Thursday, March 15, 2018

Nobel Prize Winner Works for the Little Guy

Recently the Nobel Prize for Economics was awarded to Richard Thaler. He was probably one of the few winners to create an immediate difference for millions of folks' retirement.

Back in the 1980's when the first 401k's were established, they were never intended to replace pension plans. One BIG difference, which proved detrimental: the 401k was voluntary. In order to activate the account:

1. the employees had to enroll in the plan,
2. they had to contribute some of their own money to receive the employer match, which was often considered "free money",
(Some companies contributed a minimum amount with no employee contribution.)
3. AND they had to choose the investments within the account.

This proved too big a task for most folks. They found the requirements confusing or intimidating even when help was offered. So instead of being a beneficial tool towards retirement savings, the 401k faltered.

Richard Thaler and others working in behavioral economics found, through their studies, that employees needed more than help; they needed the task to be done for them! For years he advocated that companies "nudge" employees to enroll. That "nudge" evolved into auto-enrollment changing the process for most firms: all new employees would be automatically enrolled as part of the companies' employee orientation and benefits.

The next step he championed was "auto-escalation". The employee starts small, contributing 2%-4% of his/her salary to the plan and agrees to increase that percentage each year until they reach the maximum allowable amount. In good years, when the employee receives a bonus or sizable raise, he/she may jump the increase 2% or 3% extra to reach the maximum amount sooner.

An employee always has the option to "opt out" and close the account or discontinue contributing. Also, in a time of financial struggle, the employee may decrease or stop contributions for a period of time.

Many thanks
to Richard Thaler and other behavioral economists for their contribution to helping Americans retire well.

Be $ Smart - call your HR office to learn about auto-escalation and other saving choices to help you reach your retirement goals.

You Just Inherited an Investment Portfolio. Now What?

Inheriting an investment portfolio may come with a wagon load of feelings - sadness at some one's passing, joy of new found money and overwhelm and confusion - not knowing how to handle it.

Several things must be considered before you go on a spending spree or quit your job. Chances are the portfolio belonged to someone older who constructed the portfolio to meet his/her financial goals, like provide income in retirement. An income portfolio generates income for living expenses and along with income comes taxes. If you are working you may not need additional income or the taxes you will ultimately owe Uncle Sam.

I recommend: Stop, Think, Ask and Plan.

Stop: Resist spending that money.
You may incur serious tax consequences. Breathe. There is no hurry. There is much to learn. The stock and bond markets go up and down daily. Take your time.

Think: Review your financial goals and see how this money fills gaps in your overall financial plan. It may allow you to retire earlier or defray education costs.

Ask: talk with a financial professional to learn more about this money.

Is it in an IRA or other tax deferred account?

What are the IRS requirements for taking distributions - within 5 years or over your lifetime?

What are the tax consequences? In a taxable account the original cost (cost basis) gets stepped up to the value on the date of death so you might owe little, if any taxes. Taking money from a tax deferred account creates "a taxable event" where the distribution is taxed as if it were ordinary income (like your pay).

Plan: The urge to spend is part of our culture so plan to spend 10% of that money on anything your heart desires - but only 10%.
Where does this money fit into your financial goals?
Can it - pay down some credit card or student loan debt?
- build the down payment for a house?
- help a son or daughter graduate with less debt?
- bolster your emergency fund?
- help you retire more comfortably?
If you are not a sophisticated investor and prefer to hold mutual funds instead of individual stocks, make a plan for selling the stocks, know the taxes involved and carefully put that money back in the market to work for you.

Be $ Smart - use discipline
with inherited money. Unless you have multiple relatives to leave you money, this might be a one time opportunity to fulfill your financial goals.

The Family Bank

The past few years have been truly difficult for our young adults. With diplomas in hand they eagerly sought employment. Some were fortunate to find work but many, not so lucky, "launched" in reverse - they moved back home.

Recent statistics show 44% of parents over 55 financially aided adult children in the past year. It might be tough for the graduates to be back with mom and dad but for mom and dad it strains saving for retirement or even postpones retirement for the next generation.

Continued support for young adults can drain a well-planned retirement.
Parents want to help their offspring but some rules must be considered.
Adult children must realize parents are not bottomless ATM's.
- Room and board could be in exchange for chores: yard work, painting, simple repairs, window washing, clearing a yard or a garage.
- Money loaned needs a signed, promissory note stating the date, amount, interest and term (date of repayment).
- Clear communication of expectations by both sides, in writing, keep feathers from flying.

Yes, parents want to help their children but consider the consequences:
When parents run out of money in retirement where will they go? They will move in with their children.
Parents - do you really want to live with your kids?
Young adults - do you really want your parents moving in with you?

Be $ Smart - Make it easy for everyone. Talk about expectations; put it in writing.

Saturday, October 1, 2016

Claim It or Lose It

Massive amounts of money (app. $41 billion) are declared unclaimed and ready for cash-strapped state governments to absorb!

Did you move several times? Have you found all the accounts your deceased parents ever held? Did you ever cash out that mutual fund you opened as a kid? You may be pleasantly surprised by going to, the website for the National Association of Unclaimed Property Administrators.

Stocks, bonds, bank accounts, insurance policies all fall under unclaimed or abandoned property. States use the cash and investment earnings as general revenue. These funds have become so critical to state budgets that recent changes result in your losing your assets even faster:

1. Seven years, the time in which you had to claim your property, has now been reduced to five and in some states three years!!

2. The definition of abandoned property (the return of undeliverable mail) has been changed to lack of contact. Even if you have been receiving statements your property is considered lost if you have not contacted the financial institution for a certain period of time!

Contact means:
1. calling
- speaking with a rep - automated lines Do Not count.
2. emailing
3. returning a proxy ballot
4. written correspondence.

Direct deposit, direct withdrawal, payroll deduction or reinvesting dividends Do Not count as contact!

Financial institutions typically ask for updated personal information every three years or so. Even if nothing has changed, make sure you respond. If you have not had contact with a company for some time, make the effort to verify or update your present address and phone number.

Be $ Smart - stay in touch with all your financial institutions to demonstrate you have not abandoned your accounts.

Happiness Quotient

You may have heard of the term wealth effect - it is the idea that when the value of stock portfolios, IRA's, 401k"s, rises due to escalating stock prices, investors feel more comfortable about their wealth, allowing them to spend more.

We now have the happiness quotient as determined by studies in the UK where a group of social scientists measured the "happiness" of bank clients through multiple surveys. They found that overall wealth was not the factor. What produced a true sense of happiness and well-being was the amount of available cash in personal checking or savings accounts.

Invested money or a pension felt either abstract or inaccessible whereas their large ATM balance evoked a sense of security and importance.

The thought of surplus cash not invested as losing value (due to inflation, lack of growth) misses the human psychology element. The premise is how you maximize your well-being over maximizing your financial benefit.

Ways to increase your happiness
1. build your savings i.e. your emergency fund,
2. save for vacations before you take them,
3. live within your means (aka spend less than you make),
4. buy experiences not things,
5. give money to causes that feed your spirit.

Be $ Smart: Enlarge your cash buffer to increase your sense of personal power, security and happiness.

Out of touch...

Once upon a time at the end of the work week, men and women would stand at the payroll window and receive an envelope of cash as payment for the hours they worked at any given job.

Some would go out and celebrate, some go shopping and some would go home where they would parcel out the cash into a series of envelopes: food, rent, doctor, gas & electric, telephone, emergency, vacation. One wouldn't dare touch the rent money! If there were any money left over, it was spent on fun.

We have lost touch with money.
Direct deposit of paychecks, credit cards, wire transfers, etc. all have removed us from the physical touch of money. We're not sure how much we make nor are we sure of what we spend. Money has become ethereal and elusive.

Try these two exercises to put you more in touch:

The next time you plan to eat out, take only the amount of money you intend to spend that evening. NO CREDIT CARDS - $35, $65, $100 As you order be aware of the cost of each item and factor in the tip. Can you "afford" another glass of wine, a second dessert or a cappuccino? With your credit card you wouldn't have a second thought and often spend more than you intend.

For two weeks track your ATM withdrawals.
On the back of each ATM receipt write down every purchase you make with that withdrawal - to the dollar! You might find you are suddenly aware of how you spend your money.

Once you get back in touch then you can make wise $ decisions.

Thursday, August 11, 2016

Easing Money Anxiety

The word "money" carries many connotations:
power, freedom, evil, fear, uncertainty, anxiety, depending on one's relationship with it.

It would be a great advantage for money to bring more positive reactions like freedom, opportunity, excitement, brotherly love, kindness.

How can you make that happen? How can you change your relationship with money? Find a really good financial adviser.

Yes, I know you can read and attempt to do it yourself. I've learned the hard way that even using YouTube videos, I still need a plumber, electrician and car mechanic. My reading and learning helps me understand the situation better but I have no intention of making that my profession. Research and comprehension keep me from being ripped-off or led astray.

A true financial adviser plays a sacred role and exercises a societal obligation to help people cope with money anxiety as stated in a recent article of Investment News.

Your adviser should be able to extract fact from fiction:

- are your fears or concerns about money well founded?
- are your goals realistic?
- are your values reflected in your investments?
- are you clear about where you are today and where you want to be in 5 years, 10 years, retirement?

A Robo adviser cannot feel your emotions or understand the cycles of life to help you make good decisions over your lifetime.
A true adviser honors your values, respects your worries and concerns and helps you accomplish your goals. And, they bring expertise to the table; the expertise that many years of study, client interaction, fluctuating markets built their experience and wisdom.

Good financial advisers are out there; you just have to search for them.

Be $ Smart
- take the time to find the financial adviser who's right for you to relieve your money anxiety!