When I started in the investment business in 1983, there were a handful of mutual fund companies you could deposit money with and that was the extent of your choices. Today, there are open-end funds, closed-end funds, exchange traded funds, plus any number of stocks and bonds to choose from. Where does an investor go? Here are a few tips to follow:
First you need to know your time horizon for how long funds can stay invested, then when will you have to convert invested funds to income. Along with your time horizon, knowing your risk tolerance is very important. To that end, we have an extensive risk questionnaire that all of our clients complete.
Make sure you are diversified. This is a statement that I have repeated numerous times over the years. Having a variety of funds, i.e., different companies such as large cap vs. small, or growth vs. value, as well as foreign and domestic, will provide a measure of protection during volatile times.
Do your homework when hiring a professional to help you. As CFP professionals ®, we have ongoing, extensive continuing education as well as a high fiduciary standard to uphold. Ask questions about fees as well as other types of services that will be provided to you.
Investing is a big deal – this is not gambling. We are here to help you throughout your investing life.
SHARE YOUR VISION OF WHAT RETIREMENT WILL BE LIKE.
Perhaps you are anticipating years of travel and adventure while your spouse is envisioning staying home and relaxing, gardening or playing golf. You should talk about issues such as how much time you will spend visiting your children and grandchildren and whether you want to explore new interests or volunteer.
DISCUSS HOW MUCH TIME YOU WILL SPEND TOGETHER.
You will probably discover there are some things you enjoy doing together and others you do not, and you should agree upon how much time you will allow each other to enjoy your individual pursuits. The fact that your spouse doesn’t want to spend all of his or her time with you doesn’t mean he or she doesn’t love you. It’s a rare couple that truly enjoys being together 24 hours a day.
TALK ABOUT HOW ROLES AND IDENTITIES WILL CHANGE.
This is especially relevant if you will no longer be the primary breadwinner, or you receive a great sense of fulfillment from your work. If one of you will retire before the other, each person will go through the emotional process of separation from work on a different timetable. The spouse who retires first will probably transition into the role of primary homemaker, and then the roles will change again when the other spouse retires.
PURSUE SOME OF YOUR OWN INTERESTS AND MAINTAIN SOME SEPARATE FRIENDSHIPS.
One spouse shouldn’t assume that he or she will automatically be included in the social circles the other spouse has developed. Nor should either spouse feel like they have to spend less time with their friends in order to spend more time together. This can be a difficult adjustment in cases where a working spouse relies heavily on his or her co-workers for socialization during their working years.
TREAT YOURSELF TO DATE NIGHTS.
While you work, you and your spouse probably have limited amounts of time to spend together, especially if you have children. After you retire and you are around each other most of the time, being together will become commonplace. It’s easy to take your time together for granted. At least once a month, plan a night out to share an activity that you both enjoy.
By the time most of my clients reach retirement, we have been working together and planning for a number of years to assure they have a comfortable retirement and can fulfill their retirement dreams. Research through the Employee Benefit Research Institute shows that close to 63% of retirees have far too little saved for retirement. Here are three things to avoid so you don’t put your dreams at risk.
You don’t have a periodic financial checkup.
I like to meet with my clients for a face-to-face review and update at least every 6 months. This allows me to keep up to date on what is going on in their lives, and keeps them up to date on their investments and whether they are on target to reach their retirement goals.
Your do not have an investment strategy.
Everyone works better with directions of some kind, whether it is driving some place, or building a piece of furniture. This holds true for your interments also. We look at risk tolerance, time for your investments to re-invest, and when you have to make withdrawals, to name a few of the roadmap items when planning your retirement.
There is not a plan in place to replace your income.
You have to figure out how to turn all of your retirement savings into a regular income. Decisions need to be made regarding what accounts to access first for income, when do you have to withdraw from your retirement accounts and how much. And how much should you withhold for income tax? Having a successful plan for replacing your income will avoid a lot of stress in retirement.
Growing up, my parents managed their money through a checking and savings account at the bank. There was not a lot of choice beyond the bank for the average family, but that was all they knew or take advantage of in most cases. Today, things are very different. You can manage your money much better than your parents did. Here are a few steps how:
Diversify your investments:
Again, the bank was king. Depositing money in a CD was about as risky as many of our parents would get. You have a huge choice between open-end mutual funds, ETF’s (Exchange Traded Funds), and stocks to name a few. Just make sure that you are truly diversified as to they type of investments you have. I have seen accounts with a huge number of holdings but everything was a Large Cap US stock fund.
Plan for a long retirement:
Most everyone is living longer today. Lifestyle and science have done a lot to extend the average life expectancy. My clients’ plan for 30 years or more in retirement – that’s much longer than our parents planned to experience.
Put your financial wellbeing first:
Many of our parents put our education before their own retirement savings. Today, there are many different grants, loans, and scholarships available to students. Your kids can find ways to pay for their education, and you can help, but not to the detriment of your own retirement savings. Do you want to live with your kids in your retirement because you did not save for yourself? Most of my clients do not.
Learn about the financial world:
In many families, talking about money is taboo. If this holds true for you, there is a lot of information available online. Budgeting is key, as well as paying yourself first. Take some time to learn about money.
I recently recalled a conversation I had with a young client about 20 years ago. The client said to me, “If I only had XX $$’s in income, everything would be perfect.” My client felt that if they made “a lot” of income, and then could have a pile of money, everything would be fine. My client was missing the point. The income is not the issue.
No matter how much income you make, and are able to save, how you spend that income and savings is the real point. No one likes to put together a budget as it is time consuming and can often be a slap of reality that many do not want to face. A budget is a good thing. Knowing what you are spending on a required and discretionary expense and being able to control the spending is the real issue.
The advice is simple but not always easy to follow:
Pay yourself first through emergency fund and 401k savings.
Start a slush fund for big ticket purchases
Live below your means
Being a good spender is really the issue.
I started in this business in 1983, since then, communication has changed drastically. Back then, if I was not available a pink message slip went into my slot on a message wheel kept by our receptionist. Now, I can take a call or answer an email from anywhere. You would never know if I was in my office or helping you from my gym. Calls can be forwarded to my cell or home phone just as easily as to my desk, and I can reply to an email from anywhere I have secure internet service. But don’t ask for my cell number, try to send me a text, or ask me to text you.
As you might think, my industry is a highly regulated one. There is a clear separation that I keep between my work devices and my personal devices. Here is the reason why:
Our firm’s written Supervisory Procedures (WSPs) prohibit texting, especially from personal devices. Such policies are in place to protect consumer, adviser and firm (and markets) by ensuring that all electronic communications are fully documented and available to discovery procedures in the event of a dispute or legal claim.
So please don’t be offended, I do want to talk to you, just not via text.
That is the question my sister-in-law asked my husband two weeks after my mother-in-law passed away. The “they” was the appraisal company calling to say they would be at my mother-in-law’s house to appraise the value for the company that holds the reverse mortgage on her house. Reverse mortgage companies, and many other businesses employ rooms of people who do nothing more than scan the obituaries daily to see if their account holders have passed.
When someone has a reverse mortgage on their home and passes away, the heirs have a couple of choices. They can sell the house, or turn the keys back over to the reverse mortgage company and walk away. Which path to walk down may not be an easy choice.
My mother-in-law took her reverse mortgage in 2007 when property values were very high. The reverse mortgage paid her a nice monthly income until she passed, thus, allowing her to use her equity and live comfortably, now we have to make the decision as to how to dispose of the home.
Her reverse mortgage company had an appraiser contact us less than two weeks after her passing so they could determine market value, to get access to that figure, and the balance of the reverse mortgage required submitting legal documents to the mortgage company. What we have to look at as nothing more than cold, hard number is;
How much is owed on the reverse mortgage?
What might realtor fees be?
What might probate cost? Because there was no beneficiary listed on the deed, or joint owner to the house, probate is an issue.
Generally, a home with a reverse mortgage must be disposed of within 90 days. Heirs of the homeowner have the right to petition for a four month extension, three times, adding another 12 months on to the disposal time frame.
The bottom line for us will be: is there enough, if any, equity in the home? If not, we will turn the keys over.
I happen to think that a reverse mortgage can serve a great purpose to many retirees, but each decision to do so requires a lot of consultation and thought.
Recently, I asked the Facebook world to share with me the financial wisdom they gained from their fathers. Many of the fathers told their kids to pay themselves first, live within your means, and give back to your community. Here are a few more nuggets of financial wisdom from our fathers:
Credit cards were invented to be used instead of cash, not to get ahead on financially or buy things you can’t pay for now.
When you want to buy something, determine if it is a need or a want. If it is a want, do not buy it; if it is a need, make sure you have the cash to pay for it.
Don’t pay anyone to do something you can do for yourself.
One Dad had his kids get a credit card at 18, use it every month and pay it off. This helped them to establish credit.
And last but not least: one Dad said “When I die, I hope the last check I wrote bounces”.
We send a lot of time helping our clients plan financially for their retirements. Years in advance we determine how they are living their lives now, what they want to do in retirement, all of the sources of income, planning for health care, and other life cycle events. When someone walks into my office and says they are ready to pull the trigger and retire, I ask “What are you going to do with your time?”
More often than not, my client immediately lists a number of things they have planned. Some are now taking care of their grandkids full time, some have increased their volunteer works, and others get part-time jobs. A few have looked at me blankly and said they have no idea. I generally tells those people they have no business retiring. Here are a few examples of what I have seen happen when someone retires and has no idea what they are going to do.
A retiree going from a scheduled daily life, interacting with a lot of co-workers, always knowing where they have to be and when, is now faced with endless days of nothing specific to do. Sadly, this leads to depression and illness.
I have seen clients go through money like water under a bridge because shopping becomes an activity with no real purpose. I have seen clients gain tremendous amounts of weight doing nothing but eating while watching TV. Sadly, others get divorced because they are not used to being with their spouse 24/7.
When you get ready to retire – you have to know what you will be doing with your time so you can have a long and fruitful retirement.