5 Things To Demand From Your Financial Adviser

What do you do when you’re eighty-two and run out of money? It’s a frightening thing to be looking down the barrel of an empty bank account. It’s worse when the decline in your funds was due to the actions of a financial adviser that you trusted.

Gerry had been relying on her adviser for a long time. She and her husband, John, were in their mid-sixties when John passed away unexpectedly almost twenty years ago. Gerry was heart broken. John was her life.

Their’s was a traditional relationship for their time. Gerry raised their four boys, while John managed his business and their money. When John passed, Gerry put her faith in the financial adviser John had used for years. She didn’t know anything about investments, nor did she care. John had provided well for her, so she didn’t worry about money.

Gerry lived her life, enjoying her friends and a bit of travel. Her financial adviser was busy doing his thing. She didn’t know what. When the financial crisis hit, she was concerned that her account value declined so much, but what could she do?

While the investment markets recovered, Gerry’s account did not. She saw what should have been enough money to last her life dwindle to an alarmingly low level. She finally asked me to have a look.

What I saw was shocking. Her account had declined to just enough to cover a few remaining years of expenses. What’s worse, the investments were all wrong for someone living on their savings, with little savings left.

All of her money was invested in less than a dozen stocks, mostly in the energy field. There was no diversification and no pool of conservatively invested money to cover her monthly withdrawals. Amid a strong stock market, her holdings steadily declined in value. Every month the adviser sold some of her holdings to generate the cash for her monthly expenses. Because the value of the stocks he sold was down, the sales were doing more and more damage to the viability of her portfolio.

I was shocked. I naively believed that nearly all advisers had their clients best interests at heart. I never thought I’d see investment management this egregiously bad. This guy was simply trying to generate commissions on Gerry’s account. His behavior was serving no one but himself and was in fact illegal. His activity is known as prohibited conduct. In the financial services industry, investments must be prudent and suitable for the account owner.

Gerry didn’t want to take legal action, though she certainly had a very good case. She did sell her holdings to salvage what little money she had left. She’ll have to sell her beautiful house in the next year or so. She needs the equity to live on. Fortunately the equity will be enough for her to maintain her lifestyle for the rest of her life, but she’s devastated that she’ll have to leave her home that she loves so much.

You can’t just give your money to someone and assume they’ll do what’s right. While most financial advisers are good people, this story illustrates that it’s not true for all. Even an adviser with your best interests in mind, can’t know whether their strategy is still good for you unless you engage with them. Here are the things you should be discussing with your adviser on a regular basis:

  1. Update your financial information beyond the investments your adviser is managing. This should include total savings, total debt, and income.
  2. Reiterate or update your financial goals.
  3. Discuss whether you are saving enough, or if you’re closer to retirement, a plan for withdrawals that will help your money last and minimize your tax burden.
  4. Discuss how the investment strategy aligns with your goals, and how you can expect it to change over time.
  5. Ask to be educated on any concepts you don’t understand.

If your adviser isn’t willing to talk with you about these topics, find another one. Seriously consider someone with a Certified Financial Planner (CFP) designation. These professionals must demonstrate their skills before a governing board and practice for at least three years before they can use the designation. You can find CFP professionals in your area at letsmakeaplan.org or napfa.org.

Advisers gain a great deal of control over your savings. That can relieve you of making decisions you’re neither qualified nor comfortable in making. But you can’t just walk away. Review your monthly statements to make sure your adviser is doing what she said she would. And to make sure she is working toward the same goals as you, demand a detailed discussion with her at least annually.


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For a comprehensive, step-by-step guide to building your own financial plan, pick up my book, Save Yourself; Your Guide to Saving for Retirement and Building Financial Security. It is now available on Amazon.

How to Go From Happy to Desperate in 6 Weeks or Less

Last week GoBankingRates published an article on how to get your grown kids out of the house. After seeing it, I thought I better come clean. Our daughter, Kaye, has been back living with us for about a year after being mostly on her own for about two. She’ll be moving out again sometime this summer in a much better position, but it took a catastrophic fall to get her to learn how to manage her money.

Kaye made a series of decisions that, had we not been able to help her out, would have led to her becoming homeless. It was a serious eye opener and highlighted how vulnerable you can become.

In March of last year, Kaye moved into an apartment with her girlfriend. Both were making minimum wage. Kaye was busing tables at a big chain restaurant, and her girlfriend was working two jobs part time. They didn’t make much, but between the two of them, if they were smart about their decisions, they would have been all right.

There are several apartment complexes near us that offered relatively cheap rent for the Portland Metro area. They’re close to public transportation, which was important since neither owned a car. If they had picked one of those, their rent would have been about $500 a piece. It would be tight, but with no other big bills, they could have swung it.

They didn’t do that. They rented a much more expensive place that wasn’t nearly as accessible by public transit. Kaye’s girlfriend bought a car. Not a cheap used car but a nearly new mid-sized sedan. The payments and insurance were $500 a month. Well, they might still have been able to swing it, if the two of them picked up extra shifts.

They didn’t do that. Kaye’s girlfriend had a dispute with one of her bosses and quit. And then didn’t do much to get another job. Meanwhile, Kaye wasn’t getting enough shifts to even work 40 hours a week. The restaurant was sending her home when business was slow. She couldn’t get a second job, because she was scheduled 40 hours, but she wasn’t actually working them.

Through the month of March, we heard about spending that was extravagant, even for people who had money. They had a spa day together, and Kaye’s girlfriend had her hair done in dread locks to the tune of $300. They went out to nice dinners. I had no idea where the money was coming from.

And I’m just watching, knowing my daughter is going down in flames. She wouldn’t listen to me when I tried to show her how to make ends meet. She would barely sit still as I explained what she could really afford. She thought because she had made it on her own for a bit, she knew better. It was clear she was not going to take any of my advice.

It was tearing me up. After all, I wrote a book about this stuff. How had I screwed up with her to the point that she wouldn’t listen to me on the one thing I’m really good at? Nothing I said was getting through.

So, I shut up. My husband and I could only stand by and hope they figured it out.

Then Kaye got good news. She was offered a new job, with higher pay, benefits, and paid leave. We were all thrilled. She was to start on April 15th. She gave notice at the restaurant. I cautioned her to make sure she worked until she started the new job. She was going to need the money.

She didn’t do that. She left her restaurant job as soon as she could at the end of March. It left two weeks before she started her new job, and it would be another three weeks before she would be paid again. Five weeks total without a paycheck. Her girlfriend working 20 hours a week at minimum wage. Things were getting very dark.

Meanwhile her relationship with her girlfriend was deteriorating quickly. By the end of April, they were breaking up. They had no money. Kaye had sold a few pieces of jewelry to scrape together money for food. There was no way they were going to be able to pay rent in May. She finally came to us for help. All told, it took only about six weeks for them to crash and burn.

With the caveat that Kaye would pay us back, we covered the May rent, giving Kaye’s girlfriend the time to find another place to live. She ultimately went back home to her own parents. We also covered the fee to break the lease, so neither would have a hit to their credit. All in we paid over $3,000.

Kaye moved back in with us with the understanding that while she lived with us, she had to attend the Mom school of basic money management. The first thing she and I did was create a budget. We researched what she’d pay for rent and utilities in a roommate situation by searching Craigslist roommate wanted ads. We estimated the cost for food, laundry and toiletries. Since she needed a car for work, we agreed to sell her one of ours over time. So, car insurance was added to the list of mandatory expenses.

Each month Kaye gave us the money to cover these expenses, and we put it in a money market account for her. These were bills she would have to pay if she lived on her own. In addition, Kaye covered other costs out of her remaining money. Things like gas for the car, haircuts, her phone and any other spending came out of what was left after she paid these mandatory expenses.

To make sure she didn’t overspend, I asked Kaye to sit down and write out how she would spend every dollar of her paycheck before she spent any money. She simply wrote it in a ledger. She itemized the expenses and planned out how she would spend her remaining money. To help break her impulsive spending habits, she left her money and debit card at home, unless she had a planned expense to pay.

One year later, Kaye routinely plans how she’ll spend her money. By making the payments to us, she has saved enough money to cover three months of living expenses and more than enough to cover move in costs when she is ready to move out. In just a few months, she will have paid enough to buy the car from us. Of course, she couldn’t have made so much progress so quickly if she didn’t live at home. But it’s still a big accomplishment.

On her own, she’s also saving money to maintain her car, and cover her healthcare plan deductible and some potential out of pocket healthcare expenses. She saved enough money to have a short vacation in January and is saving for another trip in October. When she does move out, I believe she will have the skills she needs to stay afloat. She gave me permission to write this story about her experience, in case it would help someone else.

It didn’t take long for Kaye to appreciate her planning routine. She feels in control of her money and now uses it to do what she wants within what her income will support.


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For a comprehensive, step-by-step guide to building your own financial plan, pick up my book, Save Yourself; Your Guide to Saving for Retirement and Building Financial Security. It is now available on Amazon.

How Life on the Average 401(k) Balance Will Look

America’s retirement savings balances continue to be alarming. In a 2014 study, the Employee Benefit Research Institute (EBRI) estimated that 40 percent of us would not be able to cover basic expenses once we are no longer earning a paycheck. The situation has not improved.

The following table shows average and median retirement savings by age from the Vanguard How America Saves 2018 study.

Age Range Average Balance Median Balance
Less than 25 $4,773 $1,509
25 to 34 $24,728 $9,227
35 to 44 $68,935 $25,800
45 to 54 $129,051 $46,837
55 to 64 $190,505 $71,105
65 and over $209,984 $64,811

Average balances are skewed high by a small number of large accounts. The median balance indicates that half of near retirees have $71,000 or less in savings.

Of course there are issues with these numbers. Vanguard’s study is based on participant balances in Vanguard retirement saving plans. It is possible that participants have balances elsewhere in prior employer savings plans or in individual retirement accounts. Participants who have worked at their jobs longer do tend to have higher balances. But the EBRI’s study indicates missing accounts probably isn’t the primary reason for the low balances.

Using the 4 percent rule, with the average balance for the 55 to 64 set of $190,505, you could reasonably withdraw about $635 per month and have your savings last through your retirement. At the median balance you could withdraw about $216 per month.

Social security will provide some help. The average Social Security check after the recent cost of living increase is $1,461 per month. Between the average savings and the average social security check, you would have just over $2,096 per month to live on. With the median savings you would have $1,677.

If you are a couple, and you are both getting the average Social Security check and you each have the average in retirement savings, your monthly income would be around $4,200. That might be reasonably comfortable if you’ve paid off your mortgage. The Massachusetts Institute of Technology Living Wage Calculator indicates that amount covers basic living expenses in Portland, Oregon, is generous in Cleveland, Ohio, and not nearly enough in San Francisco, California. If you’re both at the median savings, of these three cities, you’d only be OK in Cleveland.

But savings balances for women tend to be only two thirds that of men, and women’s Social Security benefit is also lower on average. Women often work in lower paying jobs, and many have periods with no earnings, because they stayed home to take care of children or other family members. These factors lower both their savings and their benefits. So an average or median couple’s available income may be lower than double the individual average or median.

How do these numbers stack up to what you’re currently spending? According to University of Minnesota data, median household income in 2017 was about $5,167 per month before taxes. At the median savings rate, with Social Security (assuming both you and your spouse have the same savings and Social Security benefit), your retirement income would be about two thirds of your current income.

Of course you are neither average or median. Your situation is unique, but poverty in retirement is becoming more and more common. If your savings are falling short of what you need, what can you do?

The first step is to get a handle on what you have.

  • Understand your total savings balances for retirement and how that stacks up to the cost of your current lifestyle.
  • Find out what your other sources of income will be. You can estimate your Social Security benefit at www.ssa.gov with either their quick calculator or by setting up your own account.

The next step is to develop a strategy for closing any gap you may have.

  • Can you save more money? If you can, you’ve already taken a step closer, because you’ve reduced the cost of your lifestyle.
  • Can you reduce your cost of living in retirement, by making changes in your lifestyle or changing where you live?

The key to ensuring you have a comfortable life when you stop working for pay is to know what you need to do. Even if you have work to do and limited time, your confidence will rise simply by making a plan. There is no time like the present to get started. Wherever you are, you will have the most options for a better future if you start today.

Photo by Matthew Bennett on Unsplash

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For a comprehensive, step-by-step guide to building your own financial plan, pick up my book, Save Yourself; Your Guide to Saving for Retirement and Building Financial Security. It is now available on Amazon.

5 Tips to Save Your Finances in Divorce

On September 20th, Angelina Jolie filed for divorce from Brad Pitt, bringing an end to Brangelina, Hollywood’s golden couple. Fortunately for these two, the break up won’t make much of a difference in their financial security, but that is not the case for the average family going through this painful experience.

Divorce rates in the US are actually down, according to data from Justin Wolfers, a University of Michigan Economist. If current trends continue two thirds of marriages will never end in divorce. That is the good news. The bad news is for those relationships that do end in divorce the financial toll can be devastating.

The average cost of a divorce trial can run between $15,000 and $30,000. In some cities, the cost is much higher. But that is just the beginning. After the divorce, previously shared expenses are no longer shared. To maintain the same lifestyle after divorce as before will cost you about 30 percent more.

The financial impact of divorce can be particularly difficult for women. According to a 2009 US Census Bureau study, recently divorced women reported less household income than recently divorced men, and women were more likely to live in poverty. Three quarters of children of recently divorced parents lived with their mothers, and were more likely to be living in poverty than other children.

Divorcing late in life also has repercussions. Splitting retirement savings means both partners have less to retire on. While younger couples who divorce have time to rebuild their savings, those 50 and older don’t. Divorce impacts the total social security benefits paid to a household as well. Where the average social security income for couples who were continuously married was $22,607 in a 2010 study, the average for those who had been divorced and remained unmarried was only $12,000. For women who divorced after 50, the average social security income was less than $11,000, and 27 percent lived in poverty.

Money should not necessarily keep you in a bad marriage, but thinking through the financial impact of a break up a head of time can help maintain your financial security after. Here are a few things to consider before making the break, that can make life afterwards a little less difficult.

  1. Develop a post divorce budget. Mark gained custody of his two boys after his divorce and made spousal support payments for five years. The increased cash outlay didn’t keep him from pursuing his goal of an early retirement. Mark cut his other expenses to the bone while providing a stable and comfortable home for the boys. They didn’t have cable television or the latest in video games, but they enjoyed lots of time with their dad. As the spousal support payments declined, Mark was able to gradually reintroduce some luxuries and is on tract to meet his early retirement goal.
  2. Understand your financial situation before you start down the divorce path. If possible clear joint debt before you divorce. At the very least open new credit card accounts in your separate names and transfer the old balances between them. If you have car loans or other debt separate those as well. Regardless of who is supposed to pay the debt according to the divorce agreement, creditors can pursue you on joint accounts if your former spouse doesn’t pay. Chelsea found out the hard way that her husband had run up some large credit card bills without her knowing. After her divorce she spent two years working two jobs to pay off the debt.
  3. The divorce is not the place to get your revenge. No one wins, except the attorneys, when you use the legal process to inflict pain. Regardless of how hurt you feel, take the emotion out of the divorce. Consider it a business transaction. If you and your spouse can agree on how to divide your property, the cost of your uncontested divorce could be as little as $200, about 1 percent of the average contested divorce.
  4. If you own a house, it is likely a better idea to sell it before the divorce than for one spouse to get it in the divorce. If you get the house, you may get less in financial assets or you may have to buy your spouse out by refinancing. Either way, you’ll have less income and won’t have reduced your expenses. If you sell the house, the proceeds can be split and used for a down payment for each of you on a new home that will fit within your new smaller budget. If you agree to sell at a later time, you may create an opportunity for further conflict. Sharon and Russell agreed to keep their house in both their names until the kids were out of the house. Then Sharon would sell it, and they would split the proceeds. When Sharon was ready to sell, Russell refused to sign the transfer papers until Sharon made concessions to their divorce agreement.
  5. When dividing assets, keep an eye on future tax consequences. Traditional IRAs and 401(k)s will generally be fully taxable upon withdrawal, while Roth and non retirement accounts will not be. If you have both types of accounts take the tax consequences into account when dividing them. Once the accounts are divided, make sure to update your beneficiaries. Elaine was devastated when her husband’s IRA went to his ex-wife when he passed away because he had failed to change the beneficiary.

Divorce is painful and costly in so many ways. You have to establish a whole new life for yourself, and that means new hopes and dreams and financial goals. It’s easy to leave off that last one, but it’s a critical piece given how financially costly a divorce can be. Knowing your financial situation, developing new savings goals and creating a plan to get back on track while protecting yourself from future uncertainties will help you manage the divorce better and maintain your financial security after.

Image courtesy of David Castillo Dominici at FreeDigitalPhotos.net

Decks Stacked Against Women When it Comes to Financial Security

Financially speaking, we women are screwed. Everything from pay and time in the work force to the cost of our cosmetics is stacked against us. That is why it is particularly important for women to take it upon themselves to understand their financial situation and their options, and have a plan for their future.

On average, women make just 79 cents for every dollar a man makes. As of the end of 2014, women in nearly every occupation and age group still made less than men according to data from the Bureau of Labor Statistics. Of course there are a variety of reasons for this, and there are volumes to be written about it. But the simple fact of the matter is the pay gap means women are less able to prepare for their financial futures than men. Less pay means there is less available to save. Less pay also means a lower Social Security benefit, which is based on average pay over your entire career. Women are more likely than men to live on only Social Security after they stop working.

Women are more likely to take time away from work to raise children or care for a relative than are men, and they are nearly twice as likely to work part time. Every year missed reduces your Social Security benefit, and as with lower pay, if you have less income, there is simply less to save.

Apparently we’re also suckers for a good marketing pitch. A recent article on Vox.com highlighted a study by the New York City Department of Consumer Affairs. The study found that everyday products that are marketed to women cost more than the same products marketed to men 42% of the time. Men’s products cost more only 8% of the time. Many of the products, like shampoo, have the same ingredients. Of course spending more than men on products we use every day cuts into our ability to save too.

The FINRA Investor Education Foundation found that Americans in general are fairly illiterate when it comes to finances, but women’s knowledge of financial matters and financial fitness is lower than that of men. The 2012 study found that 55% of women and 51% of men have no rainy day fund, and 39% of women versus 31% of men would have a hard time raising $2,000. Women are less likely to have a retirement account than men and less likely to own investment securities like mutual funds, stocks or bonds. In a five question financial literacy quiz that was part of the survey, women answered fewer than three questions correctly (men answered just more than 3 correctly). The questions covered concepts like compound interest, inflation and risk. To test your knowledge you can take the same quiz.

This is not OK Ladies! We’re going to live five more years than our male counterparts. We have to get smarter in order to make sure those years are financially secure. Despite the lower lifetime earnings, we actually need to save more. Here are five important things you can do to improve your chances for financial security.

1) Take charge of your own financial future. Surveys indicate that less than half of couples create a plan for their financial security together. Be an active part of planning for your future.

2) Have a budget. If you are spending all that you take home, you are failing to pay one very important bill – the bill for your future financial security. Make sure your savings target takes into account you living longer than your spouse, and consider it as one more bill that you need to pay. Pay that bill first!

3) Understand what you have. Make sure that both you and your spouse are aware of all of the accounts you have, their balances and how they are invested. Review your estimated Social Security benefits to understand how gaps in employment will impact your benefit.

4) Don’t be afraid of the stock market. To maximize your savings, you are going to have to invest in the stock market. Yes, it does go down sometimes – about one in every four 12 month periods, in fact. But it has never failed to recover. Stocks are perfectly appropriate for long term investments, such as retirement savings.

5) Seek help. There is no reason you have to plan for your retirement on your own. You wouldn’t rewire your house by yourself. You would hire an electrician. There is no shame in hiring a professional to help where you don’t feel comfortable. Many financial planners work on an hourly or project fee basis. There are also many great free resources on-line.

The things women need to do to become financially secure are really not different from what men have to do, but women face special challenges due to lower lifetime earnings and longer expected lives, not to mention more expensive shampoo. The decks may be stacked against us, but that hasn’t kept us from other great endeavors, and it shouldn’t keep us from financial security either. Take care of yourself by getting involved in your own financial life. Understand the issues, what you have and what you need, and take the steps to secure your own financial future.

Image courtesy of marin at FreeDigitalPhotos.net

 

Financial Security Harder to Find for Women than Men

The other day, my husband was watching an old episode of The Golden Girls while eating breakfast, and I caught a bit of it. I was shocked to learn that the characters were in their early 50’s, making me a golden girl – ugh! In this particular episode, Rose, played by Betty White, had been laid off from her job, and Dorothy (Bea Arthur) and Blanche (Rue McClanahan) were commiserating. None of them could go more than one or two missed paychecks without facing a crisis. A number of Golden Girls episodes deal with the characters’ precarious financial situations, which unfortunately, is a common story in America.

Women face particular challenges when preparing for retirement. They are more likely to have taken time off work to be a caregiver to children or older parents than men, which reduces both current income for saving and future social security benefits. The TransAmerica Retirement Survey of Workers reported that 45% of working women are working part-time vs 24% of men.  Part time positions often don’t have access to company retirement plans, and even full time working women still make about 18% less than men, making it harder to save.

Women on average, will live five years longer than men, so their need to save for a secure retirement is even more acute than it is for men. Yet across the board women are saving less. In its Global Investor Pulse Survey, BlackRock found that of those who had begun to save for retirement, women had accumulated $41,900 less than men. The EBRI Retirement Confidence Survey, found that 44% of unmarried women had savings of less than $1,000. Single women on the verge of retirement have a savings shortfall amounting to $5,250 of income per month, vs Men whose average shortfall is $2,833. Not surprisingly, women are less likely to feel confident about their financial security in retirement than men. While women are saving less, they’re investing their savings more conservatively, with about 63% of their holdings in cash or similar investments according to the BlackRock survey. More conservative investments means lower returns, and a further shortfall in savings.

What can women do? Here are five important things women can do to improve their chances for financial security.

1) Take charge of your own financial future. Surveys indicate that less than half of couples create a plan for their financial security together. Be an active part of planning for your future.

2) Have a budget. If you are spending all that you take home, you are failing to pay one very important bill – the bill for your future financial security. Consider your savings target as one more bill that you need to pay, and include it in your family budget.

3) Understand what you have. Make sure that both you and your spouse are aware of all of the accounts you have, their balances and how they are invested. Review your estimated Social Security benefits to understand how gaps in employment will impact your benefit.

4) Don’t be afraid of the stock market. To maximize your savings, you are going to have to invest in the stock market. Yes, it does go down sometimes – about one in every four 12 month periods, in fact. But it has never failed to recover. Stocks are perfectly appropriate for long term investments, such as retirement savings.

5) Seek help. There is no reason you have to plan for your retirement on your own. You wouldn’t rewire your house by yourself. You would hire an electrician. There is no shame in hiring a professional to help where you don’t feel comfortable. Many financial planners work on an hourly or project fee basis. There are also many great free resources on-line.

The things women need to do to become financially independent are really not different from what men have to do, but women face special challenges due to lower lifetime earnings and longer expected lives. That means women must get educated about what it takes to be financially secure, and they must take an active part in planning and saving for their future.

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