Ten Ways to Run Out of Money Part 7

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  • Whatever size your home, let’s go to #7, getting hurt
  • Who has a close friend or family member who experienced a crippling injury?
  • Luckiest client ever, had a client fall from the top of the ladder, only bruises

  • 2019 numbers put nursing home cost in KY at $8.6k per month.
  • Numbers are from https://www.genworth.com/aging-and-you/finances/cost-of-care.html
  • Second assignment, one month’s premium upgrading your home
  • Hand rails, lights and non-slip first priorities!
  • Not age specific! We have a client with many of these requirements in his 30’s.
  • Too much ego? Make it safe for your future self or a ‘friend’

View the AARP HomeFit Guide here for smart solutions to making your home comfortable and safe.

Ten Ways to Run Out of Money Part 6

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What is the smallest house you have owned? How much bigger is your current home? We had our first child, Emma, in a 1,600 square foot house, built in the 20’s. When son James was born we moved to the south edge of town. There were several factors, but size of the house was certainly one of them.

This is an example of being “intentional” about expenses. This is not judgmental at all.  But the best choices can be made with the clearest information. I am not qualified to tell you whether you are spending too much money on housing. I can suggest you bring the numbers up where you can see them. Maybe you do the math here and decide the current numbers are just fine. Maybe you want to talk about how these numbers could be improved. We are always happy to talk.

Ten Ways to Run Out of Money Part 5

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This is a scary one. It’s scary because it threatens our self image. “How could I fall for that?” Unlike identity theft which has protections built in, there really aren’t any protections with scams. Apparently the Nigerian Prince is not coming to Bluegrass Field to drop off my inheritance. Which is sad.

The math in the image above works out to $3,421 per victim. That isn’t a whole lot of money per victim. I will bet my now uncertain fortune that those numbers are much higher. Who would really want to come forward with a story like that?

Which leads us to the antidote, and the reason the scam works in the first place. The scam works, at least in part, because the victim feels bad about being scammed. We have to agree that part of our role in your financial life is to answer questions and clarify confusing things. We need to be the safe place you can call and say “I got a call about my Social Security number yesterday. Apparently I’m a wanted fugitive now, got any advice?”

In reality, very few financial issues require immediate response. The organizations that could be asking you for information do not move quickly and they do not require immediate response. That’s part of the con. If the perpetrator can get your fear response to kick in, it literally turns off the higher executive function in your brain. The critical thinking areas turn off and the quick reaction side takes over. The brain uses the same processes it would use if you were living in a cave and worried about the big tiger in the tall grass.

Call us. We’ll talk it through and come up with a strategy to address the threat.

Reach out to your loved ones, they miss you!

Ten Ways to Run Out of Money Part 4

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  • Remembering life expectancy, inflation and ‘too old’ brings us to #4
  • Panicking in the next bear market
    • Only one call and doesn’t count as she was a new client
    • Don’t hesitate to call or schedule a time to come in
    • WE WILL ALWAYS CALL YOU if action is needed
  • Hope for the best, plan for the worst.

Some of you have seen this tool. The idea is that box on the lower right side there has the current investment portfolio in the middle, with an upper and a lower guardrail. When the Investment account goes above or below the guardrails, we make an adjustment to the spending. As long as the account value stays within the boundaries, things stay the same.

The box on the lower left has the numbers that make up the chart on the right. Same data, just a different way to look at it.

  • Like an unknown windy mountain road with cliffs on the edge
  • WHEN, not IF
  • The idea here is to adjust spending if the investment
  • Adjust income accordingly

Ten Ways to Run Out of Money Part 3

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I’m pretty sure this one is directly related to the first issue, life expectancy. And the assumption that there is no way you will live to see the market recover from a downturn or a crash. This is more of the assumption that the present moment is all there is. Things won’t change from “this”, whatever “this” is.

So, here are some numbers in a nice chart:

The average Bear market lasts about 3 years, 3.1. Can it be worse than that? Yes. A plan that includes a clear view of expenses and assets can make the ride much smoother. If you had a cash bucket or war chest or savings account with three years of living expenses, the average Bear wouldn’t change a thing. I count 28 Bear markets in that graph. Only 7 were over 4 years. I’m not saying that a Financial Plan is going to make the scary sight of 1973 on that chart go away. I will say that having a plan helps. Having “done the work” helps.

Let me know if any of this resonates.

Ten Ways to Run Out of Money Part 2

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This is a tricky issue because the change isn’t very big in any given year. The long term average for inflation is 3.25%. That’s averaged out from 1913 to April of this year. If we refer back to the previous discussion of life expectancy, it starts to make sense. Over a single year, the cost of the car only goes up 3.25% or $812, but over 30 years the price goes from $25,000 to $65,259.

So the solution to this problem is:

Let’s focus on the bottom part of this chart. It’s showing asset class return and an inflation rate of 2.2% The lesson here is that the only way to beat inflation is to have money in the market. That’s the easiest way to beat the decline in spending power. If you look at the top chart, it’s showing returns for equities (stocks) and fixed income blends. The outcome is in favor of a diversified portfolio.

This lesson ties in with the previous one. Current retirees can often think of the day they quit going to work as “the finish line.” The instinct is to keep the money they have accumulated “safe.” This is perfectly understandable, but it ignores the potential for 35 years of “retirement.” Sitting on the money in cash that long almost ensures problems in the later years.

Ten Ways to Run Out of Money

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The first way to run out of money is to Ignore your Life Expectancy.

A common issue is a tendency to under estimate their life expectancy. A woman aged 65 has a 50% chance of living another 26 years. The male expectation is another 24 years.

Plan to live to age 100. That may be the “worst case” scenario for many. I would suggest you plan another 24 months at the same time. You don’t want to run out of money, but you also don’t want to leave a mattress stuffed with money.

Should I consider a Roth Conversion?

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There are a lot of important considerations to weigh before doing a Roth Conversion. As a result of the current market condition and changes due to the SECURE Act, Roth conversions are becoming an important strategy that advisors are discussing with their clients. This flowchart addresses some of the major decision points to help guide you in the right direction.

If a Roth Conversion sounds like it might be a right move for you, give me a call, I’d be happy to discuss over the phone to answer any questions or concerns you might have. 

Something To Do

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I spent some time this morning helping a client get some money out of one of his investments. The virus has made a mess of his business for at least the first half of 2020. He came in this morning to sign some paperwork, because as you know, there is always paperwork in this business. We were talking about the benefit of “having a plan.” We had discussed where the money should come from among his options.

I was talking to another planner about how to help our clients in the current environment. His advice was to “empathize and give them something to do.” The presence of a task helps our brain deal with stress. So, here is the task for this week. Estimate how many months of income you have in cash or cash like accounts. If you are uncomfortable with the number you get, and would like to talk about where the next chunk of cash might come from, let’s talk.

We very well may not need to put the plan into effect, but it might help to have the plan in place before you need it. 

The Most Important Question in the Financial Life Planning Process

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I started working in this business in 2006. One of the first lessons I got from my Father and business partner was this “Our clients have two questions; the first is am I ok, the second is where are we going to lunch?” While I might argue for a more sophisticated wording, this has proven very consistent. Our clients want to know if their plan is still on track, and then they are ready to talk about something else.

In this current world of 5:00 beers with Governor Beshear, let’s not forget to look at your plans. We can go anywhere to hear about “the market.” Let’s talk about your goals, your dreams. That’s much more important to your short term mental health and your long term financial life once this current upheaval slows down.

Send me an email, pick up the phone. I’m happy to take a new look at the current plan, and suggest any adjustments. My guess is there will be some adjustments you would like to make. Let’s talk about it.