One comment I do remember came from the older generation. They were in their seventies and had been retired for several years. They were done planning for retirement and had made all the adjustments they needed. Their pension payments had been determined. They had their Social Security. Their savings were invested appropriately for their situation. Their wills were in place. I later learned that my father even had purchased some long term care insurance. They were all set.

I struggle with the idea of being all set. So many things can change. In this case, it was not even the most discussed change that concerned my parents. The retirement seminar took place before 2008 so you might think their investment strategy changed, but no. My father must have a cast iron stomach, as they used to say. He was invested for future generations so he was all in on equities and the market turmoil did not disturb him. His main complaint about his investment advisor is that they sold so many securities and did not reinvest the proceeds quickly enough. He kept his faith that the market would continue its long-term trend of growth and he was invested for the long term.

For my family, the change that upset their well-laid plans came from their health. I well remember my father canoeing with us in the Boundary Waters at the tender age of 75. We hiked several portages and canoed across many lakes. Although my brother and I discouraged it, my dad even carried a canoe over one of those portages. (Part of the reason the trip stands out for me was that a woman from my local church could not come to church for a one-hour meeting “because she was 75 years old.” The same age my dad carried a canoe several hundred yards through the woods.) By 80 years old, he was starting to slow down. By 85 years old, he was looking for help managing his affairs and, shortly after that, moved to a nursing home.

If you are all set, you do not have to review your financial arrangements because everything is in place. Unfortunately, my dad started to have trouble communicating even though his mental capabilities are still in place. Perhaps with an annual review we could have changed his springing powers of attorney to effective powers with his consent. Now, I am afraid he cannot give his consent. Now his investments are being spent down to pay the portion of his nursing home stay not covered by long term care insurance. His investments are no longer invested solely for future generations.

Changes continue in your life no matter your age. Some of those changes may come from the economic environment. Some may come from changes in your family situation. Some may come from changes in your health or personal situation. Your financial plan needs to be reviewed periodically to respond to those changes.

John Comer, CFP®
Consultant
Comer Consulting, LLC
Plymouth, MN

The bureau states its central mission as the following:

The central mission of the Consumer Financial Protection Bureau (CFPB) is to make markets for consumer financial products and services work for Americans — whether they are applying for a mortgage, choosing among credit cards, or using any number of other consumer financial products.

Upon his appointment as director Mr. Cordray hit the ground running, and that very afternoon emails asking average Americans to “share their story” went out to the agency’s growing database of consumers. Consumers were asked for and given access to submit a mortgage complaint or credit card complaint. Once submitted, consumers can check their complaint status. The website also helps consumers find the appropriate agency to contact on other financial issues through the Get Help Now link.

It’s clear that the bureau was intent of making their website consumer friendly. The website is extremely easy to read and use – with larger type than you would normally see and simple understandable language. The simplicity (in the best sense) is in direct opposition to the various complicated financial documents most consumers find too confusing to understand – the very documents that the bureau hopes to push to make more understandable to everyday consumers.

But beyond the ability to get help with a financial complaint, the bureau’s website provides useful consumer information on the use of various different everyday financial concerns, particularly in the areas of banking and credit. Consumers can also get information on the following:

• Bank accounts
• Budgeting Credit cards
• Credit counseling agencies
• Credit reports and credit scores
• Debt collection
• Gift cards, stored-value cards
• Home foreclosure
• Home ownership
• Investments
• Service members, veterans, and their families
• Seniors
• Student loans
• Young adults

Visit the CFPB at  www.consumerfinance.gov to learn more.

Pamela Sandy, CFP®
Founder
CONFIANCE, LLC, Financial & Investment Advisors
Cleveland, OH

People born in the year of the Dragon (1904, 1916, 1928, 1940, 1952, 1964, 1976, 1988, 2000, 2012, etc.) are said to possess such character traits as dominance and ambition. Dragons prefer to live by their own rules and are known to have free spirits. They are driven, unafraid of challenges, and willing to take risks. They are passionate in all they do and they do things in grand fashion.

So in the year 2012, let’s resolve to learn from the ways of the Dragon and make better financial decisions. Here is a step-by-step guide to help you get started:

1. Build a Budget. Start the year on the right foot by creating a realistic budget that you can live with. A budget is nothing more than a list of all your recurring expenses (eg. utility bills, car payments, mortgage payments, insurance payments, etc), and your income (rental income, salary, any part-time job). The most important number is the “net amount” that is left after all the expenses are paid. If your “net amount” is negative, then start identifying expenses that can be either reduced or eliminated. If the amount if positive, then consider saving more! 
2. Eliminate Your Debt. Make 2012 the year that you resolve to slay your consumer debt (i.e. credit cards!). Start by making a list of all of the credit cards on which you owe a balance, then sort the list by their APR from the highest to the lowest. This list is now your priority number one in 2012! Start by aggressively paying down the card that carry the highest APR and work your way down the list until your debt repayments become manageable. In the mean time, do not accumulate any more debt unless absolutely necessary. 
3. Establish a Emergency Savings Accounts. Once you have established a realistic budget and a manageable debt repayment schedule, the next step is creating an emergency savings account. Depending on your situation, and the reliability of your income sources, most Financial Planners recommend maintaining a 3 to 6 months “cash cushion” in case of a lay-off, accident, or unexpected home repairs. This portion of your money should be invested extremely conservatively and kept completely liquid. A good place to consider parking this money would be a bank savings account or money market fund.  
4. Fund Your Retirement. Now that you have established a budget, created a debt repayment plan and started building an emergency savings account, your next priority is to begin funding your retirement. You should always try to contribute the maximum amount into your retirement plans. But if you are not able to, and assuming your company offers a 401K match, you should contribute at least enough to the plan to take full advantage of the match. If your work does not offer a 401K option, then you should consider funding either a Traditional IRA or Roth IRA, depending on your tax situation. The “rule of thumb” on retirement can be summarized into one sentence – start saving as much as you can, and as early as you can!

Make sure you write down your money goals and review your progress on a regular basis. Even incremental improvements in your finances today can produce big rewards down the road. I wish all of you a great 2012 and may the year of the Dragon bring you a year of prosperity, health, and happiness!

Andrew B. Chou, CFP®
Senior Portfolio Manager
Westmount Asset Management, LLC
Los Angeles, CA

The complexity of the U.S. tax system cannot be overstated. There were 1,396,000 words in the entire tax code of the Internal Revenue Code and Regulations in 1955.  In 2005, the word count was just over 9,097,000 words, a whopping 545% increase in that given time.

It is no wonder that the Oracle of Omaha, the great investor Warren Buffet, must have been confused when he wrote an Op-Ed piece in the New York Times stating that among his secretary and other office workers their “tax burdens ranged from 33 percent to 41 percent and averaged 36 percent.” If this truly is the case, the office workers should immediately seek qualified tax preparers to file amended tax returns. So how does one of the world’s richest men not understand individual income taxes and the rates they really pay? Simple, he doesn’t prepare his own tax returns.

Let’s cut to the chase. There is a perception that the rich do not pay their “fair” share of taxes and that middle class and poor suffer because of it. First, let us focus on giving and receiving. Specifically, who pays the taxes and who receives the government spending generated from taxes. According to the Tax Foundation, for every dollar taxpayers in the top 20% of earnings (household income over $191,400) paid, they received $0.32 of Federal spending. Compare that to every dollar taxpayers in the bottom 40% paid (household income less than $35,300), they received $17.75 of Federal spending.¹ It is estimated that a trillion dollars ($1,000,000,000,000) is transferred each year from high- to low-income groups.²

According to the Internal Revenue Service, there were 137,982,203 tax returns filed in 2009 with positive adjusted gross incomes. The average tax rate for earners in the top 1% was 24.01%. The average tax rate for the bottom 50% of all taxpayers was 1.85%. In fact, the total share of income taxes paid by the top 1% of earners rose from 43.26% in 1987 to 58.66% in 2009. Contrast that to the bottom 50% of earners whose share went from 6.07% in 1987 to 2.25% in 2009. The tax burden of the top 1% of taxpayers now exceeds that paid by the bottom 95% of taxpayers.

Source: Tax Foundation

Get a Rate Like Mitt

What is a taxpayer to do if they find themselves paying tax rates above the national average relative to their income? The first suggestion is to have a professional tax preparer review your situation and look for ways to reduce your tax liability. If you are a single person who rents, does not contribute to any retirement plan, no investments, no children and makes no charitable contributions, you will be in a relatively high tax bracket. There are a wide variety of tax deductions (lowers taxable income) and tax credits (dollar for dollar offset against tax liability) that are available to nearly all taxpayers.

In addition, there are ways to reduce your tax liability by investing wisely. For investors, dividends can be treated in two ways – as ordinary income or as a qualified dividend. The qualified dividend is taxed at a maximum rate of 15%. If you are in a 15% or lower bracket, you will pay 0% on qualified dividends while all other dividends will be added to your income and potentially subject to much higher rates. 

How you sell an investment for a gain can also have a big impact on your tax liability. If you sell a stock or mutual fund that is held for less than a year, the gain will be subject to ordinary income taxes. Instead, should you hold the investment for a year, the gain will be subject to long-term capital gains rates. For taxpayers at or above the 25% bracket, the long-term capital gains tax rate is 15%. For investors at or below the 15% bracket, the tax liability is 0%. 

The problem with taxation does not lie within the socioeconomic structure that currently exists. The problem is put directly on our elected officials and in particular members of the House of Representatives where tax legislation is introduced. Over 22 million tax returns claimed $6 billion dollars in tax preparation fees of which $1.7 billion was claimed by those with adjusted gross incomes below $60,000. Another issue. All of the above suggestions are for this year only. It all changes in 2013 as the Bush-Era tax cuts are set to expire.

The Internal Revenue Code is not nearly as complex as the attempt for the citizens of our republic to define “fair” when it comes to paying taxes. The debate over the word “fair”, especially during the intense heat of the upcoming elections, is filled with political partisanship, misinformation and fuzzy math. Voters owe it to themselves to become more knowledgeable about the issues at hand. Great sources of information can be found at TaxStats on the IRS website (www.irs.gov/taxstats), the Congressional Budget Office (www.cbo.gov) and the nonpartisan education organization Tax Foundation (www.taxfoundation.org).

¹ www.taxfoundation.org/files/wp1.pdf
² “Why Taxes Matter” Tax Foundation 2008 publication

Edward Gjertsen II, CFP®
Vice President
Mack Investment Securities, Inc.
Glenview, IL

• They are really not important but they sound good on paper
• You don’t know that you need to do them
• You don’t have the time to do them (aka they are not a priority)
• You don’t know how to do them (it feels too overwhelming)

I really wanted to title this blog The Big Things You Must Do in 2012. I had an epiphany as to how things actually get done. My epiphany was that big and important things often are put on the back burner because they are too overwhelming. Yet easy little things can be resolved when you do 1 piece at a time or even just a few minutes a day, especially by using a checklist. Just recently we’ve revamped the way that we correspond with our clients based on what we call their “to do lists”, which are all the things they know they have to do but they never seem to have the time to do it and often we can’t do it for them without more information. My mantra for 2012 and future years is to do the little things, not the big things! Our process is to be proactive with our clients about six times a year to try to get all those dangling participle items off the checklist. If we give someone five things to do they never get done but if we give them one thing, we have a better shot. It all comes down to the goals versus activities. Yet it is a series of smaller activities that get goals accomplished. So focus on the activities and try to adjust a few little things a day and they will ultimately add up to completed goals and a finished checklist if you don’t make the tasks overwhelming.

Now that you understand the little things are big things and that activities are just as important as goals, then let us move on with my top 10 list you will get done for 2012:

1. What do you have? This is a way to figure out what you own and what you owe to determine where you are. Basically you just add up the worth of your home, cars, bank accounts, investment accounts, retirement plans and even your tangible assets. Those are things in your house like your furniture, your jewelry, your coin collection, or anything else that you feel has some material value if you decided to sell it. Then add up everything that you owe which includes your mortgage, student loans, credit cards and personal debt from relatives, friends and bookies. The result is you Net Worth.
2. Do a budget check up. Of course that makes the assumption that you have one, which unfortunately most people don’t. If you want to take the time, watch this Budgeting Webinar. You’re trying to get some sense of how much money is coming in and how much is going out. The difference between the two should be your savings or you’re overspending and not living within your means. Of course you’re going to forget stuff, which is why you can use this budget form as a guide. Just remember that your financial life needs to start with a positive cash flow to be sure you are saving!
3. An insurance review is a critical part of financial planning. The events that could cause dramatic changes in your financial position are usually if we become disabled, have our homes destroyed, have somebody sue us, have healthcare problems, and of course dying. One of my previous blogs talked about the biggest risks we face in life and about half of them can be resolved by insurance.
4. When is the last time you did a will? I try to make sure that clients take a look at their estate planning documents every 5 years or more frequently if there are any major changes in their lives like divorce, deaths and healthcare issues. If you don’t have a will at all, then it’s time to get on the stick because they are really important things to have unless you want the court system and people you don’t even know to manage your affairs. If your life is a little more complicated then you might also want to have a durable power of attorney that allows others to take care of your affairs if you are incapacitated or out of the country, a healthcare proxy if you end up under life support and maybe even some trusts if you are single, have children with special needs or have a an estate that’s worth more than $1 million.
5. Check your credit report. You can often find some crazy little things in there that you might want to clean up, especially if you are planning to get a loan sometime in the future. If you see your credit score under 600, then you probably have some work to do to clean things up. Your report is free at least once a year from all the three major agencies and there is absolutely no need to pay to get a look at your report.
6. How risky is your money based on where it is right now and how much risk do you think you should be taking? Most of the traditional planners use some type of asset allocation to figure out how much risk you’re taking based on your mix of stocks, bonds, international stocks, real estate, commodities and anything else you may own. If you really don’t know what you’re doing, it’s probably time to ask for a free second opinion about your portfolio from a trusted advisor of someone you know. The benchmark is the volatility of the Standard & Poor’s 500 stock index, which has something called a beta, which is 1. That simply means if your beta is .5 after someone does the analysis, you have about half the volatility or risk of the S&P 500 stock index. If you’re taking more than that, it’s probably time to make some changes. If you absolutely can’t find someone to do this, then try Morningstar or check this link.
7. Are you paying too much in taxes and what are you going to do about it? Most of us aren’t certified public accountants or have the knowledge and desire to figure out the 72,536 pages of the tax code (which started with 400 pages in 1913). Just like it’s hard to determine your risk, you probably do need a professional here. Again it’s time to sit down with your tax person if you have one. If not, find a friend or co-worker that has one and see if you can get a free consult. Some accountants may even do it as a courtesy to their current clients in hopes you may work with them as a paying client in the future.
8. Check out refinancing as we have some of the lowest rates in history. I am not just talking about your home; you might want to consider your car, a personal loan or any other loan that sits out there where you’re paying more than 4-5% to borrow the money. When I did a recent analysis of my client’s mortgages I noticed that a very large percent of people have mortgages higher than 5%. Unfortunately real estate prices have dropped about 30% from their highs, so you still need to have equity in your house. Preferably you should have more than 20% equity so that you don’t have to buy private mortgage insurance or have to pay down the mortgage with your savings and investments. That reminds me about credit card debt. It may make sense to take money out of savings and investments if you have a high interest rate and you’re getting very little from your portfolio or savings accounts. The simple explanation is that if you are paying a 15% rate on credit cards, you’re not likely to get better than a 15% rate on your portfolio. So paying off the credit cards is the same as getting a 15% rate of return. When it comes to your mortgage refinancing, ask how long it would take to break even on the new mortgage and figure out if you plan on staying in the house that long. Getting a 1-2% better rate in today’s world can mean saving thousands over the life of a 30 year loan. Be sure to shop around and get competitive rates that include the closing costs and any points as well.
9. Ask for a raise or think about a career change. One of the best ways to improve your financial life is to make more money! Unfortunately people are uncomfortable negotiating with their boss to get a raise. Even worse is that we’ve had record job losses over the last few years and that can really wipe out years of progress when you have to live on unemployment checks. Since the recession began, we have lost almost 9 million jobs and only 2.2 million new jobs have been created. So you need to be proactive in two ways: First you can go to your boss and give her/him a program that is a win-win where you do better for the company and get a raise for it as well. The second thing is to retrain for another job that gives you better opportunities. This too is uncomfortable and may even require money to take courses. Making a change is never easy, but jobs aren’t guaranteed any more. Your human capital and earning power are probably the best single investments you have in your financial life.
10. Mend a relationship and get healthier! There is a theme in my blogs over the last few years of the direct link between wealth, and health and happiness in life. People should have balance, so maintaining discipline in these key areas is critical. Here again I urge you to make these small daily changes in life to meet your big goals for a happy, healthy and prosperous life. One of the best ways to be happier is to spend more time with the people that make you feel better and a reconciliation with someone you really care about may be the best resolution you accomplish in 2012.

Okay your top 10 is out, get to it and turn the little things into the new big thing this year.

Dave Caruso, CFP®
Certified Financial Planner™
Coastal Capital Group
Danvers, MA

As our baby boomer population starts

Number-crunching a pension plan payout election or number-crunching a 401(k) ‘payout sustainability’ amount are calculations that need to be tailored to the needs of the individual and their comfort level regarding the assumptions used in analyzing the decision options so we won’t explore those calculations here. 

Other coming of age decisions, like Social Security and Medicare can be more generically discussed.

Medicare eligibility begins at age 65. If you enroll to receive social security benefits at, or before, you turn age 65, you will be automatically enrolled in Medicare. If you are not receiving social security benefits when you turn age 65, you can, 3 months before your 65^th birthdate or up to 3 months after (to ensure no delay in your Part B benefits), apply for Medicare. Failing to timely file can cause your Part B premiums to jump 10% for each full 12-month period that a retiree did not sign up. Don’t worry if you are still working and have health benefits. The government and your employer plan will coordinate the primary payor issue. Alternatively, if you are still working, you can enroll later without penalty for up to eight months following retirement. Always check with Medicare at age 65 to learn about your options and any penalties that could come into play.

Traditional Fee for Service Medicare or Medicare Advantage. You will have a choice between traditional fee for service Medicare or Medicare Advantage. Traditional Medicare has gaps in coverage so many seniors chose to purchase a ‘Medigap’ policy to help cover those expenses in the gaps. Very important to remember is that a Medigap insurer cannot use medical underwriting in the 6 month window of opportunity (Medigap Open Enrollment Period) which begins on the first day of the month in which you’re both 65, or older, and enrolled in Medicare part B! Prescription drug coverage may be available with a Medicare Advantage Plan as might be vision, dental. Medigap policies sold after January 1, 2006 are not allowed to include prescription drug.

Social Security – Age 62, Age 65 or Age 70? About 50% of Americans file for social security at age 62 despite the fact they then will have an approximate permanent 25% reduction of their annual benefit. If, alternatively, we can wait until full retirement age (‘FRA’ – depends on birth year) and beyond, we can increase our FRA benefit by 8% for each year we wait. If we take Social Security before FRA and continue to work making more than $14,640, we will have to repay $1 of social security benefit for every $2 we earn over that threshold. After FRA, there is no earnings problem with having to repay social security benefits paid to you. If you receive a pension or retirement benefit from work in another country, it may have an effect on your Social Security benefits under the Windfall Elimination Provision. If you were married to a person for more than 10 years you may be able to file for benefits based on their earnings history. This can create an invaluable planning opportunity. If we draw Social Security benefits at FRA on the former spouse’s earnings and postpone taking Social Security benefits based on our earnings history, we can take advantage of that 8% per year benefit payout increase effectively increasing our lifetime payout by as much as $100,000 to $200,000!

Needless to say, there are a lot of critical planning decisions to be made when we ‘come of age’. Don’t miss out on deadlines and make your choices wisely. Your decisions will most often be irrevocable so seek counsel from a learned advisor and the Social Security Administration so that costly mistakes do not occur. It’s been your lifetime of work, now that you’ve Come of Age, it’s time to enjoy the all of the fruits of your labor!

David Bergmann, CFP®, EA, CLU, ChFC
Managing Principal
The David Bergmann Group
Marina Del Ray, CA

If you can relate to the Baby Boomers who are behind on retirement plans, now is not the time to quit. Instead, turn your game around by digging deeper into your wallet and your mindset. Tim Tebow reminds us how: The strength to triumph over tough situations comes down to stubborn optimism (that is, belief in yourself and maybe a higher power), the composure to think clearly and perform, and true grit.

Move towards your long term financial goals with these tips from Tebow’s playbook:

1. Define success your way.  
   “Success comes in a lot of ways, but it doesn’t come with money and it doesn’t come with fame. It comes from having a meaning in your life, doing what you love and being passionate about what you do. That’s having a life of success. When you have the ability to do what you love, love what you do and have the ability to impact people…That’s having a life of success. That’s what having a life of meaning is.” – Tim Tebow 

   Financial Lesson: Keep score based on what “winning” truly means to you, not anybody else. Rethink how much retirement income you really need to be happy.  

2. Use your talents and abilities fully.
   “Every time I step on the field, I’m going to give my whole heart regardless of the score.” - Tim Tebow 

   Financial Lesson: Give your job skills a regular workout and get in the game with all you’ve got. And guess what, you get to decide what is the “normal retirement age”, not the Social Security folks.             

3. Control what you can.
   “Something I learned early in college (is) to not worry about what I can’t control…But what I can control is my attitude, my effort, my focus every single day and that’s what I’m trying to worry about.” – Tim Tebow 

   Financial Lesson: Don’t get sidelined by what you can’t change. Get off the bench and tackle one thing everyday to be more financially secure. 

4. Expect challenges.
   ”You’re going to get knocked down but it’s how many times you get back up.” – Tim Tebow 

   Financial Lesson: Getting sacked is part of football and life. Work your defensive and offensive line to protect and strengthen your income, your health, your assets, your relationships. Trust your preparation and equipment to rebound from the inevitable blows.   

5. Don’t give up.  
   ”I’ve never quit anything I’ve decided to start…that’s how you succeed at achieving your dreams.” – Tim Tebow via Twitter 

   Financial Lesson: Don’t punt when you can run one more play. This life is your Super Bowl game. Play with no regrets.

Karin Maloney Stifler, CFP®, AIF®
President
True Wealth Advisors
Hudson, OH

1. That suggested I would have the opportunity to enjoy an extra 2 years on this great earth. Yes, I know that I do not control that decision and neither does the Census Bureau, but it still felt good to know I had an extra 2 years.
2. It also meant that I needed to have sufficient resources to support my life style for an extra 2 years. Well, let me check that one out.
3. It means I need to rethink the advice I give my clients about what they will need to save to support their future lifestyle. This provides a discussion point for clients to think about what the rest of their life will mean.

The question of how long one will need financial resources has always been a challenge for many new clients to discuss. The first reaction is someone else knows the answer and he/she is not telling anyone what the right answer is. The second response is their life could end tonight or tomorrow or some other day in the near future due to some unforeseen accident or illness.

I remind clients we are not looking for some exact date, but we do need to have an understanding that we all have a finite time on this earth. So let’s look at what we have available for data. The people who know how to do the math on this keep detailed information and analysis that provides us with estimated average lives for men and woman and we know from the data that women outlive men by about 5 years on average. We also have an idea as to how long any person will live because we get news reports on when people reach certain ages and when the oldest person living passes away.

The same week that I saw the news about living 2 more years, I also saw that a new American citizen became that new citizen at the young age of 114. They even showed her birth certificate in the picture about her.

So how does all this age discussion fit into a financial plan and the amount of money each of us needs to have available for our lifestyle needs? Many times the client will ask what is the average age for people to live today. My response is about 80 years, but that is not the right answer for your financial plan. If we plan for the average and you run out of money at age 80, what will you live on when you get to age 80 and you are going strong? The answer is we need to consider you living longer than the average, but how much longer is enough?

I looked at the Census Bureau report on the 2010 census to get some clues for this blog. Here is some of what I found. For the people who were alive in the 2000 census and were age 80 to 84 then, how many of them were still alive in the 2010 census? The answer was about 30% were in the 90 to 94 age category in 2010. Now I recognize that the people in the 90 to 94 group were not exactly the same people who were in the 80 to 84 age group in 2000 for the statistical purests. However, for our purposes it is close enough for government work as the saying goes.

For financial planning purposes, what would be important for you as you consider what you should plan for as to longevity is that we are a population who is living longer with each passing year – 2 years more in just the last 10 years. That is similar to what happened in the decade from 1990 to 2000 as well. So what will the next 10 years do to our longevity? 

When I am doing a plan for a client, I suggest to them that my calculations will look at getting you to age 100 and still having money left. If I get that far, then I will quit calculating. If you do not get that far under my initial calculations, then we will discuss what changes need to be made to my assumptions until we do get you to age 100 and still have money left.

Maybe we change the return on investment that you need to experience. Maybe it is the estimated cost of your lifestyle going forward. Maybe it is increasing the amount you need to save each year until you reach retirement. There are other variables to consider changing ,but what is important to appreciate, we do not want to have you get to the average age (80s) today and not have money left in your nest egg to cover the next 10 or 20 or however many years you will actually live.

Now, how long did you say you were going to live on this great earth of ours?

Francis St. Onge, CFP®
President
Total Financial Planning, LLC
Brighton, MI

When you think about economists and weather reporters, do you have a gut feeling they are generally accurate, or not so much? (My take is not so much).

While models can be useful tools to view what might happen, financial planning seems to me to fit better in a context of map making.

We often get hung up on what’s the best move financially based on a few variables (and many variables such as tax and investment rates we all know will be unpredictable!), and don’t always make the same effort in understanding the practical reasons for financial choice.

I liken investment concepts frequently to working with a GPS device, and have come to realize that the GPS and map work well for discussing financial planning choices as well.

In making a financial map, there are a few items we want to take into account:

1. Milestones – what are life’s major markers along the way? These are items that represent a change, but are not necessarily a goal. Social Security payments start; children begin their careers, etc.
2. Destinations (goals) – we’re all familiar with goals, but map goal setting shouldn’t be too rigid. Goals must have dollar amounts and time horizons, and also a sort of ranking (it’s more important to retire, than to buy a vacation home); yet maintain a flexible approach (it’s more important to retire, but I’d work another few years for a less expensive vacation condo).

The beauty of the map is while you are bound to stray off course, but just like a GPS readjusts to get back on path, so too can regular meetings with your adviser. You may start out with a destination or goal in mind, and find you may want to change paths several times.

The goal is to keep some flexibility in your planning, and to think in practical terms as well as financial.

Below are a few planning encounters I’ve observed where a step back and looking at the big picture map conversation is beneficial:

• Roger made a budget last year, and is basing his 2012 spending on what he created. In January he spends more on food and car repairs and is concerned he is off on the wrong track in the New Year. When taking a look at the bigger picture, last year had relatively few car repairs. Just like a financial plan, a budget needs to see the big picture; he also will need to replace his paid for car in the next few years which means establishing a place in the budget for car replacement .
• Tom and Sara created a financial plan for the first time last year at Tom’s retirement. Based on assumptions in tax rates, inflation, investment returns, and expenses they conclude they are doing very well to meet their retirement goals. In fact, the data suggests they may be able to pull $50,000 out of their savings and purchase a recreational vehicle they’ve been dreaming about owning and using to visit family across the country. While the data may continue to support this purchase, perhaps it makes more sense for Tom and Sara to learn a little more about what owning this vehicle is like by renting one for a few cross-country trips, and seeing how their budget may change in retirement over the next year to two.

Models can be useful tools to visualize and discuss options, but it’s important to also take a step back and realize they’re all built on assumptions not necessarily likely to be true. Plan, have flexibility for life’s unknowns, and update your map on a regular basis.

Robert Schmansky, CFP®
Financial Advisor
Clear Financial Advisors, LLC
Royal Oak, MI

When Lori announced, “no breaks,” Gina, the co-leader with Lori, muttered sarcastically that the leaders’ job was to scare us away from the class. As she circulated among the attendees and led the second half of class, Gina told us how well we were doing. “That is great form.” “Looking good; keep it up.”

Gina’s comment about scaring the class, in particular, pointed out that Lori and Gina have different motivational styles. Which style would help you achieve your goals? 

Perhaps you have set resolutions or goals for this year. One important step to help you achieve those goals is to tell people about them and seek support in your efforts. For some of us, not just any support will do. Some of us respond better to Lori’s toughness and some of us to Gina’s nurturing support.

When it comes to running, I am pretty self-motivated. Most of the time, I will get up and run on my own. If I get busy and skip running for a period, I can get myself back out.

When it comes to strength training, I respond better to structure and classes to create the routine. Having an instructor that is interesting helps to keep me interested and involved.

Although I am self-motivated with running, I need more support for strength training. When you consider your resolutions and goals for this year, think about the level of support that you will need to keep on track with each of your goals. Perhaps some of your goals can be achieved with your individual effort, perhaps others will only be achieved with support. If so, what kind of support will be needed?

As you think about individuals or groups that can help you achieve your goals, take a look at your overall environment as well. Pay attention to the conversations you are having with friends and colleagues. Pay attention to how the news media either helps you achieve your goals or gets in your way.

If you need support with employment or financial goals, you may not want to follow the mainstream media very closely. It is probably good that bad news is more newsworthy than good news—that suggests that good news is the norm—but even when the news is good it is reported as unlikely to last. 

While I do not suggest that you only listen to positive news and news that supports your views, I do recommend that you not spend too much time dwelling on negative news. Seek out reports that the country will return to its entrepreneurial greatness despite the efforts of both political parties in Washington.

John Comer, CFP®
Consultant
Comer Consulting, LLC
Plymouth, MN