Monday, July 27, 2015

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.

Monday, July 20, 2015

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

Tuesday, July 14, 2015

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.

Monday, July 6, 2015

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.