The end of a tradition? Traditional pensions plans on their way out

In the summer of 2012, General Motors offered many of its employees the opportunity to receive a lump sum payment in lieu of a monthly pension check. After crunching the numbers for a retiree client and highlighting both the pros and cons of taking the lump sum, my client chose to continue with the traditional pension format.

In fact, more than half of those who were offered the choice in 2012 selected to remain with the pension format. Clearly then, this particular retiree’s decision was not unusual. It was actually the majority decision.

My intent is not to say that my client’s decision was right or wrong. What has remained in my thoughts, though, was his reasoning for turning down the lump sum and continuing with the monthly pension.

His rationale for staying with a pension was simply that he is a traditionalist. Now, there’s certainly nothing wrong with being a traditionalist.

But, as with so many things in our world these days, traditions are changing. Traditional pension plans that pay a lifetime of income along with a survivor’s benefit are disappearing fast.

There are a number of reasons why. One, of course, is that retirees are living so much longer than was the norm just a few decades ago. Another is the scary reality that many pension plans, public and private alike, are underfunded.

Unfortunately, word of the many pension crises our nation is facing rarely makes it into the headlines. But it’s a fact that there are a great number of public pension plans that are fast approaching crisis level. They just don’t have enough funds in their coffers to fulfil their pension obligations.

We all followed the city of Detroit’s bankruptcy proceedings. One of the key issues that needed to be resolved before bankruptcy was approved was how to settle the pension situation with retired city employees.

From coast to coast, there are state and municipal pensions that are terribly underfunded. In New York City alone there are more police officers collecting pensions than there are active police officers on the street.

In corporate America, 41 million employees and retirees have the comfort of knowing their pension is protected by the Pension Benefit Guaranty Corporation (PBGC). There are currently 10 million Americans whose pensions have already failed and their pensions are now handled by the PBGC.

That being said, what concerns me is that the PBGC itself is underfunded. It has a deficit of $62 billion. Signed into law by President Ford, the PBGC has run a shortfall for the past 12 consecutive years.

I believe that the traditional pension is on its way out. Not only is the writing on the wall, I think you could say that the wall is collapsing. I don’t see how public and corporate pension plans can meet their pension obligations.

Traditions do change. It used to be that department stores were closed on Thanksgiving Day and all the College Bowl games were played on New Years Day.

What I’m saying is don’t stay with your pension just because it’s “traditional.” If you have a lump sum offer, review it and analyze it. The world of a gold watch at retirement and a traditional pension is near extinction. The only constant in our ever-changing world is change.

Shadow banking steps out of the shadows

In a recent article I mentioned that former Federal Reserve Chairman Ben Bernanke initially had difficulty refinancing his mortgage. When I decided to downsize from my house to a condo, I opted to have a modest mortgage for tax planning purposes.

But after seeing the never-ending list of documentation that the bank required, I decided to forgo the tax benefits provided by a mortgage.

Since the meltdown of 2008, the banking industry lending standards have been significantly tightened. And there’s a long laundry list of new regulations including those in the Dodd-Frank bill.

You would think with interest rates at record low levels that businesses and households would be flooding the banks with loan applications. But, many have scars from the financial meltdown in the form of less than a stellar credit rating. Or perhaps they depleted their savings account in order to survive the downturn.

Because of such previous setbacks and the need for loans, a low credit rating is forcing many to seek alternatives to traditional banking for business and personal loans.

These banking alternatives are commonly referred to as shadow banking, which is becoming a booming enterprise and emerging from the shadows as real competition for traditional banks.

Many used to think of shadow banking as pawnshop loans and establishments that offered cash advances on paychecks. But today it’s much more.

It’s estimated that the non-traditional banking environment in this country has grown to more than $3 trillion. Small wonder. Because unlike the traditional banking system which is regulated and monitored by a plethora of regulators, the shadow banking industry is under the radar of watchdogs.

Some would argue that lack of regulation is a godsend. But others might fear that it could be the next big problem because nobody is paying attention.

I tend to be more of a traditionalist and favor traditional regulated banking. But I can certainly sympathize and understand those that turn to the shadow banks for help.

Shadow banking is serving a segment of the population that needs capital but doesn’t meet the strict guidelines that the banking industry follows.

Shadow banks can have significant differences and are all over the board. A typical transaction for a $1,000 loan, for example, might have a loan processing fee and an interest rate at around 6 percent.

Yes, their rates and fees are likely to be higher than a traditional bank, but if you had some financial problems in your recent past, this just might be the only way you can obtain a loan.

Recently, the well-known PayPal announced it would be entering this shadow banking space. The non-banking industry is not only looking for borrowers, they’re also seeking investors that have the money that is needed to make these loans.

I would be very careful from this end as well. I see a definite potential for investors to take it on the chin. Again, it’s the lack of regulation that concerns me.

As shadow banking moves from the shadows and closer to Main Street, I suspect we’ll hear from legislators after problems arise. Don’t get me wrong; traditional banks don’t serve the needs of everyone. But when you step into a game that lacks rules, don’t be surprised when you encounter a lot of problems.

Living long and prospering takes meaningful effort

The onset of cold weather and the earlier arrival of darkness have changed my life. Not in a major way. It’s just that I tend to spend a lot more time in my house compared to the summer months.

Personally, I can only read or watch television for so long before I start to climb the walls. One day I actually went to the gym before and after my day at the office.

I certainly don’t pretend to be the Energizer Bunny, but I just can’t see how people can sit for hours at a time, regardless of the season. I probably drive my wife a bit crazy, but the reality is that we’re all wired a little differently.

We all have our own unique quirks, idiosyncracies and fears during life’s journey, but no matter how different each of us may be, all of us want good health.

I think it would be fair to say that, along with good health, most of us would also like to have wealth. But the odds of having both just because you want them are not very favorable. In fact, it’s very unlikely to have both without meaningful effort. Work is definitely required to achieve both health and financial goals.

Just as with financial planning, there are steps you can take to improve your chances of achieving good health. A better diet and exercise are two obvious examples. But again, just as it is in the investment world, you may be able to statistically improve your chances, but there are simply no assurances you will achieve your goals.

Various studies are pointing out that the journey of life is getting longer and longer. Longevity and financial planning have always been connected, but now they are becoming deeply intertwined.

Take a married couple aged 65, for example. How much longer are they expected to live? Obviously, there are a number of factors involved, but according to statistics, there’s a 52 percent chance that one of the spouses will live to see 90.

Better diets and exercise help contribute to longevity, but along with longer life expectancies, comes another important consideration. You’re going to need more money to maintain your lifestyle.

I talk to my clients about this all the time. When I point out that they could easily spend over $250,000 in today’s dollars on out of pocket health care expenses they seem surprised.

But it could get even worse. The more I read the more it seems likely that dollar figure is going to rise. In fact, it could easily exceed $300,000 in the near future. That’s just one reason why it’s extremely important to save and invest for retirement.

When people are in good health, they should also discuss their money concerns with their financial adviser. The financial services industry has evolved far beyond the traditional long-term care policies.

There are now life policies that pay out the death benefit while the insured is living if care is needed. There are also some annuities that have special provisions and language for those in need of special care.

As I stated, health and wealth are more intertwined that ever. You might not need wealth to have health, but with sufficient wealth you can enjoy and celebrate your good health.

Know when to take your lumps when retiring

Once I push myself away from the Thanksgiving dinner table, it seems to me that the remaining portion of the calendar year moves at lightning speed.

There’s an abundance of year-end items that need to be taken care of in just a few short weeks. If you’re in your late 50s or early 60s and employed by a large company, let me add one more item to your list.

If your company has a frozen pension, ask your HR department for a handful of retirement projections covering a variety of retirement dates over the next few years. You might be surprised at what you discover.

To set the stage, interest rates are extremely low. Bank deposits earn next to nothing and mortgage rates are about as low as I can ever recall. The surprise is how these low rates can impact your frozen pension account.

Pension fund managers need to be somewhat cautious in the manner they invest pension funds. Hence, much of the money is in relatively safe, low-interest bearing funds to meet their pension obligations. In this low interest rate environment, that translates into a larger lump sum compared to just a few years ago.

Consequently, if your company offers the choice of a lump sum buyout in lieu of a monthly pension check, you just might be sitting on a once-in-a-lifetime opportunity and not even realize it.

I recently encouraged a client in his late 50s to ask his employer’s HR department for year-end retirement projections for 2014, 2016 and 2018.

Since the pension is frozen, retiring now and taking the traditional pension wouldn’t be much different than if he continued working until 2018.

However, the lump sum offers provided by the HR department were quite interesting. If he took the lump sum now or in 2016 or 2018 the amount would be virtually the same. In other words, he could retire now and receive a lump sum of $500,000 or wait a few years and collect the same $500,000.

Mathematically and historically speaking, there is every reason to believe that a $500,000 lump sum today would be worth more than the same $500,000 lump sum a few years from now.

In my client’s situation, other than any new 401(k) deposits and company match, there’s no compelling reason for him to stay with his current employer. In fact, you could even argue that, since his benefits are frozen and not growing, by staying on the job he is effectively taking a reduction in pay.

In this low-interest environment, where my client’s speciality is in high demand, and because he is somewhat disenchanted at his current place of employment, he should consider taking the lump sum and retiring now. Then, if he wanted, he could seek new employment with comparable benefits somewhere else.

By investing wisely, his lump sum could actually grow over the next few years, and at actual retirement some years later, he could have a considerably larger nest egg than if he stayed on course.

I believe many of my readers may be sitting on a similar opportunity and not even be aware of it. Take the time to request your retirement projections. If the lump is a viable option, discuss it with your financial adviser, along with ideas for investment.

Are you prepared to ride the DJIA seesaw?

The often-mentioned Dow Jones Industrial Average (DJIA) is simply a basket of 30 domestic stocks that provide a barometer for the performance of the U.S. stock market. There are other measures, but the Dow is the one most frequently referenced.

In October, it appreciated a very respectable 2 percent. On the surface, you would likely say it was a decent month. On the other hand, it could have been a poster child for the phrase “investors need an iron stomach.” In other words, it was a really wild ride.

The stock market was open for trading on 23 days last month. As measured by the DJIA, the action was pretty evenly split. That is to say there were 12 days in which the market lost ground and 11 positive days that it gained.

Recently, the Dow has been hovering around the 17,000 mark, swinging above and below it with apparent ease. Historically, 17,000 is where no DJIA has ever gone before.

Generally, when the market is down 200 points in a day, you would consider it a really bad day. Conversely, when the market is up by more than 200 points in a day, you’d call it a really good day.

During the month of October, there were swings exceeding 200 points up or down on 19 of the 23 trading days. Clearly, it was not a time for the faint of heart.

Since we’re an automotive town, let me illustrate with an automotive analogy. If October were a stretch of road with the speed limit of 50 mph, we were either chugging along at 25 mph or flying at 70 mph.

Although we never actually traveled at 50 mph, we arrived at the end of the ride as if we had traveled all the way just a hair above the posted speed limit. On the surface it may have appeared to be an uneventful ride, but moment-by-moment it was wild and crazy.

Quite often, it’s best to simply tune out many of the world’s worrisome current events. Looking back at October, the Ebola virus was the dominant news story. But there was also ISIS and the bombings in Syria, tensions in Hong Kong, and tragedy with our neighbors in Canada.

Not to downplay any of these events, but history books are full of conflicts, crises and catastrophes that could be used to rationalize why you should avoid being an investor. And while history is no assurance of what lies ahead, time and time again the investment world seems to reward those investors who have an iron stomach and stay the course.

October was an absolutely perfect example. If you had let your emotions take hold, you would have missed out on a fairly respectable month. If you had watched the news on an hour-by-hour basis, you might have thought the world was ending.

There is a lesser-known index called the VIX, which measures volatility. It has often been referred to as the fear index. In non-technical terms, it was all over the charts in October, further confirming what a wild ride October was for investors.

I don’t recall ever experiencing a month quite like this past October. But it certainly reminded me why it’s so important to keep your emotions out of your investments.

Who wants you to be a millionaire? No one

Thank goodness the mid-term elections are over and done with. I anticipate we’ll begin hearing about the upcoming 2016 election within the next few weeks and I, for one, can hardly wait.

I intentionally try to avoid being political in this column, but there’s something that really bothered me throughout the recent pre-election campaign. The television ads. Specifically, it was how they seemed to vilify anyone who had money.

The ads would have you believe that everyone who is considered wealthy is selfish and doesn’t care about the schools or the environment. As a financial adviser I’m taken aback by this growing perception of people who are financially well off think it’s unfair to routinely criticize someone just because they have money. There seems to be some sort of automatic assumption that they came into their money dishonestly or illegally.

But it’s just as likely that they attained their financial status because they worked hard during their careers. And they probably put their families first and were active in their communities.

Generally speaking, most people accumulated their wealth because they were dedicated savers who stayed committed to their financial goals throughout their careers.

Simple mathematics shows that it’s possible. For example, let’s say you were to save $1,000 per month in a tax-deferred account at five percent interest. If you did so every year throughout a 35-year work career, you’d have in excess of $1,000,000.

This is obviously a hypothetical example, but it illustrates that, although it may be difficult for many, it can be done. That being said, if you’re just in the early stages of your career and don’t have $1,000 a month, you should still get into the habit of saving whatever you can.

This is especially important if your employer’s retirement plan provides a match to your contribution. Then, as you age and hopefully have more disposable income, Uncle Sam will provide more incentives to save even more.

The maximum annual contribution into a 401(k) this year is $17,500. If you happen to be over age 50, you can actually contribute an additional $5,500. That’s $23,000. Next year, both numbers increase. The maximum 401(k) deposit is $18,000 with an additional $6,000 for those over 50. That’s $24,000. If you’re in a financial position to take advantage of these provisions, I strongly encourage you to do so.

One out of twelve households in the U.S. has a net worth in excess of $1,000,000, excluding the value of the principal residence. That translates into more than 9.5 million households. Of that 9.5 million, fewer than twenty percent inherited their wealth. In other words, wealth for the vast majority was earned, saved and invested. Which is to say, they made it happen.

There’s no question that a million dollars is a lot of money. But even if you were to have that much, there’s still no assurance you won’t encounter financial issues during retirement.

Keep in mind that, in retirement, health related issues could easily carve out a huge slice of a million dollars. And interest rates can have an adverse impact on a retirement nest egg if they continue to stay at today’s extremely low rates.

When all is said and done, attaining a million dollars is a goal that should be encouraged, not vilified.

When the elections are over, will anything change?

Election day is finally on our doorstep. I sincerely hope, as you enter the voting booth, that you don’t make your election choices based on the 30-second commercials that have taken over the airwaves.

They are misleading at best. And while I hesitate to say that some of them are intentionally so, I can say with certainty that some of them are contradictory.

That being said, I know how difficult it is to get your arms around certain complex issues when things are going at full speed in your personal life. In many instances, even if you know your stance on specific issues that are near and dear to your heart, it’s difficult to determine exactly where political candidates stand. After all the annoying and half-truth commercials, at the end of election day, some of you will be thrilled with the results and others will be disappointed. I kiddingly state that I’ve been voting for so long, I can remember elections where the final results didn’t require the intervention of attorneys to determine a legitimate outcome.

In the financial world, I’ve always cautioned investors not to become overly euphoric when their investments were making rapid gains. Conversely, I’ve urged them not to become too distraught when their bottom line took a downward turn.

In other words, it’s a good idea to stay calm and collected regardless of the direction of your fortunes.

And that’s exactly how I feel about election results. I don’t believe any one loss or victory by a particular candidate will suddenly alter the long-term financial planning objective of any household.

When the election dust settles and reality sets in, everyone is still going to be paying taxes. Young families will still need to save and invest for college and retirement. Empty nesters will still need to plan for a rapidly approaching retirement. And those already retired will continue to fret over the increasing costs of living.

Regardless of who wins or what propositions are passed, post-election is the time to make year-end financial adjustments.

For example, if you have a high-deductible health insurance program, you should consider making a contribution into a Health Savings Account. If you participate in either a 401(k) or 403(b) account, you should at the very minimum make certain you’re contributing enough to receive any employer match.

If you received a pay increase during the year, you should consider increasing the amount of your contribution for the balance of the year. Keep in mind that there are special provisions to encourage contributions for those over the age of fifty. If you’re over fifty, you should definitely take advantage of those provisions.

If there’s no company program, you can still take the initiative to open an Individual Retirement Account. Because they can be somewhat confusing, in that there are both tax deductible and non-deductible programs, I suggest you consult your attorney or financial planner.

In the short term, investors need to move quickly to put any finishing touches on year-end strategies. Long term, no matter who is elected, it’s not the responsibility of Lansing or Washington, D.C. to make or break your financial goals.

In spite of all the political promises, your financial success or ultimate failure is not decided in the ballot box. It’s up to you.

Big Ben gets cut down to size

I have often pointed out that the investment world is like a living entity. By that, I mean that it inhales and exhales, although on a much more irregular basis than humans.

The recent market downturn indicates that many investors seem to have forgotten about the inhaling part of the equation. Between the downturn, radical terrorism in Iraq, and the Ebola virus crisis, there are a lot of nervous households around the country.

And right in the midst of these worrisome issues, the politicians are trying to push everyone over the edge with their never-ending onslaught of political ads. Yet, every once in awhile, something happens in the investment world that adds a little levity and causes one to chuckle. Such an incident recently occurred in the world of finance that I just had to share with my readers.

Ben Bernanke served two terms as chairman of the Federal Reserve, the central bank of the United States. He served under both President Bush and President Obama, from 2006-14. In other words, he was gatekeeper of our nation’s money supply and instrumental in guiding the country through the financial crisis.

As Federal Reserve Chairman, his compensation was just under $200,000 per year. Since he left office, he has been on the speaking circuit where he commands more than $100,000 per appearance. He is intelligent, well educated, and widely known, not only in this country but also throughout the world.

He is obviously well off financially and apparently knows how to handle money. What brought a smile to my face was his recent attempt to refinance his mortgage to a lower rate. In spite of his credentials, and much to my amusement, he was initially turned down. Once the most powerful man in the financial world couldn’t get a mortgage a year later.

Of course, it was a happy ending for Ben. Details weren’t made available to the public, but many mortgage experts speculate that the initial denial was because he went from a making a steady income to one that was collected from time to time. Pretty strange since he was actually making much more.

I don’t necessarily want to be critical of the mortgage industry, but prior to the recession, just about anyone who could fog a mirror could get a mortgage.

Changes in the mortgage industry were most certainly in order, but, as with so many changes in laws and regulations, the needle moved from just being a problem all the way up to potential disaster. And somewhere along the way, common sense got lost in the shuffle.

As is the case in many industries, it appears mortgage companies were more focused on getting forms filled out correctly than on looking at circumstances and letting common sense prevail.

The banks blame the regulators and are fearful of additional litigation and fines. The regulators blame the banks for being too tight with their purse springs.

As a result, households with great credit ratings and strong personal balance sheets continue to have difficulty obtaining a mortgage. Just ask Ben Bernanke.

I’m fairly confident he was able to get his paperwork through underwriting with a simple phone call. But not everyone has his connections. Hopefully this incident will serve as a wake up call for bankers and regulators alike.

The buck starts here: The U.S. is still viewed as a safe haven

For many, this is an exciting time of the year. Hunters, for example, are busy preparing for their pursuit of the big buck. Many retailers are excited too, anticipating the onslaught of hunters coming in to gear up and put the finishing touches on their hunting camps. And, no doubt, anticipating some nice profits.

They’re already bagging bucks, as the bow season has been underway since Oct. 1. And when the traditional Nov. 15 opening date for the firearms season kicks in, more sales will be rung up.

It’s a simple fact. This time of year is important to Michigan. The hunt for the buck puts a lot of dollars into the state’s economy.The buck is also getting a lot of attention on the national scene. The buck I’m referring to here, of course, is the U.S. dollar, quite commonly referred to as a buck.

The slang term buck in connection to the dollar goes back to the days when the early settlers were trading with the Native Americans. The rate of exchange was a deer hide for a dollar, thus the term buck.

On a national as well as international level, the currency version of the buck has been making big news. Most Americans probably don’t pay much attention to how the U.S. dollar is doing relative to other currencies.

They don’t wake up in the morning, turn on the television and eagerly await the latest developments from the international currency scene. In other words, the dollar’s relationship to other currencies is something about which most Americans little know or care.

In reality, though, it has an impact on us each and every day. One example is the falling price of gasoline. The strength of the U.S. dollar versus foreign currencies is a major reason why gasoline prices have fallen. So far this year the dollar index, which is a measurement of the dollar’s strength against a basket of major foreign currencies, has climbed 7 percent. For 12 consecutive weeks the U.S. dollar is up against the euro and Japanese yen.

There’s no question that the rising dollar has taken a lot of economists by surprise, especially considering the staggering amount of our national debt. However, with all the turmoil around the globe, we are still viewed as the world’s safe haven.

One well-known politician was quoted as saying “It means we have the best horse in the glue factory.” While that’s not exactly what you would call high praise, a strong dollar does have some benefits. In addition to the falling price of gasoline, it also means a European vacation will be a bit cheaper than it was last year.

That’s not to say there aren’t any negatives. There are. For example, it’s now a lot more challenging for American car companies to sell their vehicles overseas. For that matter, almost any American company selling goods overseas now has a higher hurdle to overcome.

As consumers and investors, we need to be aware that the dollar’s movement up and down in value relative to other currencies can have an impact on our daily expenses and the value of our nest eggs. I believe it is a positive that, despite all of our nation’s financial issues, we are still viewed as the safe haven of the world.

What if you’re never president of the United States?

Slightly less than two weeks ago, former President Jimmy Carter turned 90. It’s been 33 years since he left the Oval Office. I am not saying that he’s the oldest former president, but no other president has survived that many years beyond his term in office.

In a similar fashion, former President George H. Bush has also been living an active life since his term in office. I bring this up in a financial column because both former presidents illustrate the point that, for a variety of reasons, people today are living longer lives.

In fact, lifespans today are so much longer than in decades past, retirement can easily represent a third of a person’s life. Unlike you and me, neither of the former presidents has to worry about running out of money in retirement. Of course, their pension checks are funded by your tax dollars.

But longevity is one of the reasons that so many pension funds are either struggling or have been discontinued. Who could ever have imagined that so many people would live such long and fruitful lives?

By contrast, Civil War General and former President Ulysses S. Grant didn’t have it quite so well as former presidents have it today. He was elected to office at the young age of 46. When he left office, some poor financial decisions were made and he became dependent on his military pension.

Remember, there was no Social Security at the time. So, in order to supplement his retirement income and provide money for his heirs, he wrote his memoirs with the assistance of Mark Twain. Grant passed away from cancer at the young age of 63.

In today’s world there are definitely a lot more financial perks for former presidents and other politicians after they have left office. Such financial security did not exist a hundred years ago, but nowadays, I’m sure we would be shocked to hear that a former president was struggling with pocketbook issues.

My point is that the general public just doesn’t have the kind of income security that former presidents have. In fact, the majority of people today are nowhere near being on the financial trajectory that would lead them to a worry-free retirement income.

As someone who works with a lot of retirees, my observation has been that most people who worry least about their retirement income are those that began preparing early in their careers.

Yes, they contributed regularly into an IRA or whatever other retirement program that their employer provided. Just as important, they continued to participate in these programs whether the economic times were good or bad.

Like former Presidents Carter and Bush, I would prefer for everyone to have a relatively healthy and active retirement for many years to come. Unfortunately, you won’t have the financial benefits of being a former president. And, unlike President Grant, it’s highly unlikely you’ll find anyone willing to pay you a bundle for your memoirs.

That’s why it’s incumbent upon you to make certain you can reach age 90 with minimal financial concerns.

Having a reliable, steady income and a decent sized nest egg doesn’t just happen. It takes a lifetime of effort in order to make the retirement years the golden years we all dream about.

Many Michiganders can’t afford basic necessities

Because of unacceptable player behavior off the field, the National Football League has been all over the news. To the league’s credit, though, they’ve been partners with the United Way organization for more than forty years.

Our great state is in the center of Big Ten Country. For non-sports enthusiasts, the Big Ten Conference now has 14 schools, and one of the recent additions is Rutgers, the State University of New Jersey.

I recently discovered that Rutgers was in Michigan this summer for something other than a football game. They conducted a study for the Michigan Association of United Ways. Called ALICE (Asset Limited, Income Constrained, Employed), the study dealt with “the population of individuals and families who are working, but are unable to afford the basic necessities of housing, food, child care, and transportation.”

It found that 40 percent of our state’s population falls into that category. In other words, nearly half of Michigan’s population struggles to make ends meet. I think you’ll agree it’s a sad state of affairs when so many Michigan households can’t afford basic needs as defined by ALICE.

As someone that enjoys surveys, studies and numbers, I found ALICE to be as thorough and detailed as any I have ever reviewed. It was almost to the point of being overwhelming.

What hourly wage is needed to make life in Michigan affordable? It varies from county to county, but overall for a family of four (2 adults/2 children), the magic number seems to be just over $25, a number easier to attain if more than one family member works.

According to the Bureau of Labor Statistics, 63 percent of our jobs pay less than $20 per hour, with most of them in the $10 to $15 per hour range. And that number is based on a full-time workweek, even as we are evolving into a nation of part-time workers.

In other words, Michigan is an expensive place to reside, while at the same time we are in need of higher paying full-time jobs. I suspect the high cost of living has driven a number of higher end households and businesses to relocate out of Michigan. And that’s on top of the many Michiganders who left looking for jobs during the economic downturn.

ALICE found our population to be very diverse, quite typical in this ever-changing world. Contrarily, it seems the phrase “a typical family of four” is becoming about as rare as a company that still provides a pension plan.

To Michigan’s credit, we were one of the first states to undertake this thorough analysis through United Way and Rutgers University. In many ways, the findings confirm reality.

Somehow, we need to continue to make Michigan an attractive place for businesses to call home. We need to re-establish our workforce as one that’s educated, dependable, reliable and enthusiastic.

I’ve personally observed that Michiganders who have been fortunate are also extremely generous. As we close in on the holidays, please remember to be generous to our neighbors who are in dire need and struggle to balance the budget every month.

While the study points out just how many are struggling, I’m confident that Michigan is poised to become one of the states where businesses want to set up shop and offer well-paying jobs.

Setting investment goals is a matter of life and death

In this column, I frequently emphasize the importance of setting investment goals in order to provide for your children’s college education and your own retirement.

To accomplish those goals, there are certain requirements. First and foremost, you must establish your goals and objectives. That’s pretty obvious.

But then you need to establish the parameters necessary to meet your defined goals. That could take some work. And, finally, you should periodically measure your progress toward achieving the goals.

At that point you may need to adjust your parameters or revise your goals. But make no mistake, goal setting and investing go hand in hand.

But what happens if something goes terribly wrong and you meet your maker long before you anticipated? September is Life Insurance Awareness Month and life insurance is the part of planning that few want to discuss.

Discussing death is never an easy topic, but it’s a vital part of financial planning. When my wife and I were raising our sons, they frequently lamented, “This isn’t fair.” My guess is that anyone who has raised children has heard this or a similar type comment. We often chuckled at such complaints, but we tried to do our best as parents.

In reality, though, life isn’t fair. It doesn’t always work out the way we want. A good example is being passed over for a well-deserved promotion. Then there’s illness and, even worse, an unexpected death.

I can’t emphasize enough how important it is for a family to own life insurance. Money is made two ways. You can work for it and you can put your money to work for you. Life insurance simply brings money to the table when you’re gone. Because, even if you’re no longer alive, you still want your family to have a roof over their head, food on the table and the means to achieve their goals.

Quite often, when a local tragedy makes the news, you hear about a fund-raiser to help the family. Although fund-raisers are admirable, they’re not something you can count on. I still think it’s best to plan and prepare for the unanticipated while you’re still alive and healthy.

Back when the Super Bowl was at the Pontiac Silverdome, one of the quarterbacks was Boomer Esiason. I mention this because his mother died at a young age without life insurance. Boomer watched as his father worked extra hard to provide for the family.

When he became a parent, one of his first purchases was life insurance. Today, he’s the spokesperson for Life Happens, an organization that highlights the importance of owning life insurance.

Statistics indicate that thirty percent of households in the U.S. have no life insurance at all. That happens to be an all-time low for life insurance ownership in this country. And it gives me a bad feeling.

It means that more and more families will be turning to the government for financial assistance at a time when Uncle Sam is hurting financially.

Life insurance is not only an unpleasant topic to discuss; it can also be quite confusing. There are all kinds of insurance companies and all kinds of policies, and the language can be confusing.

I hope you take the responsible route and make certain your life insurance program is in order.

Ready to take your lumps? A lump sum buyout, that is

If you’re currently in the workforce and you anticipate a company-sponsored pension when you retire, the odds are pretty good that you’ll be faced with a major decision before you actually retire.

The decision that you will likely face is whether you should continue to receive a traditional pension or opt for a lump sum buyout. It certainly appears to me the stars are aligned in such a manner that lump sum buyouts will soon prove to be the norm rather than the exception.

There are a number reasons why plan sponsors might want to dissolve their pension programs. One is the insurance premium imposed by the Pension Benefit Guaranty Corporation.

The insurance premium per participant has jumped in recent years, and currently stands at $49 per annum. By 2016, however, the cost of the premium will jump by more than 30 percent, all the way up to $64.

To consider a lump sum buyout as an option, regulations mandate that the pension program be funded above 80 percent. So, as a plan sponsor, if your pension program is in relatively good shape and you can save significant money on insurance costs, why wouldn’t you consider terminating your pension?

In addition to no longer having to pay pension insurance premiums, even more money is saved by eliminating the required administrative costs.

Another major reason why I think so many plans will be offering lump sum options is the extremely low interest rate environment that we’re currently experiencing. Simply stated, if a projected pension is $1,000 per month or $12,000 per year, consider how much capital the plan would need to generate $12,000.

In other words, with interest rates so incredibly low, it would take a lot of investment dollars to generate $1,000 per month. If interest rates were to rise in the future, less money would be needed to generate the $1,000, maybe a lot less.

A common question that I’ve been asked by many employees is why the lump sum amount on their benefit projection statement is decreasing even though they are continuing to work. The answer is a function of the government rate for calculating how much the plan sponsor needs in reserve.

Currently, the rate is just over 1 percent. But in five years, it will be 4 percent. Obviously, the plan sponsor would need less money to generate your $1,000 per month at 4 percent rather than at 1 percent.

For the mathematically challenged, here’s a hypothetical example of what a person might face in today’s pension environment and why a current lump sum buyout might look fairly attractive from an employee’s point of view.

Retire now with a $12,000 annual pension or a lump sum payment of $150,000. Or, retire in five years with the same $12,000 pension or a $100,000 lump sum.

Of course, this is just hypothetical. Everybody’s situation is different and there are pros and cons both ways. But what would you do?

If you’re approaching retirement, I strongly suggest you get an opinion and analysis from a trusted financial adviser because there are a lot of moving parts. It will probably be the most important financial decision of a lifetime.

There is no one-size-fits-all answer because everyone’s circumstances are unique. But to dismiss either option without doing your homework is not a well-thought-out option.

It’s not too late to ‘Go West!’

Summer vacations can be both fun and educational. My recent western states vacation is a good example. When I head for the west coast, I generally make several stops. One of the most interesting was at Rapid City, S.D.

To my surprise, the city has life size bronze statues of all our presidents. I wandered into the main office and learned that the artists and statues were funded and maintained by a private organization. A gentleman explained to me that it was their way of honoring our nation.

My next stop was the Mount Rushmore National Memorial, where I was fascinated to learn the process of its dream, design, construction and ongoing maintenance. It’s also where I decided the direction of today’s column.

I overheard some startling comments from the large contingent of domestic and foreign visitors, including such as “Who is that along with Washington and Lincoln?” But my favorite was “Why did they put Roosevelt on the monument before he was president?” Obviously, some visitors were confusing Teddy and Franklin D.

Whenever I turned on the news during my western trip, the topic was Ferguson, MO, just outside of St. Louis. In our nation’s history, St. Louis was the starting point for many western settlers.

Most were seeking the American Dream of a better economic life. People have continually moved west seeking a better lifestyle. Those journeys were not without risk, and, on some occasions, ended in death.

The nation has changed dramatically since the Wild West was settled. While the American Dream is still alive and well, I fear that many don’t share the dream or simply lack the drive to improve their lot in life.

As a financial advisor, I help people handle their finances. Except for the few that inherited their wealth, most accumulate it through work and investment. But the foundation for building wealth is something that many seem to be lacking.

Our nation’s challenge is to develop new opportunities that lead to good jobs and careers. I believe we need a modern-day western journey to revive the American dream. In other words, we should be emphasize having dreams and taking calculated risks rather than debating the minimum wage.

It appears our focus is on just getting by rather than aiming for the sky. My youngest son and some of his friends are good examples. After graduating from college at the height of the recession he “went west.”

He discovered there are plenty of well-paying jobs for those that are willing to dedicate themselves and work hard. Many in his age group followed the same path.

In the investment world, you need to find the balance between minimizing risk and maximizing aggressiveness. I don’t mean if you’re without work or unhappy with your job, that you should drop everything and head west tomorrow. But you shouldn’t abandon your dreams.

There are indeed many opportunities that can be pursued. The American Dream that pushed many of our forefathers west still exists. You might have to look a bit harder to find them, but they are out there. Our history is full of stories of individuals who took risk and found success. America has changed, but with hard work, a bit of risk and maybe a little luck, no dream is unattainable.

Highway robbery? Your pension could be paving roads

The next time you drive down a newly paved road, it just might be that the money to pave that road came from your pension fund, although by a slightly circuitous route. How can that be? Let me lay the groundwork.

According to the well-respected newspaper Pension and Investment News, the country’s 100 largest pension plans were underfunded by a staggering $122 billion last year. And while that’s a frightening number and a tenuous situation, it’s actually good news.

Again, how can that be? Well, as of a result of the recently improved investment climate, that number represents a huge improvement over 2012, when the plans were underfunded by more than $300 billion. So the gap is definitely closing.

Over the years, our nation’s bookkeepers have used a variety of accounting tactics that are somewhat gimmicky. The objective is often to rob Peter to pay Paul, and in this instance, it essentially hijacks money from your pension plan and puts it into Uncle Sam’s tax coffers.

Earlier this month, the U.S. House of Representatives passed the Highway Trust Fund Bill to provide some very needed dollars for highway funding. The Highway Trust Fund, it seems, had run out of gas.

Fear not. Your pension plan has come to the rescue. The bill’s creative accounting, signed into law by President Obama, is called “pension smoothing.” The objective of pension smoothing is to keep the Highway Trust Fund going until next summer. But only until next summer.

Without trying to make every reader an expert in the exciting field of accounting, let me keep the basics of pension smoothing simple. In essence, the government is allowing companies to defer making pension plan contributions with the commitment to make those deposits in the future.

Keep in mind that pension fund managers manage their funds very long term in order to make the money last for a large number of working and retired employees. Their definition of long term utilizes mathematical concepts such as time value of money, future value, inflation and a few other mystical statistical equations.

With pension smoothing, the government is allowing pension fund managers to defer current contributions into their pension funds, which, essentially, are your pension funds.

So, how does this deferment contribute to highway funding? In simple terms, it puts more dollars into corporations. In fact, it’s estimated that corporate America will benefit to the tune of more than $50 billion.

More money for corporations means more tax dollars for Uncle Sam. In this case, those “extra” tax dollars are being used to add nearly $11 billion to the Highway Trust Fund.

In the interest of full disclosure, the Bill also funnels money into the Highway Fund from customs fees and the rarely mentioned Underground Storage Tank Fund. But that doesn’t affect your pension.

Pension smoothing does. While I personally don’t like accounting gimmicks, I have a bigger problem with pension smoothing. It’s only a temporary measure.

Rather than addressing the issue, it kicks the problem down the road. Something that our leaders in Washington have become quite good at doing. To fix the problems long term, we need serious tax reform, not just patchwork solutions.

Pension smoothing may have not made the headlines today, but it may be a problem for many pensioners down the road.

Social Insecurity

I was a bit surprised in late July when the Social Security Trustees released their annual report.  The report itself wasn’t so much of a surprise as the fact that it was not mentioned by any of the news media.      

Such lack of attention rattled my mind like a car alarm.  These days, when most people hear an alarm, they simply think of it as an annoyance.  Many don’t even bother to turn their heads to see what, if anything, is going on.  In fact, I doubt many people stop to wonder if someone is actually trying to steal a car.

It seems to me that the same phenomenon is going on with Social Security .  The can has been kicked down the road so many times, I don’t think people even hear the aluminum can bouncing off the road and hitting a brick wall.

We’ve heard it bouncing and rattling for so long we’ve simply become accustomed to the noise.  Such complacency,

I fear it could prove to be a dangerous mistake.

Just over a year ago, I wrote an article about Social Security Disability.  I questioned whether or not all the recipients were really disabled.

Since I wrote that article, I’ve received a number of e-mails from various legal firms offering their services to help me qualify for Social Security Disability.  These aren’t occasional offers; they come on an almost daily basis.

The number of people receiving Social Security Disability Insurance (SSDI) recently reached a new high and now exceeds 11 million people as of this past May.  That represents an increase of eighteen percent since January 2009.

There are all sorts of arguments and debates as to the causes.  Is it the economy?  Is it political?  Is it changing demographics?  Are we getting sick or injured at an alarming rate?   Have the eligibility rules changed?  Quite likely, it’s some combination of these postulations.

But whatever the reason for the surge in disability claims, I think it’s time to stop ignoring the tin can clattering off the walls.  I say this because, according to the Social Security Trustee Report, the SSDI program will only be able to pay full benefits through 2016.  That’s not very far off.  After 2016, there would only be sufficient funds to pay just over 80 cents on the dollar.

As a financial advisor, I always come back to the math.  If the math indicates the numbers do not add up, it is likely a problem.  But problems can be solved.

According to the Social Security Trustee Report, the SSDI problem is just over a year away.  Even more alarming, the retirement portion of the Social Security program is in jeopardy not too many years later.

I’m puzzled as to why the trustees’ annual report receives such little press.  The mathematic realities of the entire program need to be dealt with now.

If they continue to be glossed over, the lead story in the news will soon be the announcement of a major Social Security crisis.  At that point, everyone will wonder how it happened and why we weren’t aware that a crisis was imminent.           

Within two years, some tough decisions need to be made, because borrowing more money to pay promised benefits is not a prudent mathematical decision.

How to save like a hero: Train yourself

Being a financial adviser isn’t just a job; I also consider it to be a lifestyle. It’s an occupation that requires one to be a technician and also to have the skills to interact with people. For me, it’s a badge I carry proudly and enjoy thoroughly.

I periodically attend education conferences that help me stay current with investment trends, economic forecasts, and the onslaught of new and constantly changing rules and regulations. There’s no question that the variety of classes is valuable, but what I find even more valuable is what I learn from my peers from other parts of the country and from the featured speakers from outside our profession.

My most recent seminar was in Nashville. It featured two outstanding speakers: Marcus Luttrell and Chesley “Sully” Sullenberger. Lutrell was a Navy Seal from Texas who survived Operation Red Wings on the slopes of Sawtalo Sar, a mountain in Afghanistan. He was the only survivor of the mission and his book, “Lone Survivor,” was made into a movie. His talk was intense and from the heart.

Sullenberger, the other featured speaker, was also quite newsworthy. He was the pilot who landed his passenger jet on the Hudson River when it lost all engines due to a bird strike shortly after takeoff. His ability to bring the aircraft down safely was truly incredible and witnessed as it happened on national television. Sully spoke with the eloquence of a college professor.

In many ways the speakers were complete opposites. Marcus was a fairly young man with young children. Sully, on the other hand, has grown children and was near the end of his career when he piloted the aircraft to a safe landing. They were total opposites in their backgrounds and education.

So why mention these guys in a financial column? Because of what they shared in common, something of value to all people, including investors. Years and years of training that helped them survive.

For Marcus, it was physical Navy Seal training that pushed his body to the limits. For Sully, it was the technical training of a pilot. Sully pointed out that flight simulators didn’t have water landings, but his many years of training simply kicked in during the time of crisis.

As investors, we may not need the physical toughness of a Navy Seal, but we do need to have the mental training. For example, you can mentally train yourself to be a saver. And maintain that mindset regardless of the financial circumstances.

A person that deposits a dollar in a piggybank every day is a simple example. So is someone that contributes every payday into his or her retirement plan.

It’s easy to find a reason not to save. But with strong financial discipline and the ability to keep emotions in check, anyone can do it. You just have to train yourself to act that way.

If either Marcus or Sully had panicked in their situations, they would not have survived. I have written many times that investors need to keep their emotions at bay. In most instances, if you panic and make emotional decisions with your money, you lose.

As an investor, you need to be mentally tough and keep your emotions in check. All it takes is the proper training.

A day in the life of a financial planner

Early Monday morning I was at the gym when I crossed paths with a nice elderly gentleman who went out of his way to tell me how much he enjoys my column. He said that, even at his age, he picks up valuable and useful information.

I graciously accepted his kind words. One of the things I really enjoy about the financial services industry is that it requires me to stay current with the continuous barrage of rules, regulations and trends in this ever-changing world.

What I didn’t mention to the gentleman was that later in the week I would be attending an educational seminar for three days. Three days where I would get to listen and learn from some of the most respected financial people in the country.

Later that same morning, I learned that a dear friend died unexpectedly while on a camping trip. And finally, still on Monday, I met with some clients who proudly shared their child’s plans for college.

In a nutshell, that one Monday summarized why thorough financial planning is so important. First, statistics clearly show that people are living longer than ever before. The challenge is to make certain that retirees do not outlive their income.

But, sometimes you can be on the wrong side of statistics. The call I received later in the morning about a friend’s unexpected death is a reminder that no matter how thorough your retirement planning, your family’s world can change in a heartbeat. It may be difficult to discuss, but life insurance and estate planning are a critical part of the planning process.

Finally, planning for a son’s or daughter’s higher education should begin the day they’re born. Having the funds to pay for college isn’t something that just happens. It’s a goal that needs to be achieved. One that takes hard work and financial sacrifice on the part of mom and dad.

There’s no question that the world we live in is complex and there’s no one-size-fits-all solution. For example, years ago a retiree could live relatively comfortably on the interest he or she received from bank deposits. Now, interest rates are so low that retirees need to find additional sources to generate income.

As far as college education goes, I can still recall an auto executive telling me that, while in college, he could come home for the summer, walk into the plant and make enough money to pay all his college bills and then some.

In today’s world, college costs have skyrocketed and high paying summer jobs are few and far between. This national trend of higher costs and less income has resulted in a staggering amount of college debt that’s choking recent grads.

The one constant in the world is change and it’s changing faster than ever. Tax rates, interest rates and economic conditions change rapidly. Life situations can change faster than the blink of an eye.

Without planning, your chance of success is limited. In order to achieve your goals and objectives you have to take the time to plan. And you need to plan for the good (child’s education), the sad (sudden death), and the likely (long life).

That’s why I, along with most reputable financial advisers, study hard to help clients achieve their goals.

Do your aging parents need your help?

The primary goal of retirement planning is to make certain that your money lasts as long as you do. Some have often said, in a humorous manner of course, that perfect financial planning is when you’re out of breath and out of money on the same day.

In reality, as life expectancies have lengthened and interest rates remain at historic lows, it’s a real challenge to make certain that your income continues into old age and that the nest egg is not depleted.

As a financial adviser, I’ve been blessed with great clients, many of whom I know far more about than just their finances. They share stories about their spouses, their children, their friends, their grandchildren, and occasionally, even their great grandchildren.

When you work with people year in and year out, you really do get to know how they think and what they’re concerned about. That’s not just regarding financial goals, but also their personal goals and objectives.

In real life, it’s rare that everything goes as planned. Sometimes people become ill and sometimes their lives end way too soon. As an adviser, it’s my duty to help people and their families prepare for such life-changing events.

That brings to mind a circumstance that is seldom addressed in the financial planning world. In fact, it’s not often discussed among family members either.

I’m referring to the mental deterioration of an aging parent. Often times, aging parents have made good financial decisions over their lifetimes and have significant nest eggs. But now, unfortunately, they are vulnerable to financial predators.

There have been more than a few occasions where I’ve noticed a client not quite as mentally sharp and took it upon myself to contact the client’s adult child to voice my concern. I have also suggested to clients that perhaps they should have their son or daughter accompany them the next time we meet.

I’ve observed over the years that aging people are more vulnerable to making poor financial decisions. Quite often, it’s because they tend to be very big-hearted. I can still recall my wife’s aging grandmother, who had very few assets, yet was sending money to a television preacher who ultimately had a major personal scandal.

On occasion, a family member will hit grandma or grandpa up for a loan that will likely never be repaid. Or a son or daughter with good intentions will step in to “help” and undo the entire portfolio because they knew somebody who once read an online article and now considers themselves an expert at providing investment advice.

Those are the good guys. The bad guys are even more insidious and there are plenty of them out there. Real con artists who zero in on the aging because they know there’s a good chance they can get into their pocketbooks.

What can be done to prevent this happening? I don’t think more laws would help reduce potential issues. But I do believe that it is important for adult children to have a familiarity with their parents’ financial adviser.

A good financial adviser should be an entrusted lifelong member of the family team. A lifelong financial adviser that communicates with extended family members can certainly help minimize some financial problems that tend to find aging people with assets.

The benefits of education vs. the cost of education

It’s hard to believe that school starts up again in a matter of weeks. While I can’t overemphasize the importance of education, I believe today’s young adults face quite a juggling act in the years ahead.

Statistics demonstrate just how important education is to one’s lifetime earnings. On the other hand, graduating from college with large student loans can be devastating to one’s finances.

The juggling act of getting an education and minimizing debt is a major challenge. Nonetheless, I was astonished at the Washington Center for Equitable Growth’s report that there are 5.8 million young people that are either not enrolled in school or not working. I don’t know how they will ever become financially self sustaining.

For those aged 16 to 24, the unemployment rate is roughly double the national average. Narrowing the category to ages 16 to 19, unemployment is approaching 25 percent.

One ticket out of unemployment is education. According to the Bureau of Labor Statistics, if you have less than a high school education, unemployment is nearly 20 percent.

With a high school diploma the rate falls to fifteen percent. With some college, it goes down to roughly 12 percent, and with a Bachelors degree or higher, it drops dramatically to just over 5 percent.

Clearly, education reduces the likelihood of unemployment, but college debt still remains an obstacle. Without education there’s little work, but without work, how can you pay for an education? It’s indeed a major problem.

As a financial adviser, I believe it’s extremely important that people understand the mathematics of life. A borrower should understand how much it really costs to pay back a debt. A saver and investor should take the time to understand how much they need to save and invest to reach their financial goals.

Likewise, young adults need to understand that, if they want to get ahead in this competitive world, that they truly need to educate themselves. They need to learn to manage both money and debt, and develop a strong work ethic.

Over the years, I’ve found statistics can be misleading. People, especially politicians, tend to twist numbers to fit their agendas. I recently came across a statistic regarding young people living in their parents’ homes that I consider misleading.

The official census states that half of those under 25 live with their parents. That sounds like doom and gloom for young people.

But then the Census Bureau states, “It is important to note that the Census Population Survey counts students living in dormitories as living in their parents’ home.”

I think this is extremely important because the number of young adults in college has actually been increasing at a steady rate since the 1980s. In other words, what statistics show on the surface appears to be doom and gloom, but in reality, is good news.

Many young adults are not rotting away in their parents’ basement, but rather are crammed into dorm rooms trying to improve their lot in life. True, they might be in the dorms on mom and dad’s money, but they’re not in basements, as the statistics would lead you to believe.

The bottom line is to get a good, practical education and try to minimize debt. And enjoy your college years; the real world comes soon enough.

Don’t fall victim to this confidence game

I like to spend time in northern Michigan during the Fourth of July holiday. At every stop along the way, from the local hardware to the stores my wife wanders into, I enjoy making small talk. During the course of the conversations I like to ask the simple question, “How’s business?”

Invariably, the response has been anywhere from swamped to overwhelmed. In other words, it appears the economy has turned the corner and people are once again opening their wallets.

That being said, there’s an interesting dichotomy at play. The economy may be gaining steam, but when you look at the Consumer Confidence Index, the numbers show there isn’t a whole lot of confidence in the economy.

The CCI now stands near 85. By contrast, it climbed as high as 144.7 during the dot.com boom. So, while the economy may be improving, people continue to lack confidence that it’s the real deal.

Although things are improving, it’s a far cry from where the economy stood back in 2009. From an investor’s perspective, the market hit bottom in March 2009, just over 5 years ago. And though it appears to be gaining momentum, the pocket book scars from recent years are still prevalent.

In order to survive, many households had to dip into their cash reserves and retirement savings just to get by. Even worse, many families lost their homes and were forced to reboot their entire financial life. For some, the hit was so severe they still haven’t recovered.

I bring this up because the current bull market is now over five years old. While a substantial number of households have seen their investment account values increase dramatically over those years, I suspect that many have not reaped the financial benefits of this bull market. And, quite likely, it’s because they just couldn’t afford to participate in the rebound.

My concern is that many households that have the financial resources simply choose to sit on the sidelines while the investment world continues to move ahead. I can certainly understand such fears; after all, the market plunge was the worst since the Great Depression.

So now, more than five years later, many investors have been rewarded with incredible growth in their investment accounts, while others sat idly on the sidelines and saw little or no growth.

They may have had the resources, but they didn’t have the iron stomach I continually point out that investors need. The bottom line is that they missed out on the entire journey, and I consider that to be very unfortunate.

Although they are strongly linked, the economy and the stock market do not necessarily move in tandem. The past five years are a good illustration. The economy was sluggish, but the market moved up. Some people invested and profited; some people didn’t have the iron stomach to invest and lost out.

Today, I believe there’s still a lack of confidence, even as the investment world continues to flirt with new highs and methodically surprises more and more people every day.

Nobody knows what the future will bring in the investment world. But I can say that the last five years have certainly surprised a lot of people and those that sat on the sidelines missed out on some significant gains.

What’s next for the markets and the world?

As we wrap up the Fourth of July festivities, and as someone who appreciates American history, I cannot recall a more divided nation since my youth in the 1960s.

All around the world there are hot spots that could ignite into major violence at any moment. Here at home, it’s difficult to have much confidence in our government. There’s been a never-ending parade of scandals, incompetence and what appears to me as arrogance from our elected officials when they’re questioned about such issues.

In conversations with friends and clients, I continue to hear people wonder what happened to our country, and express serious concern as to what lies ahead. It’s clear to me that people are both worried and skeptical about the direction in which our nation is headed.

Meanwhile, the investment world appears to be cautiously watching the overseas conflicts without too much reaction. While sentiment hasn’t sent it in a downward direction, investors seem to be reluctant to put new money into the stock market. This is supported by the influx of scared money coming into America from overseas and finding its way into the relative safety and security of real estate and U.S. Government bonds.

Domestically, although the stock market remains high, the volume of trading on Wall Street is down significantly. In other words, if stock trading were a game, only a few are showing up to play. So, while the big players may still be active, the moms and pops throughout the country appear to be content to just stand on the sidelines.

Is this the calm before the storm? Or will the investment world continue to move up quietly and leave a lot of people behind? It’s not easy to predict the future, but right now confidence is definitely lacking throughout the world.

With all that’s happening overseas and scandals dominating our domestic news, it was easy to miss a recent U.S. Supreme Court decision that could impact not only my readers, but also everyone that owns an Individual Retirement Account.

On June 12, the Supreme Court ruled that inherited IRA accounts do not qualify as retirement funds and, as such, do not receive creditor protection.

Before panic sets in, keep in mind that this ruling pertains only to inherited IRA accounts. Your existing IRA accounts, those to which you make contributions, are still protected from creditors, as is your Social Security.

In most instances, inherited IRA accounts are those that are passed down to someone other than a spouse. The Supreme Court ruling was based on their interpretation that “retirement funds are funds set aside for the day an individual stops working.”

In fact, that’s the very reason why IRA funds are protected from creditors. However, the Supreme Court stated that inherited IRAs “represent an opportunity for current consumption, not a fund for retirement savings.”

In non-legal terms, this means that when your son or daughter or grandchild inherits your IRA after you and your loved one are gone, they still maintain control, but the funds are no longer considered sacred, and therefore not protected from creditors.

Ultimately, there will likely be plenty of scrambling by estate planning attorneys to modify various documents. An already confusing and complex financial world just became a bit more so.

Want to enjoy retirement? Don’t wing it; plan on it

Many readers are preparing to travel during the July 4th holiday. As people pull up to the pumps to fill their tanks, there will probably be a lot of grumbling over the price of a gallon of gasoline. Some will blame big oil for the rising cost; some will blame the never-ending crisis in the Middle East; and others will blame the government.

In recent years, it seems like one of the most popular words in our nation’s vocabulary is “blame.” Over the years, I have observed that blaming someone or something for a problem is much easier than trying to find a workable solution.

I have also concluded that, in most instances, including financial issues, making decisions during times of high stress seldom leads to viable long-term solutions.

Shortly after I graduated from high school in the 1970s, I heard quite a few politicians and business leaders talk about the need for a national energy policy. The need is certainly real, but the ability of politicians to make hard choices appears to be non-existent.

Here we are 40 years later and our nation still does not have any semblance of an energy policy. Essentially, there is nothing but a wild mishmash of federal and state rules and regulations without any coordinated goals or objectives. This is called winging it.

There are a lot of parallels that can be drawn between a national energy policy and retirement planning. I am certain that there are many individuals out there who entered the workforce between 40 and 50 years ago, and who have no real retirement plan today. What they might have are a few 401(k) programs, a couple of IRAs and a few dollars in the bank.

They likely have no stated income goal, nor, in all probability, any rhyme or reason as to how their investments are allocated. In other words, their retirement planning never had a plan. It just evolved into a nest egg that they hoped would carry them through their retirement years.

They, too, are winging it as they go. When they reach retirement, you are likely to hear a lot of blaming others for their financial issues. In their minds, their own lack of planning and goal setting had nothing to do with their dire straits. Unfortunately, this is exactly like us not having a national energy policy.

For years, famous oilman T. Boone Pickens has made appearances on a number of news shows preaching the importance of a national energy policy. He has spent a lot of his own money in order to spread the message.

A nation having a viable energy policy is similar to an individual having an intelligent financial plan. Both require diversification, risk management and stated, measurable goals and objectives. Insofar as establishing an energy policy, our politicians have failed to do so, in spite of the fact that they’ve been aware of the need since the oil crisis in the mid-’70s.

But there’s nothing keeping you from instituting a simple household financial plan. It’s far better than flying by the seat of your pants, and it helps to organize and achieve stated goals. Don’t let the lack of a plan lead to the blame game. If you have no plan, you know where the blame belongs.

Are your children ready for the financial future they’ll face?

Earlier this month, there were several ceremonies to commemorate the 70th anniversary of the D-Day landing in France.

I personally enjoyed the interviews with the WWII veterans who are now in their 90s. Former news anchor and author Tom Brokaw has referred to them as the greatest generation ever.

Every one of us owes them the respect they earned for their efforts in both Europe and the Pacific Rim. A common theme I kept hearing from the interviews of the D-Day veterans was the thorough training they received prior to the invasion.

But during the chaos of battle, things didn’t always go as planned. It was the quick thinking, leadership and heroics of those in the thick of the battle that turned potential failure into victory. Unfortunately, as time passes their story seems to be just another chapter in history books.

I bring this up because it’s easy to forget that these aging World War II veterans were in their late teens and early 20s when they saved and changed the world.

Fast-forward to today and it’s very apparent how significantly the nation has changed. From a financial perspective especially, it’s much different for someone in their late teens or early 20s.

Recently, there was an executive order regarding student loans. The modification this time impacted those who had loans prior to 2007. I won’t go into the details of the student loan program; it’s complex. But the new order caps the monthly repayment of loans based on the student’s current income.

Because it also calls for a maximum repayment of time period of 20 years, it’s mathematically possible that the entire balance will never be paid.

Healthcare is another constant in the news. By now everyone is aware that “children” can now stay on their parents’ healthcare policy till age 26. I know there are valid arguments why this is a good policy. But, speaking for myself, I would have been quite concerned if any of my sons expected me to pay for their health insurance when they were 26.

My point is that 70 years ago young adults saved the world, and today it appears we are reluctant to let them make adult decisions.

From a financial perspective, I believe we need to do a better job preparing our young people for their financial future.

For example, how many students are taught the mathematics of a loan? I think this would be a valuable tool for young adults as they are solicited for credit cards and contemplate loans for education, housing and transportation.

Yet, time and time again, people of all ages get buried in debt and have no idea how they got there. I am confident that better financial education could alleviate many such problems.

I don’t pretend to have all the answers, but 70 years ago it was the young adults who saved the world. Today many young adults are looking for work, living with their folks and trying to launch their careers.

Perhaps a better financial education will arm them with the knowledge they need to succeed in this complex and competitive world. With the right education and the opportunity, I’m confident that these young adults can change the world for the better. The future, after all, belongs to them.

My first Father’s Day without my father

A person who probably had a significant impact on your financial attitudes and outlook is your father.  If he was a part of your life, your dad likely played a major role in molding your views of the world, including finances.  He may have taught you directly or perhaps you learned indirectly, by following his example.

Just as with family values, financial values tend to be passed along. Dads have an inherent knack for teaching the importance of money, how to save it and how to spend it. 

For example, at one time or another, most of us heard our father say, “We can’t afford it.”  Whether it was the hard truth or just a teaching moment, it helped us learn the value of money.
   
Many fathers of the World War II generation never attended college.  But how many stories have you heard about dads who worked countless hours in order to save money to send their sons or daughters to college.  No sacrifice was too great for them to provide their children with the education they never had.

Think about it.  During the course of growing up, wasn’t it your dad’s views on money and finances that helped mold yours?  As a financial advisor, I believe the father’s role in teaching the kids finances is seldom discussed.  But it should be.

I was blessed with a dad that played a huge role in my life.  And I feel fortunate just for that, let alone all he taught me.  My father recently passed away, but I continue to carry his wisdom with me every day.

I know the world has changed significantly since my formative years. I’m aware the traditional role of the father has diminished.  But now that my father is gone, it’s become apparent to me that a positive father’s role is more important now than ever, and not just for teaching pocketbook issues.

Don’t misunderstand. I’m not diminishing the importance of other influences in life, particularly mothers, teachers and peers.  But sometimes I think society does minimize the importance of being a good father.

Keeping it personal, I’ve reached the stage in life where I’m attending a lot of weddings, most recently those of my niece and middle son.  It’s very rewarding to see young adults launch their lives together.

Yet I have little doubt that these young adults will have to deal with important financial issues in the years ahead.  There will be a lot of questions.  They may be about purchasing a first home, or refinancing a mortgage, or perhaps about establishing a child’s college fund or saving for retirement.  But there most certainly will be questions.

I’m hopeful that they’ll turn to dad to help with the answers, and equally hopeful that every dad out there can be as helpful to your kids as your dad was for you.

I may be biased, but I believe a good father can and should help his children with a lot of issues, including financially related ones.

I miss my father, and I will never forget him.  I urge everyone to take a moment, in thought or in person,  to thank your dad for all he’s done for you.  And I wish every dad a Happy Father’s Day.

Are you a part of this dangerous trend?

It wasn’t that many years ago that it seemed like every time you heard a radio advertisement it was about refinancing your home.  The idea, of course, was to get a lower interest rate and put your home equity to work.                                                                                                  

On many occasions in this column, I cautioned readers about the potential danger of this strategy.  I warned that using your home as a piggy bank for vacations, college savings and home remodeling could ultimately be a huge mistake. 
                                                                        
It wasn’t uncommon for people to refinance their home more than once, often putting as much as $10,000 or $20,000 in their pockets each time they did so.  After all, home values would continue to appreciate and you might as well get some benefit from your home equity.                                                              

By now, we all know how that strategy collapsed when home values plummeted during the recession of 2008.  Many homeowners found themselves upside down, meaning they owed more on their homes than they could ever possibly sell for in a depressed market.       Consequently, many families lost their homes when their paychecks were reduced or eliminated.  The recession was a difficult period for a lot of families.  And the problems were often exacerbated because of the large debt on the homeowners’ shoulders.              

So, for many, using their home as a piggybank was every bit as dangerous as I had warned.

Unfortunately, recent studies indicate that history is repeating itself, but with a slightly different flavor.  This time, instead of using their home equity as a piggy bank, studies are showing that far too many families are using their retirement savings.                                         

So, once again, I would like to put out the caution sign.

Pulling dollars out of your retirement nest egg today is just as risky as refinancing your home was a few years ago.  The long-term result is very likely to be a future financial disaster.

If you’ve read the rules of your retirement program, you’re aware that reaching the age of 59½ is significant.  With Individual Retirement Accounts, and 401(k) retirement programs, there’s a ten percent government penalty for withdrawals made prior to that magic age.

I was recently stunned by something I read in the well-respected Bloomberg News.  In 2011, the IRS collected an incredible $5.7 billion in penalties as a result of early withdrawals from 401(k) programs.     

Let me do the math for you.  That means $57 billion were taken out of retirement programs prior to the recipients’ retirement.  Clearly, the piggy bank mentality has moved from home equity to retirement programs.

As a financial advisor, I can’t emphasize enough that this strategy is dangerous.  Retirement programs are not intended to be piggy banks.

This trend is a major concern.  In an era when pensions are few and far between, and at a time when the current Social Security trustees express concern about the future of the program, people need to save more of their own money for retirement.

I’m pleased that a large segment of our population is setting dollars aside for retirement.  But I’m concerned that many are not keeping the dollars set aside for their retirement years.

This is an extremely dangerous trend and I strongly encourage my readers not to tap their retirement nest egg until they are truly retired.

Time is your friend; put it to work

Many people around our great state are thrilled that summer has finally arrived. Though it’s not official for a few weeks, evidence is everywhere. Joggers and bicyclists are out on the trails and paths. Ball players and golfers are swinging away in the warm weather. Boats are suddenly appearing on the water and outdoor music festivals are underway at the various venues throughout the area.

Before you know it, we will be talking about the Woodward Dream Cruise and then, just like that, summer will be winding down and everyone will be looking forward to football season.

I mention all this because time has a way of getting away from us. I believe we’ve all heard the expressions, “You’re wasting my time” and “Time is money.” There are a lot of things money can buy, but time is definitely not one of them. But even though we aren’t able to buy time, most of us can improve how we manage it. That’s significant because money management and time management go hand in hand.

People often ask me when they should start saving for their retirement. The fact is, it’s never too early, especially since time has a way of simply getting away from us.

For example, setting taxes aside and using a purely hypothetical growth rate of 6 percent, lets take a look at what could happen with two individuals, both aged 21.

Suppose one begins saving $100 per month. The other delays saving for 10 years and doesn’t begin saving until age 31. In other words, one has a 10-year head start.

Remarkably, the one who began saving at age 21 has nearly double the amount in his nest egg at age 65 than his buddy who waited 10 years. In other words, the disciplined one who began saving at age 21 used time to his advantage.

Mathematicians, economists, financial advisers and bankers all know the amazing value of compound interest. They understand how time tends to enhance the value of money.

The bond market can illustrate another example. A 10-year bond these days would pay you somewhere in the neighborhood of 2.5 percent. But if you could commit your investment to a 30-year bond, you’d get around 3 percent. That may not sound like much, but the difference is substantial.

There’s no such thing as saving too soon or too little. No matter the amount, if you can save on a regular basis, you will be rewarded. And the sooner you start, the sooner you can reap the benefits of two great allies. Compound interest and time.

Remember, time cannot be bought or replaced. Once it’s gone, it’s gone forever.

As life expectancies increase, it’s a challenge to make certain that your income lasts as long as you do. That’s why it’s so critical to do everything in your power to grow a sizeable nest egg. And a good path to achieving that goal is to start early, stay on course and manage prudently.

The earlier you start saving, the more you’re using time as an ally. Seasons go fast, so enjoy them to the fullest. Because once they’re gone, they’re gone forever. No amount of money can bring back time; but time can help you enjoy many more seasons as you go through life.

Veterans fought for you; let’s fight for them

For the first time in a number of years, I recently traveled outside of the United States. As much as I enjoyed my brief trip, I was nonetheless thrilled to return and once again walk on American soil. Being gone for just a few days really opened my eyes as to how truly fortunate we all are to live in this country.

As a nation, we certainly have our share of problems and issues. But at the end of the day, in my humble opinion, it’s still the best place to live in the world. And much of what we tend to take for granted was paid for with the lives of members of our great military.

Lately, there have been numerous reports that the Veterans Administration is not delivering the care that our nation’s veterans need and deserve. It appears to me that the problems have very little to do with a lack of funding. Instead, I believe it’s the layers and layers of bureaucracy that military personnel and their families have to wrestle with before they can even get an appointment, let alone receive the appropriate care.

Pondering this situation got me to thinking about the military from a financial perspective; specifically benefits. Established in 1930, the purpose of the U.S. Department of Veterans Affairs is to provide patient care and federal benefits to veterans and their dependents.

A noble objective, but the Department of Veterans Affairs is, after all, a bureaucracy. The good news is that they have a toll free number: 800-827-1000. I mention this because I sense that many families don’t realize that their aging loved ones may be eligible for supplemental benefits.

For example, a low-income widow of a WWII veteran whose late husband served at least 90 days of active duty could be eligible for a pension as high as $625 per month. To qualify, he or she had to have served at least one of those days during a period of war.

In other words, if you have a veteran friend or loved one who needs care, I urge you to buckle up and begin going through the Veterans Administration forms. Even if you believe there is only a remote possibility they are eligible for benefits. You have nothing to lose and, potentially, much to gain.

The other financial aspect of war I’d like to mention is the cost. Wars are far more expensive than you might think. For example, most history books show the cost of the war in Viet Nam as $140 billion. However, many believe when factoring in benefits to Veterans and their survivors, the true cost exceeds $350 billion.

I recently came across an article that said there is still one survivor from the Civil War receiving benefits. From the Spanish American War of 1898, there are 16 people receiving benefits, and more than 4,000 from World War I.

I say good for them and thanks to everyone that served in all of our country’s wars. I’d also like to remind family members to make certain veterans receive all the care and benefits they deserve. As much as I disdain bureaucracy, fighting bureaucratic red tape is a small price to pay to help veterans and their families receive everything to which they are entitled.

Newly wed means new challenges to face

The warm weather has finally arrived.  Once again, baseball and soccer fields will be surrounded by mini vans filled with youngsters eager to participate with their teammates.         

Spring is also the time when young adults get dressed up to attend their high school’s prom, followed by the pomp and circumstance of high school graduation.

Then comes college, and four years later, an auditorium or stadium full of young adults eager to go out and face the world.  As they sit there and listen to the encouraging and inspirational words of their commencement speaker, they’re hopeful that they can live up to his or her words.

Unfortunately, it may not be easy.  Because the road they must travel is going to be far different from the road my generation and I had to navigate.  Things have changed dramatically over the last few decades, and they will continue to do so.

Take my journey, for example. I no longer have a minivan.  I no longer receive phone calls asking me if I’m willing to chaperone for a high school event or field trip.  And, thankfully, I am finished writing checks for college tuition.  As spring turns into summer, I am officially at that stage of life that I like to call professional wedding attendee.

For the past few years, it seems like I was at a wedding reception almost every weekend.  Today, I’m excited to share with my readers that the next wedding I will be attending is one that my wife and I are hosting. My middle son is tying the knot with a lovely young lady.

From a financial perspective, as with so many other things in life, the cost of getting married is far more than I had imagined.  But, that’s not really surprising.

Looking back, every big-ticket item along my life’s journey cost more than I thought.  Who ever dreamed a new car would cost more than $20,000 or that it would be common for a new home to exceed $200,000?  Who ever imagined that someone could graduate from college with a burden of student loan debts of more than $100,000?

But the reality is everything in the world today is expensive.  A question that I frequently like to ask at our retirement education programs is, “Who paid more for their last car than they paid for the first house?”  Not surprisingly, there ‘s a chuckle and a lot of hands are raised indicating that that is indeed accurate.

Today, all adults tying the knot are facing incredible financial hurdles in their future.  It’s an expensive world that I believe will become even more expensive in the years ahead.  Not only will they face rising costs for big-ticket items, like housing and education, but I believe other significant burdens are also being put onto the shoulders of our young adults.

For example, there’s been a steady shift from corporate retirement programs to individual saving accounts.  More and more of the cost of health care has shifted onto the family.  And, of course, it seems like Uncle Sam’s insatiable appetite for taxes has no limits.

It’s exciting to see all these young couples getting married.  I hope they realize just how expensive their journey together will be.

And that they plan accordingly for what’s to come.