing to me how many people still go by gut feel. Does it work? Sure, just like a trip to Vegas. Learn more in Market predictions: Follow your gut?

I love this article by Joe Hearn, one of my fellow MarketWatch RetireMentors. It showcases many of the non-financial habits of successful retirees. It's worth the read. Check it out at 8 Habits of Highly Effective Retirees.

This week one of my 61 year old clients came in and said, "I'll never retire... but I want to save for retirement." We got a good laugh.

He has no plans for a traditional retirement but still realizes he needs to put money away now for one day when he may not be able to work.

You may have a traditional view of retirement where you plan to be done at a specific age, or you may want to work as long as you are able. Either way, you do need to save for retirement. The key is how much?

It's always a balancing act between enjoying life today and putting money away so you can enjoy life just as much tomorrow. Finding the right balance starts with taking a look at how much to save. Find tips in How Much to Save for Retirement.

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Most hobbies take work. If it's fun, there's usually equipment to maintain. When I lived in Colorado I was an avid skier. Even skis have to be maintained; the edges get sharpened, the skis get waxed and an occasional gouge needs to be filled in.

I was thinking the other day about the various hobbies I have cycled in and out of, and the amount of time, maintenance and money each took. And I wondered, "Have I ever spent that much time on my personal finances?"

Now, I'm in the finance business, so you'd think the answer would be yes, but I don't think it is.

What if we each committed just a fraction of the time we spend on our hobbies to improving our financial future? An hour or two a month could have life-changing effects.

If I were you, I would start with the Retirement Checklist. What if each month you tackled one item on the list and figured out how to make progress toward putting a check mark by that box? Some items may take years before they get a check. Others only a month or two. By using the checklist you have a way to measure the actions you need to take.

Go ahead, give it a try. Add financial success to your summer maintenance program.

This summer I will once again be guest lecturing at Salem State's week long seminar (bootcamp) where they teach the body of knowledge needed to acquire the Retirement Management Analyst designation.

The week long class runs from July 15 - 19th.

Other guest lecturers include:

• Larry Kotlikoff
• Zvi Bodie
• Michael Zwecher
• Wade Pfau
• Michael Lonier

and many more...

Learn more and register at: Salem State Retirement Management Designation.

Disclosure: Dana holds the Retirement Management Analyst designation and speaks at industry events on behalf of RIIA, the organization that sponsors the designation.

From what I can tell, most people are still clueless about what makes a good portfolio of investments for retirement. They ask about gold, or an annuity or inquire if perhaps they should invest it all in Apple stock.

There's three basic things that make for good portfolio design.

1. Your Asset Allocation

Your asset allocation has to do with how your money is spread across various asset classes starting with broad choices like stocks (or index funds), fixed income (bonds/CDs/fixed annuities) and cash. Then within each choice you further allocate; stocks for example across U.S. large cap, mid cap, small cap, international and emerging markets. With bonds you have to decide on the type such as corporate  or government as well as the term (long term or short term). There are even decisions to be made with your cash. Do you use money market funds, iBonds or perhaps an ultra short term municipal bond fund? Your asset allocation determines the level of volatility in your portfolio and also determines your potential for return over time.

2. Your Asset Location

Next you need to locate assets tax efficiently. You likely have money in retirement accounts and outside of retirement accounts. By placing investments that are not tax friendly inside your retirement accounts, and those that are tax friendly in your non-retirement accounts you can increase your after-tax returns.

3. Controlling Costs

Next you need to manage costs. Some funds and investments are quite expensive. Sometimes you can exchange one fund with high expenses for another that owns almost the same type of stocks, but has lower expenses.

It takes a bit of time and expertise to go through the process above. Now, technology can help.

A new online platform called Jemstep offers a service where you can link up your accounts, and in about 30 seconds it can do an analysis that it takes me three hours to do on an excel spreadsheet.

And it costs less than $70!

It is absolutely a phenomenal tool and for those of you who do your own investing, I think it would be money well spent.

For those of you who are advisors, it might be a tool you can employ in your business. I know it's something I'll be looking in to.

As a general rule, I no longer take on personal clients. But of course there are exceptions. On Friday night, an exception came along.

She was referred by a colleague and it is always an honor when someone in your line of work refers to you. They have done their homework and they know you are good at what you do. They couldn't work with her because they aren't registered in her state. They gave her my name and number and she left a message on my office line at 7:51 on a Friday evening. I returned the call from my cell about fifteen minutes later and spent about an hour on the phone with her.

I took the time because she recently lost a spouse, and I have worked with many clients in this situation. It's an emotional and scary time. The number of decisions that need to be made and the amount of paperwork to deal with can be overwhelming. I've watched too many people make bad decisions during such a time.

The first thing I do is reassure them that nothing needs to be done quickly. Don't sell the house. Don't rearrange the portfolio. Don't buy an annuity. First, let's create an inventory of what you own, how it's titled, and who gets what. Next, let's create a projection to see how secure your financial situation looks. Then we can begin to make selective decisions about any changes that need to be made.

In her case, it is a second marriage, with both having children from previous marriages. Depending on how beneficiary designations were structured, this can make for some uncomfortable family dynamics. Her husband was nine years older than her and had been retired for several years. She is still working.

I don't have details yet, but it sounds like she will be in decent financial shape. Yet, there is one decision that was made that I find befuddling. Her husband had retired from a large corporation and chose the single life only option on his pension. Why do this with a wife nine years younger than you? Perhaps the answer will become clear as I work through her plan, or perhaps it was simply a less-than-optimal decision on his part. (Read Choosing the Right Pension Benefit Option for You and Your Spouse before making such an important decision.)

The one thing I do wonder is how much easier this might be on her if they had an established relationship with a trusted advisor prior to his passing.

Losing a loved one is hard enough. And when you don't have a financial plan, you are not only left grieving, you are also left wondering if your financial situation is about to go through a dramatic change.

Although I know many are capable and competent enough to do their own planning, I do think they may doing a disservice to their spouse in these situations. What do you think?

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A colleague of mine sent me this note yesterday,

"My company just added an HSA (Health Savings Account).  I learned more about the HSA option from the link in your quantum physics post than I did in any of the information and meetings our HR department had. (He's referring to my article Why Fund an HSA Over an IRA.) Only about 17% of our employees signed up.  I'm guessing it would have been more if people thought of it as a 401K on steroids.  I was one of the 17%, but I signed up mostly to pay less for health care that I rarely use.  The tax benefits were secondary.  And I certainly didn't know that I could fund it one time from my IRA.  I'm definitely doing that next year. Thanks for the tip."

I love hearing my articles made a difference!

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I am not sure why, but after each Thanksgiving Dinner in the Anspach family, there ensues a discussion involving Einstein, moving trains, the speed of light and aging. Last year I recall a bit of string theory finding its way into the mix.

This year, I thought I'd better get a head start and brush up on my quantum physics, and thus I found myself reading Stephen Hawking's The Grand Design (which I found to be a wonderful layman's introduction to quantum physics). One of the experiments described in the book fascinated me; my thoughts on it found their way into my latest MarketWatch contribution: Quantum Physics and Your Retirement.