The difference between a gift and a loan

Like many of you, I’m looking forward to spending time and catching up with family members I haven’t seen very often during the year. With all the disastrous world events and the never-dull political season heating up, I’m certain there will be some interesting conversations, not just at my house, but also across the nation.
It seems like every January I receive a phone call from a client who learned over the holidays that their son or daughter was having some sort of financial issue. They want to discuss dipping into their nest egg to help out their loved ones.
For the most part, I have no problem with this. After all, family is family. And if you’ve been fortunate enough and are financially comfortable in retirement, I certainly understand why you would want to help family members.
However, I think it’s important to put defined parameters on the financial assistance. If you don’t, experience leads me to believe that misunderstandings over money can result in fractured family relations.

I miss my late father a great deal, but he imparted to me a piece of advice I will always treasure. He was adamant that he never wanted our family to have disagreements over money.
As a financial adviser I’ve witnessed many financial arguments among family members. I’ve seen long-time family businesses break up because the kids running the inherited company disagreed over money issues. Often to the point that the children totally disassembled the family business their parents had built.
You might not own a business, but when a family member corners you during the holiday and asks for financial help, you probably will if you’re able. That being said, if you do help a son, daughter or other family member, it’s important to have your money, your heart and your documents in order.
For example, I’ve had some clients complain to me months later that their loan wasn’t being repaid. When I ask if the recipient knew it was a loan and not a gift, the typical response is, “I thought they did.”
The lesson is clear. When money is involved, make certain both parties understand exactly what’s expected. If it’s a gift, make clear it’s a gift. If it’s a loan, I suggest an amortization table, and a signature acknowledging the loan.
I know. You might think giving a loved one a loan table and asking for a signature is cold and unnecessary. As a seasoned financial adviser, however, I’ve witnessed more than one family splintering over money issues. Defining the financial assistance will minimize potential issues.
My hope is that you will enjoy the warmth and beauty of the season free of financial concerns. But if they do arise, don’t just pull out your checkbook. Find out what created the problem. After all, if someone asks you for money, you should be allowed to ask questions.
A little due diligence might enable you to get to the cause of the financial problem and maybe even find a way to solve it. As a concerned parent, you don’t want to throw money at a reoccurring issue. You want the issue resolved for the long term.
In the meantime, I want to wish all my clients, readers and their families a Merry Christmas.

A healthy dose of technology provides peace of mind

By no means am I a technology expert. In fact, I’m often kiddingly ridiculed at the office for my lack of expertise. Recently, when I had an issue with an Excel spreadsheet, I contacted one of my sons to guide me through the problem.

I remember spending a fortune for an IBM computer several years ago. It came with two floppy discs and I proudly upgraded to an Amber monitor. It was the beginning of a trend.
Every time I have upgraded hardware or installed new software, no matter how easy the experts claimed it was to install, I’ve had issues. That being said, I still learned to embrace technology early in my career.

New technology is expensive, but as it rapidly evolves the price goes down. A few decades ago you could pay upwards of $100 for a desktop calculator. Today, they fit in your shirt pocket, and if you don’t want to pay a few dollars, your local insurance guy probably gives them away.

Just last week I wrote about cell phones and the add-on taxes that seem to keep creeping up. Today, I want to make my clients and readers aware of a relatively new technology that could be of great benefit.

As a financial advisor, many of my clients are in or near retirement. Not surprisingly, with today’s healthcare advances, quite a few of them are caring for an elderly parent. And believe me, shouldering both the financial and health care responsibilities of an elderly loved one is no easy task.
Fortunately, recent technological advances have made it much easier to keep track of your elderly loved ones. I’m not talking about something as “outdated” as putting an online camera on grandma’s fireplace mantel. It’s far more sophisticated than that.

You may or may not have heard of the Internet of Things (IoT), but you probably have noticed that a large segment of our population is wearing rubber wristbands to keep track of their steps every day.
In fact, many people compete against one another and actually have the daily results posted online for all the competitors to review. Some of these wristbands not only count steps, but also have emergency features that are activated in the event of a fall and are programmed to contact loved ones or even call for an ambulance.

In the not too distant future, I believe there will be a lot of wearable technology that will help you care for and monitor your loved ones without invading their personal space. Technology already exists to monitor pulse rate and blood pressure. GPS tracking systems are available to help in case a loved one becomes disoriented. And experts estimate that the IoT will consist of almost 50 billion interconnected objects by 2020.

I think it’s reasonable to assume that, as the technology improves, prices will ultimately decrease. Initial prices, that is. As with home alarms and cell phones you’ll need to factor in monthly fees to determine the actual overall cost.

Healthcare planning is an integral part of financial planning. Helping aging loved ones with their healthcare issues is a huge responsibility, but new — and affordable — technology coming onto the market can help provide peace of mind; For your elderly loved ones and for you

Holiday shopping can be very taxing

This is the time of year when people shop for gifts in the malls, downtown shopping districts and on the Internet.  They’re in spending mode, searching for the perfect gift for everyone on their list. 

Many economists are forecasting deep discounts for a variety of reasons, but the bottom line is that it there will be a lot of bargains out there.  I’m going to go out on a limb and predict that a good many gift packages are going to contain cell phones.  Or as I like to call them, outboard brains. 

As with everything else in our great nation, there are taxes on cell phones.  Lots of them.  Taxes that I guess most people are unaware of, and if they even were, would likely not understand them without doing some research. 

Frequent travelers have become accustomed to unanticipated taxes.  The kind you see at airports and hotels, for example.  You aren’t aware of them until you get to the airport or check out of the hotel. 

In the financial services industry, I have to pay a licensing fee to each state where I’m licensed.  The licensing fees in most states are generally around $50 to $100.  And for the most part I have no objection to such fees.  I consider them to be reasonable.  

The state of Tennessee, however, is an exception.  For the privilege of buying a $50 state license, you have to pay a Tennessee privilege tax.  That means ponying up $500.  Every year.

The good news for Michigan residents is that, although we pay plenty of taxes on cell phones, thirty-six other states pay more.  We rank thirty-seventh nationally, one of those rare circumstances where being near the bottom of the list is a good thing.

In total, the combined tax rate comes to 14.74 percent.  The breakdown is as follows: six percent sales tax; state wireless 911 comes in at .41 percent; county wireless is 1.45 percent; the Intrastate switched toll restructuring statement -- whatever that is -- is a mere .43 percent; and the Federal Universal Service Fund comes to a whopping 6.46 percent.  Check my math, but I’ve got the grand total at 14.74 percent. 

If fifteen percent appears to be somewhat excessive, be thankful you don’t live in the state of Washington.  The tax there is more than 25 percent.

I don’t want to put a damper on giving cell phones as a gift, but they do cost more to own than just the advertised price.  And while I don’t want to be a Scrooge either, I do want to point out that there’s a fine line between being generous and putting your finances at risk.  Not to mention the gift recipient’s finances.

Cell phones and tablets are certainly a part of our nation’s landscape.  But, they’re not inexpensive.  And with all the taxes factored in, they just might be more than you initially realize. 

According to Investor’s Business Daily, consumers with cell phones are paying $5.8 billion in excessive state and local taxes, and another $5 billion goes to Uncle Sam.  That’s a lot of money for those “little” items that many don’t even notice on their bill. 

If you do look, don’t be surprised to see even more taxes added in the very near future.

The financial ramifications of Paris and keeping your loved ones in the loop

In mid-November I felt the pendulum swing of emotion. Like so many people I was saddened and angered over the horrific attacks on innocent people in Paris. A few days later I was thrilled when our unpredictable Detroit Lions finally won a game in Green Bay.

By no means am I implying that the thrill cancelled out the sadness and anger. As we’re all aware, sports results are not matters of life and death.

To put the events into proper perspective, sports are really nothing more than a sort of escape from the realities of life, a vicarious diversion.

The events in Paris were beyond horrific and caused unimaginable grief for so many families. Grief that will never go away and will forever haunt those who lost loved ones.

It just goes to show you that in this crazy world anything can happen to anyone at anytime, regardless of age and circumstances.

As an adviser, though, I was pleased to see the world’s markets open and functioning normally after the Paris attacks. Not because I’m callous or insensitive to the victims of terrorism.

From my viewpoint, the markets — on Wall Street and throughout the world — represent order and civilization. By order, I mean that, even though prices fluctuate, at the end of the day they’re determined by the free markets. Not by having someone’s or some entity’s will forced upon the people.

I’ve often written that investors need an iron stomach and that they need to keep their emotions out of their investment choices. The events in Paris are the most recent example of why both attributes are necessary.

Again, I don’t want to sound callous, but in today’s world anticipating the unexpected and unimaginable is an integral part of financial planning. I don’t pretend to have an answer to all of the world’s issues and problems. But I believe the recent events in Europe should serve as a reminder why it’s so important to not only have your own financial house in order, but also to be involved in the financial order of your extended family.

I mention this because I’m an adviser to clients of various ages. And it’s fascinating to see how different age groups handle their financial transactions differently.

For example, I have many seasoned clients that continue to receive hard copies for all of their investment and bank statements. That means loved ones can easily access their pertinent data.
On the other hand, many of my younger clients opt out of paper statements and essentially do their banking from a smart phone. Which means all their financial data is digital.

Naturally, you want all of your online activities to be secure, but you also want your loves ones to know how to access your data in the event of illness or tragedy.

Financial technology may be convenient and secure, but if that’s how you handle your finances, it’s important to make certain that trusted family members know how to access this information if you’re no longer able to do so.

Unfortunately, the unexpected can happen at any time. Recent events should serve as a reminder to keep your financial house in order. And if you’re a “high tech” household, be sure to keep your loved ones in the loop.

Technology only takes you so far in investing

When my sons were young, our family went on a number of long road trips. Back then, my wife and I were big fans of the road atlas. Now that we’re empty nesters, we fly more often than drive.

After years of frustration with the airlines, however, we decided to drive on our most recent trip. With our trusty GPS, we just had to key the address into the touchscreen and follow the instructions.

The friendly voice would always tell us what to do. If we had an upcoming turn, a pleasant woman’s voice would instruct us to turn left in one-half mile. Even with the instructions I would occasionally make a mistake; but when I did, there was no criticism. The nice woman’s voice would say, “recalculate” and get us back on track without a trace of judgment.

I’m definitely impressed with the technology of the GPS. But on the return home, if I had followed its instructions, we would have gone through downtown Chicago at the peak of rush hour. Following the instructions would have been a mistake.

While the GPS could calculate the quickest route, it didn’t take into calculation the time of day I would pass through the Windy City. Nor did it know anything about me. For example, the GPS didn’t know if I had vision issues at night.

At that point it occurred to me that, as wonderful as the GPS technology may be, we should never ignore the human element and depend totally on technology.

I bring this up in a financial column because I fear that far too many investors are doing themselves a disservice by being overly dependent on technology when they plan the course of their investments. They’re overlooking the human element.

For example, there are a number of software programs that, if you input your birthdate and risk tolerance, answer a few questions and provide a financial goal, the program will lay out an entire financial strategy.

In other words, financial planning and investing is becoming eerily similar to my car’s GPS. Plug in what you want and technology will instruct you how to get to your destination.

Yes, much of the technology is extremely helpful, but as with a car’s GPS, computers lack the very important human element that advisers can bring to the table. By that, I mean the professional relationship between you and your financial adviser.

A good adviser will be aware of the human side of the planning process. For example, is there a child or grandchild with special needs? Are you worried about one of your children blowing through their inheritance? Are you or your spouse facing a large medical bill or is senior housing on the horizon?
Whenever the situation dictates, I believe a human can relate to your loved ones much better than a computer program. And from a purely investment standpoint, study after study shows that investors who work with an adviser tend to have better investment performance. Probably because advisers help investors keep their emotions out of their investments and keep them calm in difficult times.
Technology is great, but it shouldn’t replace the human element. Otherwise you might find your investments stuck in the Chicago rush hour traffic with your GPS muttering an apology.

Why long-term financial planning is out of control

We’re in a day and age where long-term financial planning is more important than ever in order to achieve your financial goals. My experience tells me that financial independence is rarely just a matter of luck.

I’ve observed that, in most instances, it’s a result of a lifetime of disciplined investing and simply living within your means. Among the major hurdles that make long-term planning so difficult are the circumstances over which we have no control. We can only react to them.

A few years ago, I had a retired client who decided to re-enter the workforce. He wanted to discuss all of his new retirement plan options and how they could fit into his existing investments.

He mentioned that he wouldn’t be eligible for any of his new company’s benefits until he was employed for six months. Rather than discussing his options immediately, I suggested we wait until it was closer to his six-month anniversary.

When we ultimately sat down, the entire investment platform offered by his new employer had changed completely from when he was hired six months prior. This is not an uncommon occurrence.
It’s also quite difficult to make long-term plans regarding income taxes. Last year was a good example. There was a new income tax rate for higher wage earners and numerous new taxes instituted in order to help fund the Affordable Care Act.

Another hot topic for many of my clients is Social Security planning. It seems to me that I get a solicitation in the mail almost weekly to attend a lunch or dinner seminar that explains the various strategies available for collecting benefits.

More than likely, such seminars are educational and informative, but as is so often the case in our nation, Uncle Sam just changed the rules. In the recent budget agreement, it was decided that the very popular Social Security strategy of file and suspend would soon be eliminated. So if you were a few years away from retirement, you’d be wasting time to learn about something that’s not going to be available.

You also have no control over the benefit package your employer provides. Other than by voting, you can’t control the tax codes and we certainly have no control or input over government-sponsored programs such as Social Security.

The point is that the items over which you have no input or control make long-term financial planning very difficult. During the planning process, I generally like to look deep into the future with a very cautious and conservative eye. Using Social Security as an example, I never like to project the maximum income a couple might possibly receive. I think it’s far more prudent to project less than anticipated, especially since the new Social Security statements say that Congress can make changes at any time and that there will eventually only be enough to pay 77 percent of projected benefits.

You can only control so much in life. I applaud those that take the time to learn in detail what they should do in the future. Unfortunately, the details that you can’t control keep changing.

That’s why long-term planning in today’s world requires frequent review. As you plan for the long term, make sure you keep an eye out for short-term glitches along the way.

New healthcare plan? Make sure your family plans with care

It’s that time of year again. Families across Michigan and throughout the entire country have to re-evaluate and select their healthcare insurance program for 2016. Like so much else in our society these days, healthcare plan options are far more complex than in years past.
Most employer-sponsored plans offer a number of choices, running the gamut from low deductibles with high premiums to high deductibles with low premiums. Additionally, many employers also offer payroll deductible Flexible Savings Accounts.
With an FSA, the dollars deposited can be used for various healthcare-related items such as insurance deductibles and other medically related expenses not covered by health insurance.
In other words, selecting the proper healthcare package for your family requires a fair amount of research. And that includes a projection of how your family’s health will fare in the year ahead.
For those not covered by insurance, it’s back to selecting their favorite color. Bronze, silver, gold and platinum will again be the available choices. And, of course, the higher the deductible, the lower the premium.
People who have Individual plans can also open a Health Savings Account (HSA), similar to the FSA, to cover deductibles and other non-covered medical expenses. If you’re on Medicare, the big decision is selecting the Medicare supplement that best fits your needs and budget.
Regardless of age, whether you have an individual plan, group plan or a Medicare supplement plan, it looks like a lot of households are staring at significant increases in their healthcare premiums.
I’ve already received several snide comments stating the Affordable Care Act is not very affordable. And I have to admit, I’m not aware of anybody’s premium decreasing as healthcare advocates projected while the law was being debated.
But, politics aside, healthcare premiums are taking a significantly larger bite out of the family budget, so households need to adjust their annual budgets accordingly.
On numerous occasions, I’ve had clients comment that their adult children are facing a more difficult journey than they did. When I ask why they feel that way, the inevitable response is the lack of pensions and the high cost of health insurance.

For many current retirees, their employer paid virtually all their monthly premiums during their working careers. Today, the employee’s portion of the monthly premium takes a big bite out of the paycheck.
I don’t pretend to have a quick fix for the high cost of healthcare, but I do know that, at every stage of the financial planning process, I project that the cost of healthcare will increase at a rate steeper than other areas of the economy.
I suggest you do the same. During your working career, expect that healthcare premiums will increase every year. When you retire, plan on allocating $250,000 of your nest egg for healthcare related costs, keeping in mind that Medicare supplement plans are part of the equation.
Selecting the appropriate health care program every year is a complex but necessary endeavor. A young family needs not only to select the best healthcare option, but also to save for their kids’ education and set money aside for retirement. Not to mention the mortgage and other monthly bills.
Life not only is complex, it can also be stressful. Good financial planning can mitigate that stress.

The riskiest gamble you can take is to not plan

As a financial adviser I continually like to remind investors that there’s no such thing as a sure thing. You can look to the past to see how an investment has performed, but as the cautionary disclaimer often warns, past performance is no guarantee of future results.
Over the years, we’ve heard many fallacies about sure things. In the investment world, some recent examples of certainty claims that didn’t quite pan out are: real estate can only go up in value; day trading tech stocks will make you so much money you’ll be able to buy your own private island; gold can only skyrocket in value; and most recently, oil can only increase in value.
At one time or another, most of us have seen commercials implying the above statements are fact. They are not. Just as it is with life in general, there are definitely no sure things in the world of investments.
Locally, we recently witnessed the near impossible. A couple of weeks ago Michigan State made an unbelievable comeback against Michigan in the last 10 seconds of the game. According to the statistical firm Massey-Peabody Analytics, the probability of Michigan State winning the game was .02 percent.

Said another way, the likelihood of Michigan winning with only 10 seconds remaining was 99.98 percent. But whether you’re a Wolverine or Spartan fan, you are now certainly aware that more than a 99 percent probability does not mean 100 percent certainty.
That being said, regular readers of this column know that I’m a strong proponent of using math and statistics to enhance your investment results.
Statistically, would you rather have a high probability for achieving your financial goals, or hope to reach those same goals by hoping for a statistically improbable event to occur?
The practice of making consistent contributions into your retirement plan is a good example of improving your probability for a successful retirement. For example, by saving $500 every pay period and taking advantage of compound interest, you can amass a sizeable retirement nest egg over a 30-year work career.
Statistically speaking, I’m pretty confident that the person in the example above will have a much, much larger retirement nest egg than someone that gambles $500 at the local casino every pay period for 30 years.
One of the things that concerns me is that far too many people are counting on a miracle win for a successful retirement. Don’t be swayed by the Spartans near impossible victory. The actual statistics for anyone getting a financial windfall are nearly impossible to determine. And yet too many still reach for the highly improbable by purchasing lottery tickets or squandering paychecks at the casino.
In other words, gaming is well beyond entertainment for some. They’re grasping for a nearly impossible result in order to achieve their retirement dreams.
What we all saw on the football field in Ann Arbor was about as improbable as you’ll ever see in sports. True, there are no real guarantees in the world of investing either. But rather than hoping or gambling on the near impossible, it’s wiser to put statistics in your favor.
It may not always work out as planned, but the alternative of counting on a near miracle is no way to achieve your financial dreams.

Investing is full of risks, just like life

Many people frequently go online to check the status of their investments. Still others review their portfolios on a monthly basis with their traditional paper statements. But no matter how you keep track of your numbers, it was indeed a rough third quarter for most investors.
Several pundits believe this is the beginning of a long overdue bear market. Other experts feel we’re still in the late stages of a bull market and this past quarter was simply a breather before the climb continues.

The reality, of course, is that nobody can be certain what tomorrow will bring. This is true not just with investments, but with life in general. No matter who you are, your life can change in a heartbeat.
While risk can’t be eliminated, it can be managed. That’s why we strap in our kids and buckle ourselves up when we get into a car. That’s why virtually every piece of machinery, all our medicine bottles and everything else we own that has an instruction manual, clearly explains that improper usage may cause harm, injury or even death.

In other words, we all face a multitude of risks every day. At some point in our lives, most of us have fallen off a bicycle. I have never met anyone who stopped riding a bike because of it. Nor do I know anyone who quit driving because of a fender bender.

But, with money it’s different. Investment risk is a horse of a different color. And the biggest reason, in my opinion, is emotion. Money makes it easy for our emotions to take control of our brains. And when that happens, my experience has been that long-term results are rarely positive.

For example, during the 2008-09 recession, some may have moved their entire investment portfolio into cash. The initial move may have looked good and relieved some stress for a while.

But, long term, what if those monies remained in cash all these years, with interest rates barely above zero? My guess is that people who left their money safely in the bank would lag well behind those who rode out the recession and remained invested.

The bottom line is that most long-term investors should neither get too excited about a good quarter, nor overly distraught over a poor quarter. Most long-term investors are best served with a diversified portfolio that incorporates various asset classes.

Depending on the size of your portfolio, diversity might mean traditional domestic and foreign stocks and bonds as well as real estate and commodities.

Naturally, everyone should periodically review their investments and tweak them as necessary. It’s just common sense. But rarely do circumstances dictate abandoning your long-term strategy altogether.

Whenever investments trend downward, the Internet is flooded by the gloom and doom crowd selling their advice. They can’t predict the future. They’re playing on your emotions. Could the economic world as we know it could totally collapse? Sure. Anything is possible.

That being said, I believe that somehow, someway, our nation will get its financial house in order and the traditional investment methods that have historically rewarded investors will continue to do so.

Of course, the world will continue to change and I believe these changes will open the door and reward investors who stay with their long-term plans.

A good financial adviser does more than advise

When the investment world is on a downward spiral, fear begins to take a firm grip on many investors. And when people are fearful, they’re vulnerable to investment scams. This is especially true of elderly investors.

It’s been my experience that, in the spectrum of human emotions, there are two extremes that get people into financial difficulty. Fear and greed.

Fear overrides the brain of people who strive to preserve what they already have. Greed is the emotion exemplified by people who either ignore risk or turn a blind eye to common sense in an attempt to garner unrealistic, off-the-charts investment returns.

The victims of the Ponzi scheme that put Bernie Madoff behind bars were good examples of greed. Some scam artists like Madoff were properly registered, but his antics were not immediately discovered by financial regulators. Many scam artists are nothing more than hustlers, simply out to get their hands on other people’s money.

I firmly believe the vast majority of financial advisers go to great lengths to educate, explain, and communicate with their clients. Consequently, most advisers really get to know them over time.

They know which ones need their hands held during market downturns and, conversely, those who don’t even want to be bothered when the market stumbles. Most advisers meet with their clients year in and year out, regardless of what’s going on in the financial world.

Their discussions aren’t just about the numbers, either. They also include dreams, family issues, health concerns, estate planning and much more. So financial advisers not only help clients meet their financial goals, they also get to know them beyond the numbers.

One of the most difficult aspects of being a financial adviser is seeing clients begin to lose some of their mental capabilities or become seriously ill. These are times when clients are most vulnerable to quick talking scam artists. And when responsible financial advisers intervene to protect their clients from those fast-talkers trying to get into their pocketbooks.

Several years ago I was meeting with a widower client. I sensed his mental sharpness had diminished so I tracked down one of his adult children. She thanked me and said that she had also noticed a change. By getting involved, a problem was averted with minimal financial damage.

In another instance, a client’s spending suddenly increased and a “friend” took inquiring telephone calls instead of the client. Protective Services for the Elderly was contacted and, once again, intervention prevented someone from taking financial advantage of a vulnerable senior.

Of course, not all investors work with a financial adviser. So they lack an extra set of eyes watching out for them; something especially important as they enter the point in life where they have two things that scam artists find most desirable: Money and old age.

That’s why I recommend that people establish a life-long relationship with an adviser during their working years. Advisors can not only help protect you from people trying to pry your money away, they can also help when your health begins to fade or you otherwise struggle with the aging process.

In other words, financial advisers who know their clients are the first line of defense to help protect you and your nest egg from anyone trying to steal your assets.

The health of your nest egg is at risk

The Affordable Health Care Act notwithstanding, a considerable amount of money is being siphoned out of many retirees’ nest eggs. According to government projection, health care spending will account for nearly one out of every five dollars spent by the year 2024.

Not long ago, I wrote that retirees should earmark at least $250,000 for health care related costs and expenses. To my amazement, I recently opened up one of my financial journals and a headline read, ”Michigan is the most expensive state for retirement health care.”

That was the conclusion reached by HealthView Services, the nation’s leading producer of health care cost-projection software. Their research indicated that a 65-year-old Michigan retiree would spend $3,707 in premiums for Medicare parts B and D supplemental insurance this year.

HVS also said that over a 20-year period, a Michigan retiree would spend $40,000 more than his or her Hawaiian counterpart. It should be noted, however, that Hawaii is among the states with the lowest health care costs.

The bottom line is that, even after all of the health care debates and the passage of the Affordable Health Care Act, the costs associated with health care continue to increase at an alarming rate.

Meanwhile, because the government’s data indicates there’s no inflation, it appears that retirees collecting Social Security benefits will not see an increase in their payment in 2016.

Nonetheless, those same retirees are likely to be hit with jaw-dropping increases on their Medicare premiums. Clearly there’s a disconnect between Uncle Sam’s perception of inflation and the reality of increasing health care related costs and expenses.

Roughly 10,000 people per day turn 65 in America. As this group moves through their retirement years, it’s going to put a great strain on our health care system. The question that I believe will continue to be debated is, “Who should pay for these increasing costs?”

There are already new taxes in effect dedicated to paying some of the increased costs. For example, the .09% increase in Medicare taxes for married couples filing jointly who make more than $250,000 a year. And in 2018, a new excise tax for those whose employers offer so-called Cadillac health care plans will be phased in.

It’s important that people understand before they retire that all of their retirement dollars aren’t going to be spent on vacations. It’s very likely that a significant amount will go instead toward mundane expenses related to their health.

Anyone who is currently working and has a large deductible should see if you’re eligible for a Health Savings Account. If not, before the next enrollment period you should check to see if you can switch your coverage to a plan that is HSA eligible.

Simply stated, an HSA is similar to an IRA in that both are tax deductible and they accumulate tax deferred. Ultimately, the funds can be used for a wide array of health care services.

If you’re not HSA eligible, you just have to be more aware that a significant portion of your retirement nest egg will likely be used for health care related expenses.

After the Affordable Health Care Act was passed, many thought that, as a nation, we would stop debating health care costs. I have a feeling the discussion is just getting started.

Ken will be speaking at a workshop regarding healthcare spending on Oct. 21. For information and reservations please contact Lifetime at 248-952-1744.

Are you sure you can’t afford insurance?

Almost everyone knows someone who’s paying back a student loan. According to FinAid.gov, the national student debt total recently surpassed $1.3 trillion. That sounds like a powder keg that could rattle the economy the way the housing market collapse and mortgage crisis did seven years ago.

The presidents of Oakland University and Eastern Michigan University were recently summoned to Lansing to explain large tuition increases. 8.48 percent and 7.8 percent respectively. I believe one of the hot topics of the upcoming election will be the exorbitant cost of higher education and the enormous student debt load that young adults are forced to carry.

I don’t pretend to have a quick-fix solution for the student loan crisis. But I am seriously concerned that it will create an unfortunate domino effect.

When young adults finally complete school, they have to start repaying their student loans. Unless they’re living in their parents’ basement, they also have housing costs. And regardless of where they live, there are car payments and all the other monthly bills that go along with becoming an adult.

Many are also getting married and starting families, so they have significant financial obligations in addition to school loans. And even though it’s another expense, as an adviser, I think it’s very important for a young family to have life insurance.

Sadly, it’s one of the most overlooked aspects of financial planning. Many young people feel invincible and give no thought to life insurance. Nothing bad is ever going to happen to them.

True, some do have insurance through their employer, but in today’s world people frequently change jobs and there can be gaps without coverage.

That’s why I believe it’s vital to actually own your life insurance rather than rely on your employer. Young people, especially those starting a family, need to make certain their loved ones are protected and loans are repaid in the event of a life ending tragedy, especially if there are children involved.

September is Life Insurance Awareness Month and I want to make certain that young adults take note. Life is all about choices. For example, do you really need the newest version of your favorite cell phone the very day it’s released? Is the fastest Internet speed worth paying a higher price? Do you really need a $3 dollar cup of coffee every day?

People need to make financial choices all the time. Unfortunately, too many of them make poor financial decisions or simply fail to look at reality. The difference with young adults is that they often have staggering student loan obligations in addition to everything else.

On the local news, you often see or hear about a fundraiser to help a family after a tragic loss. It’s nice to see so many big-hearted people willing to help them pay bills or perhaps fund a young child’s future education.

But responsibility comes with financial obligations, and if you signed for a loan or have children to house and educate in the years ahead, you owe it to your family to review your life insurance and find a way to include the cost in your budget.

Unaffordable? Consider a little budget juggling to free up enough money to cover insurance premiums. You’ll not only be buying life insurance, but also the comfort of knowing you have additional protection for the future.

If you enjoy your work, it’s not a job

Over the Labor Day weekend, a frequent comment I heard from friends and family was, “Where did the summer go?” During the long winter months everyone looks ahead with anticipation to the unofficial start of summer, Memorial Day.

Then the July 4th holiday sneaks up on us and in the blink of an eye it’s Labor Day. It seems like summer comes and goes in about the time it takes to walk the five miles across the Mackinac Bridge.

The purpose of Labor Day, of course, is to salute the American workforce. And my, how the workforce has changed since President Cleveland signed the law enacting Labor Day in 1894.

According to the Department of Labor, there were nearly 18 million American workers in unions in 1983. In 2014 the number of union members had fallen to just over 14.5 million.

As with so many things in our society, people tend to have very strong opinions one way or another about unions. As the auto unions are about to begin contract negotiations we’ll be hearing plenty of passionate opinions, both pro- and anti-union.

I believe that, regardless of union status, American workers are essentially dedicated and hardworking. That being said, I wonder just how many Americans like or enjoy their work.

Without question, the makeup of the workforce and the nature of many jobs in our nation have changed dramatically over the years. Rosie the Riveter during World War II began the influx women into the workforce.

More recently, service sector jobs and technology have dramatically changed the atmosphere and character of a typical workday. In other words, there are no typical workers or typical jobs.

Since Labor Day is the unofficial end of summer and the beginning of the school year, I encourage students to study with the objective of graduating with more than just a job. Work toward finding a field that is rewarding both financially and emotionally.

Find something you’re passionate about and that you’ll love doing day after day. I have encountered many people who are counting the days until they can retire and do something they’ll truly enjoy.

I was recently talking to a retired auto executive client who is passionate about his Corvettes and Corvette Club activities. He was surprised to learn I grew up in an automotive family and my high school and college job was buffing out automobiles.

It was great experience. I liked it, the money was decent and I learned a thing or two. But it was just a job, not a career. Not something I would want to do for 30 or 40 years.

I’ve been extremely fortunate for many years. As a financial adviser, I’m just as enthusiastic about my career as my client is with his Corvette Club. In other words, my work is my passion.

Life, like summer, is over much too soon. If you can find an enjoyable career to make a living, great! A workday does not have to be dull or boring.

Labor Day is an American tradition and a well-earned day off. People get up and go to work every day. As you study and prepare for the workforce, try to do everything you can to put yourself in a position where your work is your passion.

Even the military needs help maneuvering through retirement

Over the past few years, I’ve had the good fortune of attending a couple of educational seminars, each of which featured a former Navy Seal as a guest speaker.

One was Marcus Luttrell, the lone survivor of Operation Red Wings and co-author of the book “Lone Survivor.” The other was Robert O’Neill, who was not only part of the operation that rescued Captain Phillips, but also the final assault on the compound where Osama Bin Laden was killed.

Both men shared some truly fascinating stories about their rigorous training and military experiences. At the end of the day, it strengthened my opinion that our nation’s military has some incredible men and women serving our country.

Recently, within a short span of time, I heard from a cousin who is a retired Army officer and I also drove past a military convoy near the National Guard base near Grayling.

It made me realize that, although I work with many people who served in the military, only a small handful actually made the military their career. And just as with so many other occupations, the financial dynamics of a military career appear to be changing.

I’ve previously written that traditional pensions known as defined benefit programs are becoming extinct. The auto industry, state government, educators and most municipalities have eliminated traditional pensions for new hires.

It appears that the military is also going to significantly alter their retirement program, in an attempt to save $1 billion annually.

If approved by Congress, the new program will be a “blended” plan.

It will shrink the traditional pension amounts by roughly 20 percent and implement a mandatory contribution. However, for the first time, those that do not make the military a lifelong career — in other words serve for less than 20 years — will receive some retirement benefits.

If the Pentagon’s recommendations are enacted, the 20 percent reduction in military pensions will be offset by government contributions into a program similar to a 401(k) or IRA. The program is called the Thrift Savings Plan (TSP.)

Within the TSP, Uncle Sam will automatically contribute one percent of basic pay. Military personnel will also have three percent of their pay automatically withheld and deposited into the TSP. The similarity I referred to is that there will be a ten percent penalty if the money is withdrawn prior to age 59.5.

Participants in the plan can opt out of having their three percent withheld if they complete financial literacy training. The greatest benefit of the TSP is for military personnel with more than four years of service. Uncle Sam will match their contribution into the TSP dollar for dollar, for up to five percent of pay.

If all goes as planned, the new military retirement program will go into effect in January 2018. More than likely, there will be a grandfather clause for long-term military personnel to continue with the traditional pension or opt into the new TSP.

Naturally, as these changes move through Congress, I’ll keep my readers posted. Like so many things in our nation’s culture, it is becoming more complex even for military personnel. From private to general, military personnel also need financial advisers to sort through their situation, goals and strategies.

The splash heard ’round the world

Thanks to the Internet, we’re living in a world where information travels around the globe at lightning speed.  I recently wrote that when a rock falls into a pond halfway around the globe, we tend to feel the ripples here in the states.

Shortly thereafter, as most of us are aware, an economic boulder fell in China.  It wasn’t just a ripple in the pond; it was an enormous tidal wave.  And no one can say for certain when the onslaught of waves will stop hammering our shores.

Such financial turmoil makes it easy for your emotions to overtake your mind, allow panic to set in, and abandon your investment strategies.

My experience suggests that’s not such a good idea.  Rarely do emotional, panic-driven moves result in a positive outcome.  That’s not only true in the investment arena but also in many matters of life.   

I have written on numerous occasions that investors need an iron stomach to get through difficult times.  What we are now going through is a prime example.  If there’s one word I’d use to describe what we are in the midst of, it’s “extreme.”

I say extreme because we’re seeing investment values plummet one minute and then skyrocket just a few hours later.  These are not insignificant daily changes.  They’re extreme. 

The collapsing Chinese economy ignited a worldwide financial crisis and the European and U.S. markets have been swinging wildly as a result.

Unlike an amusement park, these are rides that can lead to stress.  A recent report estimated that the average 401(k) was down $3,000 in just one day.  In other words, if someone decided to take their money out of the market now, they would be exiting with a substantial loss.

So, how do you not cut your losses and run?  As I’ve written many times, you need to have an iron will and keep your emotions at bay.  When the markets are on a downslope, it’s probably not the time to make major modifications and adjustments to your portfolio.

Over the years I have navigated a great number of clients through financial storms.  That includes the traumatic one-day, twenty percent drop in 1987.  Often, when people panic over pocketbook issues the end result is negative.  I’ve seen it many times.

If you’re nervous or unsure about your portfolio, schedule a meeting with your financial advisor.  Granted, financial advisors don’t have a crystal ball, but reviewing your strategies might remind you why you diversified and selected your investment strategy in the first place.  It might also help push aside your inclination to panic.

Naturally, I can’t see into the future either.  That being said, however, I’m still fairly optimistic that there are sunny skies on the horizon.

Our domestic economy may not be growing at lightning speed, but it is growing.  Once again, you can hear the sounds of construction.  Vehicles are moving out of showrooms.  You need reservations to get into many restaurants.  And businesses are tepidly optimistic.

I believe the focus is shifting from China, the world’s second largest economy, back to our economy.  We have the opportunity to take the baton and lead the world’s economy out of the doldrums.  When this happens, the value of investment portfolios will bounce back and continue to move upward.

The give and take of Social Security, 80 years later

In case you missed it, the nation’s Social Security system program turned 80 on Aug. 14. It was controversial when President Franklin D. Roosevelt launched the program and it remains hotly debated to this day.

One extreme compares the program to a Madoff-type Ponzi scheme while the other end of the spectrum believes it’s not only a great public program but also that its benefits should be expanded. In other words, even after 80 years the Social Security controversy remains unsettled.

Yes, I have concerns about Social Security, essentially because of the underlying mathematics. People are living much longer today and roughly 10,000 people retire every day. That means there are going to be a tremendous number of benefit checks going out even as wages remain somewhat stagnant for those still working.

Meanwhile, active workers today receive a statement that informs them there will only be enough money to pay 77 percent of projected benefits. Is it any wonder so many younger people have doubts about the program?

A recent AARP poll shows that 73 percent of people doubt Social Security will be able to pay promised benefits. So, while the big picture of the program continues to be debated, I have two comments about the program that seldom make the headlines.

One concern is that many people overlook the fact that up to 85 percent of their Social Security benefits are subject to income taxation when they’re retired and receiving benefits.

I find this to be quite bothersome. During your working years you‘re paying income tax on the money withheld from your paycheck that goes into Social Security. Then you’re taxed again when you collect Social Security. That is double taxation, plain and simple. It wasn’t always this way, but in an effort to strengthen the program the Greenspan commission suggested this provision and it was signed into law in 1983.

My other concern is the seldom-discussed fraud that Social Security attracts. We’ve all read about identity theft. It’s a real issue in our society. In fact, a lot of sensitive personal information was recently stolen from the IRS coffers.

The Office of the Inspector General is finding out that identity theft is even a problem for the deceased. As a society, we generally celebrate the elderly, and rightfully so. The Gerontology Research Group recently concluded there were fewer than 50 people over the age of 112 worldwide.

Yet, from 2006 to 2012, nearly 67,000 individuals filed tax records where the names on the earnings report didn’t match the names associated with the social security numbers. For the same time period, more than 4,000 employers made E-Verify inquiries using nearly 3,900 Social Security Numbers that belonged to someone born before 1901. Clearly, criminals are using Social Security numbers of the deceased for fraudulent purposes.

Fraud is not just a problem for households and corporate America; it’s also an issue for Uncle Sam and the Social Security program. The statistics prove it.

As the debate intensifies over how to strengthen the program, I hope improving the record keeping and monitoring cash outflow is part of the discussion. A more efficient program could result in more income for retirees or lower taxes for workers.

As a nation, we want our elderly to be able to live their lives with dignity. Although it’s controversial, the Social Security program is part of the equation. But when life ends, Social Security numbers need to be permanently retired and kept from being used fraudulently.

What in the world is going on? Financially, you need to know

From an economic perspective, there’s no question that when a rock falls into the water halfway around the world, the ripple effects can be felt here in the U.S. And a lot of rocks have been falling.

The easing of economic sanctions in Iran, the debt issues in Greece and Puerto Rico and the recent devaluation of China’s currency, all to a certain degree, have an impact on your nest egg.

For example, with Iran re-entering the world’s oil market, there’s almost certainly going to be an impact on the price at the gas pump. The devaluation of the Chinese renminbi and the rather drastic slowdown of their economy is going to make it much more challenging for American companies like McDonald’s and our own auto companies to do business and make a profit in China.

This is important because many American companies rely on the Chinese market for a significant portion of their sales. And if you own stock in any of those companies, the impact on your nest egg could be considerable.

What’s happening overseas is also partly responsible for the drop in the price of commodities like oil, silver and gold. Some might even call it a price collapse. Your nest egg is also affected by the daily fluctuations in stock prices and interest rates. What happens throughout the world often causes those fluctuations.

As a financial adviser, I want to stress to clients and readers that, in this day and age of instantaneous news, there’s always something unsettling occurring that might cause us to worry about our money.

I can’t tell you not to worry, but I can say that investors need to have an iron stomach in addition to a strategy. For most investors, a strategy means diversification, which in turn means don’t put all your eggs in one basket.

Does diversification mean you’ll always get the highest returns? Of course not. For example, in 2013 investors who only invested in U.S. stocks generally outperformed those in diversified portfolios. Keep in mind, however, that they also shouldered more risk.

A diversified portfolio isn’t just domestic stocks. To be truly diversified, you should think globally. That means international stocks as well, plus bonds, cash, and perhaps some additional assets such as real estate and commodities.

In the investment world there will always be something to worry about. Some people believe they can avoid the worry by simply depositing everything into the bank.

True, bank deposits are “guaranteed” by FDIC insurance, but there’s also a downside. With today’s low interest rate environment, the purchasing power of dollars in the bank decreases as prices throughout the world increase. I’ve heard many retirees complain they can’t afford price increases because they’re on a fixed income. It’s a valid complaint.

Yes, investors can always find something to worry about. But, as an investor, it’s imperative you have a strategy. You may have to tweak it over the years, but it shouldn’t be abandoned at the first sign of bad news.

Your money has to work especially hard when you no longer work. Since retirement can easily represent a third of your life, it’s important that you have a long-term strategy. And because it has an impact on your financial well-being, be sure to think globally.

Excuse me, is that your $1,300 on the table?

I know of very few retirees that couldn’t use an additional $1,300 per year. But to a certain degree, a lot of young people today are throwing away the opportunity to do just that.

Their failure to take advantage of what is essentially free money is putting them in a position where they’ll have much less during their retirement years than they would have if they just made one simple decision during their working years.

Let me explain.
A recent study by the well-respected financial firm, Financial Engines, estimated that nearly one out of four participants in 401(k) programs do not contribute enough into their program to receive the maximum employer match.

Financial Engines estimated that, by not contributing enough to receive the maximum employer match, Americans leave a staggering $24 billion on the table each and every year.

That averages out to $1,300 per person for those employees who are not taking full advantage of the employer match. As I said, I don’t know too many retirees who couldn’t use that extra cash.

Retirement plans can vary from company to company, but with a typical 401(k) retirement plan, the employer matches the employee’s contribution dollar for dollar up to a maximum percentage. Generally the maximum is 5 percent of the employee’s pay.

So if an employee earned $30,000 and he or she contributed 5 percent of their pay, their annual contribution would be $1,500. Throw in the $1,500 employer match and you’ve got $3,000.

Using this example, if the employee only contributed $1,000 over the course of a year, the employer would only match $1,000. In other words, the employee failed to collect an extra $500 of “free” money. Unfortunately, nearly 25 percent of employees are failing to participate to the max and are therefore leaving dollars on the table.

But the study didn’t stop there. It also determined that more than 40 percent of those who miss out on the match earn less than $40,000. That’s unfortunate, but understandable. Those earners likely need every possible dollar for the cost of living.

What really shocked me, however, was that 10 percent of those who don’t take full advantage of the match earn in excess of $100,000 annually. Even sadder was that the largest segment of those missing out on the match are under 30.

Why aren’t younger employees participating? Well, perhaps retirement seems like a lifetime away. Maybe they’re burdened by college loans. Or it could just be a lack of financial education.

That being said, the bottom line is the financial services industry has to do a better job helping young people understand the importance of saving early in their careers.

But families also need to discuss money issues. Families need to lay the foundation for good and prudent money management at an early age. In my experience, many are reluctant to discuss financial issues with their adult children.

Talking to adult children about money is one of the topics I’ll discuss at the Healthy, Wealthy and Wise program sponsored by the Society for Lifetime Planning this coming Tuesday. For details and reservations, call 248-952-1744.

During your working years, leaving employer-matched money on the table is a mistake. During your retirement years, not discussing money issues with family members can also lead to poor money decisions by your children, even into adulthood.

The second most difficult conversation you may never have

Recently, I was trying to unwind after a day filled with client meetings and a sad phone call notifying me that a longtime client had passed away. Although I thoroughly enjoy my profession, there are certain days that just take the wind out of my sails.

When I get home after an unusually busy day, I just plant myself in front of the television and mentally escape for a while. One evening, within the span of a few hours, I was bombarded with television ads that were either visually suggestive or actually dealt with the topic of sex. It was a revelation.

It reminded me of the most difficult conversation my wife and I had while raising our children. The age-old discussion about the birds and the bees. Then, from my experience as a financial adviser, it occurred to me that second most awkward discussion that many parents have with their children comes much later in life. The discussion about end-of-life money issues, desires and goals.

Of course, most people designate who they want to be beneficiary of their investments. For example, with an IRA you can name your spouse as a primary beneficiary and surviving children equally as contingent beneficiaries.

Many people often take the time to draw up a will and a trust. Parents might choose to name one of their adult children as trustee and designate that child to distribute their nest egg to other surviving family members. They could also designate a family member to make end-of-life health care decisions.

It might all look good from a legal standpoint, but from my viewpoint, many parents never really have a detailed discussion of their goals and desires. They just leave it for their one designated trustee to sort out the details long after they are gone.

Don’t get me wrong; having your legal affairs in order is important, but I think most families would be better served simply by having a more detailed discussion with family members.

Since we’re in a Woodward Dream Cruise mindset, who’s going to get the family’s collectible car? Or mom’s family heirloom and dad’s coin collection? Do the trustees know who is supposed to get what?

I often hear family members say that dad would have wanted a certain person to get this, or that mom would have wanted a certain thing to happen. But when I press as to whether there were written instructions or even a conversation, more often than not the answer is no.

A friend recently pressed her mom about end-of-life wishes. Her mom was shocked that her daughter didn’t know about the list that detailed all of her end-of-life wishes including what hymns were to be played at her funeral. My friend simply had no idea such a list even existed.

So, even though it’s uncomfortable, the birds and the bees topic is eventually discussed, but detailed sharing of money-related issues and concerns is seldom shared or discussed. It’s usually up to a son or daughter to guess what mom and dad wanted. I suggest you take the time to have the discussion.

And finally, I will be one of the speakers at the healthy, wealthy and wise workshop at the Troy community center on Aug. 18. For details and reservations, please call 248-952-1744.

Your Uncle is no longer rich

For as long as I can remember, I have enjoyed the Fourth of July festivities with my family in northern Michigan.  But this year was different.  This year, my family packed our suitcases and we were off to Greece for a vacation that concluded with our attending a real Greek wedding.

Months ago when planning for the trip, I was keenly aware of Greece’s precarious financial situation with the Eurozone.  As the travel dates approached, it became apparent that we would be in Greece during the height of their financial crisis.

As a financial advisor, I’ve been through numerous financial downturns and crises, including the recent near meltdown of the U.S. banking system in 2009.  But until my recent trip to Greece, I have never had firsthand experience of a nation defaulting on their financial obligations and ultimately closing their banks.

I take a fair amount of good-natured ribbing from friends because I have never used an ATM.  For most of the younger generation, financial transactions are executed primarily with plastic cards.  And on those rare occasions when cash is actually needed, they usually find an ATM for the ever-popular plastic in and cash out transaction.  Some have probably never been inside a bank.

While in Greece, it was quite a rude awakening for one of my family members when the plastic card went in and no cash came out.  At the time, ATMs were totally shut down.  Eventually, they began working, but there was a daily limit of $60 Euros per day.

The European newscasts, which were quite critical regarding the reasons why Greece was in such poor financial shape, sounded very familiar.  The criticism centered on the contention that Greece was overspending and had an enormous amount of unfunded pension obligations.

Listening to the newscasts critical of Greece, it occurred to me that they could have just as easily been talking about the good old USA.  After all, Greece’s problems sounded eerily similar to the financial issues we’re facing right here at home.  I say this because we have an $18 trillion national debt that continues to grow and across the nation we have a serious problem with underfunded pension obligations.

I don’t want to be a purveyor of Doom and Gloom, but our government needs to become just as fiscally responsible with our finances as you are with your household budgets.  If you aren’t responsible, bad things can happen.  The same holds true for Uncle Sam.

Most of us have never experienced a bank holiday where we could not get our hands on our own savings.  I’m not suggesting that the U.S. will follow Greece’s lead, but in this world anything is possible.

Households, businesses and nations all have to be fiscally responsible.  Overspending ultimately leads to financial issues.  As I have stated before, politicians cannot alter mathematics.

Overall, my trip to Greece was an enjoyable, once in a lifetime experience.  The history is incredible and the scenery is breathtaking.  But, no matter where your travels take you, there is never a vacation from money issues and concerns.

I am pleased to share that I will be one of the speakers at the Healthy, Wealthy and Wise program sponsored by the Society for Lifetime Planning on August 18th.  For details, please call 248-952-1744.

Are you all set for maximum investment returns?

A very common phrase in the American culture is “I’m all set.” For instance, it’s a frequent response to a salesperson when you’re casually out shopping in a retail store.

It’s almost a given that, before you leave the store, someone is going to ask if there’s anything else they can do for you. And it’s not just the department store; it’s the oil change place, the restaurant, even the bank.

So I shouldn’t be surprised that the phrase pops up in my part of the financial world. Often times, when I’m out socially, people will approach and ask me a financially related question. I usually answer the question, but I also offer to meet the person to go into more detail. More often than not, the response is “I’m all set.”

In our day-to-day lives, people like to get into a comfortable routine, especially regarding their finances. But, I suggest that it’s risky for anyone to conclude that they’re “all set” with their finances. Certainly not forever.

Let’s take a look at a few examples. Many are still feeling the economic scars of the near meltdown of 2008-09. Far too many households did what I refer to as “knee-jerk” financial planning. In other words, they totally abandoned their investment strategies and fled to the low-interest-rate banks, intending never to return to the investment world again.

Another example of the “I’m all set” mentality gone wrong often falls on the shoulders of a surviving spouse. Not to pick on General Motors, but I know that there were quite a few retired auto executives who were overly concentrated in GM stock.

It was their mindset that the stock would be a winner throughout their retirement years. Frankly, there’s nothing wrong with having confidence in your company. Unfortunately, a few surviving spouses learned the hard way that they were not “all set” by holding onto GM stock forever.

The lesson here is clear. No matter how good an individual stock may appear, there is inherent danger in putting all of your retirement nest egg into one basket. I have certainly written about diversification before.

Retirees and widows also used to be able to supplement their nest egg with the interest from their bank deposits. When interest rates were near 5 percent, a $100,000 bank deposit would generate $5,000 of income. Today, you’re lucky if that $100,000 earned $1,000.

The good news is that many of those that are dependent on bank interest are finally aware that they’re not “all set.” The questionable news is that far too many of them are seeking alternatives with higher interest rates.

Questionable because I think they have no idea what they’re buying in order to get higher rates and I fear they don’t comprehend the risk inherent in the investments they make with money withdrawn from the bank.

On another note, I’m pleased to share that I will be one of the speakers at a series of Healthy, Wealthy and Wise Workshops in the comings months. These workshops will be hosted by the Society for Lifetime Planning and I am confident that anyone who attends will benefit. For further details, please call 248-952-1744 or e-mail ken.morris@investfinancial.com

How your health affects the health of your nest egg

In previous articles I have mentioned that the financial services and health care industries are becoming more and more intertwined. As medical technology continues to improve, people spend more on medicine and healthcare services such as long-term care.

One of the consequences of improved medical technology is that people are living much longer than previous generations. Not surprisingly, medical advances have also resulted in increased costs.

As a financial adviser, I believe it’s extremely important to build enough into the retirement nest egg that’s dedicated to future health care costs. Keep in mind, Medicare is not free, and monthly premiums need to be budgeted for in retirement.

The amount of your monthly premium is determined by your income. But, Medicare does not pay all of your medically related needs in retirement. There are the obvious costs like co-payments on prescriptions and deductibles, but in addition to that, there is much more that people need to prepare for.

For example, I’ve recently had a number of clients incur significant bills for dental related expenses. And as we grow older, there are often vision and hearing issues that need to be dealt with. I’m not a medical professional, but I can’t imagine anyone ignoring their dental, vision and hearing needs if they had an adequate nest egg.

And then there’s the elephant in the room, long-term care. I can easily see the necessity to have at least $250,000 in your nest egg earmarked for long-term care and medical expenses. If you’re currently employed and you meet the eligibility requirements, Health Savings Accounts are a great way to build this health care bucket for retirement.

To carry an insurance license in Michigan, the state requires 30 hours of continuing education every two years. In addition, in order to discuss long-term care insurance, Michigan mandates an eight-hour continuing education class to keep practitioners current with requirements. Since the financial services industries are growing closer and closer, I thought it important to become properly registered.

The thing that’s different about retirement planning is that you’re planning for the unknown. With goal related planning like college funding, when your adult child walks across the stage and receives their diploma, you know if you saved enough to meet the objective.

With retirement planning, when all is said and done and you enter the pearly gates, it’s often your heirs who determine whether or not you had a sufficient nest egg.

Since long-term care policies are so extremely expensive, the financial services industry is developing programs that meet both financial and health care needs.

For example, there are now life insurance policies that will allow death benefits to be paid while the insured is living for critical care expenses. There are also annuities designed for long-term care expenses.

I bring these to your attention because the trend appears to be to get your dollar to do the double duty of investment and protection. The bad news is the complexity of the programs. They’re innovative, but they’ll require more research, possibly even involving a prospectus.

At the end of the day, as you build your nest egg, keep in mind that a large piece of the pie will probably be spent on health related expenses. That’s why it’s imperative that health care expenses be included in your long-term planning.

Happy birthday, USA: Thanks to those who make our freedoms possible

Independence Day, aka the Fourth of July, is a national holiday commemorating our Declaration of Independence from Great Britain. I often question how much American History is actually taught in our schools and wonder how many people really understand how much strife and hard work it took to gain independence and form a functioning government.

Whether or not you agree with our elected officials, the good news is that the trajectory of their actions can eventually be changed at the ballot box.

During the next election cycle, I suspect there will be much discussion about the shrinking middle class. Without question, it has become more difficult for middle class America, and the debate over how to fix the issue will likely become quite heated.

There’s a lot of discussion about how much household demographics have changed, but since our nation was established, the government has also changed significantly.

Today the government is involved in almost every aspect of our lives and it seems to have a program for everything.

The Affordable Care Act is a recent example. Health care information is carefully monitored and actually reported on our annual income tax returns.

Under the guidance of President Teddy Roosevelt, the National Park Service was established and federal lands were set aside for all to enjoy. Today, there are an abundance of federal laws and regulations pertaining to the environment.

Under President Franklin Roosevelt, Social Security was established to make certain the elderly could stay out of poverty and live out their lives with dignity. The majority of us contribute into this program but, somehow, instead of it being considered an earned benefit, it’s often called an entitlement.

Over the years, Social Security has expanded to cover other items, such as disability. I’ve already warned that, in the not- too-distant future, the part of the program that covers disability won’t have enough money to pay current benefits.

I’m certain some politicians that will call for the wealthy to pay more to save the program, but I doubt any will mention that a recent study by the agency’s inspector general pointed out that Social Security has overpaid nearly $17 billion in benefits.

I could go on and on, but the point is that our nation was established by rebels who became its Founding Fathers. A key issue that ignited the Revolution was taxation without representation, the root cause of the infamous Boston Tea Party.

As a financial adviser who works with a lot of hardworking people, I have yet to hear anyone say that they pay too little in taxes.

In fact, over the years, I’ve seen many choose to retire in another state because the tax rate is lower than Michigan’s. In other words, in addition to the ballot box, you can also vote with your feet.

At the end of the day, we live in a great nation. Some think government is the solution to problems and issues. Others believe it’s the problem. No matter how you think, remember that we can only have these discussions thanks to the efforts of our Founding Fathers.

We should all be thankful for our freedoms including the ability to work towards financial freedom, and especially for those who gave their lives to make it possible.

I've looked at jobs from both sides now: pay summer hire

The summer months have finally arrived. No more school, plenty of sunshine and thousands of young people looking to earn a few dollars and maybe get some job experience for their resumes.

In years past, it was often as easy as knocking on a door and asking if the homeowner wanted their grass cut. Today, professional landscaping firms have made that impossible for vacationing students.

Picking up a newspaper route is unlikely too. Not many newspapers are published every day, and many are delivered in the middle of the night.

For young adults who have been away at college, the days of working in the factory all summer to earn enough for next fall’s tuition are also gone forever.

Clearly, it’s extremely difficult for young persons to make a few dollars in the summer. Finding a meaningful summer job that lets you save even a few dollars can be a challenge in this day and age.

But have you ever considered the other side of the coin? Hiring someone for the summer can be a bit difficult as well.

Until a few years ago I had never heard of an unpaid internship. Then suddenly, it seemed like scores of students were vying for the same internship. In years past, my firm hired young people for the summer, and yes, we paid them.

Recently, a Bloomfield Hills based attorney I know, John Below, brought the Fair Labor Standards Act (FLSA) to my attention. It made me realize that being a nice person and providing a young student an opportunity is more complex and regulated than I imagined.

There appears to be a fine line between internship and “employment” in the for-profit or private sector of the working world. According to the FLSA, anyone who is employed must be compensated. The Department of Labor, however, views private sector interns as employees. So in reality, there’s no such thing as an intern working simply to gain experience and doing so without any kind of wages.

Ah, but things are different in the public sector. It appears the public sector can offer unpaid internships that provide young persons experience to put on their resumes without putting a penny in their pockets. Not so in the for-profit world.

But, what if you were to hire someone as a trainee instead of an intern? Does that change things? Well, there does appear to be a fine line between an intern and a trainee. A line so fine that it would take several columns to explain.

Evidently there are special provisions for trainees. But several cases have actually gone to court to determine if a trainee is an intern or vice-versa. As I said, it’s complicated.

Summer interns must — and should — be paid, because legally, they are employees. And while it appears you can legally take on a trainee just for the experience and without pay, you might be taking a risk.

The lines are blurred and the regulators are watching. That’s why employers need to classify their workforce properly. I strongly recommend you seek an attorney’s advice to make sure you’re doing the right thing.

Being big hearted is nice, but it’s equally important to be smart when adding summer help. You can be both by paying whomever you hire for the summer.

Retirees: You’ve earned the right to spend

In a recent meeting with a client, we were reviewing the various sources of income available to her when she calls it quits in a few months. Although all of our mathematical projections indicated she would be just fine in her golden years, my experience and instincts lead me to believe her transition to retirement won’t be smooth.

I can see a problem developing that’s a common issue with many retirees. I’ve never touched on the subject in this column before and I can’t recall reading about it in any of my various professional journals.

The problem is simply that after years and years of being in the mindset of accumulation, many retirees find it extremely difficult to switch to the distribution phase of life. It’s sort of a psychological issue. Changing a lifelong mindset is a challenge for many people.

As young boys and girls, many of us had piggy banks. It wasn’t uncommon to hear the old Ben Franklin phrase, “A penny saved is a penny earned.” Consequently, many learned the importance of saving at a young age.

During the piggy bank years, many were also taught by mom and dad to set aside a little of everything they earned. So, from babysitting to lawn cutting and snow shoveling, a few dollars were saved here and there.

After high school, it was much more difficult to save anything during the college years. Speaking for myself, I worked throughout college and tried to save. But what little I was able to put aside didn’t last very long. Before I knew it, a new semester would arrive, and with it the tuition that took all my savings and more.

So, for most, the college years are neither accumulation nor distribution years. They’re simply the years you hope you get through without amassing significant debt.

The working years are when saving begins in earnest. For many, that’s a thirty or forty-year timeframe and many do put aside a portion of their paycheck.

Month after month and year after year people receive statements that show their savings and investment accounts are growing. And for most, the satisfaction of seeing that growth becomes habit forming.

The accumulation stage of life began with a piggy bank and continued for a thirty or more year working career. Then, suddenly, at retirement, the accumulation stage ends.

Many struggle when the accumulation years end, not so much financially as psychologically. It’s difficult to seeing their savings or retirement accounts decrease in value.

Sudden downturns in the investment world are a bit more painful. A withdrawal from a savings account entails a lot of agonizing thoughts. As a financial adviser, I can’t tell you how many times clients have complained because of mandated annual withdrawals from their retirement accounts once they reach age 70.

From experience, I know many retirees struggle with the thought of tapping their retirement savings. But, remember, one of the reasons you save is to have sources of income when you retire. It’s okay to tap your savings.

It can be difficult to change mindsets from accumulation of money to distribution. But, with proper planning, the transition from accumulation to distribution becomes clearer and anxiety free. A financial adviser can ease that transition by helping you develop reliable, predictable income streams.

Hatching a plan to protect your nest egg

In this economic environment of low interest rates, there have recently been a number of articles published about how much retirees can annually withdraw from their investment portfolio without depleting their nest egg. Opinions vary among financial professionals, but the general consensus appears to be 4 percent.

In other words, retirees with $100,000 in their nest egg could withdraw $4,000 (4 percent) without worrying too much about depleting their nest egg. Of course, this is an oversimplified method of determining your annual investment income, but it is a useful guideline.

That being said, while I consider withdrawing four percent to be a helpful benchmark, I believe that strictly following this method could possibly turn out to be a mistake.

For example, what if a retiree’s entire nest egg was in a safe, but low-yielding bank account? In that case, withdrawing 4 percent from a $100,000 account would more than likely put the value in year two below the initial $100,000.

Then, in year two, a 4 percent withdrawal from $96,000 would result in income of less than $4,000. Continuing to follow this method will result in decreasing annual income until or unless interest rates suddenly spiked up.

In a similar fashion, if a retiree had his or her nest egg invested strictly for growth, the market’s performance in recent years should have created an increase in the value of the nest egg. The result of that, of course, would also be a slight increase in the amount of annual income withdrawn, utilizing the 4 percent strategy.

Again, I feel that the 4 percent withdrawal strategy is a helpful guideline. Nonetheless, as a financial adviser, I think simply focusing on how much you can withdraw every year might cause you to overlook a very important factor.

Before I explain, let’s set the table. As I’ve written many times, most retirees would be best served by maintaining a diversified, well-balanced portfolio. What I’m concerned about for my readers and clients more than the 4 percent withdrawal rule is the sequence of investment returns.

Looking at historical data from 1989 through 2008, the unmanaged Standard and Poor’s 500 Index had an average rate of return of 10.36 percent. Back then, interest rates were also higher, so for example purposes, instead of withdrawing four percent annually, let’s withdraw 5 percent.

One of the best years in this 20-year cycle was a positive annual return of 31.6 percent. The worst year saw a negative annual return of 37 percent. If the negative 37 percent were in the first year, a retiree would run out of money in year nineteen.

If, on the other hand, the negative 37 percent were in year twenty of the mathematical cycle, the retiree would still have a significant nest egg.

In other words, it’s the early years of retirement income that are the most critical. It’s crucial for a retiree to avoid an immediate downturn to his or her nest egg. It’s crucial to keep a close eye on your returns, and adjust your withdrawal percentage accordingly.

The debate over what the proper amount a retiree can withdraw may continue indefinitely. In my mind, however, based on history, what’s far more important is the sequence of returns and avoiding an early tumble in your nest egg.

Compound interest: Simple math, complicated problem

One of my favorite quotes comes from American icon Albert Einstein, who, although German born, became an American citizen in 1940. Albert observed that, “Compound interest is the eighth wonder of the world. He who understands it, earns it; he who doesn’t, pays it.”

I believe this quote is especially applicable in this day and age where households, college students and government agencies are being overwhelmed by debt. Evidently, not enough people paid attention to Einstein.

It’s interesting that so many disregard the math by living beyond their means and borrowing too much money. Even our lawmakers — at virtually every level — continue to try legislating the impossible. At the end of the day, no matter how you try to alter math equations, real math ultimately becomes the reality.

Our neighbors across Lake Michigan in Rockford, Illinois, serve as a good example. The city recently tried to alter their pension commitments. As we all know, it happened here in Detroit. Many city retirees were forced to take reductions in their pension payouts.

But things went differently in Illinois. The state Supreme Court ruled that such a move violated the state constitution. As a result, Moody’s, the credit rating service, immediately downgraded Illinois’ debt to junk status. In simple terms, the state of Illinois has severe pension issues and it doesn’t have any viable financial solutions.

Chicago is in an especially dire situation. The city’s pension obligations are underfunded by some $20 billion. How can such a situation be solved? Well, you can raise taxes, cut the amount pensioners receive or increase the amount they pay in. Good luck with trying to make any of those options happen.

Sadly, this situation is occurring at the city and state level all over America. It appears that Illinois and California are the two states with the most insurmountable financial issues, in both cases caused primarily by underfunded pensions liabilities.

In our own beloved Michigan, I’m a bit concerned how some government agencies are tackling their underfunded pension problems. Looking back, the city of Detroit under Kwame Kirkpatrick borrowed over $1 billion to “solve” the pension problem. We all know how that ended.

But both Oakland County and, just recently, Macomb County also borrowed money to meet some of their obligations. Macomb County recently floated 24-year bonds at 3.5 percent. Mathematically, this means they need to invest the funds at a rate greater than 3.5 percent to come out ahead.

Is that an attainable goal? Possibly. In fact, it may even be probable that the outcome is favorable. But by no means is it a risk-free scenario.

Pensions are a great example of the impossibility of outsmarting the math. When most pensions were established, life expectancies were a lot less. Social Security is a good example of how increased life expectancies can impact finances.

Dartmouth University recently concluded that Social Security will likely have final issues much sooner than the official projection date of 2033. And that’s because people are living just over one year longer than government projections.

Albert Einstein understood the importance of mathematics and compound interest. At the end of the day, two plus two will always equal four no matter how much any individual or legislative body attempts to alter the equation.

Enjoy your freedoms responsibly this Memorial Day

Earlier this month I took my mom to a public park with a beautiful, peaceful river setting. It was a special place for mom because she and my late father spent a lot of time there together.

When we arrived and pulled into the busy parking lot, I was fortunate to find a parking spot just a stone’s throw away from a bench with a breathtaking view.

When I turned the engine off, my mother became upset because she forgot her handicapped-parking permit. Since the car was parked next to the bench, I wasn’t overly concerned. We were close enough to the spot that I would see any law enforcement, and I couldn’t imagine them writing a ticket, seeing my mom with her walker.

Fortunately, my mother enjoyed her short stay at the park, which I’m certain rekindled memories of my father, who was a veteran. We eventually left without incident.

I bring this up because it’s Memorial Day weekend. Households throughout the nation are sharing memories of their loved ones. Sometimes we forget about those that gave their lives for our nation. Their dedication and commitment is the backbone of our culture today.

The dedication of military personnel is the reason we have the freedom to elect the officials that make and enforce our laws. The freedoms that many died for and continue to defend, including our financial freedom.

By that I simply mean the ability to make our own financial decisions. As with all other aspects of freedom, there is responsibility, and that includes fiscal responsibility.

What exactly does fiscal responsibility encompass? Each and every day you’re faced with countless decisions that impact your financial well being. Responsibility means being prudent with every paycheck and understanding its boundaries. It begins when you jump out of bed in the morning and leave for work.

For many, the first financial decision of the day is whether to brew your coffee at home or make an expensive stop at the coffee shop. Do you bring your lunch or spend a few dollars every day at a nearby restaurant or fast food place?

While at work, do you ever find time to check your benefits? In other words, how much time do you allocate to your retirement plan? Are you taking full advantage of any employer match? And don’t forget to see if your employer offers a menu of other benefits, including healthcare choices and supplemental life insurance.

As you go through your daily routine, are dollars falling from your pocketbook just because of that routine? Again, being smart and prudent is a choice; a freedom that should not be taken for granted. Credit cards might make it easy and tempting for impulsive spending, but fiscal independence puts the responsibility to avoid overspending squarely on your shoulders. The stress of outstanding credit card debt has ruined many lives. Don’t let yours be one of them.

As we salute our military and those that have previously served, keep in mind that they are the ones that have maintained the entire foundation that allows us to live the lifestyle we enjoy. It’s too easy to take our freedoms, including financial freedom, for granted. You are free to choose how to save or invest or spend or spend your money. Please do so responsibly.

May your launch be successful, college graduates

This is the time of year when many of life’s transitions are launched. There are a lot of young adults graduating from high school who will soon be leaving home for the very first time. Similarly, there are a lot of young men and women who are graduating from college, ready to step out into the world and hoping to become self sufficient.

In a perfect world, all of them would either be launching their professional careers or continuing their education in a specialized program such as medical or law school.

But the world isn’t perfect. Yes, the economy may be improving, but far too many young adults will be returning home to mom and dad, still seeking their destiny.

May is also what I refer to as the beginning of the wedding season. In fact, it was exactly one year ago that one of my sons got married. And whether or not the bride and groom have matriculated through college, they too, are making a major transition.

So, we have high school grads, college grads and newlyweds, each of them embarking on lifelong journeys and all beginning in and around the month of May.

To all those young men and women graduating from high school or college or beginning their lives together with a significant other,

I offer a tip of my hat — and some advice.

At many graduation ceremonies the speaker encourages the graduates to change the world in a positive manner. I agree that this is a wonderful and compelling message, but I offer something more specific. I want to encourage all young adults to be fiscally responsible.

What exactly do I mean by fiscally responsible? First and foremost, keep your debt under control. If you borrowed money to get through college, simply pay it back.

Unfortunately there has never been more college debt than there is today, but loans should be repaid. You can always rationalize why repaying your debt should be put on the back burner. But, at the end of the day, your debt is your responsibility, not your fellow taxpayers.

Another piece of advice is simply to live within your means. In this world you can quickly run up sizeable debt with a visit to Amazon and a few clicks. I’m not suggesting that you don’t spend, but, just as with investments, balance is the key.

Finally, develop good savings habits. Don’t just save what’s left over, but rather become a disciplined saver. For example, start saving $50 per month and stick with it no matter what. A year later, increase the amount to $100. This is just an example, but making savings a habit is important.

I include newlyweds in the ‘major transition’ equation because, in financial terms, marriage is somewhat of a financial merger. You might be marrying into a large college debt or marrying someone who can’t save a nickel.

Unfortunately, money disagreements are often cited as a reason why marriages don’t succeed. My suggestion is talk about money prior to tying the knot. Both parties should be aware of the circumstances.

I believe it’s important to develop proper money skills and habits. Over the years, I’ve observed that those who have a grasp of their finances turn out to be more responsible, generous and confident in their future.