First Quarter Summary of Webinar Take-Aways

 

We are already one-quarter of the way through 2026 and it’s time for another summary of takeaways from webinars that I have recently attended. Below are nine nuggets that stood out to me as I reviewed notes taken in my personal learning journal:

Retirement Challenges- Retirement is more of an adaptive challenge than a technical one. With adaptive challenges, there is no expert to help you. Rather, it is up to retirees to look inside themselves to determine their purpose and what brings them joy.

 

Non-Financial Changes- Many retirees face the following: Loss of work identity and a sense of purpose, increase in unstructured time (about 2,500 hours per year), increased time with spouse or partner, reduced social connections outside of work, and health challenges from the aging process.

 

Retirement Resources: Eight things can help retirees thrive: 1. Spirit (meaning and purpose), 2. Physical health, 3. Heart (optimism and resilience), 4. Connection (nurturing relationships), 5. Mind (creativity and mental challenges), 6. Work (paid or volunteer) to contribute personal talents, 7. Place (having a “sense of home,” and 8. Money (managing resources to live within your means).

 

Relationships- The greatest satisfaction in life comes from relationships. Think of relationships as an investment portfolio that requires ongoing deposits and maintenance and will change over time. Time is a finite resource so ask yourself what investments you want to make in different people.

 

Sequence of Returns Risk- Losses in an investment portfolio early in retirement is a risk that cannot be diversified away from. To avoid withdrawals from equity assets during a market downturn, spend conservatively and/or meet spending needs from other sources (e.g., cash asset buffer account). Big caution: retirees’ income plan should not overly rely on market performance.

 

Financial Education- 30 states have passed laws requiring a semester-long financial education course for high school graduation. The true ROI of these courses is what students do with the knowledge they gain (e.g., early investing, less debt) and expanded horizons for their future.

 

Wealth Accumulation- Wealth is what people don’t see. Everything can be bought with borrowed money. It is not what people earn that creates wealth but how they spend it. Money is not a goal in and of itself but a tool to allow you to reach lifetime financial goals.

 

Tax Planning- A “permanent” tax law change is one that is not set to expire. Congress can always pass future tax laws. Three ways to lower modified adjusted gross income to reduce taxes are tax-deferred plan contributions, Roth conversions, and qualified charitable distributions (QCDs) after age 70 ½. Some people roll an employer account balance into a traditional IRA to make a QCD later.

 

LinkedIn Tips- LinkedIn is the #1 way that people find jobs and “put themselves out there.” Ways to stand out on LinkedIn include a professional head shot, an interesting “About” section, highlighting your skills and experience, regularly posting new content, a customized URL, endorsements, and completing as many profile sections as possible.

This post provides general personal finance or consumer decision-making information and does not address all the variables that apply to an individual’s unique situation. It does not endorse specific products or services and should not be construed as legal or financial advice. If professional assistance is required, the services of a competent professional should be sought.

Financial Tasks for a Cold Winter Day

Cold outdoor weather during the winter months means that now is a great time to perform indoor personal finance improvement activities. In addition to preparing an income tax return, below are ten financial management tasks to consider doing now so your finances are well organized when the weather gets warmer and you want to do things outside:

Financial Records Makeover- Develop a record-keeping system that works for you including folders in a desk drawer, plastic tote box, or file cabinet or digital records housed in a cloud server. Also take the time to shred unnecessary documents that contain sensitive personal information.

Credit Card Inventory- Make a list of all of your credit cards, their account number, expiration date, and CVC (security) code, and the phone number for customer service. If a card is lost or stolen, this information is readily available to report to the issuer.

Digital Assets Inventory- Make a list of usernames, passwords, PINs, and other data needed to turn on electronic devices and access accounts such as those for financial accounts, retailer accounts, and other online spaces. Doing so will help you and trusted others quickly access this information.

Automated Bill Payment List- Review the bills that you pay automatically and make list of the accounts that they are charged to (e.g., a checking account or credit cards). Also take some time to set up automatic bill-paying for recurring expenses (e.g., utilities, cell phone, and rent/mortgage).

Net Worth Statement- Add up the value of what you own (assets) and what you owe (debts) and subtract the debts from the asset to calculate your net worth. Net worth provides a “snapshot” of someone’s finances at a point in time and should be updated at least annually to monitor progress.

Credit Report Check-Up- Use the website www.annualcreditreport.com to review your credit report at the “Big Three” credit bureaus: Equifax, Experian, and TransUnion. Look for errors and evidence of identity theft. Also check with your bank or credit card issuer for a free credit score.

APY Comparison- Review available annual percentage yields on bank/credit union savings accounts, CDs, and money market accounts. Media outlets like NerdWallet and Bankrate identify high-paying insured accounts. The higher the APY, the more interest earned on savings.

Retirement Savings Analysis- Try at least three online calculators to see what they say you need to save to meet your retirement income target. Expect different results because their data inputs and assumptions vary. A range of numbers can inform financial decisions (e.g., amount of savings).

Beneficiary Designation Review- Make sure that people and/or organizations named as beneficiaries in your life insurance policies, annuities, and retirement savings plans are still those that you want to select. Ditto for personal representatives for your estate and your health care proxy.

Insurance Review- Make a list of your current insurance policies (e.g., auto, renters or homeowners, health, disability, and life) and their current cost. Then contact your current licensed insurance agent or agents from competing companies to discuss policy options and available discounts.

Stuck inside to stay warm? Got cabin fever? Choose one or more of the financial tasks listed above.

This post provides general personal finance or consumer decision-making information and does not address all the variables that apply to an individual’s unique situation. It does not endorse specific products or services and should not be construed as legal or financial advice. If professional assistance is required, the services of a competent professional should be sought.

 

Seven Financial Guidelines and Shortcuts With Numbers

 

I recently taught a new class about common financial planning guidelines that include numbers. I started the class by noting that a guideline is a recommended principle, course of action, or piece of advice. Unlike rules and laws, which are mandatory, guidelines are not action steps. Instead, people follow them voluntarily to guide their daily actions and decisions.

 

Interestingly, however, many personal finance guidelines do use the word “rule.” Examples include the 4% Rule and the Rule of 72. Once again, they are not rules, as in required actions, but, rather, suggested calculations. Some financial guidelines involve ratios which are derived from combinations of numbers.

 

Below are seven examples of ten financial guidelines with numbers:

 

20/4/10 Rule- This is a guideline for car loans. It suggests making a 20% down payment (e.g., $10,000 for a $50,000 new car), financing the car loan for no more than four years, and keeping monthly expenses under 10% of gross income (e.g., $5,000 with a $50,000 income).

 

50/30/20 Rule- This is used as a guideline for household budgeting. It suggests spending 50% of household income on needs, 30% for wants, and 20% for savings and debt repayments. For example, with a $50,000 annual income, $25,000, $15,000, and $10,000, respectively.

 

Consumer Debt-to-Income (DTI) Ratio- Suggests that all monthly debt payments (excluding a mortgage) should not exceed 15% of net (take-home) pay and a 20% DTI ratio is considered a “danger zone.”  For example, the ratio for monthly debt of $600 and $4,500 net income is 13.3%.

 

Rule of 25- A common retirement savings target is 25 times your desired retirement spending (not covered by guaranteed income like Social Security and a pension) by the time that you retire. Example: if you need $60,000 per year, 25 x $60,000 = $1,500,000

 

Rule of 72- This is a shortcut to estimate how long it takes to double a sum of money at a certain interest rate, Simply divide the interest rate into 72. For example, with 6% interest, it takes 12 years (72 ÷ 6) to double your money.

 

Three Fund Rule- This is a simple guideline to build a low-cost, globally diversified, investment portfolio with just three mutual funds: a U.S. total stock market index fund, an international stock index fund, and a U.S. total bond index fund.

 

Three to Six Rule- Setting aside enough savings to cover three to six months of essential living expenses (e.g., housing, food, utilities, insurance, transportation, and debt repayments). If this is not possible, save what you can. Any emergency fund savings is better than none!

This post provides general personal finance or consumer decision-making information and does not address all the variables that apply to an individual’s unique situation. It does not endorse specific products or services and should not be construed as legal or financial advice. If professional assistance is required, the services of a competent professional should be sought.

 

 

Take-Aways From a “Free Dinner” Seminar

 

Once again, I decided to go “undercover” and attend a free dinner investment seminar with a friend. The beginning was a bit rough. Both of us are pescatarians (vegetarians who eat fish) and there were three meat entrees to choose from. We brought this to the sponsor’s attention, however, and were offered salmon. The best part of the meal, however, was a decadent chocolate cake.

Here are three “Barbservations” about the program materials and the audience:

 

¨   Fee-Based Planning: According to the materials that were distributed, the program sponsor was a fee-based firm. Fee-based financial planners earn income from both client fees and commissions on financial products they sell (e.g., annuities, insurance, and mutual funds). This compensation model may create potential conflicts of interest, as planners may be incentivized to recommend products that generate commissions in addition to providing advice for a fee.

 

¨   Confusing Terminology: Some of the participants seemed to confuse fee-based with fee-only. A fee-only financial planner is compensated solely by client fees: an hourly rate, a flat-rate, or a percentage of assets under management (AUM). Fee-only advisors do not receive commissions or incentives from product sales, reducing potential conflicts of interest and ensuring advice is aligned with clients’ best financial interests.

 

¨   No Visible Financial Certifications: Neither presenter had any designations listed on either sales literature or business cards or slides. No CFP® (certified financial planner). No ChFC® (chartered financial consultant). No CRPC® (chartered retirement planning counselor). Nothing. This raised a red flag for me because financial certifications have associated ethics standards and continuing education requirements which those who do not hold them are not subject to. If I were hiring a financial advisor, I would want one who has shown a commitment to professional development.

 

That said, there were some useful “nuggets” of information shared at the seminar:

 

¨   Retirement Risks: These were explained in detail and include longevity (outliving assets), inflation, health care costs, cognitive ability decline, physical health decline, death of a spouse, increased taxes following the start of RMDs, unfavorable government policies, unplanned spending shocks (e.g., dental bills and home repairs), and limited earning capacity in later life.

 

¨   Long-Term Care (LTC)- This causes the biggest “crack” in older adults’ nest eggs. LTC insurance typically kicks in when people can’t perform two of six activities of daily living or ADLs (e.g., dressing, eating, toileting) for 90 consecutive days. People age 65+ have about a 70% chance of needing some type of LTC at some point in their life.

 

¨   Two Phases of Financial Planning- In the accumulation (saving) phase, the goal is to have enough money to retire and the time horizon to retirement is often known. In the income (decumulation) phase, the goal is to not outlive assets and your life expectancy is unknown.

This post provides general personal finance or consumer decision-making information and does not address all the variables that apply to an individual’s unique situation. It does not endorse specific products or services and should not be construed as legal or financial advice. If professional assistance is required, the services of a competent professional should be sought.

 

 

Do You Need a Financial Advisor or Robo-Advisor?

I recently taught a new class titled Do You Need a Financial Advisor or Robo-Advisor? because many of my students were asking about hiring financial professionals during classes about retirement planning, investing, and income taxes.

Below are eight take-aways:

Frequency of Use- According to one study, less than half (44%) of American adults said they worked with a financial professional in 2023 but 88% said they thought that doing so would be helpful. Obviously, this is a major disconnect.

 

Common Financial Challenges- Studies indicate the following: not knowing where to start, being overwhelmed by investment choices, lack of time or expertise to manage finances, fear of making costly mistakes, and new income tax calculations such as required minimum distributions (RMDs).

 

When Financial Advisors Are Useful- Common situations include retirement planning and decumulation (spending down savings) decisions, major life transitions (e.g., widowhood and retirement), complex tax situations, and receipt of an inheritance, settlement, or large prize.

 

Benefits of Working With a Financial Advisor- Advantages include personalized financial guidance, expertise in tax planning and investments, retirement and estate planning guidance, a holistic approach to financial management, behavioral coaching to curb emotional investing mistakes, and objective “third party” insights.

 

Common Myths- One myth is that “all financial advisors are expensive.” The truth is that many offer hourly rates or flat fees that do not involve ongoing investment management expenses. A second myth is “I don’t need an advisor if I’m good at managing money.” In reality, even financial experts seek outside guidance.

 

“Alphabet Soup”- There are dozens of certifications in the personal financial planning space. Among the most widely recognized are: accredited financial counselor (AFC®), certified financial planner (CFP®), chartered financial consultant (ChFC®), certified public accountant/personal finance specialist (CPA/PFS), and chartered retirement planning counselor (CRPC®).

 

Advisor Compensation Methods- There are three main types: 1. Fee-only (advisors that charge an hourly rate, a flat fee, or a percentage of assets under management), 2. Commission-only (advisors that earn commissions by selling financial products), and 3. Fee-based- Advisors that charge a fee for advice but may also receive commissions on product sales.

Questions to Ask a Potential Financial Advisor- Here are five key questions: What are your qualifications and certifications?, How long have you been a financial advisor? What types of clients do you typically work with? Are you a fiduciary (obligated to act in clients’ best interests)?, and Have you ever been subject to any disciplinary actions?

This post provides general personal finance or consumer decision-making information and does not address all the variables that apply to an individual’s unique situation. It does not endorse specific products or services and should not be construed as legal or financial advice. If professional assistance is required, the services of a competent professional should be sought.

Just Do Ten Things Right

Recently, I was hired by the Marion County (FL) Medical Society to do a keynote presentation at their meeting. A pre-program survey of their members indicated they wanted to learn about a variety of financial topics in 45 minutes. What to Do? I remembered the book, The Index Card, where ten tips related to many aspects of personal finance were shared on an index card. 

I titled my presentation “Just Do Then Things Right.” Below are the ten recommended action steps that I discussed with my audience that I consider essential for financial well-being:

Spend Less Than You Earn- Live below your means with positive cash flow; i.e., where income is greater than expenses. You can’t save, invest, or build wealth for retirement if you don’t get this foundational action step right. Spending plan (budget) worksheets are a useful resource.

Strive to Pay Credit Card Balances in Full- Try to pay credit card balances in full every month as a convenience user so no interest is charged. If this is not possible, pay more than the minimum payment to reduce the cost of interest and shorten debt repayment time.

Try to Save At Least 15% of Your Income- Save as much as you possibly can and gradually work up to a 15% savings rate if you cannot save that much now. Studies have shown saving 15%+ of income can result in a significant nest egg- sometimes as much as $1 million- in later life.

Invest for the Long Term- Consider investing in equities (e.g., stock, growth mutual funds, stock exchange-traded funds) for financial goals that are five or more years away. Buy inexpensive securities with low expense ratios and beware of pitches for fraudulent investments.

“Max Out” Tax-Advantaged Retirement Savings Accounts- Contribute as much as you can afford, up to annual IRS maximum limits, to retirement savings accounts including traditional (pre-tax) and Roth (after-tax) IRAs and qualified employer plans (e.g., 401(k), 403(b), TSP).

Diversify x 3 (D3)- Diversify investments three ways: 1. Investment diversification (different asset classes; e.g., stocks, bonds, and cash), 2. Time diversification (hold investments over time to reduce their volatility), and 3. Tax diversification (mixture of tax-deferred, taxable, and tax-free securities).

Protect Yourself With Adequate Insurance- Insure against large financial risks including disability (to protect your earning ability), liability, and property damage. Consider adding an umbrella insurance policy if your assets (not exempt by state law against judgments) total $1 million+.

Practice Tax Avoidance- Take advantage of legal strategies in the tax code to reduce your tax liability. Specific strategies include retirement savings plan contributions, Roth IRA conversions, tax deductions and credits, tax loss harvesting, tax-free investments, and gifting to qualified charities.

Get Your Estate in Order- Prepare legal documents (e.g., will, living will, power of attorney) and update them as needed, discuss end-of- life wishes with personal representatives, review beneficiary designations on insurance policies and retirement plans, and prepare a digital assets inventory.

Keep Learning About Personal Finance- Learn one new thing every day about a personal finance. Ways to do this include books, newspapers and magazines, blogs, podcasts, seminars, social media platforms, and traditional media outlets (e.g., radio and television). 

This post provides general personal finance or consumer decision-making information and does not address all the variables that apply to an individual’s unique situation. It does not endorse specific products or services and should not be construed as legal or financial advice. If professional assistance is required, the services of a competent professional should be sought.

Q&A About 2024 Events and Trends

As I noted in an earlier post, I recently presented a 90-minute 2024 Personal Finance Year in Review webinar for OneOp, an organization that provides professional development for military family service providers. After the webinar, I answered follow-up questions from webinar participants. 

Below are some questions that were asked and my responses: 

If CPI (inflation) rates are coming, why are prices not coming down? What is the relation of one to the other?

Unfortunately, there is no direct relationship between the Consumer Price Index (CPI), which measures the rate of change in prices of a “basket” of goods and services over a 12-month period (e.g., 2.7% from 11/23 to 11/24), and prices for individual goods and services themselves (e.g., housing, child care, cars, food, and insurance). Therefore, even though inflation, as measured by the CPI, cooled somewhat during 2024 from 3.1% in January to 2.9% in December, prices on many items have not gotten lower for many reasons (e.g., rising labor and material costs, natural disaster losses, supply and demand issues). This is especially hard for young adults, who never experienced the aftermath of inflation before, to comprehend. Many expected prices to return to where they were five years ago before the pandemic. In addition, inflation “bubbled up” several times in 2024, reversing the CPI’s downward trajectory.

As mortgage interest rates come down, do you think we will find people who are more willing to move and/or buy other homes if refinancing at a lower rate will enable them to have more income to work with?

Yes, but it will take some time. Remember, about 60% of current homeowners with mortgages have interest rates below 4% and, as of 12/19/24, the average 30-year fixed mortgage rate was 6.72% (5.97% for 15-year mortgages). That is a big difference, which is contributing to the “rate lock effect” (sellers staying put) and a housing stock shortage. Eventually, as market interest rates for mortgages get closer to homeowners’ current interest rates, they may be more likely to sell.

With the U.S. savings rate based on disposable income, is this net income (after taxes)?

The U.S. personal savings rate, published by the Bureau of Economic Analysis (BEA), is calculated by dividing personal saving by disposable income in a series of steps as follows: 1. Start with personal income, 2. Subtract personal taxes, 3. Subtract personal outlays (i.e., expenses), and 4. Divide personal savings by disposable personal income. Disposable personal income is the portion of people’s incomes left after they pay taxes and spend money. For more details on the BEA personal savings rate formula, read more here.

Have you seen an increase in people choosing to lease a car instead of buying?

Leasing made a comeback in 2024 and now accounts for 25% of new vehicle purchases, up from 17% during COVID era inventory shortages. SUV vehicles dominate vehicles being leased and EV leasing is growing. For more details, read more here.  

This post provides general personal finance or consumer decision-making information and does not address all the variables that apply to an individual’s unique situation. It does not endorse specific products or services and should not be construed as legal or financial advice. If professional assistance is required, the services of a competent professional should be sought.

Financial Highlights of 2024

My one-person company, Money Talk (read: me), may be the only entity in the U.S. that does a “deep dive” summary for clients of each year’s personal finance research, events, and trends. I recently presented a 90-minute 2024 Personal Finance Year in Review webinar for OneOp and wrote a blog post about 2024 financial milestones for 403bwise.

Why look back on the past year? For insights about how to manage money during the year ahead. Below are ten data points that caught my attention during 2024:

SHED Study- The 2024 Federal Reserve Survey of Household Economics and Decision-making (SHED) study found that 63% of adults could cover a $400 emergency with cash. Conversely, 37% of survey respondents could not. Not surprisingly, inflation was reported as the top financial concern.

Value of Financial Education- A study by Tyton Partners and Next Gen Personal Finance calculated a lifetime benefit of about $100,000 per student as a result of taking a one-semester course in personal finance. Impacts resulted from avoiding high-cost debt and larger retirement savings.

Retirement Planning and Longevity- Healthview Services issued a white paper cautioning consumers and financial advisors not to automatically assume a life expectancy of age 95 in retirement savings calculations and to consider health status and chronic diseases as key variables.

Inflation- The Consumer Price Index (CPI), which measures price changes over a 12-month period (e.g., November 2023 to November 2024), was “sticky” in 2024. The CPI was 3.1% in January and 2.7% in November. At two points during the year, the CPI trended upward after previously declining.

Interest Rates- There were three Federal Reserve interest rate cuts during 2024 totaling 1% bringing the federal funds rate to a range between 4.25% and 4.5%. Consumers were impacted as borrowers (e.g., lower interest on credit cards) and as savers (e.g., lower interest on money market funds).

Credit Cards- Annual percentage rates (APRs) on bankcards hovered around 20% during 2024 and the average APR on retail credit cards was over 30%. One reason: record high margins charged by credit card issuers above the prime rate or other metrics that variable rate credit cards are tied to.

Housing- “Rate lock gridlock” continued during 2024 with an estimated 60% of homeowners having mortgage interest rates below 4% and unwilling to sell their homes, which would require them to have a higher rate mortgage. Home affordability fell to low levels not seen since the 1980s.

Savings- The U.S. personal savings rate declined throughout the year from 5.5% in January to 4.4% in November. In addition, banks started to pay lower annual percentage yields (APYs) on savings accounts after the Federal Reserve started cutting interest rates.

Investing- Both the stock market and cryptocurrency (e.g., bitcoin) had noteworthy gains in 2024 but also major price pullbacks. In short, volatility was the name of the game. Major stock market indices all reached fresh highs (e.g., the DJIA started at 37,715 and crossed 45,000 before retreating).

Taxes- Final regulations for required minimum distributions by non-spouse beneficiaries of tax-deferred plans were finalized and the IRS processed tax returns through its new Direct File program.

What’s next for 2025? Time will tell. Best wishes for happiness, success, and financial well-being.

This post provides general personal finance or consumer decision-making information and does not address all the variables that apply to an individual’s unique situation. It does not endorse specific products or services and should not be construed as legal or financial advice. If professional assistance is required, the services of a competent professional should be sought.

Barbservations From a Free Dinner Seminar

Not a week goes by that I don’t receive colorful tri-fold invitations to free meal seminars for investments and preplanned burials and cremations. Sometimes as many as five a week. Living in a 55+ community in a state (Florida) with many older adults undoubtedly makes me a target. 

Recently, some neighbors and I decided to attend an investment seminar, primarily to see the venue, which is a high-end private golf club in a gated community that is not generally open to the public. I also figured that I would get some useful content for a blog post in addition to the free meal.

Below are five “Barbservations” about the seminar format, content, and take-aways:

You Will Get Hungry- I typically eat dinner around 6:30 pm, which is when the presentation was slated to start. Actually, it was more like 6:45 pm. The meal did not get served until 7:45 pm. Luckily, I expected this might happen and brought a granola bar to tide me over when my stomach started to growl loudly. I couldn’t help wondering if everyone else was getting very hungry also. I saw a few people looking at their watches.

Content Did Not Match the Invitation- Ten topics were listed in the seminar invitation. Only a few were actually addressed in the presentation, which included the presenter’s life story, topics not listed on the invitation, and a variety of “industry-speak” phrases (e.g., “duly licensed”). There were, however, several very instructive stories (e.g., a client who never changed a beneficiary designation from his deceased father to his wife, had no contingent beneficiary, and the asset took 13 months to go through probate, thereby delaying much needed income to the spouse).

Changes in Guaranteed Income- This is an important topic for retired married couples, who comprised the bulk of the audience. A story was shared about a couple that had $6,000 in income and only $2,000 when the wife was widowed and lost all pension benefits and was left with only one Social Security check. I’m not sure why this was so. Fear mongering? Under the 1984 Retirement Equity Act, workers cannot waive survivor benefits without the written consent of their spouses. There should not be any unexpected surprises. Take-away: a good question for spouses to ask each other is “If you die first, how much money will I receive?”

Fees Erode Wealth Accumulation- The presenter asked for a show of hands to answer questions about attendees’ knowledge of prices for consumer purchases (e.g., food and gas). He then went on to make the point that, unlike food and gas prices, many investors do not know what they pay in fees for investments and investment advisory services. Point well taken. If someone pays 2% of a $100,000 portfolio in fund + advisor fees, that is $2,000 a year and $20,000 in ten years!

Payable on Death Designations- The presenter rightly noted that Payable on Death (PoD) designations on bank accounts (as well as Transfer on Death (ToD) on investments) are a form of estate planning so non-retirement account assets can pass free of probate. Like beneficiaries, PoD and ToD designations must be kept updated. An excellent piece of advice was to keep adding PoDs to new CDs that rollover from previous CDs because they are a new contract.

This post provides general personal finance or consumer decision-making information and does not address all the variables that apply to an individual’s unique situation. It does not endorse specific products or services and should not be construed as legal or financial advice. If professional assistance is required, the services of a competent professional should be sought.

Highlights of Recent Webinars

 

It’s that time again! Every so often, I like to review and summarize my notes from recent webinars and classes. Below are some interesting tidbits that caught my attention from recent programs:

Financial Education- Financial educators don’t teach content- we teach human beings- and our authentic self is an advantage. Share stories of your struggles as well as your successes to accrue trust over time. As Dr. Shaun Murphy noted in the final episode of The Good Doctor, “When you touch one life, you don’t just touch one life, you touch every life that that life touches.”

 

Cash Assets- The right amount of cash to hold in an investment portfolio is a personal decision. Ideally, this money is for emergencies and short-term goals. Some people hold much more than that in cash but the trade-off is losing an opportunity for growth. Ultimately, investors need to determine an asset allocation that makes sense for them, track it, and rebalance as needed.

 

Consumer Spending- When people feel comfortable with their finances, they spend more. Consumer spending has been robust because many older adults have paid off mortgages and many other homeowners have low-interest mortgages and are unaffected by current high interest rates.

 

Election Year Finances- The most important influence of Presidential elections on financial markets is policies that result from them (e.g., tax laws and retirement account rules) rather than elections themselves. In addition, financial markets are typically more affected by what Congress and the Federal Reserve do compared to the President.

 

Tax Planning- Run projections of next year’s tax liability and make fourth quarter adjustments, if necessary. SALY (same as last year) is rarely a good strategy. Good times to accelerate income to reduce taxes are early retirement years before required minimum distributions (RMDs) begin, sabbaticals with lower income, years with large losses, and the last year of filing a joint tax return.

 

IRMAA- About 8% of Medicare recipients pay a higher premium called the income-related monthly adjustment amount (IRMAA). There is a two-year income lookback so start paying attention to this at age 63. IRMAA is not a tax, per se, but it is a drag on older adults’ bottom line.

 

Financial “Rules”- Many financial “rules” (guidelines) are too deflating for people (e.g., saving three months’ expenses in an emergency fund). They feel like a failure, throw up their hands, and give up. It is far better for people to have a series of “small step” goals that they can succeed at.

 

Retirement Savings- The more money that people can save for retirement, the more likely they can replicate- or even exceed- their pre-retirement lifestyle. People are often amazed how much they can save when they put some structure in place and save automatically. Just remember that tax-deferred defined contribution plans and traditional IRAs are “a lifelong partnership with the IRS.”

This post provides general personal finance or consumer decision-making information and does not address all the variables that apply to an individual’s unique situation. It does not endorse specific products or services and should not be construed as legal or financial advice. If professional assistance is required, the services of a competent professional should be sought.

 

ABCs of CCRCs: Choosing a Life Care Community

 

My husband and I recently took a big step in planning our future. We paid a $1,500 refundable deposit to get on the waiting list for a continuing care retirement community (CCRC) with a target move-in date of 2033. Why the long timeline? We are healthy, active, and not ready to leave our beautiful single family home. At the same time, we don’t want to wait until our 80s and find 200 people ahead of us. The waiting list is about 200 with annual turnover of about 20-25 units.

Also known as Life Care or Life Plan communities, CCRCs provide housing for older adults on a continuum beginning with independent living and including assisted living, memory care, and/or skilled nursing care services, if needed. Below are seven things to know about CCRCs:

 

Rationale for CCRC Selection- Three common reasons why people select CCRCs are 1. to have a “forever home” in later life, 2. to not burden their family with end-of-life housing and health care decisions, and 3. they do not have family members to assist with end-of-life decisions.

 

CCRC Ownership- Approximately 80% of CCRCs are non-profit organizations. Some are faith-based, some have affiliations with educational institutions, and some are independent non-profits.

 

Entry Fees- There are different payment models. Many CCRCs charge a substantial six-figure entry fee and some offer rental contracts. Entry fees increase with the square footage of the independent living unit that an individual or couple selects. Entry fees at the CCRC that I selected ranged from $237,000 (488 sq. ft.)  to $863,100 (2,350 sq. ft.) with an extra $59,000 for a second person. Part of the entry fee is used to pre-pay residents’ future health care services.

 

Monthly Fees- Like entry fees, monthly fees increase with the square footage of units and the number of occupants. For the units noted above, the monthly fees are $3,190 and $9,455, respectively, with an extra $1,850 charged for a second person.

 

Health Evaluation- Prospective residents must generally complete a health questionnaire and undergo a cognitive assessment to be offered entry into a CCRC. This is done when they reach the top of the waiting list and are near the time that they plan to move in. It is a standard risk management practice to reduce the risk of a high number of residents needing nursing care.

 

Financial Evaluation- Prospective residents must also prove that they have the financial resources necessary to live at a CCRC. A net worth statement and supporting documentation is generally required. Common metrics used by CCRCs are that prospective residents should have assets totaling at least twice the entry fee and income totaling at least twice the monthly fee.

 

CCRC Contracts- Most CCRCs have several contract options. The difference boils down to how much care is prepaid. Lifecare contacts prepay unlimited care with a level inflation-adjusted monthly fee for predictability of housing and health care costs. A disadvantage is pre-paying for care that may not be needed. Some people opt to pay less up front and more later, if necessary.

This post provides general personal finance or consumer decision-making information and does not address all the variables that apply to an individual’s unique situation. It does not endorse specific products or services and should not be construed as legal or financial advice. If professional assistance is required, the services of a competent professional should be sought.

 

Financial Planning for Longevity

 

Longevity risk is the possibility of living longer than expected and having adequate income/assets for an extended period of retirement. I recently attended a webinar that predicted future life expectancy will increase due to medical technology advances such as CRISPR (modifying DNA).

The webinar also noted that many older adults no longer follow a linear lifeline (birth-school-work-retire-die) but, rather, a cyclical lifeline. They reinvent themselves in later life, often with additional education and new jobs or other meaningful pursuits. Lifelong learning is a key factor.

 

The webinar further explained that the 3-legged stool of retirement income sources (pension, Social Security, investment earnings) is very wobbly. Fewer than 20% of employers provide pensions and the Social Security trust fund is estimated to run out of money in 2033. At the point that reserves are depleted, FICA tax income will be able to pay only about 77% of scheduled benefits.

 

What to do? Below are seven financial planning strategies for “the age of longevity”:

 

¨   Develop a Long-Term Care (LTC) Plan- Consider various options including self-funding LTC expenses, moving to a continuing care retirement community, and LTC insurance. Buy a LTC policy with comprehensive coverage (in-home, assisted living, and nursing home).

 

¨   Optimize Social Security Benefits- Learn about various claiming strategies for Social Security. Consider delaying benefits up through age 70 to increase monthly payments if you are in good health, are financially secure, and expect to live a longer life span.

 

¨   Plan for Health Care Costs- Estimate health care expenses in retirement and work them into your budget. Costs include Medicare premiums, deductibles, copayments and other out-of-pocket expenses. Shop around for coverage during annual open enrollment season.

 

¨   Stay Healthy- Invest time and money in maintaining good health through proper nutrition, regular exercise, and preventive care (e.g., screening exams). Healthy habits can reduce health care costs and improve quality of life in “old old” years (age 85+).

 

¨   Consider a Reverse Mortgage- Evaluate the option of a reverse mortgage to tap into home equity for living expenses without having to move. Be sure to understand the terms of the loan and downsides (e.g., relatively high fees and smaller inheritance for heirs) before proceeding.

 

¨   Explore Annuities- Consider purchasing low-expense annuities to provide a steady stream of income in retirement. Compare different types (fixed, variable, or indexed) to find the best fit for your financial needs and investment risk tolerance.

 

¨   Get Advice as Needed- Consult with a financial planner, tax professional, or estate planning attorney for guidance on investing and tax-efficient asset withdrawal strategies.

This post provides general personal finance or consumer decision-making information and does not address all the variables that apply to an individual’s unique situation. It does not endorse specific products or services and should not be construed as legal or financial advice. If professional assistance is required, the services of a competent professional should be sought.