Retiring On Purpose

I ran into a friend recently who’s a hairdresser. He’s been in the business now for 50 years and has seen it all from the bouffant to the bob. After owning his own salon for as many years, he’s looking to sell it—on one condition: He stays as an employee. Despite being nearly 75, he has no plans to retire. Like he says, “What would I do every day?”

His story’s not that unusual. According to a June 2016 Pew Research Center analysis of employment data from the federal Bureau of Labor Statistics, more older Americans – those ages 65 and older – are working than at any time since the turn of the century, and today’s older workers are spending more time on the job than did their peers in previous years.

This is a new era of retirement revolution. Pensions and corporate stewardship have gone the way of the dinosaur. For some, not working isn’t an option; however, many are choosing to stay in the workforce—and thriving. As someone who’s been helping people retire for the past 25 years, I’ve witnessed the change in attitudes first-hand about retirement. Today I’d be negligent if I planned a client’s retirement assuming that he or she will be leaving the workforce at age 65. As a financial planner, I must get a sense of my client’s true age. By that, I mean his biological age, not his chronological age. For instance, I may have a client who’s 62, but he feels more like 50. He’ll have no intention of retiring in a few years. Like my hairdresser friend, he refuses to be defined by his age.

For me, the planning has evolved from retiring to retiring on purpose. We’re living longer, and we want to stay relevant. If you’re 5 to 10 years out from retiring, finding a reason to get up in the morning will be as important as the financial planning. Think about it: What if every day was a Saturday? Sure, the first several might seem blissful with days spent on the golf course or shopping at Target, but after a while, you’d probably get bored. Carlos Santana, the famous guitarist said, “The only thing that has ever made me feel old is those few times where I allow myself to be predictable. Routine is death.”

Besides keeping you alive (That’s true. Oregon State University found that people who continue to work past 65 have an 11% lower chance of death from all causes), the benefits of working into an older age are numerous. Of course, there are the financial benefits. The more years you work, the less money you’ll need take out of your retirement accounts. And you can delay taking your Social Security. For each year you delay between the ages of 62 and 70, your benefits grow by 8% annually.

The mental benefits are just as important. Working longer keeps your mind sharp. Like the saying goes, “Use it or lose it.” It also keeps you connected to other people, decreasing the chance of isolation. Moreover, and perhaps most important, working can give you a purpose, a sense of identity, a reason for getting up in the morning.

If you still need a little inspiration or motivation to retire on purpose, just look to some of these stars in their 70s: Helen Mirren, Robert DeNiro, Betty White, Morgan Freeman, Dick Van Dyke, Al Pacino, Mick Jagger. Like Mick said, “How Can I Stop?”

Retirement is an Artificial Finish Line

I received the following alert on my phone from the New York Times this past weekend: “Today’s women are much more likely to work into their 60s and 70s often full-time. And they’re doing it because they enjoy it.”

This may not mean much to you, but as a financial advisor who’s been helping people retire throughout most of my career, I appreciated the notice. It reaffirmed what I already know: Retirement is an artificial finish line.

Women and men are discovering that retirement is not a natural life transition. It’s an idea that’s been inflicted upon us by corporations and society. We’ve been indoctrinated into thinking that when you turn 65, it’s time to punch out and live a life of leisure. This may have worked for the previous generation, but that mindset is no longer sustainable. Pensions and institutional stewardship have gone the way of the dinosaur, and today more than ever we have to assume control over our own retirement planning.

Retiring is about more than just having enough money, though. It’s a major life transition that many people struggle with, and the struggle often has more to do with a static lifestyle than not receiving a regular paycheck.

Think about it: No one teaches us how to retire. I really don’t know of any retirement training classes being offered. On the other hand, retirement planning is a service that’s plentiful. But that’s more about funding your retirement; it’s not about creating a vision of what you want the rest of your life to look like. In fact, finding powerful reasons to get up in the morning during retirement will be as important as the financial planning.

This past week, Aretha Franklin announced that she’s retiring. In a statement she said, “I’m not going to go anywhere and just sit down and do nothing. That wouldn’t be good, either.” Well, if it’s not good for Aretha, it’s not good for you, either. What Aretha is really aiming for is a balance. A balance between vocation and vacation. That’s what we should all aim for to enjoy a successful retirement. After all, I don’t think any of us want to withdraw completely from the track of relevance.

To achieve a healthy balance between vocation and vacation requires planning. Did you know we’re more apt to spend time planning a two-week vacation than we are to spend time planning a possible 30-year retirement? Unlike a vacation, retirement is not the ultimate destination anymore. Stop buying into the destination myth because your life isn’t going to stop moving the day you retire. I’m reminded of that commercial in which everyone is assigned their own personal retirement number. The people in the commercial are so happy to know how much money they’ll need to retire that they write it on a large cardboard sign, attach a stick to it and carry it around with them all day long. Well, if my client’s life means nothing more than a number, then the planning will be about the destination. But let’s not reduce our lives to a story of numbers. Our lives are about more than that.

For most of us, working will no longer be an “all or nothing proposition.” It will be more of a “how much” proposition. In planning for a successful retirement, one with a balance between vocation and vacation, we need to start asking ourselves questions beyond money. How will you invest in yourself and your time?

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 NerdWallet.com (https://www.nerdwallet.com/blog/investing/navigating-market-storms-and-wall-street-hype/)

Why You Should Have Bonds in Your Portfolio

You scarcely read or hear much about bonds these days. The stock market, especially in recent weeks, grabs the headlines all the time. Bonds just aren’t glamorous. Sure, Michael Milken, “the junk bond king,” brought some glamour and headlines to bonds back in the late ’80s, but they haven’t received that kind of coverage since.

Yet that’s no reason for investors to forget about this important asset class. Bonds are one of the three major asset categories — along with stocks and cash — you should have in a balanced portfolio. Investing in a mix of these assets is a good strategy for achieving your financial goals.

Having bonds in your portfolio can help reduce risk, which is a welcome proposition given the market volatility we’ve seen since the beginning of the year. Stocks tend to be more volatile than bonds — they go up and down further and faster — and that makes them a riskier proposition for the short-term investor. Think of stocks as cleanup hitters. They’re going to hit a lot of home runs, but they’re going to strike out a lot too. Bonds are more like leadoff hitters, the guys who can consistently hit singles and get on base. They can be a stabilizing force amid volatility.

Inverse movement
The stock market, like most things, tends to cycle. Right now, the decline seems to be a reaction to the dramatic drop in oil prices and the slowing of China’s economy. Bonds cycle, too, but they’re not as volatile as stocks. Instead, bonds often have acted as insurance by reducing portfolio volatility.

This is because bonds often move inversely to stocks, and this tends to be mostly true when stocks are falling. However, bonds are in an unusual place right now because of historically low interest rates. When rates rise, the value of bonds will go down. But this should not deter you from holding bonds in your portfolio because they are still less volatile than stocks, and if the stock market takes a big hit, bonds usually rise. This means bonds and stocks work in concert with one another in your portfolio.

In designing a portfolio, you want to have a mix of assets that can move inversely under different market conditions. Diversifying in this way reduces your risk and thus your chances of getting hurt.

Asset allocation
Asset allocation — holding the right proportion of stocks, bonds and cash for your situation — is important because it can impact your financial and personal goals. However, designing the best asset-allocation model or portfolio can be complex. You need to look at your time horizon and your tolerance for risk.

Your mix of stocks and bonds also should be determined in part by the amount of money you need and when you will need to withdraw it from your accounts. If you don’t include enough risk (think stocks), your investments may not earn an adequate return to meet your goal. However, with too much risk (think not holding enough bonds), the money may not be there when you need it.

For instance, an older person should have fewer stocks and more bonds in his portfolio. A 25-year-old, though, can have a higher ratio of stocks. She’s in it for the long run and can take more risk than someone who’s nearing retirement.

Stay diversified
We’d all like to know what will happen to our money in 2016. While we can count on the media to offer plenty of headlines and opinions about the economy and markets, the danger comes when we base our investment strategy on these headlines.

We can’t know what will happen to stocks or bonds, and we can’t outguess the markets. If I could, I’d probably have a cult following. But we do know this: The markets will go up, and the markets will go down. And some parts of your portfolio will do better than other parts.

Having the right mix of stocks and bonds will reduce your portfolio risk and your potential losses. So instead of trying to pick a bunch of hot stocks, investors should stay diversified and goal-oriented — and not forget about bonds.

(This article was originally published on NerdWallet.com (https://www.nerdwallet.com/blog/investing/why-you-should-have-bonds-in-your-portfolio/)

How to Send Your Kid to College Without Taking on Debt

Raising a child is expensive. Just ask anyone who’s had a baby. Parents can expect to spend thousands of dollars — whether it’s for painting the nursery or buying diapers and clothes — before their child is even a year old.

Parenthood only gets more expensive as your child grows older. According to the U.S. Department of Agriculture, the average cost to raise a child today is about $234,000 over 18 years. That works out to $13,000 per year — a figure that pales in comparison to what you’ll likely spend annually to send your child to college.

Higher education at a high cost

Today, the average cost of attending a public university, including room and board, is about $25,000 a year. For a child born in 2015, the cost will be double that amount if recent education inflation (currently about 5% annually) continues. That translates to about $200,000 for a bachelor’s degree. Ouch!

Sure, your child can apply for scholarships, and parents can tackle the Free Application for Federal Student Aid form to seek financial aid. But barring a full ride, you or your offspring will need to cover the remainder of the costs by paying out of pocket or with personal loans. These high-interest-rate student loans are one of the key reasons so many young graduates are saddled with mountains of debt.

Tips to help avoid college debt

What can parents do to prepare for and manage these staggering education costs?

Here are a few options:

  • As soon as your child is born, start a 529 college saving plan. This is a state-sponsored savings plan, and the growth of the account is tax-free if it’s used for higher education. You’ll probably have to contribute $500 each month to fund most of your child’s education expenses. If you can’t afford that, start with half that amount. Also, encourage grandparents, aunts and uncles to contribute to this plan.
  • Set up a UPromise credit card account. You will earn 1% to 2% cash back on eligible purchases, and this money can be directly transferred into your 529 plan.
  • Pay off your mortgage early. If you pay your mortgage off in 15 years instead of 30, you can then apply the amount you save to college tuition.
  • Have your child attend a local “commuter” college. Having your college student live at home can add up to big savings. The downside, of course, is that your child might miss out on the more traditional college experience.
  • Have your child start off at a junior or community college. For the first two years of college, you could send your child to a junior or community college. If your child excels and later transfers to another university, the degree will state where your child graduated from, not where he or she initially enrolled. This is a popular option in California.

With the final two options, be prepared to fend off the social pressure of not “sending your kid away to college” — and remember that few 18-year-olds can fully comprehend the magnitude of being $100,000 or more in debt.

The bottom line

If you’re just starting a family, planning now for your child’s education can save you six figures by the time your child is ready to go to college. With that kind of savings, your child can pursue his or her passion rather than opting for a “safer” career merely for the sake of paying off college debt.

This article was originally published on NerdWallet.com (http://www.nerdwallet.com/blog/finance/advisorvoices/child-college-debt/)

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 NerdWallet.com  http://www.nerdwallet.com/blog/finance/advisorvoices/robo-human-choosing-advisor/)

This article also appears on Nasdaq.

 

Trying to Outguess the Markets is Like Being Stuck in Traffic

One day last week, I was home sick, and I committed a cardinal sin:  I turned on Fox Business News for the pre-opening “stock market report.”  Charles Payne, the anchor, opened the show with the “distressing August unemployment figures.”  He was worried because “no new jobs were created in August 2014.”  (Never mind the fact that the date was September 3, and these reports are always revised later in the month).

Payne then interviewed two economists to discuss their views on the latest jobs report. The first economist thought it was very dire news and job creation may have peaked for the year.  The other economist sounded more reasonable stating that year-to-date job creation has been very good and that August may have been a seasonal adjustment. He also said that the data showed we were trending in the right direction.

Mr. Payne seemed pensive and clearly stated that he believed the more negative prediction of the two economists. But here’s where it gets good:  Mr. Payne then stated that these employment numbers were so bad that the stock market would drop 200 to 300 points that day.  Very scary indeed.  At that point, I decided that I had had enough and dozed off for the rest of the day.

When I turned the TV back on around 4 p.m., I saw that the market did not drop anywhere near Payne’s prediction.  Instead it was up about 80 points for the day! One would think that Payne, a principle in the stock research company Wall Street Strategies, would know better than to attempt to predict the short-term direction of the market.  Maybe being a purveyor of financial news has convinced him to try fortune telling.  Regardless, anyone who’s new to financial journalism will discover that networks grab ratings with two things–bad news and convincing people they know something that you don’t!

Academic stock market researchers have discovered that stock prices are decided by not one single person but by all of us.  In other words, together we know more than we do alone. It is estimated that there are about 39 million stock trades a day equaling nearly 200 billion dollars.  Many people are convinced that to get ahead, they must know where the markets are going.  WRONG!  By trying to anticipate the moving of the markets, they are competing against the knowledge of all those millions of buyers and sellers.  What’s more, they’re taking unnecessary risks.  It’s like being stuck in a traffic jam on the freeway.  Your lane isn’t moving, so you switch to a lane that is moving.  In and out.  Switching lanes, however, adds anxiety and increases your risk of an accident.  Moreover, you haven’t gotten ahead because the lane that was moving is now stopped.

If you want to better understand how the markets work, watch this simple three-minute video, The Power of The Markets:   http://silawealthadvisory.com/golden-gate-portfolio.html

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.

 

Excuses! Excuses! Number 3

“I want to live for today.  Tomorrow will take care of itself.”  That’s one more short-term excuse we use to rationalize behavior that defies our long-term intentions.

Think for a moment about all the things you plan for in life:  a wedding, a family beach vacation, a trip to the wellness spa.  Even this week’s dinner menu.  Yet, we’re so reluctant to adequately plan for our retirement, and most people simply aren’t saving enough money to fund their retirement.  We don’t put the time or energy into it that, say, we may put into our next yoga class.  In fact, we’re encouraged to be present, to live in the moment.  But I’m here to tell you that you can live in the moment and be mindful of your savings.

As someone who’s worked in the financial service industry for twenty-five years, I know that most of us struggle to save money.  We just don’t know how.  Even more, we don’t know how much money we should be saving.

Now some of you might be saying:  I’ve got a 401(k) plan.  That’s fine, but did you know that the average balance of today’s 401(k) plans is around $40,000? Even more troubling, only two percent of 401(k) participants who are 60 years of age or older have more than $250,000 in their 401(k) accounts. Let’s put that into perspective:  It would take one million dollars for a 65-year-old to generate $40,000 of annual income.

Sure, we can blame these grim numbers on the stock market doldrums over the last ten years, and that’s partly true.  Still, what it boils down to is that we as a nation are not saving enough.  Worse, 35 percent of Americans say they don’t even contribute to any retirement accounts!

So what should you do?  Well, some people in my industry might tell you to quit your daily latte habit. You can then save the four dollars and put it towards your financial goals. Let’s get real here…that ain’t going to happen! So my best advice to you is to pay a visit to a fee-based financial advisor.

Is it because a fee-based advisor can get you a better return? Possibly, but that isn’t the point! A fee-based advisor will tell you how much you need to save for your long-term intentions such as a home, college, or retirement, and then hold you accountable to do so!

Yes, it’s natural for us to want to live in the moment.  Nothing, though, will take you out of the moment more than having to chase money, having to chase a lifestyle you once enjoyed.  Save now so that in the future you can stay in the moment. And as I always say:  you may not run out of money, but you may run out of lifestyle!