Financial planning

10 Tips for These Difficult Economic Times

By admin | 2009/11/16 12:42 Posted in Cash-flow budgeting, Financial planning, General info, Investing, Retirement planning | Comments (0)

The recent economic changes impact everyone and particularly those who are retired. Whether it is a drop in value of your retirement account or a decrease in interest rates at the banks, everyone has noticed.

The question is – what can retirees do now to shore up their finances? Some things are fairly obvious, such as delaying a vacation, going to a less costly restaurant or putting off major purchases as long as you can.

But there are other things retirees can do to help in these difficult times:

1. Know what and where you’re spending. Saving a dollar is easier than making one. Keep track of what you spend each month. This is an easy way to help you identify those areas you might be able to cut back without impacting the quality of your life. Use pencil and paper, a computer program such as Quicken® or Excel, or an online tool available at: http://www.mint.com.

2.    Shop your insurance program. There can be large differences in premiums from one company to the next and it is wise to re-shop your insurance package (home and car, etc.) with several companies every few years. The savings are often in the hundreds of dollars.

3.    Comparison shop banking services. Many banks have raised fees and decreased interest rates. As an example, Bank of America investment services money market account now pays a 0% interest. Customers would do well to go elsewhere. Don’t overlook your local credit union or banks outside the area. Searching online can help identify institutions with higher interest rates.

4.    Beware of something that sounds “too good to be true.” Be cautious about an invitation for a “free lunch” to learn about an “investment that can never go down,” “Earn extra money from your home,” “Long Term Care without paying for it,” etc. Remember there is often fine print or a hook and they are always selling something. If you don’t understand it, avoid it or at least seek a professional second opinion (from someone who’s not selling the product).

5. Do not be the victim of scare tactics. Do not let salespeople take advantage of you in reaction to the recent economic havoc. An 83-year-old client was recently sold an annuity at her bank and she cannot get all her money back until she’s 93, which is totally inappropriate.

6. Do not take retirement plan distributions if you do not need them. A new law allows retirees to not take a minimum distribution from certain retirement plans. The concept is to allow the values of the account to come back up and then resume distributions.

7. Understand your investments costs. In this environment, it’s crucial that you have a firm understanding of all the fees (commissions, sales loads, deferred charges, redemption fees, surrender fees, account fees, management fees, distribution fees, and even statement fees). Depending upon the size of your portfolio, going to investments with lesser costs could save you thousands of dollars a year.

8. Proper asset allocation in your portfolio. Having the proper mix of different types of investments is the prime way to mitigate risk. The allocation that is appropriate for you is dependent upon your risk tolerance (a mental state), your risk capacity (your financial state) and your goals, which includes your timeframe. The people that felt the most pain with the recent drop in the market had an incorrect asset allocation. Now is a good time to make sure your asset allocation is correct.

9. Determine if you need help. It’s what you don’t know that can hurt you the most.

To help identify the areas where you could use some professional assistance, a Financial Security Survey was developed. It’s free and can be very reveling. Go to the website below and download the survey or call 800-347-1340 and it will be mailed to you.

http://www.chamberlainfp.com/pdf/fp_security_survey_retire.pdf

10. If you need help, get objective advice. Money magazine, Kiplinger Personal Finance, CNN Money, MorningStar, MSNBC, Newsweek, and AARP all have had articles recommending people get objective advice from a “fee-only” advisor. These individuals do not sell product, so there is no conflict of interest between what is best for you and the person who is selling a product. The publications above recommend readers go to http://www.napfa.org and http://www.garrettplanningnetwork.com for a list of “fee-only” planners in your area.

While these 10 tips will not undo the effects of the changes in the economy, they offer some practical steps you can take to strengthen your finances today and position your retirement savings for improvement as the economy comes around.

Michael Chamberlain CFP®
CA Registered Investment Advisor

Send your questions to mike@chamberlainfp.com or call 800-347-1340
This article is for informational purposes and should not be taken as legal, tax or investment advice.

Social Security Beneficiaries May Get Double Whammy

By admin | 2009/10/23 10:46 Posted in Financial planning, General info, Retirement planning | Comments (0)

Social Security beneficiaries usually see their monthly benefits increase once a year, based on the cost of living escalators. These have usually been in the range of 1-4% per year. That could change in the next 3 years.

With the current state of the economy, the Congressional Budget Office projects an actual decline in consumer price indexes and expects no inflation for the next few years. The office has stated that there may not be any cost-of-living increase in Social Security benefits until possibly 2013.

The vast majority of Social Security beneficiaries have their premium for Medicare Part B and to a lesser extent, Part D, deducted from their monthly Social Security benefits. These premiums are projected to continue to go up.

The net result is that it is quite possible that Social Security checks will actually be smaller starting in 2010 as compared to 2009. This projected decrease will impact about one quarter of the retirees, including those recently signed up for Medicare as well as higher income beneficiaries.

The other three quarters of the Social Security beneficiaries are protected by a “hold harmless provision”, which prevents Medicare Part B premiums from increasing in any year by more than that specific years cost-of-living increase. If there is no bump in Social Security benefits, the Medicare Part B premiums will stay the same. There is no such protection with Part D premiums.

Currently Medicare Part B premiums are $96.40 a month. The Congressional Budget Office predicts the premiums to be $119 in 2010, $123 in 2011, and $1028 in 2012. There is no premium for Medicare Part A.

None of the insurance carriers that provide Medicare Part D prescription drug coverage have indicated premium increases in 2010. However if it’s anything like past years are an indication we can continue to expect higher Part D premiums.

If you currently have in Medicare Part D plan it is critical that you reevaluate which Part D program is best for you between November 15th and December 31^st each year. Premiums for the various plans change as well as deductibles and co-pays. Your prescription medicines might be different this year versus last year and the various different programs change the cost-effective drugs.

The long and the short of it is that if you are on Social Security, between deflation, Medicare Part B and D premiums, don’t be looking for your Social Security check going up in the next year or two.

The Problem with Retirement Based Mutual Funds

By admin | 2009/09/08 11:53 Posted in Financial planning, Investing, Retirement planning | Comments (0)

The question “What is the ideal mix of investments for someone retiring at 65?” is not a reasonable question to ask in the first place. It could be analogous to asking “What’s the proper medication for a person age 65?” or “What car should I have now that I’m 65?”

A number of investment companies have developed mutual funds that are designed based on answering the silly question. They are called target retirement date funds. The intent is to have the mutual fund company change the asset allocation to a more conservative mix, as a person gets closer to retirement.

One problem is each investment company has a different perspective as to what is a proper allocation at the various stages. Please note the differences for the follow 2025 target date funds for the following companies:

Vanguard - US Stock 61% Non US stock 15% Cash and bonds 23% Other 1%
T Row price – US Stock 60% Non US stock 20% Cash and bonds 19% Other 1%
Fidelity - US Stock 52% Non US stock 19% Cash and bonds 28% Other 1%
Putnam - US Stock 36% Non US stock 20% Cash and bonds 42% Other 2%

The main folly with this target date approach is that basing the allocation on a retirement date fails to address the underlying factors that should determine the proper allocation.

A client’s asset allocation in their portfolio should be based on three factors,

Risk tolerance (their mental ability to withstand down markets)
Capacity for risk (their financial ability to withstand down markets)
Goals (which would include their time frame)

Unfortunately all target retirement date mutual funds allocations are based solely on the date of retirement. This methodology target date approach fails to address the 2 major factors determining the proper allocation for that individual. The result could be more risk than the person should have in their investments.

Clients with at least $10,000 of investments are better served by having an allocation across different asset class custom designed for their situation.

The only situations where target retirement date funds might be appropriate is in a retirement account that has very few choices to construct an appropriate portfolio or the client has a very small amount of investments to work with or the client does not know where to go to get help to have the proper custom designed allocation.

Understanding Your Investment Costs

By admin | 2009/09/02 10:35 Posted in Financial planning, Investing, Retirement planning | Comments (0)

In this low interest rate environment and with the stock market having tanked, saving a dollar can be easier than making one. Depending upon the size of your portfolio, cutting your investment costs could save you a bundle.

One client recently said, “What investment cost? I don’t pay any costs.” What he meant was that he did not know he was paying the costs. Most people do not know about the fees often associated with investments and their impact, so lets review.

Commissions are paid when many investments are purchased, and they can apply to individual stocks, limited partnerships and many mutual funds. Individual bonds usually have a markup that the client never sees.

When investors purchase mutual funds, many do not know that there are two primary types: those that pay commissions to the salesperson and those that do not, known as “no load.”

There are at least three different classes of commissionable shares. “A” class shares have commissions as high as 5 1/2 percent. “B” class shares do not have a commission upfront, but they have a backload that is deducted if you liquidate the fund in the first several years. They also have a higher annual cost than the “A” class shares. “C” class shares have no front-end commission and a limited one-year backend load (should you leave early), but they have higher annual expenses than the other two classes.

A “no load” fund will always provide a higher return than those paying commission (all else being equal) and should be considered the best type of choice.

Many mutual funds also have annual marketing or distribution fees and are considered an operational expense, which can be as high as 1 percent.

Keep in mind that every time a sale occurs when commissions are involved, there is a conflict of interest between what is best for the client and what is best for the salesman and the company. To avoid this situation, clients would be well-served to work with financial advisers who do not sell product.

Other fees that are often charged can include account fees, statement fees, wiring fees, distribution fees, redemption fees and account closure fees or management fees.

In this current financial environment, now is a great time to learn about what fees you pay and to trim your investment costs, thereby keeping more dollars in your pocket. Money magazine, Kiplinger Personal Finance, CNN Money, MorningStar, MSNBC, Newsweek and AARP recommend readers go to www.garrettplanningnetwork.com or www.napfa.org for a list of “fee only” advisors in your area who can recommend investments that do not pay commissions.

Consumers would benefit if we call “A Spade a Spade”

By admin | 2009/07/27 08:59 Posted in Financial planning, General info, My soap box | Comments (0)

76% of those surveyed did not know the difference between a sales representative of a Broker Dealer and that of a Registered Investment Advisor. The reason is the term “financial advisor’ is often utilized by stockbrokers, insurance agents and others who are looking to sell you a product.

A “broker dealer representative” is a salesman of stocks, bonds and mutual funds. Many times they also are also involved with the sale of insurance and their parent company can also provide mortgages (all for commissions). “Insurance agents” represents the interests of one or more insurance companies and only get paid when they sell you a policy. They too are salesmen not advisors.

Neither the BD rep or the insurance salesman get paid to give you advice, hence they are not “advisors”. They get paid when they sell a product hence they are salesman, So to decrease the public confusion lets call them salesmen and not advisors!

People are confused when salesman and their companies use the terms “financial counselor”, “financial consultant” or” financial adviser”. In the vast majority of cases there is no advice at all, only an attempted to generate a commission for the salesman and his or her company.

We do not have “Used Car Advisors”, “Carpet Counselors” or “Door-to-Door Consultants”. These are all salesmen and the public can recognize them as such. But when salesmen (insurance companies, in the banks and at other large financial institutions) are called “advisors”, the public gets confused.

There are true financial advisors but most people do not know of them. Fee-only Registered Investment Advisors do not sell product. They work for the client and are paid by the client for the advice. This is a true form of a “financial advisor”.

The only true “ financial advisors” are registered with the proper governmental agency as a Registered Investment Advisor (RIA) and are situated to provide objective advice with out a conflict of interest.

If the government wanted to decrease financial sales abuse, it should require those selling product to use the label “salesperson” not prevent the use of the title “advisor”!

NAPFA Launches Consumer Education Series to Help Americans Better Understand Personal Financial Issues

By admin | 2009/07/08 12:12 Posted in Financial planning, General info, Investing, Retirement planning | Comments (0)

The National Association of Personal Financial Advisors (NAPFA), the country’s leading professional association of Fee-Only financial advisors, is gearing up to further educate people on a variety of topics in an effort to help Americans become educated consumers of financial planning advice and products.

The Consumer Webinar Series is a year-long initiative beginning August 7, 2009 that will provide an opportunity for anyone in the country to learn about a wide range of financial issues from NAPFA-Registered Financial Advisors. Each month a new session will be conducted live online. Consumers can attend the live session after registering for free, or listen to an audio file after the program. The instructors NAPFA has recruited for the various sessions are among the industry’s leaders in truly comprehensive financial planning and includes members of NAPFA’s National Board of Directors, past NAPFA national chairs, educators, and authors.

“Each session is intentionally designed to help attendees better understand a specific issue and why it is of particular importance to them,” said NAPFA National Chair Diahann W. Lassus, CFP®, CPA/PFS. “We want attendees to take something away from the sessions that helps them tackle these issues at home. As an industry we have done a poor job of helping consumers increase their financial knowledge. This program, along with the successes of the Your Money Bus Tour, is NAPFA’s way of doing its part.”

The series will include 12, one-hour sessions delivered via the internet. The individual sessions will be conducted from 1 to 2 pm Eastern time and will include:

August 7, 2009 – Money 101: Knowing the Basics

September 4, 2009 – Kids & Money

October 2, 2009 – What is Financial Planning?

November 6, 2009 – Protecting What You Have

December 4, 2009 – Investments: The Basics

January 8, 2010 – Investments: Advanced Concepts

February 5, 2010 – Managing Your 401(k)

March 5, 2010 – Leaving a Legacy

April 2, 2010 - Women and Money

May 6, 2010 - Financial Planning and Small Business Owners

June 4, 2010 - Your Retirement

July 1, 2010 – Financial Windfalls

Registration for the 2009 sessions is open now. Learn more about the Consumer Webinar Series by visiting http://www.napfa.org/consumer/ConsumerWebinarSeries.asp

In addition to registering for the sessions, consumers can learn more about the topics and the NAPFA-Registered Financial Advisors who will be instructing the sessions.

“We hope people will take advantage of this opportunity to better themselves and their families. Only through education will consumers be better capable of addressing their own financial situations,” added Lassus.

Members of the media who would like to learn more about the Consumer Webinar Series can contact Benjamin Lewis of Perception, Inc. at 301-963-7555 or Benjamin.lewis@perceptiononline.com.

About NAPFA

Since 1983, The National Association of Personal Financial Advisors (NAPFA) has provided Fee-Only financial planners across the country with some of the strictest guidelines possible for professional competency, comprehensive financial planning, and Fee-Only compensation. With more than 2,100 members across the country, NAPFA has become the leading professional association in the United States dedicated to the advancement of Fee-Only financial planning.

For more information on NAPFA, please visit www.napfa.org.

What is Financial Planning?

By admin | 2009/07/08 09:50 Posted in Financial planning, General info, My soap box | Comments (1)

Financial planning is the process of helping you to obtain your goals in life by making better decisions in the management of your finances. Everyone has different goals therefore everyone’s financial plan will differ. However, the process of financial planning is always the same and will include:

1. Defining your goals both short-term and long-term

2. Gathering the necessary information as the basis of the plan

3. Analyzing and evaluating your current status

4. Developing recommendations and alternatives to reach your goals

5. Implementing the recommendations in your financial plan

6. Monitoring and reevaluating your status and goals over time

Your personal financial plan should be tailored to your unique set of circumstances and goals. It should contain a checklist of the recommendations needed to help you reach those goals.

Your financial plan should contain both “defensive elements” such as estate planning and risk mitigation as well as “offensive elements” such as investment analysis and recommendations, retirement planning projections, education funding options, tax strategies as well as basic cash flow analysis.

Your financial plan should be in a written format, which will allow you to go back and reference it over time. Having a written document also makes it clearer with less likelihood of misunderstandings.

If you would like to have a better understanding of the areas that should be addressed in your plan go to http://www.chamberlainfp.com/fp_quiz.html and complete the Financial Satisfaction Survey. It is free and can be very enlightening. It has been said that” it’s what you don’t know that can hurt you most”. The survey is a good way of finding out the areas where you may need help.

The two important points to remember about obtaining a financial plan are:

1. Always go to a Certified Financial Planner practitioner ™. The CFP Board of Standards assures the public that the certified planner has met minimum education requirements, passed a comprehensive test, meets ethics standards, meets continuing education standards and has had at least three years of experience. There is no other certification that ensures the public of this level of the planner’s competency.

2. Never go to a financial planner who sells insurance or investments. Whenever there is a sale of a product there is a commission paid which creates a conflict of interest between what is best for the buyer vs. what is best for the seller. Regardless of how ethical the salesperson seems you never know if the sales recommendation is truly best for you or is best for the salesman. By going to a “ fee-only” planner (do not sell products) the recommendations will always be 100% objective since the planner has no vested interest in the recommendations because there is no benefit to the planner with the sale of a product. Numerous publications recommend that you should go to the following sites to find a list of “fee only” planners in your area. www.garrettplanningnetwork.com/ or www.napfa.org/

Do Not Stop Funding Your 401(k)!

By admin | 2009/06/22 11:57 Posted in Financial planning, Investing, My soap box, Retirement planning | Comments (0)

Regardless of what’s going on in the economy and the stock market, do not stop funding your 401(k) accounts!

Most workers with 401(k) plans have viewed their retirement savings as having trickled away with the current stock market plunge. In addition, 25% of US employers have or are planning to eliminate 401(k) matching contributions as a way to make it through these difficult economic times.

87% of those polled felt the companies matching feature was an important motivation for them to contribute to their 401(k). Without the match, there’s less motivation to contribute.

These two facts have prompted some individuals to stop contributing to their 401(k), which is exactly the opposite of what they should do.

Income in retirement comes from Social Security, (which has some significant issues going forward), pension income (which most come is no longer offer) and from resources saved during one’s working years (401(k), IRA, Roth IRA Sep IRA etc.)

The 401(k) is a great way to accumulate retirement dollars because;

1. The deposits a comes right out of the check and is deposited automatically,

2. There is usually a good choice of investment types

3. It is easy to administer

4. You save current income tax.

Now is a crucial time to make sure that your investments within your 401(k) are appropriate for your risk tolerance, you risk capacity and your goals including timeframe. Once you make sure you have the right allocation continue funding your 401(k) so that you’re more likely to have the retirement you envision.

Bank of America is at it again!

By admin | 2009/05/28 16:24 Posted in Financial planning, General info, Investing, My soap box | Comments (1)

A client recently called me and was shocked that the annual interest rate on the money market sweep account at Bank of America Investment Services is currently at 0% interest. Most other money markets are currently paying less than 1% interest.

Banks, and credit unions and mutual fund companies offer money market accounts. These accounts consist of very short-term debt securities. The investments are highly liquid and considered safe because of the short maturities of the underlining obligations. Last year there was some concern when some money markets held debt from companies in question such as Leman brothers. People and institutions use the accounts to park funds that they intend to use in the near future.

Most money markets invest in similar types of short-term investments but the big difference in yield is in the expense ratios. See some examples below:

Vanguard prime money market 0.28%

TIAA CREFF 0.25%

AARPMMF 0.33%

Fidelity cash reserves 0.44%

HSBC Prime MMF 0.80%

Columbia cash reserves 0.85% (This is the fund that BoA uses)

You will note that the BoA expense ratio is 3 times higher than what others charge. No wonder B of A Investment services money market is paying 0% when they pay out of line fees to themselves and their vendors.

It just goes to show that you need to look out for your self or have help watching out for you by some one who is not selling you a product!

10 Tips for Retirees in These Difficult Times

By admin | 2009/05/20 21:38 Posted in Financial planning, General info | Comments (0)

The recent economic changes impact everyone and particularly those who are retired. Whether it is a drop in value of your retirement account or decrease in interest rates at the banks, everyone has noticed.

The question is what can retirees do now? Some things are fairly obvious, such as delaying a vacation or just spending less on trips. Putting off major purchases as long as you can is helpful. But for more subtle hints a professional opinion is useful.

Here are 10 things retirees can do in these difficult economic times.

1. Shop your insurance program. There can be large differences in premiums from one company to the next and it is wise to re-shop your insurance package (home and car, etc.) with several companies every few years. The savings are often in the hundreds of dollars.

2. Do not take retirement plan distribution if you do not need them. A new law allows retirees to avoid taking a minimum distribution from certain retirement plans. The concept is to allow the values of the account to come back up and then resume distributions.

3. Get professional advice based on you and your situation. If you are unsure as to what areas where you could benefit from financial planning go to http://www.chamberlainfp.com/pdf/fp_security_survey_retire.pdf and complete the Financial Security Survey. It’s free and will be revealing.

4. Saving a dollar is easier than making one. Keep track of it on a monthly basis. You can do this with pencil and paper, computer programs such as Quicken® or Excel and there are several online versions such as www.mint.com. This is an easy way to help identify those areas you might be able to cut back on without impacting the quality of your life.

5. Beware of “its too good to be true”. Clients frequently call asking about an invitation for a “free lunch” to learn about an “investment that can never go down”, “earn extra money from your home” “Long term care without paying for it” etc. Remember there is often fine print or a hook. If you don’t understand it, avoid it or it least get a professional second opinion

6. Understand your investments costs. When you’re making a high amount of interest and the stock market’s going gangbusters, overpaying on fees may not seem too important. But in this environment, where every ½% counts it’s crucial that you have a firm understanding of all the fees (commissions, sales loads, deferred charges, redemption fees, exchange fees, surrender fees, account fees, management fees, distribution fees, account charges, and even statement fees). Depending upon the size of your portfolio this could save you thousands of dollars a year.

7. Do not let salesmen take advantage caused by the recent economic havoc. An 83-year-old client was recently sold an annuity at her bank where she cannot get all her money back until she’s 93, which is totally inappropriate.

8. Having the proper asset allocation in your portfolio is dependent upon your risk tolerance (a mental state), your risk capacity (your financial state) and your goals, which includes your timeframe. The people that felt the most pain with the recent drop in the market had the incorrect asset allocation. Now is a good time to make sure your asset allocation is correct.

9. Reevaluate your Medicare part D program every November 15th. For some of my clients this has saved them over $1000 a year. Never assume that the program you currently have will be best for you in the coming year. Each program changes every year as far as deductibles, copayments, preferred drugs as well as changes in the drugs that you take.

10. Know your options as to where you can seek financial advice. You have three choices:

a. Free information in publications, in the news or on the Internet as well as from friends or family. None of these sources are specific to your circumstances or come from inexperienced individuals.

b. Bank representatives, insurance salesman, and stockbrokers provide advice but are dependent upon selling you product to generate commissions. Whenever commissions are involved, conflicts of interest exist between what’s best for the client and the salesmen.

c. Registered Investment Advisors are required by the government to always keep the client’s interest first and disclose conflicts of interest and their compensation. According to numerous publications and financial writers, using a fee-only planner is the best way to get objective advice that is not influenced by the conflict of interest that takes place in a sale situation.

While these 10 tips will not undo the effects of the changes in the economy, they may well help.

Chamberlain Financial Planning