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Posts Tagged ‘checklist’

 

“The safest way to double your money is to fold it over once and put it in your pocket.” Kin Hubbard

Investing takes time.  As humans our brains are more wired toward the flight-or-flight survival responses that got us to the top of the food chain.  So we are more prone to panic moves in one direction or another and this is not always in our best long-term interests.

So to retire richer requires a little work on understanding who we are and what we can do to improve our sustainable retirement odds.

There are lots of things in life that we cannot control.  And humans in general are easily driven to distraction. We are busy texting, emailing, surfing the web, and all other manner of techno-gadget interruptions from phone, computer and office equipment around us.

It’s no wonder that folks find it difficult to focus on long-term planning.  We hear a snippet of news on the radio or watch a talking head wildly flailing his arms about one stock or another and think that this is the ticket to investing success.

For those who remember physics class and one of Newton’s great discoveries, you can just as easily apply the rules of the physical world to human financial behavior:  A body at rest will tend to stay at rest; a body in motion will tend to stay in motion.

For most investors, inertia is the dominant theme that controls financial action or inaction.  Confronted with conflicting or incomplete information, most people will tend to procrastinate about making a commitment to one plan or another, one action or another.  Even once a course of action is adopted, we’re more likely than not to leave things on auto-pilot because of a lack of time or fear of making a wrong move.

To get us to move on anything, there has to be a lot of effort.  But once a tipping point is reached, people move but not always in the direction that may be in their best interests. Is it any wonder that most people end up being tossed between the two greatest motivators of action – and investing:  Greed and Fear.

So while someone cannot control the weather (unless you remember the old story line from the daytime soap General Hospital in the 1980s), the direction of a stock index or the value of a specific stock, we can all control our emotions.

Easier said than done?  You bet.  That’s why you need to approach investing for retirement or any financial goal with a process that helps take the emotional element out of it.  And you need to develop good habits about saving, debt and investment decisions.

What Does Rich Mean To You?

So you say you want to retire rich?  Sure, we all want to.  But what does “rich” look like to you.  There are surveys of folks who have $500,000 or $1million in investable assets describing themselves as middle class.  There are those I know who live quite comfortably on under $30,000 a year and would never describe themselves as poor.

Be Specific

First you should get a good picture of where you expect to be and what kind of life you envision.  Be clear about it.  Visualize it and then go find a picture you can hang up in a prominent place to remind you of your goal every day.  (That’s why I have pictures of my family on this blog reminding me of why I do everything I do).

Appeal to Your Competitive Streak

We are better motivated when we have tangible targets for either goals or competitors.  Ever ride a bike or run on the road and use the guy jogging in front of you as a target?  Same thing here.

So assuming you know what your retirement will look like, you’ll be able to put a number to it.  Now find out how you’re doing with a personal benchmark.  One way is to go to www.INGcompareme.com, a public website run by the financial giant ING which allows you to compare your financial status with others of similar age, income and assets.  Or try the calculators found at the bottom of the home page for www.ClearViewWealthAdvisors.com. This might help give you the motivation you need to save more if needed.

Use Checklists

They can save your life.  And even the lives of your passengers.  Just ask Captain Sully who credits his crew with good training and following a process that minimized the distractions from a highly emotional scene above the Hudson River.

The daily grind can be distracting.  Often we may be unable to see the big forest because of the trees standing in our path to retirement.

So try these tips:

Mid-thirties to early 40s:

  • Target a savings goal of 1.5 times your annual salary
    • Enroll in a company savings plan
    • Take full advantage of any 401k match that’s offered
    • Automatically increase your contributions by 5% to 10% each year (example: You set aside 4% this year; then next year set aside at least 4.5%)
    • If you max out what you can put aside in the company plan, consider adding a Roth IRA
    • Get your emergency reserves in place in readily available, FDIC-insured bank accounts, CDs or money markets
    • Invest for growth: Consider an allocation to equities equal to 128 minus your current age
    • Let your money travel: More growth is occurring in other parts of the world so don’t be stingy with your foreign stock or bond allocations.  Americans are woefully under-represented in overseas investing so try to look at a target of at least 20% up to 40% depending on your risk profile

Mid-Career (mid-forties to mid fifties)

  • Target a savings goal of 3 times your annual salary
    • Rebalance your portfolio periodically (consider at the very least doing so when you change your clocks)
    • Make any “catch-up” contributions by stashing away the maximum allowed for those over age 50
    • Consolidate your accounts from old IRAs, 401ks and savings to cut down on your investment costs and improve the coordination of your plan and allocation target

Nearing and In Retirement (Age 56 and beyond)

  • Target savings of six times your annual salary
    • Prune your stock holdings (about 40% of 401k investors had more than 80% in stocks according to Fidelity Investments)
    • Shift investments for income:  foreign and domestic hi-yield dividend paying stocks, some hi-yield bonds, some convertible bonds
    • Map out your retirement income plan – to sustain retirement cash flow you need to have a retirement income plan in place
    • Regularly review and rework the retirement income plan that incorporates any pensions, Social Security benefits and no more than 4% – 4.5% withdrawals from the investment portfolio stash accumulated
    • Have a Plan B ready:  Know your other options to supplement income from part-time work or consulting or tapping home equity through a reverse mortgage or receiving pensions available to qualifying Veterans.

Don’t be afraid to get a second opinion or help in crafting your plans form a qualified retirement professional.  You can find a CFP(R) professional by checking out the consumer portion of the Financial Planning Association website or by calling 617-398-7494 to arrange for a complimentary review with your personal money coach, Steve Stanganelli, CFP(R).

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If you’ve never met with a financial planner before or if it’s been years since you’ve visited one, you need to find a planner and then prepare for your visit.

 

Generally, you should research individual financial advisers or firms, and you should look to trusted friends and family for advice.  But don’t stop there.  Your due diligence should include checking the background of the advisor, understanding the services offered and how they are compensated. You can use industry trade groups like the CFP Board of Standards (www.cfp.com) or investor education websites like those offered by the industry regulator FINRA (www.finra.org/Investors/) or independent advisor rating services like the Paladin Registry (www.paladinregistry.com/external/general/). You should interview two or three advisers by phone before you sit down and commit to a planning engagement. 

 

It’s also important to discuss your overall goals with the planner you’re interviewing so you can gauge their ability to help you meet those targets. It’s imperative that you and your financial advisor have clear and open communication.  And it’s equally important to understand each other’s roles and expectations from the relationship to avoid any future misunderstandings. 

 

Here are some questions you should ask a prospective financial planner:

 

What training do you have?  Find out how long the planner has been in practice and what kind of certifications they hold. A CERTIFIED FINANCIAL PLANNER™ professional is someone with a minimum experience of three years who has completed a comprehensive course of study through a degree or certificate program offering a financial planning curriculum approved by The CFP Board of Standards, Inc. CFP® practitioners must pass a comprehensive two-day, 10-hour Certification Examination that tests their ability to apply financial planning knowledge in an integrated format. Based on regular research of what planners do, the exam covers the financial planning process, tax planning, employee benefits, retirement planning, estate planning, investment management and insurance.  In addition, CFP ® practitioners must complete a minimum of 30 hours every two years of continuing education in these topics to keep abreast of changes that may impact clients. 

 

What services do you offer? What a financial planner offers is based on credentials, licenses and areas of expertise. Generally, financial planners cannot sell insurance or securities products such as mutual funds or stocks without the proper licenses, or give investment advice unless they are registered with state or Federal authorities. Some planners offer financial planning advice on a range of topics but do not sell financial products. Others may provide advice only in specific areas such as estate planning or taxes.

 

How do you charge for your services? Professional planners will provide you with a financial planning agreement that spells out the services they provide and how they’ll be compensated. Payment can happen in one of several ways:

  • Salaried planners are actually employees of a firm, and you help pay their salaries through fees or commissions you agree to pay.
  • Direct fees to the planner through an hourly rate, a flat rate, or on a percentage of your assets and/or income.
  • Commissions paid by a third party from the products sold to you based on the planner’s recommendations. Commissions are typically a percentage of the amount you invest based on those recommendations.
  • A hybrid of fees and commissions based on services. A planner may charge a fee for designing a comprehensive financial plan and occasional visits and calls to review it, while commissions might come from products they sell that you invest in.

 

Do you have any potential conflicts of interest? It may seem like a rude question, but the best planners expect this one and are prepared to make disclosure. Obviously, if a planner profits from the sale of investment products to you, she must spell that out. Some may receive indirect fees from the mutual funds selected (called 12-b-1 fees).  Others may receive a commission for placing certain business with a provider of a financial product as in the case of insurance or alternate investments like limited partnerships.  The method of compensation may be an inherent conflict of interest since a financial salesperson may be motivated to steer you toward a product purchase that pays the highest compensation for the sale.  Fee-only financial professionals do not receive any compensation from investment product sales which may result in more objective advice not tied to a particular product.

 

How do you feel about teaching and training? One of the primary benefits of having a financial planner is education about the moves you are making or may potentially make. Don’t view a planning relationship as tossing someone your finances so you won’t have to deal with them anymore. You will still need to be involved in this relationship and a good planner will help educate you.  While you’re not expected to be an expert in all financial matters, you will at least be able to make informed decisions with a base of knowledge. As long as you’re paying for their services, make sure you get a long-term education out of it.

 

(For a more detailed list, there is a useful brochure located at the investor education portion of the CFP Board’s website with ten questions you should consider asking any prospective planner).

 

When you select a planner, they’ll give you a list of documents and information to bring in for your first meeting, and generally, it will be detailed on a checklist that may include:

 

An income and expenditure checklist: This is a summary of current and projected income.  You’ll need to bring or detail:

 

Income

  • A current pay slip
  • Profit and loss statements for business income
  • Pension income statements
  • Statements of non-investment income
  • Family trust distribution documents
  • Tax returns
  • Annuity, maintenance agreement statements

         

Expenses

  • Home: Mortgage, rent statements, utilities, household repairs, insurance, appliance purchases, landscaping or house cleaning
  • Transportation: Gasoline, car loan, public transit expenses and parking
  • Food: Grocery and restaurants
  • Medical: Doctor, dentist and prescription bills
  • Education: Tuition, school fees
  • Child care: In-home our outside-the-home care
  • Personal grooming: Clothing, shoes and accessories, hair, makeup
  • Pet care: veterinarian, food and grooming bills
  • Insurance: Health, life, auto, disability

 

An asset and liability checklist: This is a summary of what you own and what you currently owe. You’ll need to bring or detail:

 

Assets:

  • Principal residence
  • Vacation home
  • Investment property
  • Bank accounts
  • Investments
  • Collectibles and personal property
  • Automobiles, other vehicles

 

Liabilities:

  • Mortgages
  • Credit card debt
  • Auto loans
  • College loans
  • Business loans

 

You should also be prepared to engage in a detailed and wide-ranging conversation that covers matters related to your attitude and experiences with money and financial decision-making.  Questions like how you choose investments or what kinds of information resources you consult or what risk means to you will be important to provide the planner with insight into your decision-making process and behavior type.  Armed with this information, a good planner will then be better able to make appropriate recommendations for your situation.

 

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