The Asset Advisory Group

Thursday, July 5, 2012

What is the Truth About Health Care Reform?

(from Carolyn McClanahan's Forbes' column, 7/3/2012 - click here for the original post. Carolyn is a physician, financial planner, educator and storyteller. For more on Carolyn, visit her Forbes' profile.)

When the Affordable Care Act was originally passed, misinformation and inflammatory lies regarding the law made their rounds on the internet. Great examples from the right – seniors on Medicare would face rationed care, death panels were going to be enacted, or you would have to pay extra taxes on the sale of your home to name a few. Great examples from the left – the life of “Julia” and the exaggeration of the numbers who would be denied coverage because of preexisting conditions.

The lies and misinformation slowed down a bit over the past few months as everyone waited on the Supreme Court decision with rabid anticipation. Those against the law thought the case was all locked up to repeal. Immediately after the Supreme Court decision was released the misinformation started again. What a surprise (not really.) On Facebook, what showed up? The oldie but false picture of a van with the following painted on the side – “President OBAMA – If the Health Care Reform Plan is so Great, Why does it EXEMPT YOU, Michelle Obama, Congress, Senators, and their families? Page 114 Line 22”
I’ll debunk this in a minute, but first I want to share my hope for the people of this great country as the election approaches. My hope? We take the time to understand the problems in this country from more than our individual perspective and then obtain non-partisan education on solutions from reputable sources. We should choose our leaders based on truth, understanding, and a desire to improve our greatness instead of basing our decisions on rhetoric and ideology. When we hold ourselves to a higher standard in our own education on important matters, we can hold our leaders to a higher standard, and maybe they will begin to deliver. I am an optimist.

To help you focus on issues with health care, I point you to two non-partisan and highly reputable resources. These will help you pick through the bunk and exaggerations from both sides.

Kaiser Family Foundation:
This is the granddaddy of all sites on health care reform. There is a section with the basics, and delves as deep as you want to go into the details of health care and the Affordable Care Act. In addition, the good people at Kaiser Family Foundation provide regular updates and a roundup of the news in health care on The Scan. I also enjoy the regular polls they conduct and share from others on public opinion in numerous facets of health care.

FactCheck.Org:
This site looks at the facts behind statements in the press, chain emails, and other questionable propaganda. Sponsored by the Annenberg Public Policy Center, FactCheck.org goes beyond health care and is a great tool for all matters of fact in our public debates. In their archive, 408 articles are devoted to health care or the health care law. There is an abundance of misinformation out there, and this site helps you sort through the bull. It has an easy search engine if you are looking for a particular topic, like our lovely quote on the van.

So don’t rely on some photo of a van with billboard lies to learn what this law is about. Check out the facts for yourself. Even better, stop the misinformation and lies. As for the van? A waste of paint. Congress, the President, and the First Lady are subject to the law. The van doesn’t even reference the law – it references a draft of a bill not part of the Affordable Care Act. Page 114 of the real law discusses the four different levels of health insurance that would be sold on the exchange – and line 22 focuses on the “gold plan.” FactCheck.org backs me up on this one. In case you are curious, Title I, Section 1312 “Consumer Choice” contains the verbiage that Congress is required to use plans created under the law. You can actually go read it. Go to page 157, starting at Line 16.

Make no mistake about it. The Affordable Care Act has warts, but the majority of the law contains good provisions that will eventually make our country stronger and healthier. Learn what is good in the law, learn about the warts, and demand that our leaders move forward with further solutions.

Tuesday, July 3, 2012

Lessons from Pa

This time of year, I often think of the carefree summers I enjoyed as a child. I spent the first 13 years of my life in Newark, Ohio, before moving to Cincinnati. My father is from Akron and most years my sister and I would spend at least a week at my grandparent’s house visiting our aunts, uncles and cousins that lived in the area.

My grandfather (Pa) passed away in 2010 and would have turned 100 this September. He is never far from my thoughts and I am forever grateful for the lessons he taught me.

1. Happy endings aren’t just for the movies

My grandparents were married for 72 years. My husband, Tom, and I will each have to live to age 99 to accomplish this feat! They were able to live in their house until the year Pa passed away. Remaining physically and mentally active and being blessed with good health allowed them to maintain their independence.

2. The importance of social circles

My grandparents were always active in their church and had a wide circle of friends. They were fortunate to live close to most of their 8 brothers and sisters and saw them frequently. After Pa’s death, my grandmother moved to an independent living facility where she remains today. She just turned 94 in March and continues to spend her days filled with social engagements and family visits.

3. Live within your means

My grandfather drove a Frito Lay truck for a living and my grandmother never worked outside the home. They lived in the same house for 47 years and were diligent savers. Pa stopped working at age 60 and they were able to enjoy a comfortable retirement which included spending winters in Florida and many rounds of golf.

4. Have a purpose

Pa started caddying at the age of 13. Golf was his passion and he played whenever possible. One of his happiest moments was when he finally got a hole-in-one at age 89. A retirement lasting over 35 years would not have been nearly as fun if he wasn’t able to do something he enjoyed so much.

When I envision my life after work, my grandparents often come to mind. Having a fulfilling life, surrounded by the people I love is just as important as making sure I’ve saved enough money. I hope it is for you too.

Christine Carleton, CFP®

Wednesday, June 27, 2012

Pinning All Hopes

In the swing-state hotbed of Southwestern Ohio, election season has already reached fever pitch. Depending on your view of the coverage, it’s either an exciting or terrifying proposition that there’s still more than four months to go until Election Day.

Much of the talk surrounds Mssrs. Obama & Romney and how who ends up in the Oval Office will impact fiscal cliffs, tax rates, and future as a nation. It seems like as worried as we are about the many questions that face us, we are equally certain that they will be handled precisely one way if candidate A wins and precisely another if candidate B prevails.

In no way do I take lightly the times we live in, the important decisions we face and the impact those decisions will have on generations of Americans. I do, however, want to put some perspective around the weight we place on the impact one person elected to one office truly has.

When I was in 7^th grade, I ran for student council and it was a two man race (I was in an all-boys school). The other candidate had his supporters, I had mine. As with most elections, it came down to the handful of students that neither of us had swayed. I needed a platform. I needed something that would cause them to vote for me. So, I asked my fellow students what they wanted. Almost to a man, easy access to a pop (soda) machine was an overwhelming favorite. “It’s the soda, stupid”, could’ve been our campaign mantra.

So, that was it. In our debate, I announced my plan to put a pop machine on both floors of the building and was victorious in the election. The student body could taste the cold Coca-Cola waiting for them just down the hall.

In my first student council meeting, I asked the principal about putting together a fundraiser so that we could install the machines in our building. The swift and resounding “No” almost knocked me over. Apparently, over the summer, the school board put a no-soda policy in place. I had to deliver the bad news to some disappointed constituents.

I tell that story realizing that our current political and economic issues are many degrees of magnitude more critical than an 11 year-olds’ ability to conveniently purchase a soda, but there are some similarities. Despite what they may say in their campaigns, there are no set tax rates, fiscal solutions or other economic certainties that instantly spring into action based on November’s outcome. These decisions will face a tough fight, both in Congress and the White House, likely for years to come. Many a President has made pop machine promises, only to find the bureaucratic process tougher to manage than a Junior High School principal.

This isn’t to say to walk away from the coverage or to stop caring about who wins. In fact, it’s partially the apathy of the average American voter that helps create political gridlock as both sides only have to deal with the noisy extremes. Instead, I’m suggesting we don’t pin all our hopes for the market, jobs, and future decisions of Congress, courts and corporations on one vote, on one election. That will almost always lead to disappointment.

I propose that we spend that energy better focused on the issues that really matters to us and then remain active in the process even after Election Day has passed. It’s the only way to shift the incentives of our elected officials away from gridlock and towards making real steps towards solving these difficult issues.

Rant complete. Have a great week!

Chip Workman, CFP®

cworkman@taaginc.com
www.taaginc.com

Tuesday, June 19, 2012

The Stuff Weighing You Down

Over Father’s Day weekend, when my dad and I were alone for a few minutes, he brought up a subject that had obviously been weighing on his mind. He said he realized he and mom live 2 ½ hours away from my brother, sister and I, and if anything were to happen to either of them, it wouldn’t be easy for us to be there to help. He would like to downsize, and move closer to us.

Dad will turn 78 this August, and he’s a very healthy, active person that looks at least 10 years younger. But the reality of the situation is he has cardio pulmonary obstructive disease, caused by a near-death experience with pneumonia when he was a baby and the ‘bad lungs’ he and his siblings inherited from his father, who also struggled with it. My grandfather died when he was 87, and my father has taken much better care of himself; but the disease has reduced his ability to breathe freely, saps his energy, and causes more frequent sick days. As a result, birthdays are causing him to think more and more about his mortality.

As we talked, he said he didn’t want to wait until problems with his health forced them to move. Due to her vision, my mother doesn’t drive more than a few miles from home, and that will become more of an issue as Dad’s health deteriorates. He wants to move to the Cincinnati area so he can be closer to his grandkids and great grandsons. He wants to be able to attend soccer games, birthday parties and just be more a part of their day-to-day lives. The problem is their stuff.

My parents are very frugal savers. Mom still has clothing she wore in college, and my dad still wears a tux he bought to sing in a concert the year I was born. They were born in the 1930’s, shaped by the Great Depression, and spent their childhood ‘making do’ with whatever they had. Mom was particularly shaped by her experiences. She holds onto everything they acquire because “one of you kids might need it someday.” This need to save things has gotten so bad she recently pulled glassware and furniture out of a bulldozed, burned down house and salvaged them. I cannot make this up.

In order to move, they will have to let go of things. Dad knows how difficult it will be, and how long it will take them to do it. He said if they start now, they might be ready in 2-3 years. Then he said something else I think is closer to the truth. “When you’re accumulating stuff, it allows you to focus on the future because you have all these things you might eventually use. When you downsize, it forces you to acknowledge the reality that you are going to die someday, and you don’t need it all.”

Maybe if we ask ourselves if we really need something before we accumulate it, we’ll have less to weigh us down when we get older, and the transition will be a little less painful.

Heavy stuff.

Jeannette A. Jones, CPA, CFP®

Wednesday, June 13, 2012

Who is Going to Pull Your Plug?

(from Carolyn McClanahan's Forbes' column, 5/22/2012 - click here for the original post. Carolyn is a physician, financial planner, educator and storyteller. For more on Carolyn, visit her Forbes' profile.)

We have all heard the stories – accidents, sudden illness, or slow decline taking away a person’s capacity to make their health care decisions. Unfortunately, few people have taken the time to appoint someone as health care surrogate to act on their behalf in these situations and only a handful of people have discussed their wishes with their surrogate. Today I discuss how to pick your health care surrogate – it definitely requires some thought.

What does a “health care surrogate” do? Basically, they make your health care decisions if you are incapacitated and can’t make decisions for yourself. Note – you have to be both incapacitated and unable to make decisions. For those who have a hard time making decisions, you can’t punt your healthcare decisions to someone else just because multiple choices paralyze you.

Many people think a health care surrogate acts only at the end of life, but there are many situations that are not necessarily life threatening where your wishes may need to be shared by someone else. If an accident takes away your ability to communicate, your health care surrogate will need to step up to speak for you and they must be willing and able to do this at a moment’s notice.

What are the qualities of a good health care surrogate?

The health care surrogate must be a level-headed individual:

If you sustain a severe head and neck injury, and the doctor tells your spouse that despite best efforts, you will never be able to feed yourself or engage in a conversation ever again, what will your spouse do? Will he freak out and want to keep you alive forever in the hope of a miracle when you’ve explicitly stated that you do not believe in miracles? A spouse does not always make the best health care surrogate. Be certain to choose someone who can follow your wishes and make good decisions in light of heart wrenching emotions. For this reason, the role of health care surrogate may be best delegated to a health care professional within the family.

The health care surrogate cannot be shy about asking questions and must be intelligent enough to understand the implications of the answers:

To fulfill this responsibility, your surrogate must understand your goals. Every treatment the health care providers want to perform must reach the eventual outcome of the goals you’ve shared with your surrogate. For me, it is so important to always have the use of my brain and my hands. If I am in a situation where we know I have a good chance of those two functions being restored, do everything toward achieving that outcome. If it is obvious that my brain will no longer allow me to write this blog or have my fabulously self deprecating sense of humor, the only things I want done are comfort measures to let me die quickly. Your surrogate must constantly ask, “Will this help my loved one reach the goals of _________.”

The health care surrogate must be willing to stand up to the health care system:

The health care system is wired to “DO EVERYTHING!” Our malpractice and payer systems greatly affect how medicine is practiced. High pressure situations lead to high pressure heroics, especially if doctors do not have a previous relationship with you. It is in the provider’s best interest to do everything possible until your health care surrogate has screamed, “ENOUGH!” If you have been clear in your wishes to limit care in certain situations, your health care surrogate will have to be vocal and not easily intimidated by overbearing health care professionals. For example, if the doctor says you will die if they do not place a feeding tube into your abdomen, and it has already been determined that your desired ability to recognize your loved ones is not in the cards ever again, will your health care surrogate have the fortitude to say no to their request?

The health care surrogate should live in close proximity if possible and have the time to address your urgent situation:

Ideally, the likelihood of needing your health care surrogate is small. However, someone who lives across the country may not be in the position to uproot their life to address your health care needs.

Other considerations:

In addition to your primary health care surrogate, it is good to have one or two backups. Ask their permission in advance, and share a written copy of your health care goals with them. Share your decision on who is serving as surrogate with other family members, and let the entire family know you have written clear wishes that are not to be messed with. The biggest impediment to a successful outcome is to have other family members not on board with your desires. When multiple family members question decisions of your health care surrogate, angst results. Your surrogate has a difficult enough job without the added burden.

I wish us all a quick, painless, and planned for death at about age 100, but unless you plan on riding your Vespa off a cliff, planned death is unlikely. Therefore, choose your health surrogate wisely just in case you need to visit that topic sooner than you desire.

Tuesday, June 5, 2012

Detour Ahead

My husband, Tom, and I just returned from Asheville, North Carolina. We drove to Asheville so Tom could participate in a century ride to raise money for cancer research with the Leukemia and Lymphoma Society’s Team in Training program.

Being the diligent planner, I mapped out our course and researched the construction delays along our route. Fortunately, we were able to avoid a major back up on I-75 southbound just over the Tennessee border where the road is being repaired due to a rock slide. Although our alternate route was miles longer, we were still able to make it to Asheville ahead of some of the other participants who did not take a detour.

Many of the financial detours that we encounter in our lives can lead to frustration because, more often than not, they are beyond our control. In Cincinnati, Procter & Gamble employees are facing a potential detour in their careers with the company’s latest downsizing announcement. It’s not only the people leaving whose lives will be changed, but also the remaining employees as well. Their jobs may look drastically different a year from now.

When a client discovers they are facing an unexpected career change, major health issue, loss of a loved one or are going through a divorce, the original path they were on is suddenly changed. All of these circumstances can feel overwhelming because you feel like you are suddenly being veered off course.

This is why it is so important to create a financial plan and to continually monitor it. This can help to put the obstacles you face in perspective. Will the change in careers mean you will have to work longer – or will your new job offer a faster road to retirement? A health crisis could change your priorities causing the second home you always dreamed of to seem less important than it once did. If you become suddenly single you may realize you are much more financially savvy and emotionally stronger than you originally thought.

No matter what financial detours you encounter, we are here to guide you through them. What may initially seem like a disaster may not have the impact you fear. The most important thing is to start mapping out an alternative route as soon as possible so that you can lessen the impact. Just make sure you let us know when we can help.

Christine Carleton, CFP®

Tuesday, May 29, 2012

Social Security - An Update

According to the Social Security Administration, nearly 62 million Americans are receiving some type of benefit from the program as of April 2012. There is much speculation as to where the program is headed in the future. Unfortunately, there’s little more to report on long term changes than mentioned in my July 2011 blog on just that topic. The broken record remains the same. If you’re over 55, you’re likely to see your full benefit. How that benefit is taxed, whether or not it is means-tested in some fashion and what’s to come of the program for the rest of us remains to be seen.

That said, there are sufficient changes surrounding Social Security in the here and now that justified an update.

Analytical Tools Multiplying

With 10,000 baby boomers reaching age 65 every day, it’s no surprise that a large number of tools have started to sprout up promising to help analyze how to maximize your benefit. These tools vary in their level of sophistication, but most ultimately come down, as all financial planning does, to making educated guesses about a number of variables. Despite much of what’s written out there, the decision as to when to draw social security is often much more than just picking age 62, 66 or 70.

The basic rule of thumb is simple. If you expect to live past age 80 or so, depending on some other factors, it’s best to wait as long as you can to draw your benefit. But, that comes with a number of caveats. It’s impossible to touch on them all, but the biggest gap we see in these tools is the ability to translate what’s best purely from a Social Security standpoint to how the timing of your benefit impacts the overall portfolio.

Does drawing later for a higher benefit cause too much strain on your portfolio in the early years of retirement? Is giving in to the emotional pull of starting benefits sooner costing you potentially hundreds of thousands of dollars in benefits down the road? We have the ability to look at these tools as they relate to your overall plan and help make that decision about when to turn on benefits as educated a choice as possible.

No More Statements

As you may have heard, an effort to reduce spending on postage, paper and impact to the environment has led the Administration to cease mailing out annual statements. In response, they’ve added a new online offering called “My Social Security”. The program allows you to create your own login and retrieve the same information reported on your annual statement at any time. The website can be found here, or we’d be happy to walk you through the process in our next meeting.

No More Paybacks

Another slightly older bit of news that wasn’t very widely covered is the closing of the “payback” loophole. In the past, you could elect to start your benefit early and then, at any time before age 70, “cancel” your election, payback what Social Security had paid you to that point and then restart your benefit at the new, higher rate. This was essentially an uncollateralized, non-interest bearing loan from the government. That option has since been removed and is no longer a tool to use in determining the best outcome for you and your benefit.

Unintended Benefits

Stories continue to emerge about various other Social Security “loopholes” that are likely to be closed as Congress continues to find every way they can of extending the program without upsetting the electorate. One story that’s arguable an illustration of what’s wrong with the system was one I recently came across in Investment News. Dependent children under a certain age are eligible for benefits of up to ½ the amount of the recipient. This rule was largely intended for parents receiving Social Security for disability or widow/widowers’ benefits or for those having to care for dependent grandchildren. The unintended consequence is that, in this day and age, more and more fathers in their sixties have young children. Until the loophole is addressed, Mary Beth Franklin of Investment News recommends anyone eligible take the benefit and use it to fund the child’s 529 plan. She coins the strategy “The Viagra College Fund.”

We’ll continue to monitor this and all the topics we cover here that can have a meaningful impact on your life and financial goals. If you have any questions or wish to discuss further, don’t hesitate to contact us via the links below.

Thanks and have a great week!

Chip Workman, CFP®

cworkman@taaginc.com

Tuesday, May 22, 2012

Facebook Fever

As I write this blog, Facebook is set to begin trading any minute, with the estimated 11:15am start time approaching. The fact that web sites are breathlessly reporting the status of the stock’s IPO on a minute-by-minute basis speaks volumes about the public’s interest in the company.

Facebook is a great example of the emotional side of investing. It’s fun to own a company that everyone’s talking about, that you use personally, or you see jumping up in value the way Apple Computer did over the past 2 years. We all want to be associated with a winner because it makes us feel like winners too - nothing wrong with that. But IPOs can be tricky investments based on their history of spiking in the short term, then dropping significantly in price when insiders are permitted to cash out later. One of the best overviews of the pros/cons of investing in the company actually came from a tongue-in-cheek letter from the Founder and CEO, Mark Zuckerberg, posted on the Borowitz Report.

The better lesson to take from Facebook, Apple and others is how technology is driving innovation in the US; and we probably won’t know where the next big thing will come from until it’s already here. In a Wall Street Journal op-ed published May 17th, The Future is More Than Facebook, the publisher of Forbes pointed out the time to make big returns in social media has passed, but there are newer, more exciting technology breakthroughs in the works: Google’s robotic driven car, robotic manufacturing, and high-tech horizontal oil drilling. These technologies will drive down the cost of providing goods and services, improve our quality of life, and create wealth. But the path to get there will be messy. How many companies begin with a great idea, but can’t find a way to make money with it? Or make lots of money at first, then get run out of business by the next competitor who figures out a way to do the same thing, only better (remember Compaq computers?) It’s impossible to consistently predict the winners in advance.

But if you own a diverse portfolio of companies, odds are you will participate in the next big thing. If a few of them collapse on their path to greatness, your retirement dreams will not be crushed in the process, but you’ll still participate in the overall growth of the economy. It’s not as exciting as buying Facebook on the day of its IPO, but it’s a better plan to get rich.

If you really, really want to own shares of Facebook just to be a part of it, wait until all the hoopla dies down, because the price will probably be lower then. On the other hand, you could simply print out the stock certificate published by MAD magazine, and keep yourself broadly diversified in a wide range of companies, knowing the ‘next big thing’ is probably already on its way to your portfolio.

Jeannette A. Jones, CPA, CFP®

Tuesday, May 15, 2012

The Real Reasons Why You Buy

(from Carl Richard's New York Times' Bucks blog, 4/16/2012 - click here for the original post. Carl is a Certified Financial Planner in Park City, Utah. His sketches are archived on the Bucks blog and on his personal Web site, www.BehaviorGap.com.) His new book The Behavior Gap is on shelves now.

Before we buy something we tell ourselves stories.

We are particularly fond of the story that goes like this: We have researched all the options, and the decision we have made represents that best one we could make given the facts. Just the cold, hard facts.

Of course, that story isn’t really true.

And we make up other stories as well, many of which have absolutely nothing to do with the actual facts. We create these stories to help ourselves feel good about a decision we have already made.

For instance, many times we actually reverse the process. We decide what we want, often for emotional reasons, and then we go looking for evidence to support the decision. As we are gather the evidence, we carefully omit anything that doesn’t fit into the story we’re writing.

This is so easy to do you could say that it’s natural to us. We don’t really have the time to consider every single option. If you did, you would never get past your closet in the morning. So we take shortcuts. We decide what we want and then gather a few facts to prove to ourselves, our spouse and our family or friends that we did the right thing.

When it comes to spending money, one of the stories we like to tell ourselves is that we aren’t just spending. This item is actually an investment. It’s an investment in ourselves and our quality of life, or an investment that will actually save us money over the long run.

So we run the numbers, or more likely we read about someone who ran the numbers. Then if the narrative matches, we use that as evidence that we’re doing the right thing.

It seems easy. A simple case of addition or subtraction.

Things get complicated pretty quickly, however, when we start using the argument of saving money as a Trojan horse to hide the real reasons we’re doing something. Let’s take the case of whether to buy a hybrid or electric car.

If you decided that you want a hybrid, it’s pretty easy to find evidence to support that decision, but be careful if you’re telling yourself that it will save you money.

Except for two hybrids, the Prius and Lincoln MKZ, and the diesel-powered Volkswagen Jetta TDI, the added cost of the fuel-efficient technologies is so high that it would take the average driver many years — in some cases more than a decade — to save money over comparable new models with conventional internal-combustion engines … Gas would have to approach $8 a gallon before many of the cars could be expected to pay off in the six years an average person owns a car.

To be clear, there are plenty of legitimate reasons to buy a more fuel-efficient car. Unfortunately for the buyers relying on the numbers argument, one of them isn’t saving money in the short term unless you buy specific models.

So why do we hide behind saving money?

It’s easy to point to the price of gas. It’s harder to explain why the environment benefits from one more person driving an electric car. And it’s harder still to explain why driving a hybrid just makes you feel good.

And few people want to admit to adult peer pressure. How could you live with the story that you actually bought that Prius because you wanted a cool spot to put your Apple sticker?

Obviously cars aren’t the only thing we try to make the saving-money logic stick to. How about the recent argument at Slate that you should run out and “buy, buy, buy” a house if you are currently renting? This is a classic case of using tons of “evidence” to tell a nice little story while ignoring the data that might not fit nicely in the narrative.

Based on the facts presented in this particular story, it looks like it might actually be cheaper to buy than rent, but it states that any consideration of where prices might be headed is “irrelevant.” It’s just one more example of how far we can go in our storytelling exercises.

And it’s not that simple, as you’ve probably guessed. What if prices fall 10 percent and you have to relocate for another job? What if you know you’re moving in three years and prices stay the same?

You may be very hard pressed to break even after you consider the costs associated with buying and selling the house (e.g., real estate commissions, closing costs, moving costs and taxes). With a little honesty, there goes that nice, clean “time to buy” story.

While cars and houses might require the most complex stories, we often tell ourselves little ones about things like vacation “deals,” using a rewards credit card and buying in bulk. Often they get brushed with the halo of saving money. In each instance, saving money may be one of the reasons you’re doing something, but you can rarely say that it’s the only reason.

And that’s the point.

We tell ourselves stories about why we’re buying something, and saving money is a good story.

But I think one of the best conversations you can have with yourself, your spouse or your family is about the real reasons behind why you spend money. Be honest, even if it means having to admit that you’re buying something only because you simply want it. Blurring our reasons for our decisions around spending money is a slippery slope that can lead to a lot of financial headaches.

Tuesday, May 8, 2012

The Magic Number

One of the questions I am often asked by clients is “how much money do I need to retire?” Advertisements on TV and in magazines would have us believe that when we have accumulated this “magic number” we are ready to stop working. What the ads fail to mention is that this is just one of the important numbers you need to know to ensure a successful retirement. Just as critical in your planning is a realistic estimate of how long you will live.

In my last blog, A Different Angle, I wrote about the tendency of clients to put off their estate planning. One reason for their procrastination I’ve heard from more than one person is if they delay drawing up their documents, they will delay their death as well. This is usually said in jest. The irony is, when we are working on their financial plan and I want to assume a mortality rate in their 90s, they tell me they are not going to live that long!

Ron Gebhardtsbauer, who heads up the Actuarial Science Program at the Sheal College of Business at Penn State University estimates that a 65-year-old man has a 30% probability of living to 90, while a 65-year-old woman has a 40% chance. A married couple who is 65-years-old has a 60% chance one of them will live until at least age 90.

So, what mortality assumption should you use in your retirement planning? I was recently made aware of a tool called The Longevity Game on Northwestern Mutual’s website that takes factors such as your health, behavior and family history into account when producing your average life expectancy. You should play - the results might surprise you. It says I could live to age 98, so it looks like I have a few more decades of work ahead of me!

Christine Carleton, CFP®

Tuesday, May 1, 2012

The Changing Role of Grandparents

A recent AARP survey of grandparents showed that 36% of those asked felt that “spoiling grandchildren by buying them too much” was part of a grandparent’s financial role. This result isn’t all that surprising. Spoiling grandchildren has been a time-honored right and tradition for grandparents for many generations. AARP has done similar studies many times with fairly consistent results.

What’s changing, perhaps, is the definition of spoiling. You’ve likely seen examples in your own life or through the media of spoiling taking on extremes. This occurs for a variety of reasons, but the most common are the relative young age of the average grandparent , their proximity to their grandchildren and the highly involved role they play in their day to day care.

When I was growing up, getting spoiled by my grandfather meant occasionally getting slipped a few dollars, or, if we were really behaving, a little chocolate syrup in our milk. Perhaps the biggest prize was the chocolate mints (specifically, Andes) that were kept in the small silver bowl on the living room coffee table. Were they my favorite candy? Not really, but for some reason getting the ok from Grandpa to have one made them taste better than any candy bar out there. These were very occasional, relatively small things that meant the world to me.

Per the same AARP study, today 1 in 6 grandparents provide daycare services for grandchildren. Nearly 40% have provided such care on occasion. More than 10% have a grandchild actually living with them. When a grandparent plays an active role in providing day care, regular babysitting or other support, what can be seen as a little harmless spoiling can become an expectation and way of life to an impressionable child. It is important that parents and grandparents evaluate sweets, fast food, cash, toys and other gifts to make sure that the occasional treat doesn’t become a full derailing of well intentioned plans to raise a healthy child.

Helping with education, medical bills or other living expenses is certainly another story, and one that should be decided on a family by family basis. Here again, though, special attention should be paid by the grandparent to how the support affects their own personal goals. With life expectancy creeping up each year, portfolios can be heavily strained by regular gifting to support a grandchild. Make sure you discuss with your financial planner how your gifting impacts your long term goals and be sure to set realistic expectations with family members.

As with so much in life, balance is the key. Ever-increasing pressures to give this and want that, if they go unchecked, can wreak havoc with future generations and our own financial goals. While the spoiling may be what makes you and your grandchild feel the best in the moment, it’s the life lessons and memories that can help frame a child’s long term perspective that they’ll really value in the long run.

Have a great week!

Chip Workman, CFP®

cworkman@taaginc.com

www.taaginc.com

Tuesday, April 24, 2012

Can We Pass the Marshmallow Test?

In the late 1960’s, psychologist Walther Mischel conducted an ingenious experiment testing the ability of children to delay gratification. A child was left alone in a room with a marshmallow on the table, and was told if he or she could wait 15 minutes to eat it, they would get a second one as a reward.

About two-thirds of the kids failed the experiment – but the fascinating part of the study was the follow-up research on the children years later. The kids who didn’t eat the marshmallow had stayed in college, made more money, and had fewer drug and alcohol problems. The kids who had been able to delay gratification were more successful in life overall.

As I read a Wall Street Journal article this morning about yet another government spending program that makes it impossible to balance the budget, I wondered why we’re surprised we have this problem. It’s easy to be critical of Congress and its inability to make difficult decisions necessary to keep our county within its spending limits, but many people can’t balance their own family budget – so how do we expect states with competing interests to agree? Congress is only a representation of the people it serves.

Why has it been so tough for my baby-boomer generation to budget? I have a theory. We didn’t learn to delay gratification. We grew up in a time of prosperity, and it felt like the party would never end. Sure, we experienced the lousy stock market of the early 70’s, but most of us were just getting started, so we were unaffected. We also experienced raises that were tied to inflation, and our salary increases in the 80’s bought us even better lifestyles when companies like Walmart and Costco drove down prices of the everyday things we purchased. The easy credit of the 90’s caused our home values to race up and our cost of borrowing to drop - we were on a roll. We didn’t have to budget like our parents and grandparents; until the Great Recession began in 2007.

Although markets have recovered from their lows, it’s evident we may be in for an extended period of time when we won’t have the wind at our back. And we need to adjust. Like the kids in the lab, we must exercise some self-restraint; and like Congress, we have to make some tough decisions. At the risk of sounding overly-dramatic, it’s much easier to make a change in our lifestyles today than it is to choose between buying food or paying the mortgage tomorrow.

I’ve had this discussion with clients and prospective clients over the past several years, and I’ve been told by some that they intend to enjoy life now, because it won’t matter when they’re old. I think this is a battle we’re waging between our present and future selves. It’s easy to delude ourselves today that it will be easier to get by with less in the future. One of my favorite quotes on this subject was made in a presentation by Shlomo Benartzi, an economist who studies financial behavior: “Self-control is not a problem in the future. It’s only a problem now, when the chocolate is next to us.”

Marshmallow, anyone?

Jeannette A. Jones, CPA, CFP®

Tuesday, April 17, 2012

Abundance is our Future

This week we turn to TED's 2012 Conference where Peter Diamandis gave a talk called "Abundance is Our Future". Peter looks at the world of information overload, how we're predisposed to focus on negative news first and how that shapes our view of the substantial problems we face as a society now and in the future.
From that somewhat dismal view, he then explains why that is extremely shortsighted and prevents us from seeing the truly extraordinary times we live in and, perhaps more importantly, the even more extraordinary times and unavoidable abundance that are to come.

Check out Peter's video through the link below. We felt it was well worth the time.

Peter Diamandis: Abundance is Our Future

For those that might not be familiar, TED, according to their website, is a nonprofit devoted to Ideas Worth Spreading. It started out (in 1984) as a conference bringing together people from three worlds: Technology, Entertainment, Design. Since then its scope has become ever broader. Along with two annual conferences -- the TED Conference in Long Beach and Palm Springs each spring, and the TEDGlobal conference in Edinburgh UK each summer -- TED includes the award-winning TEDTalks video site, the Open Translation Project and TED Conversations, the inspiring TED Fellows and TEDx programs (including one coming to Cincinnati in May), and the annual TED Prize.

Have a great week!

The Asset Advisory Group
info@taaginc.com
www.taaginc.com

Tuesday, April 10, 2012

A Different Angle

My husband, Tom, and I recently updated our estate planning. I recommend my clients review their documents at least every 5 years or as their circumstances change (marriage, divorce, inheritance, birth or adoption of a child). This seems to be an item that can easily stay on one’s “to do” list for a year or more. Many times estate planning is put off because of the decisions which must be made regarding the disposition of your assets after death, choosing who will be your children’s guardians’ or your power of attorney.

As Tom and I struggled with beneficiaries and contingent powers of attorney, there were two very helpful points that our attorney, Jeff, brought up which made the whole process a lot easier.

First, it can be difficult to decide who will serve as your executor, trustee, power of attorney, etc… because we are often wondering what happens when/if that person predeceases us. Our attorney told us not to worry about 10 or 20 years in the future, but to think about today. If something happens to Tom and/or me now, what do we want in place? We were able to make our choices much more quickly when we weren’t worrying about appointing a parent as a successor power of attorney because we are likely to outlive them. As our lives change, we will update our plan, as needed.

The second advice was with regards to naming beneficiaries. Tom and I do not have children, so our inclination was to divide our estate between our parents, my sister and niece and nephew. Jeff asked if an inheritance would make a meaningful change to our parent’s lives, and, in most cases, the answer was no. We were also hesitant to leave a large inheritance to our niece and nephew. By observing the way people handle a sudden windfall, I have witnessed many instances where money causes more problems than it solves. After further discussion, we realized our goal was to help our family members with the greatest need and also use our estate to truly make a difference in the lives of others through charitable gifts.

By simply suggesting that we look at things differently, we were able to enjoy the process instead of looking at it as a chore. If you are putting off your estate planning because this seems easier than the decisions that you will face, try looking at it from a different angle. Make sure your estate documents set up so that you are comfortable with the decisions you have made if something were to happen to you tomorrow – and not just 20 years from now.

Christine Carleton, CFP®