It’s tough and getting even tougher, to accumulate enough to retire. With the market crashing more often and people losing their jobs and their houses, it seems like they just can’t make any headway with saving. In the meantime, their life expectancy continues to increase and the likelihood of hyper-inflation, higher interest rates and higher taxes seems to be increasing.

Most people are aware of many of these issues although often don’t comprehend the impact they will have on achieving retirement. So, it’s not unusual for us to see clients who just haven’t saved enough to ensure a comfortable retirement.

But then, to make matters worse, they run into another roadblock they never anticipated. They are faced with bailing out their children. They have spent years putting their kids through school, paying for their sports programs, clothes, braces, medical expenses and saving for college. Finally, the kids graduate but they can’t get a job. Or, even if they do, they run up credit card debt, overspend or turn to drugs. Just when you thought you could focus on your own problems, you realize you kids are still dependent on you.

The more we talk to clients, the more this issue seems to surface. It’s not uncommon for at least one of our client’s children to have some sort of financial problem. In many cases clients are spending significant sums to help their kids make ends meet. At the same time they are seriously jeopardizing their own retirement.

So what can you do? If your kids are in their early teens, start educating them. Look for programs in your area that provide money management education. Inquire at your local high school to see if it participates in the NEFE’s (National Endowment for Financial Education) High School Financial Planning Program (HSFPP).

The NEFE website describes their program as follows: “The HSFPP consists of a seven unit student manual, instructor’s guide, and a dynamic suite of Web pages that offer a large, continually growing collection of resources, articles, and financial tools for teachers, students, and parents.” And, most important of all, the NEFE program is free.

If your child has graduated from college, you may be able to find a local financial planner who can work with him or her to teach them how to handle their money. Many planners offer such programs to their clients’ family members. Some offer “financial physicals”, priced reasonably, to help those just starting out to get on the right track.

Whatever you do, don’t just continue to give your kids money. You need to address the root cause of their problems: They don’t know how to manage their own money. Unless they learn in some manner, you’ll either have to take a tough love approach or continue to bail them out, further jeopardizing your own retirement. An investment in educating them, whatever the cost, will be worth every penny.

In our last post, The Biggest Money Mistake You Can Make, we discussed the fact that many people spend most of their productive time earning money and little to none of their time on managing the money they have. We suggested that they either learn how to manage their money themselves or seek out professional advice. (The article can be viewed on our website. The way we look at it is this: Just because you are skilled in your profession and make a good living does not mean that you are expected to be an expert in managing your money. That’s like saying that you should be able to be cure yourself of disease because you know your own body best. After all, money management was never a mandatory class we had to take in high school, was it?

Unfortunately, many individuals are reluctant to seek professional advice for a variety of reasons. Below, we’ve listed some of the most common reasons and how you might get over each hurdle:

Overcoming Emotions: Some people are ashamed of the state of their financial affairs or feel guilty about letting their finances deteriorate. They are embarrassed to share the details of their situation with a financial advisor. If you are in that position, you need to understand that financial advisors are in the business to help people resolve their financial problems. They don’t expect people to be perfect or to know everything about managing money. The majority of planners we know have a true desire to help people with their money problems and would never belittle or embarrass anyone about their financial situation.

Worry about Cost: Many people are concerned about how much it might cost to seek professional help. Costs vary significantly. This is an area you need to pay special attention to. Some advisors “charge nothing” for financial advice. Beware of this type of arrangement. These advisors make their money on other fees or commissions and may or may not be qualified to give comprehensive financial advice. Others charge fixed fees or hourly fees. Whatever the fee arrangement, make sure it is clearly defined and get it in writing.

Let’s suppose an advisor wants $ 2,500 for a comprehensive plan. Are the financial savings likely to justify such a fee? Often a good advisor can significantly reduce taxes or expenses on one’s portfolio. Even a small reduction in taxes and expenses can result in thousands of dollars in just a few years. A review of your insurance policies can also be a potential way to save money. Advisors often help clients reduce their tax liabilities. And, don’t ignore the fact that any cost savings you realize can attribute substantially to your peace of mind as you plan for your financial future. These are only a few ways a comprehensive financial plan can reap significant benefits.

Procrastination: Some people just keep putting things off. If you are one of them, remember that each day you wait can be costing you significant savings in taxes, investment expenses, better investment returns as well as a number of other possible savings. A portfolio invested in holdings that carry high management fees can be costing you hundreds, if not thousands of dollars and you may not even realize it. Aristotle once said: “Well begun is half done.” The sooner you start, the sooner you’ll start to reap the benefits.

Fear of Getting Bad Advice: Some of you are perhaps worried about getting bad advice, being taken advantage of or just don’t know where to look to find a financial advisor. To start with, seek out a Certified Financial Planner® licensee. The Financial Planning Association website has a “Planner Search” function that can help you identify planners in your area. You can also visit the Certified Financial Planner Board of Standards website for information on how to choose a planner. Both sites include interview questions you can ask as you search for a qualified planner. We recommend that you interview several planners before making a selection. Don’t be afraid to ask questions!

Keep in mind also, some of the other benefits of seeking help. A financial advisor can help you take control of your financial affairs and give you a feeling of empowerment. They can help you clarify your goals and give you a detailed plan to accomplish them. Hopefully, the information above will help those of you who need some financial advice get over the hurdles that are currently getting in your way.

Those of you working full time spend 25% or more of your time working to earn a living. On top of that, many of you spent significant time and money to gain the skills of your trade or profession. With all this effort made, we are amazed at how many people spend so little time on managing their hard-earned money.

The biggest money mistake you can make is not making a serious effort to make sure your money is managed effectively. Understandably, some of you don’t have the skills, knowledge or the time to manage your own finances. You have two choices. You can educate yourself by taking courses or reading or you can hire a qualified advisor to help you with your finances. And even if you hire a professional to help you, you still need at least a basic level of knowledge to evaluate the effectiveness and value of your investment advisor.

Many of you might be amazed at how much you can do yourself, by spending some time reading. In the post, we have periodically reviewed investment books that we believe provide the best advice available. See the previously published article on our website titled “Must Reads for the Do-It-Yourself Investor”. Visit our website and click on our “In the News” web page to view this and other educational articles. There are numerous other publications that provide sound money management advice.

If you seek a professional, we highly recommend that you seek out an advisor with the Certified Financial Planner® (CFP®) designation. These days, anyone can call themselves a financial planner and there are a myriad of professional designations used. The majority of news programs and magazines that discuss considerations in selecting a financial planner, recommend the CFP® credentials.

Pay special attention to how the advisor charges for his/her services. Traditionally, investment advisors made their money from commissions. Others are called “fee-based” advisors who charge clients for a percentage of the assets managed. We believe that “fee-based” services are generally preferable to commissions based services. This is because fee-based advisors have more incentive to recommend stocks and mutual funds that are in the best interest of their clients.

A relatively few advisors charge by the hour or charge fixed fees for their services. We believe this approach is superior to either commissions or fee-based services. Since the fees are more transparent and typically not biased towards any particular investment companies or products, clients tend to feel more comfortable and more in control of their investment decisions.

Whatever you do, don’t hire someone just because they are nice. They might be smiling while they pick your pocket. Make sure your advisor is qualified and honest. Ask for references and focus on the advisor’s qualifications and experience. Check their credentials and review your statements carefully to be sure you understand what you’re being charged. For more specific ways to judge your investment advisor, visit our website and see our past article titled “Is Your Financial Advisor Acting in Your Best Interest”.

It is quite common for people to use joint tenancy (with right of survivorship) in their estate planning. This is especially true for seniors whose spouses have predeceased them. Consider the following example:

Instead of going to the trouble of creating a revocable living trust, Mom (Dad passed away a year ago) titles her house jointly with her son Frank, and re-titles her investment account to be jointly held with her daughter Mary. She re-titles her checking and savings accounts to be jointly held with her other daughter Jennifer. The house is worth $300,000, the investment account $150,000 and the checking and savings, about $35,000.

Mom is confident that the children will share her assets equally between them. Unfortunately, Frank’s wife dies and he then remarries. His new wife Elaine, doesn’t like either Mary of Jennifer. The children’s relationship becomes strained. When Mom dies, Elaine convinces Frank that he deserves the full value of the house. Mary and Jennifer split the remaining $185,000 but lose out on their share of the house.

Mom was sure her children would share her assets equally. After all, her will specified that everything be split equally among the three of her children. The above example illustrates just a couple of common problems with joint tenancy with right of survivorship (JTWROS).

First of all, many people commonly assume that their will controls the disposition of their assets. That’s true, in part, however, wills only control the disposition of assets titled in the name of the person who wrote the will. Property held jointly with right of survivorship passes immediately upon death to the joint owners, by what is called “operation of law”. IRAs, 401(k)s and insurance policies are disposed of according to beneficiary designations.

Therefore, Mom’s joint assets will only be shared equally if all joint owners want to. In our experience, issues between siblings that have existed for years often boil to the surface after Mom and Dad are gone. Sometimes it is the distribution of personal items that triggers the conflict. Depending on the good will of your children to make joint titling effective is a big mistake.

There are other problems with joint titling. In many cases, naming another individual who contributed nothing to the purchase of the property actually constitutes a gift. And, under current gift tax rules, if the share being gifted is more than $13,000, a gift tax return may need to be filed (married couples are exempt from these rules and other situations may be exempt). We suggest that anyone doing this should check with their tax advisor or attorney.

Another problem with joint titling is that the original owner may lose control of the property. Mom may want to later sell her house but if Frank wants to keep it a conflict may surface. Also, if Frank gets sued or files for divorce, his interest in the house could be in jeopardy. Tax liens or actions by creditors could also have an impact on joint property.

In conclusion, if your parent is considering re-titling assets jointly with you or your siblings, make sure they all are aware of the disadvantages of doing so and discuss the issue with your financial advisor, attorney or tax advisor first.

We thought our readers might be interested in some of the common mistakes we see day in and day out in our financial planning practice. Here’s a quick review:

Mistake # 1: No Estate Planning at All

No one likes to think about dying, so perhaps that explains why so many people do nothing at all to plan for their passing. What they don’t realize is that if they die without a will, their state’s laws will likely determine how many of their assets are distributed.

But estate planning involves many more tasks than just writing a will. Establishing proper beneficiary designations, proper titling of accounts and planning for guardians for minor children, are examples of just a few. Most people at least make an effort to acquire life insurance, so why would they ignore making plans to ensure their estate is in proper order for their loved ones? In some cases, it’s probably just a matter of ignorance.

Mistake # 2 Not Following Through

More often than you can imagine, we see people who have made the effort to create an estate plan but fail to follow through on implementation. They spend $1,000 or $2,000 to hire an attorney, who creates wills, powers of attorney and in some cases trusts. They sign the papers, walk away and feel good that they’ve finally gotten their estate planning completed. They fail to change their beneficiary designations or fund their trusts (This involves re-titling accounts in the name of their trusts). In some cases they don’t even read the documents to check for obvious typos. Don’t pay thousands of dollars for an estate plan and skip the implementation.

Mistake # 3 Forgetting What You Learned

For many, estate planning is a learning process. You have to learn about wills, titling of assets, the probate process and beneficiary designations. The legalese is dry and boring. So what do they do? They don’t listen to their attorney and/or forget what they’ve learned. They continue creating new savings and checking accounts titled jointly with their children; they forget to add contingent beneficiaries on their retirement accounts. They add new accounts titled in their individual names. After a time you might not have guessed that they ever met with an estate planning attorney.

Mistake # 4 Failing to Update the Plan

Tax laws change; family members die; couples get divorced; grandchildren are born. In short, events happen that require that your plans be updated. Too often, people create their estate plans and then fail to periodically update them. Estate planning is an ongoing activity. You can’t just do it and then forget it. If you do it may all be for naught.

In summary, estate planning can be a fairly complex undertaking. There are many ways to make mistakes. What we’ve outlined above are but four of the most common ones that we see. With some awareness and a little effort we hope you can avoid these basic mistakes.

It seems that more and more young people have dreams of retiring by age 50 or even sooner. Add to that, significant numbers of employees that are being let go in their early 50’s with 30 or more years of seniority. The result is substantially greater numbers of people considering early retirement. However, in more than a few cases, they will find themselves between “a rock and a hard place”.

The issue early retirees face, in many cases, is not that they don’t have enough money for retirement (though that is also often an issue); it’s having liquidity. Many have saved diligently but have all their cash tied up in retirement accounts or taxable assets with significant tax liabilities.

As a result, many employees suddenly faced with a forced early retirement may have limited options. If they have a pension, it likely has a reduced payout for those under age 65. If they can rollover the pension to an IRA they could take a stream of “substantially equal periodic payments (SEPP) from the rollover pension IRA under IRS rule 72(t), but due to their age (early fifties), those payments might not meet their needs if interest rates are low, like they are currently. In addition, once they start SEPP withdrawals, they can’t change the amount for five years or until age 59 and ½, whichever occurs later. (Note: they could take SEPP withdrawals from their other IRAs and 401(k)s as well).

They could take early retirement distributions from their 401(k)s and their IRAs but would have to pay a 10% tax penalty since they are under age 59 and ½. (Note: if they are over age 55 when terminated from their job they can take distributions from their 401(k) without having to pay the 10% penalty.)

In many cases, they will need to find another job to bridge the gap until they can begin collecting Social Security. They have heeded the guidance of financial advisors to maximize their 401(k) contributions, contribute to non-deductible IRAs and establish Roth IRAs. More often than you might imagine, they have not saved outside of their retirement accounts, and in many cases, don’t even have an emergency fund.

At a minimum, they need an emergency fund of cash to meet three to six months of living expenses. (Note: In today’s economy, six months to a year of living expenses seems more prudent.) Often, the only cash they have is in their checking and savings accounts and then only enough for day-to-day needs.

Assets to meet emergency situations need to be able to be converted to cash easily, without loss of principle. Therefore, they need to be invested in a checking account, savings account, money market account or the equivalent. They should not be kept in an investment asset that is subject to market-price fluctuations. Otherwise, they might have to be liquidated during a down market, thereby eliminating the opportunity to wait for a rebound.


Clearly, a six to twelve month emergency cash fund would make such a situation much more bearable. It would allow people to avoid onerous tax penalties, give them the option of taking the early retirement and buy time to obtain another job to bridge the gap between employment termination and when they could start collecting Social Security.

Sometimes we place too much emphasis on maximizing contributions to our retirement plans so that we can earn tax-free returns. We need to make sure that we have a basic safety net of emergency funds and insurance coverage in place first. Having lots of savings is great – just make sure you have enough in liquid assets for that always unforeseen emergency.

It used to be that workers stayed with one company for 30 years or more, worked at least until age 65 and then retired. They funded their retirement with a generous defined benefit pension plan and Social Security. It is not uncommon now to hear young people talk of retiring early, sometimes as early as age 50.

Gen Xers, the generation born after the baby boomers, will find it more difficult to retire, at any age than the baby boomers who preceded them. Defined benefit plans are basically a thing of the past. A few companies still have defined benefit plans but the trend is to change to defined contribution plans. Young workers today are unlikely to have the benefit of a pension at their retirement. One exception may be government workers who still enjoy this benefit.

While it’s highly probable that Gen Xers will still receive Social Security payments at retirement, it also seems highly likely that those payments will be less than what’s available today. As more and more baby boomers retire, it will be increasingly more difficult to adequately fund the program, leaving Congress little choice but to reduce benefits and/or postpone eligibility.

Current high deficits and any other new big government programs could lead to further declines in the dollar, an increase in interest rates and subsequent increases in taxes.

It seems highly likely therefore that Gen Xers will have to provide for their retirement via their own savings. Neither the government nor their employer will be a significant provider.

An example may help illustrate why the Gen Xers need to start saving early. Let’s suppose 30 year old John wishes to save $1 million between now and age 65 to supplement his Social Security payments and live a modest retirement. According to financial planning studies, in order for his money to last through a thirty-year retirement in all kinds of markets (from age 65 until age 95), he would need to limit withdrawals to about 4% a year. That 4% can then be adjusted for inflation each year. For a nest egg of
$1 million dollars, the first year withdrawal would be $40,000. Assuming 3% inflation, the second year withdrawal would be $41,200, etc.

If we assume a 6% after-tax rate of return, John would have to save approximately $ 700 a month for 35 years to reach his goal! If you then assume inflation will average 3% for each of those 35 years, at age 65 John’s $40,000 will only have a purchasing power equal to about $14,215 in today’s dollars!

To make matters even worse, Gen Xers will likely have significantly longer life expectancies than baby boomers. This, of course, means they’ll need even more money than the boomers. And, if they want to retire at age 50, they’d better hope they inherit a bunch from their boomer parents or really kick their savings up into high gear!

It used to be that workers stayed with one company for 30 years or more, worked at least until age 65 and then retired. They funded their retirement with a generous defined benefit pension plan and Social Security. It is not uncommon now to hear young people talk of retiring early, sometimes as early as age 50.

Gen Xers, the generation born after the baby boomers, will find it more difficult to retire, at any age than the baby boomers who preceded them. Defined benefit plans are basically a thing of the past. A few companies still have defined benefit plans but the trend is to change to defined contribution plans. Young workers today are unlikely to have the benefit of a pension at their retirement. One exception may be government workers who still enjoy this benefit.

While it’s highly probable that Gen Xers will still receive Social Security payments at retirement, it also seems highly likely that those payments will be less than what’s available today. As more and more baby boomers retire, it will be increasingly more difficult to adequately fund the program, leaving Congress little choice but to reduce benefits and/or postpone eligibility.

Current high deficits and any other new big government programs could lead to further declines in the dollar, an increase in interest rates and subsequent increases in taxes.

It seems highly likely therefore that Gen Xers will have to provide for their retirement via their own savings. Neither the government nor their employer will be a significant provider.

An example may help illustrate why the Gen Xers need to start saving early. Let’s suppose 30 year old John wishes to save $1 million between now and age 65 to supplement his Social Security payments and live a modest retirement. According to financial planning studies, in order for his money to last through a thirty-year retirement in all kinds of markets (from age 65 until age 95), he would need to limit withdrawals to about 4% a year. That 4% can then be adjusted for inflation each year. For a nest egg of
$1 million dollars, the first year withdrawal would be $40,000. Assuming 3% inflation, the second year withdrawal would be $41,200, etc.

If we assume a 6% after-tax rate of return, John would have to save approximately $ 700 a month for 35 years to reach his goal! If you then assume inflation will average 3% for each of those 35 years, at age 65 John’s $40,000 will only have a purchasing power equal to about $14,215 in today’s dollars!

To make matters even worse, Gen Xers will likely have significantly longer life expectancies than baby boomers. This, of course, means they’ll need even more money than the boomers. And, if they want to retire at age 50, they’d better hope they inherit a bunch from their boomer parents or really kick their savings up into high gear!