The Lightning Round: Round 4

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Thanks to all of you who submitted a question. Now, without further ado, here are my responses to five of your questions...

1.) I am looking at getting a new car, but I can’t decide how much I should spend. Do you have any tips?                                                                                                       
                                                                                                                                           - Hayley

How much to spend on a car or how much not to spend on a car, that is your question, and it’s a good one! Strictly financially speaking, I’d recommend you take a close look at your monthly income and your monthly expenses, and see how much extra cash flow you usually have on hand at the end of each month. Let’s say you find that number to be around $500. Then I would recommend you make sure you buy a car that allows you to have a monthly loan payment of less than $500. You should talk to the dealership or your local bank to see what kind of car loans and interest rates you could qualify for. That will help you calculate how much car you can probably afford to buy and still make financial progress month to month. If you are one of those people who saves up to buy a car and doesn’t need a loan, I’d recommend that you make sure you will have enough cash in the bank after your purchase to cover somewhere around three to six months’ worth of your living expenses.

 

Outside of the financial nuts and bolts, I would like to share a couple of other thoughts. First, it may not make sense to get a certain brand or a certain model if it costs a lot more than a very similar brand’s equivalent or the next best model. For example, my Jeep is a souped-up less expensive model that has almost everything the more expensive model has on it except the model name. Second, it may not make sense to go with a lesser brand or lesser model than you really want if you can afford it and the savings are only a few thousand dollars. A few thousand dollars is nothing to sneeze at, but if you will be driving your car for the next 10 years (like most people are these days) it might be nice to drive something you are excited about and proud of!

 

Please let me know if you would like to discuss this further or talk about your specific situation.

 

2. Other than a will, what are some other things someone can do to be prepared if they pass away?
                                                                                                                                        - M. Tyler

So often when someone passes away they leave behind a very large and time-consuming mess for their loved ones. This is not intentional, but throw in a few surprise accounts or insurance policies, a few calls to Social Security, and a house full of possessions, and a monumental task is often what heirs, and certainly the executor, inherit first!

Outside of a current and well-drafted will, there are a few things you can do. One, you can make sure you have your primary and contingent beneficiaries in place for any insurance policies, annuities, and retirement accounts you may have. Remember, this is critical, as beneficiary designations trump a will, and if there is no beneficiary designation in place, assets might not be distributed how you want or intend. Second, you can give away special possessions/heirlooms that are below the annual gift exemption ($14,000 for 2015) while you’re still alive to make sure they end up where you want them. You could also potentially direct the distribution of certain special possessions in writing after death as long as your will allows it (consult with your estate attorney to make sure you have the proper language). This can help reduce the chance that two sisters will be fighting over a plate “mother wanted them to have.” Third, having a list of who you want as pallbearers, who you want to officiate your services, what hymns you want sung, and what you would like your obituary to say can also be of great benefit and relief to your grieving survivors. Fourth, having a list of important people to contact in the event of your death with their applicable information can really help your family, too. Finally, selecting and prepaying for your burial/cremation arrangements can also ensure that you get what you want and you don’t create an immediate financial burden on your loved ones at the time of your passing.

I hope this is what you were looking for. Not a happy topic, but certainly one worth considering.

3. What do you think about what’s going on in Greece? Will the European Union last?
                                                                                                                                               - John

I’ll be happy to share some thoughts on this, but this is obviously just my opinion.

I forget exactly what I was reading or where I was, but someone once explained the Eurozone problems to me with a very powerful example that I’d like to now share with you. Essentially think about the United States, a union of states, versus the European Union (EU), a union of nations. If you were to stop and ask a stranger from Georgia and a stranger from North Carolina what they are, what would they tell you? They would probably both say they were Americans; not Georgians or North Carolinians. If you were to stop and ask a stranger from Germany and a stranger from France what they are, what would they tell you? The German would tell you he is a German, and the Frenchman would tell you he is French. See the difference? This is why I think the EU may always have some serious problems.

I think the situation with Greece is too far gone to be worked out unless the rest of the Eurozone just flat out forgives their debts. The Greeks are tired of the austerity measures, and the Germans are tired of loaning money to the Greeks. Greek and German politicians know this. They keep kicking the can down the road and putting band aid after band aid on the problem, but eventually I think there will be a “Grexit,” a humorous and witty term that many have already come up with for Greece’s eventual exit from the EU. I guess we'll have to wait and see what this next round of called Greek elections holds.

As far as the EU, there are a lot of powerful people and countries that really want this to work, so it may continue to exist for quite a while. Personally, as I read about the unemployment and economic contractions going on in other counties such as Spain, Italy, and Portugal, Greece looks a little like the first domino to me. I think Great Britain may have been very wise to have joined the political union, but to have stayed out of the currency union when they joined the EU. There are simply too many little economies and country-specific industries in play. That said, there are still high-quality and thriving companies in Europe, and some countries such as Germany are still doing very well. My best guess, however, is more political, economic, and currency storms are on the horizon. Stay tuned!

4. Are you worried about robo-advisors?               
                                                                                                                                   - Anonymous

A timely question, and one being discussed by many in my industry. For those of you not familiar with the term “robo-advisor,” a robo-advisor is an investment platform that allows an investor to have their portfolio managed online with little to no human intervention. Robo-advisor platforms, such as Betterment or Wealthfront, have made a splash in the brokerage industry by being less expensive, more user-friendly, and more interactive than most of the traditional investment management platforms offered by human advisors.

Am I worried about robo-advisors? Not really. I think their popularity may cause human advisors to step up their game, but as braggadocios as this may sound, I really don’t think a computer can do all that I do. Investment allocation is just a piece of what I help clients with (there’s also tax planning, cash flow planning, estate planning, insurance planning, scenario analysis, and lots of decisions where both finances and emotions both need to be considered), so I really don’t feel that threatened. I’m also very curious to see how robo-advisors do when we get a cyclical market downturn, and investors want to be reassured that the sky is not falling. I want to see what robo-advisors say when a client needs to decide whether to save for their children’s education or retirement. I want to see what robo-advisors say to a son trying to gain control of his late father’s account. If the robo-advisors’ support staffs start taking client calls – and I think they will have to – they will have to raise their prices, and suddenly, they won’t be so robo anymore!

I am also skeptical of robo-advisors because I’ve already seen some of their shortfalls first hand. For example, I had an individual bring me an account that they had elected to rebalance after every deposit. Well, with a little bit from each paycheck going into their account, that meant they rebalanced 24 times in a year, resulting in a lot of tiny, annoying, and tax-inefficient short-term capital gains having to be recognized at ordinary income tax rates. By selecting a friendly looking box to rebalance offered by the robo-advisor, this investor incurred additional trading fees, higher taxes, and a much more complicated tax return than was likely necessary. The investor meant well and knew it was prudent to rebalance his portfolio periodically, but any decent human advisor wouldn’t have allowed a portfolio to be rebalanced twice a month!

I may be in the minority of financial advisors out there who think this, but I’m sort of excited about robo-advisors. I think they can be a helpful tool so people invest sooner rather than later. I think they can make basic analytics more available to more people. I think their gadgets and apps will help modernize some of the ancient and confusing monthly statements being generated by large investment custodians. As a CPA who lived in the world of Turbo Tax and now a CFP in the world of robo-advisors, I welcome the technology and I encourage you to carefully try it, but my caring, easy-to-understand, and customized-to-working-with-you human self will still be ready to take your call when you need me!

5. What about you? What are you most worried about as far as your finances?                
                                                                                                                                    -Kristin

Hey now! I’ll be the one asking questions around here. Just kidding! Thanks for the question!

I’m worried about a lot of things. I’m worried about the new expenses my son just brought into my monthly budget. I’m worried about the mortgage my wife and I took on when we moved. I’m worried if we’re saving enough for retirement considering neither one of us has a job that offers a pension, and I’m less than bullish on the chance of us receiving any meaningful Social Security income by the time we qualify.

How do I sleep with those worries? We spend less than we make. We save as much as we can. By growing our family and buying a house we’ve made a bet on ourselves, and I have faith we can do it.
Sure, there will be hard times and bumps in the road, but I believe we can do it. And I might or might not have a pretty sophisticated financial progress spreadsheet somewhere...

If you build up an adequate rainy day fund, you adequately insure your family should there be an unexpected death, disability, long-term illness, or liability, and you have an adequate estate plan in place to execute your wishes and desires, there’s really not much left to do. Do the best you can, live below (or at least within) your means while still making memories and enjoying experiences, and carry on. Monitor your progress and adjust your strategy as necessary. That’s what I tell clients, and that’s what I do myself.

Still, I do savor diaper coupons, I can’t wait to be debt-free, and I’m not above picking up pennies in the parking lot (heads or tails).

Thanks again for all the questions. Remember, our series on “Normal Investors” starts next week. I hope you’ll check it out because I’d be willing to bet that there is a pretty good chance you aren’t as normal as you might think. Just saying!

-Tom

Donor Advised Funds

Credit: Renjith Krishnan

Do you want to give money to a good and noble cause, but haven’t really found one that you like? Do you already give cash or appreciated stock to several charitable organizations, but wish you could give more? Are you already giving about as much as you realistically can and still wish you could give more? Perhaps you’ve had a really good year at work, you sold a business, or one of your stock holdings shot up like a rocket, and you want to give charitably over time and not all in one year? If you or anyone you know can relate to the above scenarios, you are not alone, and I may have just the solution you have been looking for: a donor advised fund.

A donor advised fund is an account that is maintained by a sponsoring charitable organization and lets donors give to charity with greater flexibility while still realizing the tax benefits associated with charitable gifting. In English, if you wanted to open a donor advised fund, you would open an account with a sponsoring charitable organization such as Schwab Charitable or Fidelity Charitable, and you would contribute your donations directly to them. This would allow you to lock in your immediate tax deduction just as if you had given a check to the American Heart Association. However, with a donor advised fund, you don’t have to immediately distribute your contribution. For example, if you gave $2,000 worth of appreciated Apple stock in 2014, you could distribute the contribution in 2015, 2021, or whenever you like. You could certainly distribute the funds in 2014 if you wanted to, but you wouldn’t have to, because once you contributed the Apple stock to your donor advised fund, it’s no longer yours. Essentially, you made an irrevocable gift, but you reserved the right to direct where the distribution goes at a later date.

By contributing to a donor advised fund and not immediately distributing your contribution, your contribution “lingers” in your account for a longer period of time. During this time, your contributions can be invested, and any growth will be tax-free. As with any investment, the value of your account could go up and it could go down, but your deduction won’t change (remember, you locked that in at the value of your donation when you originally contributed). This ability to let contributions linger can give a donor time to decide which organizations they want to benefit, and it can give a donor’s invested contributions time to grow and one day potentially offer a greater monetary benefit to a particular charity than the smaller, initial contribution could have offered. (That being said, I know of plenty of good charitable organizations that need money now to advance their cause and further their mission, so you’ll have to personally weigh immediate impact versus long-term financial magnitude.)

If you have a big tax year or your income stream is pretty sporadic (a lot one year, a little for a few years, then a lot again one year), donor advised funds can really be a good fit for you. If you’re charitably inclined, your CPA and financial advisor are probably encouraging you to give in those good income years so that you can fulfill your charitable desires and hopefully maximize your charitable deductions. As we discussed earlier, a donor advised fund will allow you to lock in your donation in that high tax year, but it will also allow you to give as you wish. Another way of saying this would be that a donor advised fund lets someone make charitable contributions sporadically and strategically (to their donor advised fund) and charitable distributions (to qualifying charitable organizations) smoothly, or however they wish.

Finally, what happens if you pass away and still have money left in your donor advised fund? Well, there are several possibilities. You could name charitable beneficiaries that would receive whatever is left in your account, or you could name another person or people as your contingent successor(s) to direct the distribution of assets left in your donor advised fund. Simply naming a charitable beneficiary is smooth and clean, but I have seen cases where naming spouses and children as contingent successors has worked really well. It allows contingent successors to benefit organizations they feel strongly about, and it also powerfully instills how important “giving back” was to the deceased one last time.

A donor advised fund is not for everyone, but I think it’s a pretty nifty tool considering all of the flexibility it offers. It’s sort of like having your own private foundation!

-Tom

Keeping It in the Family

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A common goal of many of the clients I serve is keeping “it” in the family. No, that’s not a south Alabama reference; I’m talking about keeping heirlooms, assets, and wealth inside the family clan. There are many financial aspects that families need to consider, and some may require complex, technical, and creative solutions to get the intended job done. My intent in this post is to scratch the surface and bring a few common issues I’ve seen to your attention.

Annual exclusion gifting- In 2014, you can give $14,000 or less to another individual, and it will be exempt from gift tax implications. This is a great way to keep assets in the family, as the transfer is exempt from gift taxes and can reduce the assets of older family members that could potentially make up an otherwise taxable estate. However, this practice can also create problems if the recipients start feeling entitled to the gifting or become dependent on it and the donor can’t bring themselves to cut off the giving if their own financial situation becomes less favorable.

Unintended Will Consequences- Leaving things to family members by will is also a great and somewhat obvious way to keep things in the family, but there can still be problems. What if you leave your residence to your two kids 50/50 and one wants to sell it and one wants to keep it? Your bequest just became a family feud! What if your will leaves all of your assets to your second wife and her will leaves all of her assets to her kids from her first marriage? If you have kids from your first marriage and predecease your second wife, your kids could be totally left out if the proper estate planning is not in place! What if you leave all of your stuff to your daughter and she couldn’t care less about your beloved coin collection that your brother would love to have? Without specifically bequeathing personal effects, the possessions that some people in your family view as treasures could be treated as trash, literally!

Forgotten Beneficiary Designations- What if you forgot to change the beneficiary designation of your company’s life insurance policy to your second husband after you remarried and the proverbial bread truck comes by? Forget you look like Wile E. Coyote - your second husband would be left without an asset he could have really benefited from while your regrettable ex-husband would be the recipient of a most pleasant and unexpected surprise! Remember, beneficiary designations trump your will!

The “Tax Bite”- There are numerous strategies that you can employ right before the end of your life (and even at death) to reduce Uncle Sam’s potential income and estate tax bites out of your estate. Less tax means more money to your charities, causes, and heirs. Uncle Sam’s share can be sizable, so tax planning should always be considered if you want to keep as much in the family as you can.

Closely Held Family Business Succession- If there is a closely held family business involved in your affairs, there definitely needs to be a clear succession plan in place to ensure the business entity stays in your family or at least compensates your family. Far too often when a business’s founder or leader passes away, a family disagreement between heirs with different objectives, expectations of the business, and degrees of interest or experience with the business comes to light. If the business just automatically goes to the spouse, that person could be forced into a position they don’t want to be in, or frankly, aren’t good at. Think of how painful it would be for the former business owner looking down to watch the value he or she painfully built up brick by brick fall apart, fail, or become a relationship strain for their family.

Annual exclusion gifting, careful will considerations, proper titling and beneficiary designations, advantageous tax planning, and thoughtful family business succession planning can help keep it in the family. Many people don’t want their heirs to know too much, and I totally get that, but I’d also counter that you don’t want your heirs to know too little either. I’ve heard it said that people spend forty years accumulating assets, twenty years trying to preserve assets, and about thirty minutes figuring out how to distribute their assets. If you want to keep family peace, leave the legacy you intend, and keep as much of your wealth in the family as possible, I’d advise getting together with your financial advisor, estate attorney, and accountant to take a look.

-Tom

How to Spend It All

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Usually I try to write something about how to save money, budget, or invest. Occasionally I’ll go a little further out on a limb and talk about tax-saving opportunities, the importance of adequate insurance, or even some estate planning considerations. I try to make my messages timely, truthful, fairly upbeat, and hopefully, helpful. Today I’m doing something different: I’m throwing a changeup. I’m going to tell you how you can spend it all. Based on my personal experiences, situations I’ve heard about, and things I’ve read, I’m going to try to convey to you a shockingly simple lesson I’ve learned: No amount of money is so large that it cannot be spent.

• If you own so many pieces of real estate that you can’t rattle off all of the zip codes, you could probably spend it all. Even if you can afford the properties, the upkeep, additional insurance required, and property taxes might whittle away at your financial position over time. Also, as we relearned in the mid-to-late 2000s, real estate does not always appreciate.
• If you are so concentrated in one (or even a handful of stocks) that an Enron-esque fiasco for your holding(s) would literally bring you to tears, you could probably spend it all. I know, “They’re a great company, always have been and always will be,” but please go talk to some undiversified General Motors, Wachovia, and Lehman Brothers shareholders and get their perspectives.
• If you can’t say no to a single charitable call-a-thon or “urgent” donation request form in the mail, you could probably spend it all. Giving to charity is great on so many financial and personal levels, but if you are giving more and more, and your income and assets are not keeping up, you might find yourself someday needing charity.
• If you frequently “binge shop,” you could probably spend it all. Whether it is shoes, purses, hunting equipment, or the latest technological gadgets and gizmos does not matter; whether you can control your spending or not when times get a little hard does.
• If you can’t possibly have fun at a restaurant, hotel, or golf course that is not 5 stars, you could probably spend it all. Sometimes a peanut butter and jelly sandwich, a Holiday Inn Express, and a countryside course without a “19th Hole Bar & Grill” can suffice.
• If you can’t stop giving money away to your family, you could probably spend it all. Helping those you care about can be such an admirable act and very much appreciated by the recipients, but sometimes tough love and an occasional “No” will actually help them more in the long run.
• If you can’t ever achieve emotional peace when it comes to how you are invested, you can probably spend it all. I once saw a cartoon sketch that showed a stock market chart where the individual kept buying at the top of the market and selling at the bottom of the market. The punchline read something to the effect of “Repeat until broke!” Life is too short to not have peace of mind and the ability to focus on what is truly important. Sure there are market ups and downs, but if you are ever invested in a way that leaves you constantly uncomfortable, you shouldn’t be.  

I’m not trying to be Scrooge. I just thought I’d take a different approach to my usual message of saving and being fiscally responsible, and instead, share a few, common ways on how you can make hard-earned assets disappear.

Being broke and working is bad. Being broke and retired is even worse. Potentially leaving a little to your heirs may not be your goal, but it isn’t the worst thing in the world, either. Remember, if you really don’t like your heirs, you can always bequeath whatever you have left to your friends or to charity.

Please, whatever you do, just don’t spend it all!

-Tom

I Wanna Be a Billionaire

Credit: -Marcus-

Earlier this week, I spent a fair amount of time reading a very technical, highbrow article about many things someone could do with their wealth to build an enduring legacy. The article was very useful, and I even learned some new financial planning techniques and strategies I may mention to some of the clients I serve, but in the words of Ron Burgundy (Anchorman reference), it reeked of “leather-bound books and rich mahogany.”

I want to be clear - there is nothing wrong with a good leather-bound book or a rich mahogany bookshelf, but that article was simply not for everyone. I’d go so far as to say it was written for only a very small group of people. Now I always tell all of my clients the truth and try to give all of my clients the same advice I would give my mother if she were in their shoes, but the thing is, the clients I serve are very, very different from one another. Some have cufflinks, some have holey blue jeans. Some like beef wellington, some like a hamburger steak (I’d take the hamburger steak, myself!). There’s nothing wrong with being different, and quite frankly, I enjoy the daily challenge of being a financial planning “chameleon” as I tweak my approach, tactics, and explanations to try to provide the best advice I can in a manner that each, unique client can relate to and understand.

I tell you all this so you can hopefully appreciate my motivation behind today’s post. Today, I offer some financial thoughts and commentary for you to think about as you live your life and consider what type of legacy you want to build, and one day, leave behind. I’m attempting the same thing as the author of the aforementioned highbrow article, but I don’t think overly-technical speech and a rich mahogany vocabulary are always necessary when trying to help people financially. Here goes nothing, but let’s see what I can do with a slightly “PG-13ed” excerpt of Travie McCoy and Bruno Mars’ “Billionaire,” a reggae, pop rap song about what McCoy would do if he had a billion dollars. The song lyrics are italicized and green; my commentary is in parentheses and black.

I wanna be a billionaire so freaking bad
(You and me both!)
Buy all of the things I never had
(There’s nothing wrong with prudently spending some of your hard-earned money. You need to save, you need to pay down debt, and you need to invest, but it’s important to remember that when your time comes, you can’t take your money with you!)
Uh, I wanna be on the cover of Forbes magazine
(It’s true, with personal or financial success there often comes fame and public attention, so you need to be careful. Even if you don’t quite make the cover of Forbes, it’s probably a good idea to have a substantial umbrella policy like we discussed in "Surviving Mayhem," or one with liability coverage close to your total net worth.)
Smiling next to Oprah and the Queen
(As I’ve gotten older, I realize more and more that there is sadly some truth to the phrase, “It’s not what you know but who you know.” If that is indeed the case in this cruel world, at least try to leverage your contacts and relationships to do good and make a difference!)
Oh every time I close my eyes
I see my name in shining lights yeah
A different city every night alright
I swear the world better prepare
For when I'm a billionaire
(The world better prepare and so should you! Planning in advance and examining the pros and cons of a life or financial decision before you make it is absolutely crucial. You don’t want to start a business and then worry about the wording in the partnership agreement, you don’t want to begin thinking about saving up money to send your kid to college when they’re already a senior in high school, and you don’t want to weigh the impact of choosing an annuity pension versus taking a lump sum at retirement for the very first time on your last day on the job!)
Yeah I would have a show like Oprah
I would be the host of everyday Christmas
Give Travie your wish list
(You can currently give someone up to $14,000 per year without their being any gift tax consequences.)
I'd probably pull an Angelina and Brad Pitt
And adopt a bunch of babies that ain't never had stuff
(Adopting is a wonderful thing to do. If you want to help, but you’re not in a position to adopt, there are many, very good charities you can assist with your time or resources that benefit children in need.)
Give away a few Mercedes like 'Here lady have this'
(Please talk to your financial advisor, insurance agent, and family BEFORE you give away a Mercedes!)
And last but not least grant somebody their last wish
(Contributions to the Make-A-Wish Foundation are tax-deductible…)
…I'd probably visit where Katrina hit
And do a lot more than FEMA did…
(Once again, there are numerous charitable opportunities where you can make a difference. Oftentimes in the case of a major disaster, you can specifically direct your contributions with many national and international charities.)
…Toss a couple million in the air just for the heck of it
(Please don’t.)
But keep the fives, twenties, tens and bens completely separate
(It is critical that any money of substance you have accumulated be diversified and secured. Investments need to be properly allocated, too much cash in one bank account isn’t as secure as it could be and the interest isn’t going to keep up with inflation anyway, and having cash stuck under the mattress can be a huge security risk (theft, fire, etc.))
And yeah I'll be in a whole new tax bracket
(You got that right! The new top federal tax rate is 39.6%. Add in state taxes, payroll taxes, and the Medicare surcharge, and your overall tax rate is likely getting on up there. It’s always a good time for tax planning with your CPA or financial advisor.)
We in recession but let me take a crack at it
I'll probably take whatever's left and just split it up
So everybody that I love can have a couple bucks
(It’s important to have an up-to-date estate plan in place. The current estate exemption amount is $5.25 million per person, so many people will not face estate taxes, but with as many tax laws that have changed in recent years, you need to make sure your money is still going where you want it to go!)
And not a single tummy around me would know what hungry was
Eating good, sleeping soundly
(It is more blessed to give than to receive.)
I know we all have a similar dream
Go in your pocket, pull out your wallet
And put it in the air and sing…

We can’t all be billionaires, but it is fun (and important) to think about what we can do with what we have. I’ve got a meeting later this week with a couple, and we are going over their estate plan to do just that. Perhaps, I’d better split the difference and go with something between rich mahogany and reggae lyrics. Either way, if you feel like your life and your purpose are bigger than just you, I encourage you to think about what fingerprints you’re leaving behind. Please keep in mind that your actions and your finances can be powerful tools in leaving a legacy that you can be proud of.

-Tom

You’re Retired, Now What?

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Just because you are retired does not mean you need to stop managing your finances. It does mean that after a long day at work, I’m a little jealous of you, but what do you care? You’re retired! After all those hours, all of your sacrifices, all of your savings and retirement plan contributions (hopefully), you deserve it. Today, I’m going to wrap up our suggested financial plan for a lifetime and offer some suggestions on how to make the most out of retirement without running out of money. Here goes…

• Get your cash up. I’ve found that most people have a “magic number” they like to maintain in their personal cash account. What’s yours? (I bet a number just popped into your head.) Some people I know have $10,000 or less because they don’t trust themselves with temptation, and that’s fine, - they know themselves. Some have almost 5 years’ worth of living expenses in cash because that gives them enough security to turn off the radio and television personalities who are telling them that the world is about to end for the 276th time. There is no correct answer, but I’d figure out how much your annual living expenses are above your annual incoming Social Security and/or pension payments, and I’d set aside somewhere between one and two times that amount in cash. If you stay above your “magic number,” you’ll be happier.
• Fine tune your asset allocation, again. No, this is not a copy and paste from last week; this is a genuine suggestion. If you don’t want to risk running out of money in your eighties and wondering where you can get a job, make sure your portfolio is in a prudent place. You want to have a sizable allocation in cash and bonds to ensure the stability of your nest egg, but you also need a sizable allocation in equities to allow for principal growth and to protect against inflation. What’s your checking account earning you right now? What do you think the inflation rate will be over the next decade? What do you think the stock market’s volatility will be over the next decade? See why you need an adequate amount of cash and bonds for income and stability, but at the same time, you also need an adequate amount of stocks for growth and inflation-protection?
• Vigilantly watch your annual withdrawal rate relative to your investment assets. No matter how wealthy you are, your investment assets get to dictate your lifestyle in retirement, not the other way around. If you look back and see that you are withdrawing more than 4 or 5% per year and you are in your 60s or early 70s, my alarm bells are going off, and yours should too! 5 to 6% in your 70s and 80s is likely doable, but don’t push it. I know you can’t take your money with you, but running out of funds to support yourself is a lot worse on you and your kids than leaving them a little.
• Update your Estate Documents. Not to be morbid or anything, but most of the time when people retire, they have a good portion of their life behind them. You need to make sure you have an up-to-date will that fulfills your desires and leaves behind the legacy you intend. As tax laws change, you may need to revisit your will periodically to make sure your plan is still on track. It’s also a good idea to redo your power of attorneys and health care directives as states frequently update these documents. It is not only crucial to have these forms in place, but you also need to have current versions in place to make sure your doctors, hospitals, and financial institutions will honor your intended wishes and listen to those you wanted to act on your behalf.
• Give while you’re living. I know, I know; I just told you to be careful about withdrawing and outliving your nest egg, and now I'm telling you to give it away. The key is thoughtfully balancing your wants, needs, and wishes, and avoiding acting on a whim. Back to my original point though: a colleague of mine often tells people to “Keep giving while you’re living so you’re knowing where it’s going,” and I couldn’t agree more. If you are in a comfortable enough financial position, wouldn’t it make you happier to see your grandson’s excitement if you took him to the Grand Canyon yourself as opposed to having to look down on him through some clouds and pearly gates? Wouldn’t it mean more to your kids if you set aside funds for your new granddaughter’s college tuition right off the bat as opposed to giving them the assets posthumously after they’ve been sacrificing and struggling to save for years? Again, I’m not trying to be morbid, and you need to be careful not to become the sugar momma or sugar daddy for several generations, but at least consider doing what you can, and actually want to do for others you care about, while you are able to enjoy the memories.
• Move on. I recognize I’m still a relatively young guy in this wild and crazy world, but I am often just as much a counselor to clients as I am a CPA or financial planner. I can’t tell you how many people I’ve seen struggle with retirement emotionally. You need to realize that retirement is not just sleeping in and going to the beach. Retirement is a financial, life-changing event. You no longer have a boss (except your wife). You may no longer have deadlines. You may have more free time than you actually want. You may see many workplace “friends” fade into just former co-workers. Many people love retirement from the start, and I hope you do, but it can hurt emotionally. My suggestions would be to find or dust off some hobbies, volunteer with some organizations you care about, find some television shows or a good book, travel, exercise more, and reconnect with some old friends or make some new ones. Most importantly, diligently and patiently work on reshaping your life with your spouse and family. You may not be used to being around them as much as you are in retirement, but they aren’t used to being around you as much either!

I hope you’ve gotten something out of the Now What? series. I encourage you to save these posts and put them in a place where you will periodically stumble across them to see how you’re doing. I’m not saying this because I think I’ve got it all figured out or because my plan is tailor-made for you; I’m saying this because I want you to be able to live a full life and retire in style without always fearing your finances. My suggestions won’t work for everyone, but in many cases, I believe they will get you off to a really good start.

Well, I finished the Now What? series, now what? Guess you’ll have to check back in next week.

-Tom