COMMON financial advice

Making Your Money Last In Retirement

Published February 22, 2012 | By Mike Wilson

How you invest your money during retirement will affect your feelings about your “success” in retirement. Diversification, the idea of investing in different types of assets (like stocks, bonds and cash), always pays off in the long run. With many people living 20 or 30 years or more in retirement, that’s a “long run.”

Recognize there will be times when stocks stink (like 2008 and early 2009). And there will be times when stocks shoot out the lights (like the 1990s). The same is true for bonds, for cash, and for pretty much any investment type. So since the future can’t be known in advance, the wise investor puts her eggs in many baskets—diversification.

Another important factor to your retirement success is how much money you withdraw from your retirement accounts each year. For most folks, a reasonable withdrawal rate is somewhere between 3% and 5% of their nest egg. In general, the higher the percentage you withdraw, the more long-term growth you’ll need out of your retirement accounts. The tradeoff is that with a higher growth potential comes more dramatic ups and downs.

Now there are lots of factors that affect your withdrawal percentage. When do you start taking Social Security payments (later is usually better for many folks)? How much are those payments? How long do you expect to live in retirement? Are you planning just for yourself or you and your spouse? Do you want to leave an inheritance for your children or perhaps a favorite charity? How is your health? What kind of medical or long-term care insurance, if any, do you have?

Those are all important questions to answer when trying to figure out a reasonable withdrawal rate for your retirement plans. You should also look at your living expenses: can you adjust your budget down (or up) to make retirement more enjoyable? Beyond Social Security and your own retirement accounts, are there other resources of income available to you? Perhaps you have money saved up in a life insurance plan that can be converted to an annuity, or maybe you want to consider taking equity out of your home. Maybe you’re due a pension benefit from a company or union that you worked for several years ago.

All of these variables go into the pot when figuring out how much you can withdraw each year. The goal is both practical (to avoid running out of money in your golden years) and enjoyable (to live your retirement life to the fullest, however you define success). Are you planning wisely to make your money last in retirement?

Mike Wilson is a Certified Financial Planner™ professional licensed with a registered investment adviser that provides personal financial advice online for a flat fee. Contact Mike for help on virtually any financial need.

Posted in financial advice, Investments, Living Frugally, Mike Wilson, Portfolio Allocation, Retirement Planning, Social Security | Leave a comment

A Personal Finance Truth You Can’t See

Published February 16, 2012 | By John Buerger

By: John D. Buerger, CFP^®

Remember the scene from “A Few Good Men” how Colonel Jessup (Jack Nicholson) responded to Lt. Daniel Kathee (Tom Cruise) when Kathee demanded the truth? Colonel Jessup shouted, “You can’t handle the truth!”

… and Colonel Jessup was right.

Nobody can handle the truth, nor can anybody completely see the truth of any situation for what it is.

THREE BRAINS

You (and every other normal human) have three distinct sections of your brain operating at once. One section (over which you have no control) takes care of tasks like breathing, making your heart pump and internal organs function.

The second brain is your Limbic system which is also your emotional center. It processes all the data from your senses (sight, sound, taste, etc.), seeks patterns in the data and compares them to past experiences. When it finds a pattern match, the Limbic system categorizes the data and either files it or sends it off to the third brain – the neocortex (sometimes referred to as the rational brain) – for further processing.

For most people, the rational brain only works with the data after it has been processed by the Limbic system. That is where most of the problems start.

THE LIMBIC LENS

As such, the Limbic system is a giant filter. It categorizes most everything you experience and throws out what it deems to be worthless. If there is danger in the data, it sends out alarms and engages the fight or flight center (which is also part of the Limbic system) in response.

This filtering system acts like a lens, distorting everything you experience. That’s why different witnesses to the same incident will offer conflicting stories about what happened. Each person is viewing the situation through this “Limbic Lens” and their past experiences and current emotions are distorting what they “see.”

Nobody sees the “truth” of any situation.

MONEY AND YOUR BRAIN

This is especially true when it comes to your money. Your past experiences (good and bad), your wants today and your wishes for the future are all laced with emotional baggage.

It’s no wonder that we all make dumb mistakes with money. You are hard-wired that way. So am I and so is every other human on this planet. This “Limbic Lens” is why most investors buy high and sell low (the opposite of what you’re supposed to do). That’s also why we’re always buying shiny, cool stuff we don’t need in order for it to lose its luster, gather dust, take up space in the closet and eventually wind up in a garage sale or the trash heap. We can’t help ourselves.

The Truth? You can’t handle the truth! You can’t even SEE the truth when it’s slapping you in the face (which is usually what is happening to most people in personal finance).

CHANGE YOUR LIMBIC LENS

Don’t give up.

There are ways to “regrind” the Limbic Lens. While you will never see the complete financial truth, you can help yourself to see each situation more clearly with less influence from past experiences and emotional hijacking. In the end, it can be easy to make much better choices with your money.

DON’T GIVE AWAY THE POWER

In the past, financial advisors and politicians have suggested that you let them make your financial decisions for you. It’s a tempting idea, but you know that it doesn’t work, plus it exposes you to a whole new set of risks (remember, nobody else sees the world any more clearly than you do).

Nobody likes to be told what to do. The thought of someone exerting power over someone else goes against the most basic aspects of the human condition.

CHANGE YOUR HABITS

Instead, I suggest that you find ways to work with your three brains to make the results more in your favor. By far the easiest solution is just to become “more conscious” of every dollar slipping through your fingers. Never allow your spending brain to go into auto-pilot. Instead ask yourself one simple question with each purchase, “Is having this really important to me?”

KNOW THE RULES

Also understanding two of the basic rules of finance can be helpful. These are (a) You can only spend a dollar once and (b) You can’t spend money you don’t have. These rules are like the law of gravity. Once you accept them, many of your decisions become much simpler.

John Buerger is a Certified Financial Planner™ professional licensed with a registered investment adviser that provides personal financial advice online for a fee. John is a wealth coach and an online advice pioneer who teaches his clients to make better money choices.Contact John for help with virtually any financial advice need.

Posted in Budgeting, Emotions, John Buerger, Risk, Saving, wisdom | Leave a comment

Are You Ready for a Financial Disaster?

Published February 8, 2012 | By Rick Kahler

By: Rick Kahler, CFP^®

Preparing for an unforeseen financial disaster may seem like an oxymoron. How can you possibly prepare for something that is unknown?

You can, when you remember that the only real “unknown” about most potential financial calamities is their timing. We know perfectly well we’re likely to have emergencies; we just don’t know exactly what or when. They may take the form of an expensive car repair, a trip to the emergency room, the loss of a job, or a significant investment loss. The question really isn’t “if;” it’s “when.”

Here are four tips to prepare for inevitable financial calamities.

1. Get out of debt, now. Since most financial disasters have a lack of cash flow at their core, existing debt payments will only multiply your financial distress. The double whammy of a financial catastrophe is not being able to make your debt payments and adding the trauma of a home foreclosure, a vehicle repossession, or ruining your credit rating when you can least afford to. In addition, if you are already heavily in debt going into a crisis, it’s highly unlikely you can borrow more to get through a tough time.

2. Build an emergency reserve and leave it alone. No matter how secure you think your job is or how much you hate having money sitting in a money market account earning next to nothing, you need an emergency reserve to cover six to 12 months of living costs. This is not an investment, it is insurance against inevitable financial calamities. Also, never raid your emergency reserve for unplanned lifestyle expenses. Vacations, taxes, and new vehicles are not emergencies. You need a separate savings account for these anticipated expenses.

3. Insure yourself against the unknown. Insurance is one of the most efficient ways to protect yourself from financial calamity. Adequate auto, renters or homeowners insurance is a must. If you have young children you need a minimum of $500,000 of life insurance on both working and stay-at-home parents. Adequate long term disability covering two to three years of income is important. Don’t waste money on the wrong insurance. I don’t recommend expensive and largely unneeded coverage such as cancer, flight, or credit life insurance.

4. Diversify your investments among asset classes. The best insurance you can have against inevitable economic plunges is to own some of what’s going down and some of what is inevitably going up. Diversification doesn’t just mean owning different types of stock funds or buying from different investment brokers, either. It means having lots of asset classes in your portfolio like global stocks and bonds, real estate, commodities, TIPs bonds, and alternative investments. The easiest way start building a diversified portfolio is to find a diversified mutual fund that will do this for you. A couple examples are First Eagle Global and American Capital Income Builder.

Protecting yourself with these four strategies can ease your fears about what financial calamities might happen. You’ll know that whenever they do, you will be prepared.

Rick Kahler is a Certified Financial Planner™ professional licensed with a registered investment adviser that provides personal financial advice online for a flat fee.He is an author of four books on financial psychology and recognized by BusinessWeek magazine as one of the 15 most experienced financial planners in the nation. Contact Rick for help on virtually any financial need.

Posted in Budgeting, Debt, Emergency Fund, Insurance, Investments, Rick Kahler, Saving | 2 Comments

Are you a Wealth Accumulator?

Published January 6, 2012 | By Rick Kahler

By: Rick Kahler, CFP^®

Here’s a new twist on an old New Year’s Resolution: If you want to give yourself the security of financial independence, try budgeting the way many wealth accumulators do.

The secret? They don’t budget.

Your first reaction might be, “Of course not! They have so much money, they don’t need to budget.”

That may be true for those who have wealth, but I’m referring to people who are “wealth accumulators.” They don’t start out with money, but they build up significant wealth over time. Continue reading →

Posted in Budgeting, Emergency Fund, Holiday Spending, Quality of life, Retirement Planning, Rick Kahler, Saving, The Money Game, Wealth Accumulation | 1 Comment

Should you stay invested in this wild market?

Published January 2, 2012 | By Tamara Kraig

By: Tammy Kraig, CFP^®

Many investors are skittish of the wild ride in the stock market – up sharply one day, then dropping precipitously two days later. Every day there is different explanation to justify the markets’ jittery moves. One day it appears that the EU has reached agreement for another bailout; the next day, the reports are that the bailout will be too little, too late. In this country, investors are worried that unemployment is high and economic growth is weak; the next day, investors may be happy with future company earnings and continuing low interest rates. And just for good measure, there are the days when the markets move opposite to that suggested by the news. Continue reading →

Posted in Inflation, Investments, Risk, Tammy Kraig | 4 Comments

What good financial advice looks like

Published December 27, 2011 | By Kevin Condon

Posted in financial advice, Finding an Advisor, Good Advice, Kevin Condon, The Money Game | 4 Comments

15% off coupon through New Years

Published December 24, 2011 | By Kevin Condon

Merry Christmas, Happy Hannukah and Best Wishes for the coming New Year from COMMON Financial Advice, where the best advisors give the best advice on the web.

The video offers you a fifteen percent discount for advice sessions, including tax planning.

We will keep the discount up for the next few weeks to give you time to use it. The discount will be credited to you for any advice session completed before the end of January.

Happy Holidays!

Posted in 401k Plans, Budgeting, College Planning, Coupon, Emergency Fund, Good Advice, Health Insurance, Holiday Spending, Insurance, Investments, Kevin Condon, Living Frugally, Mortgage, MyFinancialAdvice, Portfolio Allocation, Real estate, Retirement Planning, ROTH 401k, Saving, Taxes, Video | 1 Comment

WARNING: Talk to your tax advisor before its too late

Published December 16, 2011 | By EileenDorsey

By: Eileen Dorsey, CFP^®

If you are in any of these situations you should contact your tax advisor before the year ends.

Year-End Tax Discussion Items:

Continue reading →

Posted in 401k Plans, College Planning, Eileen Dorsey, Health Insurance, HSA, Retirement Planning, ROTH 401k, Taxes | Leave a comment

Take Your Time Deciding What to Do with Sudden Wealth

Published December 2, 2011 | By Kevin Worthley

By: Kevin Worthley, CFP®

Recently, a retired couple in their early 60’s met with me to discuss potential recommendations for some money they had inherited from one of their parents. As sometimes happens, this amount of money was more cash than these people had ever had at one time. In fact, to them it was similar to winning a fortune in the lottery. Continue reading →

Posted in Budgeting, Inheritance, Investments, Kevin Worthley, Living Frugally, Quality of life, Retirement Planning, Saving, Sudden Money | 2 Comments

Financial Planning is Even Harder During Divorce

Published November 17, 2011 | By Rick Kahler

By: Rick Kahler, CFP^®

Few things in life are as painful as the ending of a marriage that began with the promise of a lifetime of happiness. The unfortunate reality is there’s a 50-50 chance that what started out in wedded bliss will end bitterly in a court of law.

If you are facing a divorce, here are a few tips that may make the transition a little easier financially. Continue reading →