Two Schools of Retirement Income Planning

My job description is pretty straightforward: Manage your money so that it will last as long as you do. Making that happen, though, isn’t as clear-cut. In my business, there are traditionally two opposing positions about creating retirement income plans. One is guaranteed income, and the other is investing your money. The first, of course, is all about safety. For clients who are risk adverse, guaranteed income might be the better way to go. For those, however, who want to maximize their wealth by seeking a higher possible return, there is the Total Return philosophy. The latter is holding a diversified portfolio* of stocks and bonds with no guarantees on what you will earn. I’m not an all or nothing person. I believe that you can live your best life now and have the quality of life you desire later by integrating both philosophies.

First, let’s define what I mean by guaranteed income. Maybe I shouldn’t call it “guaranteed” because nothing is guaranteed in this life. “Safety-first” may be a better description. Nevertheless, it comprises Social Security, defined benefit pensions, bond ladders, reverse mortgages and possibly income annuities. The objective of a safety-first retirement income planning strategy is to ensure that your monthly expenses–the necessities–will be met whatever the market conditions are. This safety-first strategy may sound appealing to you, but most safe investments do not keep pace with inflation. Prioritizing your goals is the main ingredient of this strategy.

In contrast to this risk-adverse strategy is holding a total return-driven portfolio comprised of the right mix of stocks, bonds and cash. We’re talking about asset allocation which doesn’t guarantee that you won’t ever lose money but may keep the losses palatable. Here the objective is to maximize the likelihood of successfully meeting your overall lifestyle goals and attempting to outpace the ever-rising cost of living. However, designing the best asset allocation model or portfolio can be complex. You need to look at your time horizon and your tolerance to risk. Your mix of stocks and bonds should be determined by the amount of money you need to withdraw from your accounts.

I’ve been helping people retire for nearly 30 years and know that investing during your retirement years is trickier than saving for retirement. Retirees tend to worry that their money is at risk in the stock market, or they’re not being conservative enough. Outliving their money is an even greater worry. However, as you near retirement age, you should be weighing personal concerns with other realities that you may not have considered. For instance, we’re living longer. It’s not unusual now for retirement to last 30, even 35 years. Also, the cost of living continues to rise. Factoring in an average historical inflation of 3%, your retirement income needs may triple over a 30-year retirement! If you’re 80 years old, I doubt you want to go back to work to support your lifestyle.

Balancing all these factors can be challenging. For sure, you don’t want to be financially teetering in your retirement. That’s why I advocate for using both schools of thought in creating retirement plans. Guaranteed income acts as an insurance to cover your monthly expenses, and a return-driven portfolio, with solid investments, may give you a better opportunity of not only increasing the value of your portfolio but outpacing inflation.

Retirement income planning is a long-term strategy for helping you sustain your lifestyle. It’s really about helping to make sure that you won’t run out of money after you retire and that your money keeps pace with inflation. If you’re five to ten years away from retiring, consider meeting with a fee-based financial planner to design a quality retirement plan that will lay the foundation for your retirement income. You want to be ready for the ordinary costs and the uncertainties in the next stage of your life.

* While there is no assurance that a diversified portfolio will produce better returns than an undiversified portfolio, and it does not assure against market loss, a diversified portfolio may reduce a portfolio’s volatility and potential loss. In reference to general account obligations and guarantees, such as is present with some annuities, the ability for the insurance company to meet these obligations to policyholders are subject to sufficient capital, liquidity, cash flow and other resources of the insurance company. A bond ladder, depending on the types and amount of securities within the ladder, may not ensure adequate diversification of your investment portfolio. This potential lack of diversification may result in heightened volatility of the value of your portfolio.

“I Wish You Were My Financial Advisor”

My clients and other people may think that I spend my work day watching the stock market and making trades. I actually do neither. My job is to help my clients achieve their personal and financial goals, not to outguess the markets. After all, I’m a financial advisor, not an astrologer. Besides, neither daily stock market analysis nor trading add any value to my clients’ accounts. Sure, I may occasionally tweak my clients’ accounts, but more often than not, I spend my days caught up in the minute details of my clients’ accounts. It’s certainly not the most glamorous part of my job, but it’s a very important one.

Let me give you an example. A recently widowed client came in for an appointment several months after her husband’s death so that we could review her financial security and change the beneficiaries of her accounts. We first addressed her financial security going forward, and I assured her she had enough money to last her the rest of her life. By the way, that’s my principal role in my clients’ lives—making sure they don’t outlive their money and can enjoy a worry-free retirement. Anyway, this widow had four different accounts, all of which her deceased husband was either the joint owner or the primary beneficiary. So the next task was changing the beneficiaries and ownership of these accounts. We wanted to make sure there would be a smooth transition of funds in case something happened to her.

What we did was a simple procedure that any good financial advisor would do. But a week later, we also performed a standard operating procedure which my firm employs. That is, confirming that the brokerage company we use entered all my client’s information correctly. Sure enough, we found several mistakes. For instance, we noticed that of one of the beneficiaries’ last name was spelled incorrectly and saw that another account’s beneficiaries hadn’t even been changed.

So I called the brokerage firm and told the service representative that we had discovered these two mistakes. She immediately corrected the two errors, and asked me if there was anything else I needed. I said I was good to go, and she said, “I really appreciate your attention to detail. I wish you were my financial advisor.” I thanked her for the compliment and then went about my mundane day, ignoring the gyrations of the stock market.

(This article was originally published on Paladin Registry:

Sir Isaac Newton: The Emotional Investor

Sir Isaac Newton, as everyone knows, was a genius. His endless curiosity led him to tackle problems as minuscule as rug-peeing cats and as grandiose as humanity’s ultimate purpose in the cosmos. Naturally, we might think that a person this smart would also be a genius investor, someone who’s able to outguess the markets and become a multimillionaire with his investment acumen.

But Sir Isaac Newton was no outlier when it came to investing. He started out well enough by investing some of his money into the South Sea Company, a hot stock of the seventeenth century, and sold the stock for a handsome profit. But the stock continued to rise after he sold it. Initially, Newton resisted reinvesting his hard earned money back into the stock, but it continued to rise even higher, and that’s when the trouble began. As the stock price kept going up, Newton started to experience the all too human emotions of envy, regret and greed which often get investors into big trouble.

As the stock climbed, he plowed all his money back into the South Sea Company and shortly afterwards, the stock crashed, and he lost a fortune. By some accounts, he lost the equivalent of almost $3 million, adjusted for today’s dollars. Reflecting on his loss, Newton was quoted as saying, “I can calculate the motion of heavenly bodies but not the madness of people.” He blamed others instead of himself for his stock investing folly. But he simply let his emotions get away from him. He moved from being an investor to a speculator and a gambler. He gambled away a fortune, and as the saying goes: the house always wins.

If Newton had lived in modern times, he may have learned from social scientists that human beings are not wired to invest in the stock market. In times of stress, our primitive brain, which is responsible for survival behaviors such as flight or fight, kicks in. The primitive brain really starts to go haywire when we are losing money, or we feel like we are in danger. It for sure comes in handy if we smell smoke in our house, but it can cloud our judgment when it comes to our investment decisions.

Humans also have another behavioral bias called the “recency” effect. That is, we tend to apply a higher probability to things that have happened recently. Think back to earlier this year when the Dow Jones Industrial Average dropped over 1,100 points in less than a month. Many people thought that we were going to have a replay of 2008 when the market dropped about 40%, and they panicked. Of course, we didn’t go into another recession, and the markets recovered.

As Sir Isaac Newton proved, the smartest guy in the room is often not the smartest investor. Newton didn’t have discipline or a goal-oriented plan; he just kept jumping in and out of the market. Like Newton, our emotional behavior can blow up our plans. Worse, it’s almost impossible to identify this behavior in ourselves. Even if we could recognize it, we can’t turn our primitive brains off to think objectively. That’s why you should work with a trusted financial advisor who is not emotionally attached to your money and can think objectively. A good advisor will keep you disciplined and focused on your goals and not let your emotions drive your investment decisions. And unlike Newton, a good advisor won’t gamble away your money.

(This post was originally published on Paladin Registry:

Navigating Market Storms and Wall Street Hype

When it comes to making predictions, everyone’s an expert. Apparently you just have to sound like you know what you’re talking about, and you’re considered credible.

This is especially true in the financial industry, where there tends to be a lot of machismo, particularly during times of market volatility. It seems like everyone has an opinion about where you should invest your money. But smart investors know to steer clear of the noise and stick to a disciplined and diversified strategy.

Athlete picks
Given the onslaught of “expert” advice, it came as no surprise (well, maybe a bit) when I saw that Jose Canseco was tweeting about negative interest rates and gold a few weeks ago. You may recall the Oakland A’s slugger with the Popeye-sized biceps from the 1990s. Yes, that Jose Canseco. He was one of the “Bash Brothers,” along with Mark McGwire. Now he’s hot for gold.

On Feb. 12, he tweeted, “not a surprise but everyone should be in gold.” Minutes later, he added, “$1500+ by Memorial day.” Mind you, this is coming from the same guy who famously had a ball bounce off his head and over the wall in right field at Cleveland Municipal Stadium, resulting in a home run for the opponent. Despite his lack of professional investing experience, he’s reacting like so many other “experts” to the recent turmoil in the financial markets. I may find his tweets amusing, but I’m certainly not piling my clients into the glittering metal.

Beating the pros
Canseco’s recent musings brought to mind Orlando, the “ginger feline” who made news back in 2012 by beating a team of investment professionals and a group of students in a yearlong stock-picking experiment. The cat picked his stocks by throwing a toy mouse at a grid of publicly traded companies. His human opponents used methods involving “research” and technical analysis. At the end of the year, Orlando’s picks had returned nearly 11% while the pros had gained just 3.5%. In comparison, the Standard & Poor’s 500-stock index rose 13% that same year. They all would have been better off just buying an S&P index fund.

More recently, MarketWatch reported that Wall Street’s most-hyped stocks lost big in 2015. In fact, they did worse than the stocks that the same highly trained, highly paid analysts said not to buy. Apparently, though, bad forecasting is customary among Wall Street analysts. In the article, Brett Arends reports, “Each year since 2008, analyst data supplied by Thomson Reuters and stock performance data from FactSet show that analysts’ bottom-10 stocks on average have beaten their top-10 counterparts by 10 percentage points.”

For fans of professor Eugene Fama, a Nobel laureate in economics, this comes as no surprise. He has long maintained that even when professional money managers do outperform their comparative indexes, luck plays a huge role in their superior performance. “I’d compare stock pickers to astrologers, but I don’t want to bad-mouth the astrologers,” Fama has been quoted as saying.

Stay diversified
Since the beginning of the year, we’ve seen a lot of turbulence in the markets and anxiety among investors. However, the best way that I know of to combat the fear of a down market is to look back in history. The stock market has so far been an upward-reaching entity. Yes, it occasionally takes a break, temporarily declining or hovering at lower elevations. But over the long run we have seen, and can expect to see, growth.

Yet, as our “experts” repeatedly demonstrate, it’s impossible to know which stocks will do best next week, next month or next year. That’s why my advice is always the same: Stay disciplined, goal-oriented and diversified with your investment strategy. It’s the surest way to navigate market storms, Wall Street hype and “juiced” home run hitters.

This article was originally published on (

Robo vs. Human: Choosing the Right Advisor for You

There’s a new force in the financial planning industry — “robo-advisors,” automated online money management platforms that handle your portfolio without the involvement of a human investment advisor. Whether a robo-advisor is a good option for you depends on your circumstances. To decide, start by considering the differences between a robo platform and a traditional financial advisor.

Although the automated nature of robo-advisors is relatively new, what they actuallydo is not. Robo-advisors take a disciplined and diversified approach to investing using low-cost exchange-traded funds (ETFs). Many human advisors have offered the same thing for years, but robo-advisors typically make it very convenient to open an account online and give their customers a better online experience.

Robo-advisors also charge very low management fees, usually ranging from 0.15% to 0.5% of the assets they manage for you. Traditional investment advisors charge about 1%. What’s more, robo-advisors will work with individuals who have as little as $500 to invest. These distinctions are very appealing to younger investors.

But despite the presence of the word “advisor” in the nickname, robo-advisors don’t actually offer advice beyond the investment algorithms they use. In that sense, they are simply an investment platform. And it’s important to remember that investments are just one part of your financial security. Human advisors offer comprehensive planning that robo-advisors can’t and ask questions that the online services don’t.

For instance, robo-advisors are not designed to answer such key questions as:

  • Am I saving enough for retirement?
  • How should I pay off my student loans?
  • Can I send my kids to college without taking on a lot of debt?
  • Should I buy or rent a home?

They can’t answer such questions because an algorithm cannot understand your goals, dreams or desires. Only a human advisor is capable of listening and understanding what your real needs are and creating a plan for your financial success. No client fits neatly into a box; every client has unique needs.

If you’re young, have only a small amount of money to invest or have fairly simple financial needs, a robo-advisor may be best for you. However, if you’re older, have more complex needs or want a more customized financial plan, there is no substitute for a forward-looking conversation with a human advisor.

(This article was originally published on

This article also appears on Nasdaq.


Act Like an Investor, Not Indiana Jones…or a Caveman

Imagine you’re in a theater watching an Indiana Jones movie. Indy is in a cave searching for lost treasure with a male sidekick and a female love interest. Suddenly, the ground gives way and the sidekick falls into a bottomless pit, screaming to his death.

Trying to save herself, the woman grabs a vine dangling over the abyss, but her weight pulls the roots out of the ground. Beads of sweat form on her brow, her eyes wide with fear. You’re on the edge of your seat as her fear becomes your fear. Indy throws her a lifeline and pulls her to safety.

As the film continues, several more brushes with death stoke fear and panic, while other escapades elicit emotions like greed and lust. But in the end, it’s worth the emotional roller-coaster ride because the hero and his lady find the treasure they were seeking. And we feel the same sense of relief and security they do.

In a way, investing can feel kind of like putting on Indy’s hat, coiling his whip and heading out into the unknown — it can stir up the same primal feelings of fear, panic, greed and more. The difference, of course, is that stocks and bonds pose no real threat to our physical safety. And yet we often react to investment activity as if our life was on the line. We’re prone to letting the fight-or-flight response take over at the first sign of danger. It’s like we’re Indiana Jones — or, worse, cavemen driven solely by instinct.

For instance, if you’re a caveman and a saber-toothed tiger is about to attack, you might try to fight it off with your spear. If you don’t have a spear, then you’ll hightail it out of there and live to fight another day.

Stocks and bonds will never attack us with teeth and claws, but our inner caveman begs to disagree.  Have you ever felt as if you were investing in a sure thing? Have you ever felt, even though you were diversified, that during a market downturn your money was worth zero dollars? Did you get out of the market when the Dow swung nearly 1,000 points a few weeks ago?

These are all caveman reactions. Essentially, money is a replacement for the caveman’s shelter, firewood, meat and animal hides. If these essential elements are taken from him, the caveman is going to die.

To be a successful investor, modern men and women must not let Neanderthal feelings and reactions control them.

Emotions can sabotage the average investor’s hopes, dreams and aspirations. Just as fear of danger could have kept Indiana Jones from acquiring his treasures, fear can keep modern investors away from theirs.

The 21st-century is here. It’s time to turn our backs on caveman feelings and start to grow our 21st-century wealth.

(This article was originally published on

How I Saved a Client $100,000

I just saved a client over $100,000 in taxes! Now before I tell you how I saved this client six figures, I’d first like you to consider two words: investing and advice.

For some, “investing” is kind of sexy and has all sorts of exciting undertones such as “money,” “stocks,” and “bonds.” These words often invoke some type of action (real or imagined) and even stronger emotions such as security, fear, and greed. On the other hand, “advice” sounds like something your grandmother might give you, a kind of practical (boring?) wisdom. But in my business, it is often advice that trumps investing.

So you’re probably wondering what this all has to do with my helping a client save over $100,000 in taxes. Without getting into the nitty-gritty details, my client’s father recently died. When it came time to divvy up his estate, however, unbeknownst to my client, someone had changed the beneficiary designations from all children equally to the estate of the deceased. I explained to my client that if he and his siblings were to cash in the IRA portion (a significant amount) of their inheritance, all of it would be taxed at the highest tax brackets, and they would lose well over $100,000 to unnecessary taxes!

I suggested to my client that he and his siblings hire an attorney to find out if they could change the beneficiary designations back to the original intent of their deceased parent. Well, I’m here to tell you that it all worked out, and each of the children got to inherit a substantially higher amount of money.

Now getting back to advice. Sure, giving advice may not be as exciting as acquiring a large sum of money to manage, but giving good advice can be even more satisfying. As a financial advisor, my job is not just to grow my clients’ wealth, but to protect it.

4 Ways to Avoid Ending Up Like Dennis Rodman

For many, the arrival of spring means March Madness. So here’s a little trivia for you basketball fans.  What do Dennis Rodman, Allen Iverson, Scottie Pippen, and Antoine Walker all have in common?  Truthfully, I have no idea if they have anything in common as far as college championships go.  I do know, however, that they all ended up broke.  In fact, according to a Sports Illustrated report, 60% of former NBA players are bankrupt or near bankrupt within the first five years of retirement.  Now that’s hard to believe.  It’s almost incomprehensible that Scottie Pippen, who had tremendous success on the court with the Chicago Bulls and $120 million in career earnings, is broke.  How could this happen? The answer, quite simply, is a gross lack of planning.

The fact is whether you’re a world-class athlete or a yoga instructor, everyone needs a plan.  It’s crucial to having control over your financial future.  And here are four ways that you can start taking control of your financial future and dodge becoming a statistic like Dennis Rodman and too many other NBA players.

1.  Get educated.  Everyone needs financial education to improve their financial well-being.  Knowledge is power, and financial knowledge translates into freedom and stability.  Like many professional athletes, NBA players turn pro having come off college scholarships and never learn the basics of money management.  So invest in yourself.  A little financial know-how will help you make financial decisions that can positively impact you and your family.

2.  Plan for the Future.  Really, it’s never too early to start planning for retirement.  Map out your short-term goals and your long-term dreams.  Take a hard look at where you are now and where you ultimately want to be.  This kind of mindfulness is the first step to mastering money management.  Commit to staying focused on your financial future.

3.  Pay yourself first.  That is, SAVE.  Even after retiring, Allen Iverson was still spending a mind-boggling $300,000 a month. He didn’t know how to save and, clearly, didn’t have a plan.  The fact is, most of us struggle to save money.  We just don’t know how.  This leads me to my final point…

4.   Find a Trusted Financial Advisor.  We can be certain that a lot of professional athletes are the attraction of disreputable people; the money’s too easy to get at.  Regardless, a good advisor will take the time to get to know you beyond your money.  He or she will help you articulate your long-term goals or intentions and frame a plan for achieving them.  In other words, they’ll hold you accountable and keep you on a path to achieving them.