New Book - Coming November 2010

New Book - Coming November 2010
Help! My 401(k) Has Fallen - And Must Get Up!

Tuesday, June 30, 2009

Lets Say I Live To 100

People are living much longer these days. With modern medicine, technology, and taking better care of ourselves, reaching 100 is much more common than it used to be. According to a Wall Street Journal article from April 14, 2008, Hallmark sold over 85,000 “Happy 100th Birthday”
cards in 2007. And that is just Hallmark. Currently the average life expectancy for a Female is 87 years, and 85 years for a Male.

Living that long is great, but it can also raise concerns about your savings. What are you doing to make sure your money lasts that long also? Can your savings generate income for the rest of your life, even if you live to 100 or beyond?

Also, how prepared are you to keep up with rising costs? Did you know that 20 years ago (1989), the cost of a postage stamp was 0.25 and a gallon of gas was about 0.97? Compare those prices with today. A stamp is 0.44 and a gallon of gas…..well it fluctuates more than the stock market. As of today, it is about 2.45, and last summer had peaked well over 4.00.

If you are retired for 20 years or more, costs will go up. How can your savings handle that? Can you give yourself “Pay Raises” and still make it last?

One last question for consideration - this past year was one of the most challenging ever for investors. How can you grow your income, make your money last, and do it “Safely”?

Here are some tips that may help answer these burning questions.

* Talk with your advisor. And if you don’t have a strong relationship with your advisor, or
you don’t feel they have your best interests in mind, find a new one. Your advisor needs to be a
great listener, and your partner - NOT just a stockbroker. Tell them what your needs are.
What is most important to you about your money?

* Be Open Minded. If your money is going to last for your lifetime, CDs aren’t going to get it
done. Especially at the current bank rates today. There are other ways you can invest, and
let your money grow over time safely. A good advisor should learn as much about you as
they are able - just like a doctor who will learn your history before prescribing anything.

“Whatever you fear most has no power - it is your fear that has the power.”
Oprah Winfrey

* Be Diversified. I’ve always thought of “diversification” like clothes in your closet.
You need to have clothing for summer, winter, fall, casual wear, dressing up,
working in the yard…..ALL occasions and ALL types of weather. Investing needs to be
the same. Would you like less risk? The best way to do that is by diversifying.

“Money, you should pardon the expression, is a little bit like manure. It doesn’t
do any good unless it’s spread around, encouraging young things to grow.”
Barbra Streisand

For more information on how to make your money last to 100 or beyond, please contact me at You may also follow me on Twitter at

Thursday, June 25, 2009

Income For Life

One of my clients once told me that the biggest lesson he learned in retirement was this. You don't retire on a Lump Sum of Money. Rather, you retire on the INCOME which the Lump Sum of Money can create. Think about that statement for a bit. Let it sink in. In fact, let me repeat it, because this is what retirement means. You don't retire on a Lump Sum of Money. Rather, you retire on the INCOME which the Lump Sum of Money can create. You spend your working career saving, accumulating, investing, and building a "lump sum". At some point, you will want to use it for income.

Soooo.....what exactly is a "Lump Sum of Money"? Is it $100,000? $300,000? How about $1,000,000? More than that?

The best way to answer that is that the amouth may be different for everyone. However, we can help you to narrow down what you amount should be at retirement. Here are 4 steps.

1. Determine your monthly budget. You don't want any debt at retirement. Leave plenty of
room for "Miscellaneous" expenses - travel, kids, hobbies. If you aren't working, you are

2. Determine your Social Security Income amount. There are 3 categories for Social
Security income - Reduced Benefit (usually age 62), Full Benefit (usually age 66), and
Enhanced Benefit (age 70). As the terms suggest, if you take Social Security at an earlier age,
you are "stuck" with a smaller amount of income - and "Grounded For Life." There has also
been a growing movement for proposed changes in Social Security in order to make the
money last longer. At least one of those changes includes pushing back the age for Full
Retirement Benefits, which would force most of us to work longer. Whatever benefit amount
you select, you need to know the amount so it can be applied to your budget.

3. Do you have other sources of income? These may include rental property, part time
work, or anything else which generates income.

4. Look at your budget again, and deduct your budgeted expenses from your total
This sounds simple - and it is- however you would be surprised at how many people don't do
it. Do you have enough income to cover your expenses? Is there money to do "special" things
you want to do in retirement? Travel? Golf when you want?

If there is a "gap", how much is the gap? Let's assume there is a gap of $800/month. $800 x
12 months = $9600/year. Now let's take $9600 and divide it by .04. (4% is a reasonably
"safe" amount to withdraw from a lump sum.) $9600/.04 = $240,000. Now we have a "lump
sum" goal of saving for retirement. This can be saved in your 401(k), IRA, Roth IRA, or
ordinary savings. Do not retire until you have this amount saved to cover your additional
budgeted expenses.

In a future article we will look further at annuities and how they can provide income for life. We also need to consider the impact of inflation on your savings.

For more income on annuities or on budgeting, please contact me at You may also follow me on Twitter at

Tuesday, June 16, 2009

Using Protection?

That should have gotten your attention!

In my last post, I discussed some basics of annuities. Annuities can offer some protection for your savings which other investments, such as stocks or mutual funds do not. Keep in mind that the value of your account may still go down.

Lets talk about a few protections which you may get from an annuity.

GUARANTEED DEATH BENEFIT - The first one, common to most annuities, is the Guranteed Death Benefit. What is means is that if you invested a sum of money into an annuity, your beneficiaries will receive at least that amount (minus any income or withdrawals taken).

For example, lets say that John puts $100,000 into a variable annuity. The market goes south, and the value of the annuity dips to $80,000, when John dies. If he has not taken income, his heirs will get the full $100,000. Now lets say that the market goes up, and the account grows to $120,000. When John dies, his heirs get $120,000. In this case, it would not matter if he has taken income - if the account value has grown from his original investment, his heirs get the account value.

GUARANTEED GROWTH - There are a lot of different insurance brokers who provide annuities, and not all of them offer this. Whichever provider you use, I would certainly recommend using a large, stable, reputable (Name Brand) company. The protection is only as good as the insurance company backing it.

I have become familiar with Jackson National Life, one of the largest annuity providers in the US. They have an AA rating in Financial Strength from Fitch & Standard & Poors, which is Very Strong. What that means to a client is that they should feel secure with the protections they are getting on their money. (Source: Jackson Life

Jackson offers a Fixed Account Option on its annuities. The Fixed Option offers a 1 Year Interest Rate, which is reset each year, but is never less than 3% (Special Benefit Value). 3% actually looks pretty good right now, doesn't it?

Lets say that John starts out at age 55 by investing his $100,000 in a Fixed Index Annuity. Assuming that the annuity value has grown by 3% per year, by age 65 (10 years) it will be worth $134,392 minimum. (Source: Jackson Ascender Plus Select Brochure,

A Variable Annuity should provide more growth over time, however its performance is related to the stock market. The Standard & Poors Index, also referred to as the S & P 500 represents the largest 500 companies in the USA. It has been the measuring stick for comparing investment performance.

If John had been investing his $100,000 in a Variable Annuity using the S & P Index, Jackson lets you have a "win-win". If the market goes up, the account will also go up. If the market goes down, the account value stays the same. This would have been particularly valuable in 2008 when the S & P declined by 42.9%. The value in John's account would have been the same. Had John kept his money invested over the last 10 years, he would have $145,825 today. (Source: Jackson Ascender Plus Select Brochure,

I will look at Guaranteed Income Options in another segment. I will also look at additional charges for these features (where they apply). Please keep in mind that an annuity is not for everyone. You should consult with your advisor to determine if an annuity is right for you.

For more information, you may contact me at You may also follow me on Twitter at .

Thursday, June 11, 2009

"OK, Now What?"

The market has performed much better over the past 3 months. From a low on 3/09/09 to now, the S & P has risen over 34%. This is an encouraging sign for investors.....BUT.....(as a friend of mine might say, "That's a mighty big but you have!")

All kidding aside, the question we all face is - "OK, Now WHAT?" As I talk with clients, attitudes range from "Gloom & Doom" expecting yet another downturn in our roller-coaster ride, to "Cautiously Optimistic". A common quote is "I don't want to lose anymore." (Sound familiar?)

We still have the same issues - we are living longer than we used to. Hallmark sold over 85,000 birthday cards last year for individuals who had reached at least their 100th birthday. The 100+ group is our fastest growing demographic and current life expectancies are 85 for males, 87 for females.

Over that time, being retired for 25 or more years, you WILL see inflation. As certain as death & taxes.

* Do you have enough money to live 25 years or more in retirement?
* Are you prepared to keep up with rapidly rising costs?
* Is your money protected well enough to weather another economic storm?

How can you get growth, income, and protection at the same time? One idea is with a variable annuity. Please meet with your advisor to determine if a variable annuity is right for you. There are several benefits (protections) which annuities offer which are appealing. I'll address these in a future article, but for now lets look at the basics.

According to wikipedia, an annuity contract is created when an individual gives a life insurance company money which may grow on a tax-deferred basis and then can be distributed back to the owner in several ways.

A variable annuity works much like a mutual fund (or funds). The funds, known as subaccounts, are held and backed by an insurance company. The insurance company can provide protections on your investment for income, death benefit, and in some cases they can even provide a minimum rate of growth. The 'catch' is that you pay for the protection thru annual fees and charges.

Annuities (and insurance) has changed much over the past 10 years. New government regulations has made insurers to become more client friendly, easier to understand, with more benefits to clients.

One way to look at the positive changes in annuities is to think of improvements made in other products. Think of cell phones for example. When they first arrived on the scene in the 1980's, phones were heavy (remember the backpacks!), expensive, with poor reception, and few features. Now think of them today - you can do all kinds of activities on a cell phone, even take pictures, videos, and use the internet - and the phone easily fits into your pocket.

I will be covering more on annuities to come. You may contact me at You may also follow me on Twitter at

Saturday, June 6, 2009

Fixing Your 401(k) - Part 7

Problem #6 - Education

Of all the issues we have been discussing that are plaguing 401(k) plans right now, the biggest is EDUCATION on how it works. Why? Very simple. If proper education was taking place, it would help to solve the other issues, and reduce the liability each employer and plan sponsor currently faces.

Jackson Life did a survey of several passers-by and asked them questions about 401(k)s. (Source Rollover Rx, Jackson National Life Insurance) If you have ever watched Jay Leno do his "Jaywalking" bit on the Tonight Show, you have a pretty good idea of how it went.

Here are a few actual responses when people were asked about education offered by their employers for their 401(k) plans.

"I wasn't aware of any education."
"Don't participate in this. Its on a webinar."
"Information meetings are inconvenient to attend. I'm too busy."
"I think there is on line stuff, but I don't think anyone uses it."
"What can you tell me about it?"

I have personally talked to several clients who tell me that when there are "meetings", the advisor simply hands out his card and runs thru a quick power point presentation, then asks if there are any questions. This is usually met with blank "deer in the headlights" looks.

Education must be done on an INDIVIDUAL BASIS. Everyone's situation is different.
John, the 49 year old manager is in a different spot from Brandon, the 24 year old sales rep, who is new to 401(k) investing - although Brandon needs to know he is in a great place to get started now. Kim, the 35 year old customer service rep, may be thinking about borrowing against her plan, and Sue, the 42 year old customer service manager, is new to the company and wants to know how much she should invest, and what funds to pick.

How can you address individual situations in a "webinar" or "power point"?

A survey done by The Spectrum Group ( - Source Jackson Life, Rollover Rx) tells us that 85% of employees want professional advice, however only 37% of employers offer any real contact with an advisor. That is not good for the employees, or the employer/sponsors, who are exposing their companies to liability and potential lawsuits.

So what should you be doing?

Let's review the Problems I've covered so far.

Problem Current Situation Solution
Participation We don't participate & Start participating in your plan don't contribute enough. and max it out.

Portability Too many cash out when Roll the old 401(k) to the plan with
changing jobs. your new job, or to an IRA.

Loans Heavy tax consequences Set up an savings fund of 3-6 mos
and penalties. expenses. Don't borrow on 401(k)

Investments We try to 'advise' ourselves. Diversify. Get professional advice.
Its your money, your future.

Education Not enough advice by Find an advisor you can work with.

Here are 3 key questions you & your advisor should be asking.

1. Do I have enough money to live through at least 25 years or more in retirement?
How can I make my money last for the rest of my life?

2. Will my savings & income keep up with rapidly rising costs?

3. How can my savings be protected against declines in the stock market?

Let me end with this quote from one of my favorite songs.
"Working so hard to make it to turn....turn this thing around - Right Now!
Its your tomorrow. Right Now! Its everything." (Van Halen - Right Now)

Bet you never thought you'd see a Van Halen reference in an article on retirement!

Get started on your plan - Right Now! Meet with your advisor today and get started on Improving Your Financial Health. For more information, please contact me at You can also follow me on Twitter -

Wednesday, June 3, 2009

Fixing Your 401(k) - Part 6

Problem #5 - Investments (Company Stock)

Do you own stock in your own company? Companies have always encouraged employees to think like an owner. By owning stock, you are a part owner of your own company. There is nothing wrong with that idea, and if you work for a large company which issues stock, that may be an option available to you in your 401(k) plan.

But how much should you own? Not more than 5-10% of the company in your 401(k). There are just too many "Murphys" out there.

Mutual funds are much more recommended as a way to spread your money out so it can grow.
“Money, you should pardon the expression, is a little bit like manure. It doesn’t do any
good unless it’s spread around, encouraging young things to grow.”
Barbra Streisand

One of the worst examples of company stock going sour in a 401(k) is Enron. Enron has been a running joke since 2002 for their collapse due to fraudulent business & accounting practices.
Many of their workers lost their life savings when Enron filed bankruptcy and their stock was rendered worthless.

Enron's 401(k) plan was enormous - over $1 Billion in total assets, of which $600 Million was in Enron stock - That is 60%! Enron offered a matching plan of up to 6% of an employee's base pay - but paid the match in STOCK, not cash. When the stock plummeted from over $90 per share to less than a $1.00 in 16 months, their employees lost their life savings and any chance at retiring the way they had planned.

Please meet with your advisor if you have more than 10% of your 401(k) or portfolio in company stock. For more information, or to contact me, please visit You can also follow me on Twitter at

Monday, June 1, 2009

Fixing Your 401(k) - Part 5

Problem #5 - Investments

If you have been following me on this blog lately, you might think that I'm against the idea of 401(k) plans. Not so! Let me state this clearly. I LOVE 401(k) plans as a source of saving for retirement. EVERYONE should be participating in a 401(k).

However, there are many potential hazards that you must be aware of in your 401(k) plans.
So my purpose here has been acting as a 'caddy' and letting you know where the bunkers & water hazards are at so we can avoid them. And I certainly want you all to finish the 'course'.

Today, we will look at the problem which most investors find it easiest to point fingers at -

How many investment choices are offered in your plan? And how do you choose which ones are right for you? How long do you stay with invesments in your plan before you look for
"greener grass"?

A survey done by Watson Wyatt in January 2008, (Watson Wyatt is the trusted business partner to the world’s leading organizations on people and financial issues)
gives us this information.

* 30% of all participants have NO equity (stock mutual funds) in their plans.
* 20% of investors at least 45 and older have stopped contributing.
* Too many people are invested heavily in their company stock, some who have at least
50% or more of their plans in company stock.
(Company stock is an issue I will look at in further detail in my next article.)

Dave Ramsey likes to ask this question - If you were CFO of your own finances, would you fire you? Well, the reality is that YES YOU ARE the CFO of your finances & retirement savings!

"Investors Behaving Badly: An Analysis of Investor Trading Patterns in Mutual Funds" is a 2001 article that shows people are holding their funds for shorter and shorter time periods, as short as 2.9 years, and probably even less time these days after all of the challenges recently.

This is like moving your boat all around the pond in search of the 'perfect' fishing spot. It usually just scares the fish! This also explains why people finally give up and put everything into "safe" money market funds, because as one gentleman puts it. "At least I'm not losing nothing."

Wayne Gretzky said (during his playing days), "I skate to where the puck is going, not where it has been." How do we know where the 'puck' is going? We don't. That would mean market timing, and as Warren Buffett would say, "I'm not smart enough for that."

How many funds should an employer's plan offer? Anywhere from about 12 - 20 is a good range. Your personal plan should meet these objectives.
* Look for funds which have 10 year (or longer) histories. Established funds give a much
clearer long term picture of what to expect.
* Pay attention to fund expenses. The higher the expenses, the more it can hurt your return.
* Treat the plan as if you are at a "buffet". The plan offers a menu of choices, and it is best to
have somthing from all of the food groups. Just as you wouldn't eat only the fried chicken,
you also need fixed income, dividend paying funds (large companies), medium sized
companies, small companies, and international.
* Meet with an advisor to help you find the mix you should have and how much to put in.
Many good advisors (including myself) offer to do this at no charge to you. Let him or her
help you put a roadmap together which will help you get to (and through) retirement

Next we will examine the issue of company stock in 401(k) plans. For more information or to contact me, please visit You can also follow me on Twitter at