Retirement is no longer a three-legged stool

When preparing clients for retirement in the early years of my career, I would often introduce the concept of viewing retirement as a three-legged stool. The three legs were represented by the client’s personal savings, his or her pension plan and, of course, Social Security. While all three legs were not necessarily the same size, all three were nonetheless vital sources of income during the retirement years.

But that was then, this is now. Things have changed over the years. Nowadays when preparing a family for retirement, it’s very likely that the pension leg no longer exists. If by chance it does, the dollar amount of the benefit is probably not nearly as large as had been initially projected.

That’s because many pensions were frozen several years ago and the pension benefit became fixed. The amount no longer increased with additional years of employment.

So today, the bottom line is simply that for people approaching retirement, the pension leg is either non-existent or very much shorter than anticipated early in their work careers. Unfortunately, for most young people beginning their career, there won’t be a pension leg.

As our society moves away from traditional pension plans, more emphasis is obviously put on personal savings and Social Security. Any working person has a certain amount of control over how much they save. But they have no control over Social Security. And as I have expressed numerous times, I’m concerned about the financial strength of Social Security.

Like it or not, Social Security is deeply intertwined with politics. That’s especially evident during an election year. I’m not necessarily criticizing the Social Security program as it stands today. I merely want to point out some of the red flags that are being waved by the Social Security trustees. Because it seems to me that the flags are flying under the radar.

I think it’s great that Social Security statements are once again being sent to those in the workforce. I suspect that most people skim the verbiage and simply look at the tables that project their income at early, normal and delayed retirement.

I hope they’re aware that the numbers are only projections, not promises. Because the statements point out that, on its current course, there eventually will only be enough Social Security funds to pay 77 percent of projected benefits. That’s a legitimate concern that needs to be addressed.

I also want to bring to the attention of my young readers a recent error made by the Congressional Budget Office (CBO). An error they corrected in early February. Last fall, the CBO projections for people born in the 1960s and retiring at age 65 were incorrect.

It was initially projected that Social Security would replace 60 percent of income for middle income workers and 95 percent for those in the lower quintile. The projections were corrected to 41 percent for middle wage earners and 60 percent for the bottom quintile. That’s substantially less.

I certainly understand that mistakes happen and commend that they were corrected promptly. But it doesn’t change the big picture. The program needs attention sooner than later.

Before politicians talk about expanding the program, the very foundation needs attention. As it stands, the current program doesn’t inspire long-term confidence. That makes long-term financial planning extremely difficult.

Ken takes a coffee break. That was then. This is now.

I recently stopped at a local fast food restaurant to pick up a coffee and noticed a help wanted poster in the window.  It stated that the job paid $9.50 per hour, substantially below the $15 per hour being sought by a number of minimum wage crusaders.

Perhaps to counter the shortfall, the poster also stated that health insurance was available for both individuals and families, that employees were eligible for up to $700 of educational assistance and that they got five paid days off.

It made me harken back to my own first job.  I wondered how today’s numbers compared to my experience.  It was 1967 and I was working at a meat market.

I washed trays, swept the sawdust out of the freezer and did whatever else I was told.  Not the greatest job, but it put a few dollars in my pocket.  And it was a good experience; it taught me both responsibility and accountability.

Back then the minimum wage was $1.25 per hour.  Out of curiosity, I checked the Consumer Price Index (CPI) to see what today’s equivalent would be.

Around since 1913, the CPI measures “changes in the prices of all goods and services purchased for consumption by urban households.”  According to the CPI calculator the average annual inflation rate has been 4.07 percent since 1967.

That adds up to a cumulative rate of just over 607 percent.  The $1.25 per hour I earned in 1967 would be equivalent to $8.84 per hour today.  So at face value, the $9.50 today is far better than the $1.25
I earned in 1967.

By this comparison alone, a $15 per hour minimum wage would be far better than my $1.25.  But, there’s much more to the equation.

For example, in 1967 the total amount withheld for Social Security was 3 percent, one half each by my employer and me.  Today, that amount has skyrocketed to 12.4 percent, again, split two ways. 
                   
I mention minimum wage in a personal finance column because many of my readers and clients are small business owners.  As a small business owner myself, I’m sensitive to the employer viewpoint.

Over the years, I’ve also spoken to many young students about to graduate high school.  I feel these young people benefit from the responsibility learned from their first job experience.

Yes, I’m very concerned about people trying to live or raise a family on minimum wage.  It’s an extremely difficult challenge.  But, as a society we need to emphasize that minimum wage jobs should be educational launching pads, not lifelong careers.  The way it was in my day.

Somehow, as a society we need to help people move up the economic ladder.  Not just to get on it and be content.

Determining a fair and equitable minimum wage is a polarizing and controversial topic.  Both sides have valid points.  But at the end of the day it’s the employer that makes payroll, not Uncle Sam.

If the bar is set too high, I fear many young people will miss out on the first job experience because there simply won’t be any first jobs.  Wages, like housing costs, vary throughout the country.  For that reason, I believe the minimum wage should be set at the state level, not by Uncle Sam.

Let’s talk about Valentine’s Day

What can you say about Valentine’s Day?  Hallelujah, if you’re a florist or jeweler, or own a restaurant, candy store or card shop. You’ve just had one of your busiest and most profitable weeks of the year.  In my opinion, the hype surrounding Valentine’s Day is one of the great economic stimulus programs of all time.

As I kiddingly tell friends and clients, it’s probably more successful than any stimulus plan our government has ever come up with.

There’s no question that a lot of men spend a lot of money to show their special someone how much they care.  A lesser amount, I’m guessing, is spent by women on their special guy.

But, from a financial perspective, what about the other 364 days of the year?  When all the hype fades away and Cupid goes into hibernation, a lot of household problems revolve around money issues.

It’s easy to speculate that more income would mean fewer arguments over money.  But my many years of experience lead me to believe otherwise.

For example, in my career I have worked with a quite a few high-income earners who, surprisingly, save very little of their income.  It seems that no matter how much they make, they manage to spend just a little bit more.

Quite often, one of the spouses tries to live within a budget, but he or she becomes frustrated over the spending habits of the other.  Unfortunately, many marriages have fallen apart over financially related problems.

For whatever reason, couples often just don’t have the ability or desire to discuss financial problems.  I’ve even seen situations where one of the spouses refuses to acknowledge that a problem even exists.

Valentine’s Day is one of the few days when financial problems are put on the back burner, but couples still need to talk about money.

From my experience in working with families, there is generally one spouse that is the financial dominator of the household.
You might think it tends to be the husband, but it’s just as often the wife.  But, whoever is financially dominant, he or she needs to bring the less dominant spouse into the equation.  It’s called teamwork.

Both spouses need to understand the big picture.  That means each needs to know how much they can spend and how much they need to save.  And in arriving at their financial goals, both parties need to be involved in the discussion and the decision.
Financially related goals include such items as college funding for kids, dollars set aside for vacations and retirement, plus every other aspect of running the household.

Money can be used to express love, but unfortunately, I have seen relationships fall apart where money is a driving issue.  The problem might be a lack of money or the spending habits of one of the spouses.  Occasionally, both spouses have bad money habits.

What’s my advice for celebrating Valentine’s Day?  Get on the same page financially.  Talk about money.  Talk about spending.  Discuss savings and financially related goals.

It’s true that discussion often leads to compromise, but if that compromise leads to financial harmony, it’s certainly better than a marriage that falls apart.  So Happy Valentine’s Day to one and all.  I hope I’ve given you something to talk about.

The upside of the market downslide

Without question, the investment world is down significantly since the beginning of the year.  And while there certainly is some cause for concern, I believe the situation also presents some opportunities.

Looking at the big picture, I’m concerned that the nation may slide back into a recession.  That, of course, would lead to a loss of jobs, households missing payments, and a return to a whole host of problems so many people crawled out from just of a few years ago. 

But although our nation’s economy has been growing at a snail’s pace for the past few years, I don’t foresee us falling back into the depths of the Great Recession.

The opportunities I see involve new investment dollars.  For example, if you’re eligible for a 2015 tax year contribution into an IRA, this is an exceptionally good time to make a contribution.  You’ve certainly heard the old adage, “Buy low, sell high.”  Well, guess what?  Most things are relatively low right now. 

Is there an investment you were considering six months ago?  I’d say you’re going to like it even more at current prices, especially if you have a long-term time horizon. 

Over the years, I can’t tell you how many times I’ve heard investors lament, “If only I bought ABC stock when it was down to X dollars per share.”  If you’ve ever made a comment similar to that, it may be the right time to take action. 

Yes, Murphy’s law says that the day after you buy something it’s likely to go lower, but there never is a buzzer indicating a market bottom to tell you that now is the precise time to jump in.  But there definitely are a lot of investments you can buy today at a much lower price than just a few weeks ago.

I’ve often joked that, as a financial advisor, I’m paid to worry.  And there certainly is plenty to be concerned about in the financial arena.  However, at the top of my worry list are the people who retired in the last couple of years and are drawing income from their nest egg. 

Why?  Let me run through some math.  For example purposes only, let’s say a retiree needs $30,000 of income per year from their savings.  Suppose they hit their magic number of $500,000 in their nest egg. 

At a six percent withdrawal rate, and assuming they’ve earned a reasonable interest, they can get their $30,000 without depleting their principal.  However, 2015 was relatively flat, so taking their $30,000 would drop the principal down to $470,000. 

So the next year, their nest egg loses value, dropping just over 10% to $420,000.  Now to get $30,000 of income, they have to withdraw 7.2%.  That extra 1.2% may not seem like much, but this is a dangerous path.

The sequence of investment returns is extremely important, especially in the early years of drawing retirement income.  A few down years in the early years of drawing income can cause irreparable damage to a nest egg.

With the investment world on a downward slope, it’s important to make your investment decisions wisely and your withdrawals cautiously.  Deciding to retire and start the withdrawal sequence once you reach a certain nest egg number, such as $500,000 may not be a prudent choice.

What in the world is going on?

With all due respect to the month of January, I’m glad it’s over. I’ve often mentioned that long-term investors frequently need to climb a wall of worry.  Unfortunately, the current wall appears to be a bit taller than many anticipated.

In today’s world, there’s an abundance of interconnected factors that can have a significant impact on your nest egg.  Take a look at the recently ended Detroit International Auto Show for example.

It was fantastically successful and it came on the heels of a record-breaking year for auto sales.  You’d think that would motivate a large number of financial analysts to be bullish on the auto industry, right? Especially with the price of gasoline far below $2 per gallon and interest rates hovering near 2%.

However, that’s not the case. One of the reasons for the short-term negative sentiment is the apparent economic slowdown in China.

Which, of course, translates into lower than anticipated overseas car sales by our domestic automakers.

But that’s only a part of the story.  A Chinese slowdown also means a lower demand for oil.  And now, at a time when Iran can legitimately re-sell oil on the worlds markets, the dominoes are falling.

The addition of Iranian oil creates a greater glut, which contributes to the domestic decline in production, which contributes to a slowing domestic economy.

Yes, it’s complex, but it’s all connected in this world of instant, 24/7 communications.  When something occurs halfway across the world we know about it immediately.  And it often has an impact on our daily lives and our finances.

The investment world has historically gone through various unpredictable cycles, much like our Michigan weather.  I believe, in the not too distant future, that we’ll look back at January and clearly see that it marked a transition, just like a sudden change in the weather.

There’s no shortage of events that have contributed to the recent downfall.  Our domestic politics, for example are nastier than I can ever recall.  As previously mentioned, China’s economy is beginning to slow down, causing their stock market to plummet.

Whether they’re real or imagined, North Korea’s nuclear claims are in the headlines and putting many countries on edge.  And tensions are even greater in the Middle East with sanctions lifted against Iran and their oil once again hitting the market.

Meanwhile, I believe interest rates are among the most overlooked factors contributing to global uncertainty.  European banks are softening interest rates at the same time our Federal Reserve is raising them.

By no means am I an expert on international banking, but with the financial world so globally intertwined I cannot see how both European bankers and our own Federal Reserve can be right.  They’re moving in opposite directions on interest rates.  Somebody’s got it wrong.

We are in the midst of a financial storm (world events) at a time when the financial world is changing seasons (interest rates). So what should you do?

Diversifying and keeping your emotions at bay can help. This isn’t the first difficult period I’ve seen during my long career.  I doubt it will be the last.  Experience has taught me that financial decisions made with the heart rather than the mind seldom turn out to be the best long term decision.  Above all, be patient.

How to be certain in uncertain times

The new year has not been kind to investors. In fact, to put it bluntly, it’s been downright brutal from the very start. The only bright spot is that we know what fueled the sudden downturn. Just take a look at what’s going on around the world.

There were the North Koreans testing a nuclear weapon. Or at least they’re claiming to. In China, a steadily sagging economy is perpetuating a staggering slide in their stock market. And in the rarely stable Middle East, tensions remain high between Iran and Saudi Arabia.

All this uncertainty has spurred an economic slowdown, which, in turn, has lead to dramatic drops in commodity prices. Oil prices have been the most visible; we see them every day at the pumps. But copper and steel have also taken terrific tumbles.

Yes, there’s no doubt about it. The world has been dealing with an onslaught of unsettling news.

In the midst of the uncertainty, there is a bit of good news. At least domestically. Our own auto companies are reaching unprecedented heights. In 2015, car sales were 17.5 million. While it wasn’t by much, it was enough to break the record of 17.4 million set in 2000. But bright spots notwithstanding, the pervasive mood is still one of caution and apprehension.

As a financial advisor who has guided many households through unsettling times, I suggest everyone keep a level head. Yes, it’s upsetting to see your daily account values tumble, but changing your financial course in the middle of a downturn may hurt your nest egg in the long run.

Of course, you could sell all your investments now and buy them back when things get better. But while this strategy may work for a rare few, in my experience not many investors ever get it right on both ends. They typically sell at the bottom and re-enter near the top.

Most are better served by developing a diversified strategy and maintaining it throughout economic cycles. Generally, it’s a good idea leave things to the money managers you had confidence to manage your funds in the first place

They follow your investments and the economic climate daily, affording them the opportunity to jump on opportunities that can add to the value of your portfolio.

Unfortunately, in the investment world it’s too easy to pull the plug on your well-thought-out plans. More often than not bad things happen when fear takes control.

Imagine you’re on a commercial flight and your plane suddenly encounters some severe turbulence. Would you consider asking the pilot if you could take over and land the plane?

That doesn’t make any sense, but that’s exactly what some are doing with their money. Modifications in your portfolio may be appropriate during a review. Tweaking a portfolio periodically may be in order. But total abandonment? It seldom turns out well.

Abandoning your strategy may make you feel better initially. But in the long term, the odds are your nest egg will suffer. I understand that it’s difficult to see account values fall. But I’m confident that investors who stick with their strategy will be rewarded for their commitment.
I don’t know when the slide will stop or the market will turn around. But I do know both events will happen.

Is your investment portfolio out of control?

From my perspective, time is moving at the speed of light. I’m continually reminded that we cannot control time. We can only manage it. To a certain degree, the same principle applies to investing. You can’t dictate your results; you can only manage your investments and hope for the best.

Let’s take a look at the conservative portion of your portfolio. You’ve likely got your money earning interest in a bank or credit union. You can- and certainly should- shop banks for the highest interest rate available. But other than that there’s not much you can do. You can’t control the interest rate; you can only manage it.

On the growth side of your portfolio, you can choose virtually any stock or mutual fund. The choice is almost limitless. Common, preferred. Domestic, foreign. By sector, by country. You name it.
Whatever you choose, your investments can move up or down on any given day. You can’t totally control outside events that affect the direction. But you can keep a close watch and manage your investments accordingly. And since it’s still early in the year, the good news is that you have more than eleven months to do just that.

Let’s take a look at some activities you can control. First, you can review the IRA rules to determine if you’re eligible to make a contribution.

If you don’t already have an IRA account, you can open one now, or contribute to an existing account and deduct the contribution on your 2015 tax return. This applies to a regular IRA account. Contributions to a Roth IRA are not deductible, but are withdrawn tax-free.

You can also manage your retirement plan contributions. The beginning of a new year is always a good time to review your previous year’s contributions. For example, if you were contributing five percent of your pay last year and it was relatively painless on your cash flow, now might be an opportune time to up that contribution to six or seven percent.

If five percent was leaving you feeling a bit squeezed, you could do some number crunching on the spending side of your ledger and find a way to do some trimming. Either way, it’s something you can control.

And while there’s much in the world that we can’t control, it’s not always a bad thing. Prices at the pump, for example, are down substantially. Conversely, health care costs continue to rise.
This past Christmas I received a fit-bit. For those that are not familiar, it’s a device that measures your daily steps. Clearly, I can manage that number; set and meet a daily goal. But, while it may help my health, it can’t assure good health.

The bottom line is that you can manage activities but you can’t control results. In order to do that you need to establish measurable investment goals and objectives. Carefully monitor your progress and make any adjustments that may be necessary.

When it comes to finances, nobody can ever guarantee results. That’s why it’s up to you to put your self in the best possible situation for success.

Knowing that you can’t dictate results, you need to manage the elements that lead to them. Save and invest and periodically review. That’s the best you can do.

Do you have the patience to be wealthy? Success takes more than wishing

I’m always amazed at how busy the gym is at the beginning of a new year. I doubt this year will be an exception. The locker room will almost certainly be packed, but by mid February the crowd will be back to normal.

Everybody wants to be fit, healthy and wealthy, but attaining these goals takes a lot of effort and a little luck. As with almost every aspect of life, success doesn’t come just because you wish for it.
Except for rare occasions, you have to work for success and in most cases that means a lot of hard work and sacrifice

For example, you can’t simply wish to become a doctor. It’s an admirable goal to be sure, but it requires countless hours of schoolwork. And that means long nights at the library, exams that need to be passed and, of course, residency at a hospital with long hours and minimal salary.

Many other professions follow a comparable path, but at the end of the day success is not achieved just by wishing for it.

Goal setting is also a huge part of your financial journey through life. You don’t achieve financial independence just by wishing and hoping for it. Again, there are rare occasions when that could happen. You could win a lottery, get lucky at a casino or inherit a fortune from a rich uncle.

But those are not things you can count on. The vast majority of wealth is achieved by saving and investing on a regular basis. You have to follow a well thought out plan and basically stick with it regardless of circumstances.

My experience as an advisor leads me to believe that many investors act a little bit like those people that come to the gym and soon disappear.

Because they didn’t achieve their desired results, they either quit or change direction. I’m not a fitness expert, but I do know it’s difficult to change your physique in a short period of time. You shouldn’t expect financial success to happen overnight either.

In the financial world, many investors become impatient too easily. In the course of a lifetime they might get discouraged and either give up or change strategies far too often. This is an especially important point to keep in mind today.

I can’t tell you not to be disappointed if you look at your year-end values and realize that 2015 was a down year. But I will tell you not to be discouraged. A bump in the road doesn’t necessarily mean you need to change your strategy entirely.

Might some reviews and modifications be in order? Of course. But wholesale changes are often nothing more than an indication of impatience. Patience is a common trait of many successful investors I know. That and a good, firm grasp of your financial goals.

As we begin a New Year, I want to remind everyone that setting goals is important. But just setting them is the easy part. The journey to achieve your goals entails a lot of hard work and commitment.
One of the greatest dangers along the way is becoming impatient during trying times and making wholesale changes to your strategy.

I’ve often said that successful investors need to have an iron stomach. I’m saying it again.

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.