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.

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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.

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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.
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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:

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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:

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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.

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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.

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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.

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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.

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The (almost) invisible threat to your finances, and the life it is suppose to fund

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The coffee can full of $100 bills buried in the back yard is the safest investment available, right? Not really. The assumption is that the number of dollars contained in the can will not rise, or more importantly, fall. Right? Kind of. The number of bills is fixed, but the price of what they will purchase is going up everyday. Those pieces of paper are not intrinsically very valuable. 

Whether it is tennis shoes and cheerios, golf clubs and sails or cruises and plane tickets, they are all subject to inflation. Inflation has averaged a bit more than 3% annually in the long run. Just 3%. No big deal. Those cheerios that costs $2.99 today will cost about a third more ten years from today ($3.89). In 20 years, twice as much, ($5.98) and in 40 years, the price will have quadrupled to $11.96!

Viewed another way, that coffee can lost 3% of its value each and every year. A CD earning 2% only lost 1%. Not as safe as it might seem. 

To be sure, assets which are intended to fund expenses which may well occur in the relative nearer future need to stay in a more liquid, stable asset form, where the impact of inflation is less pronounced because of the shorter time period.