How to Find Trustworthy Help For Retirement Planning

Good help is difficult to come by these days. And when it comes to choosing an expert to help you make critical decisions for retirement, rollover your 401(k), or manage your investments, those willing to act in your best interest seem few and far between. There are just too many ways advisors can take advantage of their clients for financial gain.

Some people are just crooks. I’ve definitely seen enough of that! And others, though they aren’t bad people, are led astray by high commissions that line their pockets at the client’s expense.

That’s why you need some guidelines for finding a retirement planner who truly has your best interests in mind. They all say they do, but it takes some discernment to know which ones are the most trustworthy.

Without further ado, let’s put first things first…

Don’t Get Stuck With A Sales Person—Choose a Fiduciary!

This is by far the most important way to find good help.

Why?

Well… fiduciaries are ethically and legally required to act in your best interest. That doesn’t mean they always will. After all, legislation cannot make a dishonest person honest. However, you are significantly better off choosing a fiduciary who is held to a legal standard than someone who isn’t.

There are other governmental standards for advisors and financial planners who aren’t fiduciaries, but they are significantly more lax. And, unfortunately, some people take advantage of the extra slack on the leash.

In deciding whether someone is a fiduciary or not, don’t be misled by titles such as “financial advisor” or “wealth manager.” There’s nothing wrong with these titles, but anyone can slap them on a business card. So, when it comes down to assessing quality—the titles don’t mean much of anything. Just because someone says they are an advisor, doesn’t mean it’s in their heart to give you the best advice.

Instead of relying on titles, you should simply ask (point blank) if he or she is legally mandated to pursue your best interest. In other words, it is best to just ask, “Are you legally required to act as a fiduciary on my behalf?” It is even better if you can get the statement in writing.

Consider a Fee-Only Advisor

Fee-only advisors don’t receive commissions based on their sales. They are paid either a flat fee or a percentage of your assets that they manage, and that is it. A fee-based manager, on the other hand, is also paid commissions on the products they sell. Most of the time, this isn’t a big deal.

But what if one of these said products awards them a fat commission with every sale?  And what if, despite the fact that the product isn’t at all right for you, they decide to sell it to you anyway? Do you see the conflict of interest and the potential devastation to your portfolio?

This is why it is best to choose a fee-only manager, or at least maintain a healthy level of skepticism with those who have significant conflicts of interest.

Beyond this, I would just ask that you remain sensitive to any red flags. Before you choose to work with anyone during this crucial time of financial transition, ask yourself the following questions:

• Do they take the time to educate you about your options?
• Can they back up their advice with sound, understandable reasoning?
• Do they begin and end with an analysis with your unique situation?
• Do they give you time to process without rushing your decisions?

Sound retirement planning advice is always educational. It is always transparent. It is always you-centered. It is never rushed.

This doesn’t necessarily mean they will lecture you about the ins and outs of the stock for hours on end, and it doesn’t mean they won’t ever miss a relevant aspect of your financial situation when giving you advice. I’m not trying to hold retirement planners to impossible standards.

But I’m also trying to keep you safe from those who only seek to take advantage of you. According to ARRP’s article, “Managing Your Money Manager,” “the government estimates that Individual Retirement Accounts alone lose $17 billion a year to ‘me first’ investment advice from salespeople who wring commissions and fees from their trusting clients.”

We don’t want your money to become a part of that statistic.

Want a Certified Financial Planner to analyze your investment portfolio at no cost to you? Call Seniormark at 937-492-8800 for a free no-obligation consultation.

The #1 Investing Mistake Soon-to-be Retirees Make

I’ll cut right to the chase. The #1 investing mistake soon-to-be retirees make is investing like a 25-year old. Although age is but a number in most respects; in this case, it is so much more. It affects investment strategy. And, in turn, it affects another very important number to you: your retirement savings.

From Growth Emphasis To Preservation Emphasis

Here’s why. Age should affect your approach to risk. As you get older, your portfolio should evolve from one that emphasizes growth to one that emphasizes preservation. This means that—as you approach 65—you should avoid risky and aggressive investing strategies in favor of a more conservative approach.

Aggressive strategies work well for the previously- mentioned 25-year old because in his “growth-minded” portfolio, he has time to recover from losses. Those drops in in the stock market will eventually even out over the long haul of his working life. In other words, the risk will eventually reap reward.

But you don’t have a long haul anymore. Your nest egg can’t afford to suffer any catastrophic losses because you simply don’t have the time to recover. It’s true! Now is the time for more bonds and less stocks. It’s time to roost on that nest egg. At this point in life, high risk does nothing but set you up for a great fall.

Remember the Financial Crisis of 2008?

It was a bleak time for everyone, but especially for soon-to-be retirees. According to the U.S News and World Report, retirement savers suffered 2 trillion in stock market losses!

Imagine the regret as soon-to-be retirees watched their hard-earned money slip through their fingers. Imagine the frantic worry as they thought about their retirement savings. Would they have enough savings? Would they have to go back to work part-time? Would they have to delay their retirement?

In fact, the Huffington Post claims that back in 2008, a poll concluded that 63 percent of Americans were worried about not having enough for retirement. For older Americans, the fear was probably even more intense!

So What If It Happens Again?

I’m not saying it will, at least, not with the same severity. But business cycles are consistent. The stock market will fluctuate. It can only go up for so long before it takes a turn for the worse.

And where will that leave you? In the U.S. News and World Report article “How Did Your 401(k) Really Stack Up in 2008,” the author points out that during the financial crisis stocks fell 38% while bonds dropped only 8%. This just goes to show that more conservative strategies (like bonds) do better in a recession. You can’t avoid loss during stock market crashes, but you can lessen the impact by adjusting your risk!

 The Moral of the Story: Assess (and Reassess) Your Risk

Over the last couple of months, we’ve had half a dozen or so retirees come in with sky scraping risk scores. On a scale from 1-100 with 100 being the most aggressive, their scores were anywhere from 75-90. This is astounding! Why would they be so risky so late in life?

There are a number of reasons, but I think the most common one is that they simply don’t know. One of those previously mentioned clients told us that her portfolio was very conservative, and it turned out being a 76! Imagine if her stocks suddenly plummeted. With risk like that, it wouldn’t be surprising to lose 25-35%.

We don’t want this to be you! We want you to plan ahead, to become an expert on your investment strategy as you approach retirement. Because—although we want you to live like a 25-year old—we don’t want you to invest like one.

Want to perform a risk analysis? Contact Seniormark at 937-492-8800 to set up a free consultation.

Will You Outlive Your Nest Egg in Retirement?

If this question is on the forefront of your mind as you approach retirement, you are not alone. According to recent studies, this is the primary concern of soon-to-be retirees just like you:

• 43% of workers fifty or older say that outliving their money is their most significant retirement-related fear.
• 57% of financial planners state that running out of money is their clients’ most pressing retirement concern.
• 60% of older Americans fear outliving their savings more than death itself.

Truly, these figures speak to sleepless nights and anxiety of many older Americans, especially considering that many are less afraid of the grim reaper than an empty pocketbook.

But before you jump on the bandwagon of restless worry, I think it is important to step back and consider whether your fears are founded at all. Although there is definitely reason to believe that many Americans are financially unprepared for retirement, this doesn’t mean that you are. In fact, most of the clients I work with at my offices in Sidney and Troy have saved enough for a modest or beyond modest standard of living in retirement.

So, how do you find out? I have two words for you: income planning. In order to help ensure that you have enough money to last your entire life expectancy, you must analyze your situation and put an adaptable plan in place.

Although income planning is often a confusing and overwhelming process in all of the details, at its core, it is really only a few simple steps. Here is a rough sketch of what the income planning process looks like to get you thinking in the right direction:

1. Check Your Income Sources

Almost everyone has steady sources of income that form the foundation of any good income plan. Start by figuring your Social Security benefit, and then add in your pension or income from rental properties (if you are lucky enough to have either of these). The key here is to add up any and all sources of reliable cash flow, perhaps even cash flow from part-time work in retirement (yes, I realize that seems crazy, but many retirees are choosing to work).

2. Analyze Your Other Savings and Retirement Accounts

This includes investments and savings accounts as well as any qualified retirement account such as an IRA or 401(k). The idea is to calculate any lump sum amounts you will draw from to supplement your income sources. Once you’ve completed this step, you are ready to move on to the next (less enjoyable) step.

3. Calculate Your Expenses

What I am talking about here is your basic expenses. This doesn’t include travel or big-ticket purchases such as boats or snowbird homes. This is about monthly necessities like food, water, shelter, car payments, mortgage payments, and the like. Start with what your bills are now, and then compare that to retirement. Will you have a car payment well into your retirement, or will you pay that off soon? What about your mortgage? How will your healthcare expenses change? For almost all retiring 65 and over, this means considering how much Medicare will cost them (read this blog to see) as opposed to their private insurance or employer plan.

4. Run The Calculation

This step involves plugging all of those numbers into a system, either a homemade excel spreadsheet or an online program. This will help you figure out the chances of you making it your entire life expectancy without running out of money. With our clients, we use Money Guide Pro. This system runs a thousand different scenarios, calculating probabilities on various unknowns. It enables us to consider a wide variety of factors such as inflation, taxes, or potential dips or spikes in your investment portfolio that are difficult to calculate by hand.

5. Add in Fun Extras

This is where it can get fun. If your chances of success are very high, you can add other “extra” expenses into your plan. Perhaps you want to go on a $5,000 trip every year to an exotic location. Perhaps you want to give back to your community so much every month. Whatever your dreams and goals are, you can add these in and rerun the calculation. You can continue to do this as long as your chances of success remain in a comfortable range!

Want Someone to Crunch The Numbers for You?

At Seniormark, we realize that income planning is easier said than done. But however difficult it may be, it simply must be done in order to answer the question weighing on so many minds: Will I outlive my nest egg in retirement?

Give Seniormark a Call for a free consultation at 937-492-8800 and put your fears to rest!

“Fear Not!” Is Still the Best Investment Advice

Here’s a crude snapshot of a conversation I had with my client a few months ago. I think you’ll find it heartbreaking:

“I see you have all your investments in a money market account.” (Note: this is an extremely low-risk investment option)

“Yeah…I did that when the market crashed in 2001. I started losing lots of money, and my portfolio dropped from $120,000 to $80,000. I got scared, so I pulled out and switched to a lower risk investment.” He paused. “I think I made a mistake.” Then he grew curious. “I have $100,000 now. How much would I have if I would’ve stayed put?”

I cringed a little bit. The question is a recipe for regret. “Are you sure you want to know that number?” He nodded. So I did a little number crunching. Here’s the grand reveal: “You would have $200,000 right now,” I told him.

The man was mild mannered. He didn’t overreact. “Ohhhhh…..that’s a lot of money,” he said. But even if he couldn’t sense the full effect of that sting, I felt it for him.

What kills me is that it was just one, fear-based decision. A natural, understandable fear, of course, but that doesn’t change the fact that it led to a poor investment decision, one that cost him $100,000.

In fact, fear almost always leads to poor investment decisions. It consistently causes investors to sell when the market hits rock bottom and buy back in when it is already well on its way to recovery.  In other words, fear causes investors to disobey the most fundamental rule of investing: buy low and sell high. It subdues logic in its cage and releases an irrational beast, bent on destroying your portfolio.

Case Study: The “Great Recession” of 2008

2001 isn’t the only time this happened, and my client certainly isn’t the only case. The “Great Recession” also caused a great deal of panic and poor decisions. If you check out this graph created by BlackRock Mutual Funds, you’ll see what I mean.

Allow me to help a bit with the interpretation. The blue line represents the stock market performance. The light blue bars represent money invested in mutual funds, or…in finance jargon… the “Net Equity Mutual Fund Flow”.

You’ll notice something quite peculiar if you attend to the circled section of December ’08, the stock market crash. During the fright and terror of that lowest dip, a lot of people sold their mutual funds. The blue bars at their lowest point (far below the axis) evidence this.

And when did investors buy back in? Note that the blue bars follow the stock market line very closely. By the time most people bought back in, the market was already near its next peak. People were selling low and buying high! This is not a good investment strategy.

A Little Advice For a Big Problem

No one knows what the market will do tomorrow. It might go up. It might go down. It might fluctuate a little. It might fall or rise dramatically. There are a lot of uncertainties in investing.

But one thing is for sure: the stock market consistently grows over the long haul. According to distinguished finance professor at Wharton, Jeremy Siegel, it has grown an average of 6.5-7% per year over the last 200 years. But one of the major problems is that fear zaps long-term vision, blinding investors to the future possibility of growth as they watch their hard-earned money plummet in the present.

So here is the little piece of advice: Like an angel who appears in the dead of night, “Fear not!” The sensationalist media of apocalyptic proportions is lying to you.

As long as your portfolio is truly diversified and matched to your risk tolerance, as long as you regularly review your investment strategy with a professional, don’t lose your head!

You’ve got nothing to fear but fear itself.

Need a risk analysis at no cost to you? Call Seniormark at 937-492-8800.

Investing Fact Check: No One Can Predict the Future

Not the common investor. Not your financial planner. Not even the “big wig” finance-savvy gurus.

I get it. It’s alluring to think you might have a competitive edge. The seductive power of huge yields in a short amount of time is almost magnetic. And it’s definitely a good marketing point for investment advisors who claim they can “beat the market”. But the truth is, market timing and stock picking just don’t work.

Of course, people score big sometimes. They might even get lucky a few years in a row. But, in a way, this is just dangerous. Like a gambler with a string of good hands, these people may begin to think they’re invincible, play hard for another year, and—eventually—return home with empty hands in their pockets and a droopy tail between their legs.

The results are in.

In fact, they’ve been in for a long time: When it comes to investing, you are your own worst enemy. Investor behavior consistently causes people to under perform over the long haul.

In Dalbar’s 22^nd Annual Analysis of Investor Behavior, they discovered that the average investor under performed the S&P 500 by 3.66% in 2015. According to Dalbar, “while the broader market made incremental gains of 1.38%, the average equity investor suffered a more-than-incremental loss of -2.28%”. This type of data is consistent over the last 20 to 30 years. Over the last 20 years, the S&P 500 has outperformed the investor by 3.52%.

And with the “expert” investment managers, the results still aren’t that hot. In 2014, 86% of them failed to beat the market.

So why is this happening?

Maybe it has something to do with the fact that the average equity fund retention rate of 2015 was 4.10 years. This means that every 4.10 years the average investor changed his mutual fund to chase the hot returns of another investment option, ultimately trying to beat the market, ultimately believing they (or a financial guru) could predict the future.  If you just jumped down to this point, see the above statistics. It didn’t work.

So why do investors still believe it?

If it doesn’t work, then why do people still do it? There are many reasons why. Perhaps it is just lack of research and reflection. Or perhaps it is because people are looking at their stocks in a vacuum, thinking that their 6% return isn’t bad even though the S&P performed at 8%.

But I think the biggest reason is that they don’t look at the big picture. They see the ads that say “if you would’ve picked this stock last month, you would be up 40%” or “Here at (insert investing company name here), we’ve beat the market 3 years in a row”. They see the Warren Buffets of the world and forget that these are just isolated cases. When you zoom out and see the million other people who tried to beat the markets and failed, the truth comes into focus.

So—in the end—you can choose to do what many investors are doing.

Or you can choose the time-tested, statistically verified way: diversify your portfolio and wait…without touching it. If you’re retiring soon, I recommend this strategy. You don’t have time for risky moves. You don’t have time to make up for heavy losses.

Instead, you need an investment strategy that safeguards your portfolio from crippling losses, while allowing it to grow—slowly but surely—well into your retirement. It’s not flashy. It won’t get you on the cover of Money Magazine. But unlike trying to predict the future—

It works.

Want a Certified Financial Planner to analyze your portfolio at no cost to you? Call Seniormark at 937-492-8800 for a free consultation.

Do You Know How Much Money Your 401(k) Could Lose This Year?

In other words, I’m asking, “Do you know your risk?”

But I didn’t ask it that way because I know that, for a lot of people, risk is this abstract, distant, otherworldly life force. They know it has an effect on their portfolio, but not to what extent or—in all reality—how.

Tell me if this scenario resonates with you.

You are stuffed in a room with 100 or so of your coworkers of all ages. A well-dressed financial rep enters the room. He’s here to talk about your 401(k).

Speaking in generalities, he outlines 5 different portfolios from conservative to aggressive: “If you’re a riskier person, you might want to go with the more aggressive portfolio. If you’re more careful or getting ready to retire, you might want to go with one of these more conservative ones.”

After a good amount of explanation, he asks you to choose. So you do…kind of haphazardly. You pick one that you think matches your risk tolerance, or maybe you pick one considered to be “middle of the road”. You’re not sure what you got yourself into, but…hey…how bad can it possibly be?

Of course, this scenario plays out in a lot of different ways. But, from my 19 years of experience, it’s typical. The only problem is, it doesn’t reveal what’s really important to you: how much money you could lose or gain. You don’t really understand. You just choose, and risk remains some abstract, otherworldly concept.

So let’s get it back into orbit. In fact, let’s land it right in your neighborhood with some meat and bones substance. Do you remember which of those 5 portfolios you chose?

Well…here they are, demystified, showing you in-the-ballpark figures for how much you could stand to lose and gain in a given year:

• Conservative (33 risk score): -10% or +20%
• Moderately Conservative (47 risk score): -18% or +32%
• Moderate (59 risk score): -24% or +40%
• Moderately Aggressive (68 risk score): -28% or +46%
• Aggressive (72 risk score): -32% or + 48%

Note: Risk Scores are based on a scale of 1-100 with 100 being the most aggressive.

They might have slight variance in risk scores, percentages, and names from company to company. Your particular portfolio may be a bit different, but this is the typical landscape of the 401(k) options offered to you.

This means that—with a $100,000 401(k)—you could stand to lose $32,000 with the aggressive option, $24,000 with the moderate option, and $10,000 with the conservative. All in one year.

In light of what you chose, how does that make you feel?

If you are comfortable with the loss and gain, you made a good choice. If you’re scared, you didn’t, and you need someone to make adjustments so your portfolio matches your risk tolerance. Simple, right?

You have just experienced a wonderful taste of a personalized risk analysis.

This is what I do with my clients. I sit them down. I analyze their portfolio. I tell them what percentage they could lose or gain in a year.  And then I ask a very important, very telling question: “If you were to lose (insert dollar amount of potential loss here), would you be comfortable with that?”

They have one of three reactions:

1. “Oh no, that’s way too much.”
2. “Yes, I’m comfortable with that.”
3. “Yes, and I would be comfortable with more loss if it means more gain.”

In my practice, working mostly with soon-to-be retirees, I usually get the first reaction the most. And for good reason too! People who will be retiring soon should have a conservative portfolio. They shouldn’t invest aggressively like a 25 year-old because they just don’t have the time to make up for losses.

But if they never check the risk of their portfolio, they will never make those necessary adjustments.  And when the economy takes a turn for the worse (eventually it will), they could lose one-third of their money when they need it most. They might even make a fear-based decision to pull their money out, locking them into those losses for good.

I don’t usually show so much urgency, but I know how important it is. I’m not going to knock down your door, but I will implore you now.

Don’t let this be you.

Need a personalized risk analysis at no cost to you? Call Seniormark at 937-492-8800 for a free consultation.

Wondering what to do with your 401(k) after you retire?  Consider attending our 401(k) workshop offering, designed to help you answer your most pressing questions. There are no high-pressure sales attempts here, just an in-depth and informative discussion about your options. Click here to discover more.