Navigating an Estate

Please pardon the significant gap between posts.


Last month, after years of more good cheer and grace than anyone could have asked for given her circumstances, my mom passed away. She has been significantly diminished for several years and my brother and I have long missed the mother we grew up knowing. What has surprised me is how much I miss spending snippets of time with even the shadow of her that I've grown used to seeing on a regular basis in recent years. Biology is a powerful force, and losing a parent under any circumstances is a major life event.


As we sort through our emotions, my brother and I are also getting a first-hand lesson in funerals and estate administration from the state of Maryland and the custodians of my mother's last few accounts. Here are a few tidbits and tips we can share for anyone who finds himself in our shoes:

• Find out, far in advance, what your parents' wishes are so that you can honor them to the extent it is possible. Our mother executed a complete set of documents -- a will, medical power of attorney, durable power of attorney, and living will-- several years ago when she was first admitted to the nursing home. This allowed us to instruct the staff to move into hospice mode, according to her wishes, when she was obviously terminal. She had also purchased a plot in the cemetary where her parents are buried. It was not the resting place we might have selected for her, but it was her choice and we were happy to be able to grant her one last wish.


• Make sure you have access to any safe deposit boxes, know where tax returns are stored and have the addresses and social security numbers of all beneficiaries.


• The staff at the funeral home can be extremely helpful when you are really in need. They are experts in planning funeral logistics and can tend to many details that you may not have considered or be prepared to handle in the midst of your grief. In addition to all of the funeral details, the funeral home also took care of applying for death certificates and sending a death notice to our local newspaper.


• Request plenty of originals of the death certificate. The funeral home we used recommended a minimum of twelve. If you know your parent's financial life was fairly complex -- he or she owns multiple homes, has accounts with multiple custodians , banks or fund companies, or has multiple life insurance policies -- twelve may not even be enough. Many of these account holders may accept a copy rather than an original, but it's better to be safe and order extra.


• The personal representative, or executor named in the will is responsible for estate administration. This involves gathering all relevant documents, filing paperwork with the state to register the estate and obtain a tax id number, and eventually distributing the assets. How long this takes and how much it will cost depend upon many factors including what state the deceased lived in, the complexity of his or her financial life, and whether there are trusts in place. If you are serving as a personal representative for an estate be prepared to be very patient and to wade through a tremendous amount of bureacracy. You can also engage an estate attorney to handle much of this process.


• Life insurance, IRAs, pensions and trusts contain named beneficiaries and pass directly to them when the proper paperwork has been completed and filed. Expect to provide each company involved with a copy of the death certificate along with whatever paperwork and additional documents they require.


• Contact Social Security to notify them of the death. Payments received after the month of death will be reversed and must be returned if they were not paid electronically. If there is a surviving spouse who was also receiving Social Security, he or she will receive the higher amount of the two individual payments in the future.


• Small estates qualify for a simplified probate process in most states. Larger estates, $1 million and over may require appraisals of real property and personal property and a Federal estate tax return that is due nine months after the date of death.


• Joint accounts must be retitled in the name of the survivor. Notify the bank or brokerage firm and expect to provide them with a death certificate.


• Retain cancelled checks and bank statements for five years prior to death for your records. Estates can be audited by the IRS.

Ruminations on Risk

Last year we analyzed the portfolio of a prospective client who had very significant wealth -- more than all of our other clients combined. The client told us, and we agreed, that he had more money than he could possibly spend in his remaining lifetime. One of our recommendations in light of this fact was to invest his portfolio in low risk, fixed income securities. Why incur risk when you don't need to?


The client did not think much of our analysis or our recommended course of action. Why would he bypass the opportunity to earn big returns by investing in private equity placements, hedge funds and and other high stakes options when he could clearly afford to participate? From his perspective, he was able to withstand the risk. Taking the safe route just meant leaving money on the table.


Needless to say, the client did not choose us to be his advisors, and whenever his name comes up, the two of us just shake our heads and wonder how he could have ignored our good advice. Why take risks when you don't need to in order to reach your goals?


Clearly, we had a failure to communicate.

I've recently observed a similar disconnect in my personal life. With my youngest child leaving for college in the fall, I've realized it's important that my husband and I start doing more together than coordinating schedules and making sure someone has shopped. This weekend, I invited him to join me on a walk along a trail that runs near our house. Taking a long walk on the trail is one of my favorite things to do on nice days, but he declined -- he had work to do, needed to prepare for a trip the next day and was playing hockey that evening. Unless it was going to be a quick walk, he wasn't really interested.

I mulled this over on my long walk and concluded that my husband is just not a walker. This should not be news to me -- we've been together for more than 30 years and he has been in constant motion for most of that time. He wants to do it all, and pretty often pulls it off. He works long hours with frequent travel, plays ice hockey in an adult league, religiously follows several sports teams, regularly volunteers as a hockey coach and in a reading program for school children in D.C. He's truly an amazing guy -- but you don't get all of that done by walking.

I, on the other hand, am a walker -- literally and figuratively. I abhor stress and have structured my life to limit it. Of course when my children were young this was largely out of my hands (which surely contributed to my strong stress aversion), but these days I have managed to arrange my work schedule, my commute, even my meals in a way that keeps my stress level very low. I have built cushions into my schedule, so I won't miss deadlines or sweat out conflicts. Whenever possible I avoid activities that I find frustrating or just don't enjoy.


You might think that with such a cushy life I'd be happier than I have ever been. But, instead I am learning that sometimes stress is what makes me feel alive and truly engaged with the world. Rather than bliss, I'm feeling bored and somewhat useless. The activities I enjoy most these days are those that are stressful in the sense that they take me out of my comfortable routine and force me to adapt to new situations -- traveling is a great example.

I love traveling to new places, soaking up the culture and the history, and finding the local treasures--even though I hate flying and packing and dealing with airports. The adventure of discovering a new city is a payoff that far outweighs the inconveniences of traveling, and for some reason I even see the occasional misstep in the course of traveling (getting lost, missing trains, unfortunate food selections) as a part of the whole grand experience.


Looking back on my life, I also must admit that the heightened emotions of some very difficult times are memorable and cherished. The demands of three small children were overwhelming and exhausting at times, but there was an undeniable degree of excitement in surrendering all control of your life to the whims and needs of your offspring. That imposed randomness is missing in my life now.

Don't get me wrong -- I'm quite happy to be free to choose when I will be spontaneous, and don't wish to return to those past days of chaos. But I now see that eliminating too much stress from one's life can leave you feeling small and unfulfilled.

So I've come to understand why Mr. Not-a-client wanted to make some risky bets, even though it was unnecessary from a planning standpoint. Even more than me, he is more-or-less accountable only to himself -- no job, no young children making demands on his time, nothing that absolutely has to get done when he wakes up most days. Making his money grow is one of the only challenges remaining in his life. He wants the excitement of having a horse in the race more than the absolute assurance that his money will always be there for him and his family. And, though I understand a little better where he's coming from, I'd still give him the same basic advice -- don't take unneccesary risks with you family's money. Still, maybe I'd suggest keeping a small percentage of his money in a pool he could use for some riskier plays, just to satisfy his need for an adrenoline rush.


And in my own life, I'm going to make more of an effort to regularly step outside my comfort zone, and raise my stress level a bit. Perhaps I'll work a little harder to break a sweat and keep up with my husband-- if he can slow down occassionally to let me catch my breath.


Maybe we'll invite Mr. Not-a-Client to go bungee jumping -- just for kicks!

Annette Simon

Copyright 2009 The Money Dames

Like Mother, Like Daughter -- Not Always

It's my mom's birthday today, but there's not much to celebrate. She is 74, has been completely disabled and living in a nursing home for more than seven years.

I've come to the conclusion that most of us never see our parents clearly or in three dimensions. The memories and perceptions of our inner child distort our views of mom and dad (and siblings for that matter) beyond childhood, and probably throughout our lives. In my case, I was a complete daddy's girl when I was young -- a tomboy, good student and brimming with ambition. Although neither of my parents went to college, I saw my dad as smart and self-educated. He was a successful business-owner and a prominent member of the community.

On the other hand, I had no respect for my mom -- a stay-at-home mother of three. She had planned to be a nurse, but dropped out of nursing school at 19 to get married and move to Minnesota. My brothers and I never fully appreciated that or any of the other hundreds of sacrifices she made to help us grow up to be whatever we wanted to be. We did devote a lot of time, though, to ridiculing her yoyoing weight, her hair, which changed color frequently, her non-existent cooking skills and her endless volunteer activities. And we gleefully participated in mom's addiction to shopping, a habit that afforded us every toy, outfit or gadget we ever wished for on countless indulgent afternoons at the local shopping mall, our favorite childhood and teenage haunt. I swore I would never be like my mom -- she was the last person I would have considered a role model either for motherhood or for life.

By the time I became a mother, my mom had concluded she could never live up to my expectations. True to my childhood vow, I had traveled a completely different path than hers -- college, grad school and a career in business. Mom was completely intimidated by me and our relationship was beyond dysfunctional. I didn't want her around when my first child was born; she didn't want to come and help me following the birth of my second or third-- when I really wanted and needed her to be there.

The funny thing is, I turned out to be a mom who is in some ways just like the one I considered such a failure. I have almost always worked, but for the past15 years my work has allowed me to be at home and available for my kids pretty much any time they have needed me. I stopped cooking several years ago when we moved across the street from Trader Joe's and within walking distance of more than 100 restaurants. I've devoted countless volunteer hours to my professional association ( a less altruistic pursuit than mom's work with the local hospital auxiliary and chapters of Jewish women's groups). And my children focus on my foibles more than my accomplishments; they never miss an opportunity to poke fun me. Like my siblings and me, they're not exceptionally mean, just self-involved and unappreciative -- i.e. over-privileged teenagers and twenty-somethings.

As my kids got older my relationship with my mom eased a bit. By the time my dad died 15 years ago (they had long since divorced) we were on pretty good terms. When she became physically disabled nine years ago my younger brother and I stepped in and eventually moved her from the west coast to a nursing home here in Maryland where we could visit frequently and try to keep her somewhat involved in our lives until she declined mentally a few years ago.

I'm surely still viewing mom through the filter of my childhood experiences, but I think I've gained at least some perspective. I now recognize that she was loving and generous to a fault with her kids; bored with the drudgery of housework and childrearing, and eventually fed-up with the ingratitude of her spoiled kids. The grandchildren were her reward for enduring the three of us. She was financially illiterate, but thanks to alimony, life insurance and inheritance she felt pretty wealthy and continued to love shopping until she was unable to get around. While she was mentally alert, Mom endured years of complete helplessness with more gratitude and grace than most able-bodied people demonstrate on a daily basis.

Mom's life now is extremely limited. She has not left her bed or her room in years, and if she recognizes me when I visit it's only as a friendly face, not specifically as her difficult daughter. My brother and I talk about her in the past tense since the mother we knew has been gone for some time. I'm back to swearing that I never want to be like my mom -- but this time I want to be sure I avoid her fate.

Annette

Copyright 2009 Money Dames

Families and Money -- A Prescription for Tension

Money and family -- is there any combination that is more emotionally charged and fraught with the potential for lingering resentment? I can't think of one! Why is this true? And is there any way to defuse the strong feelings money issues arouse in family members?

A family shares things -- a home, their time, values and experiences --and the members support each other through their individual trials and triumphs. Each person contributes his or her talents and efforts and has a vested interest in the success of the family and all of the members of it. Rough patches and misunderstandings arise, but thanks to their undying bond everyone keeps their egos in check and does whatever it takes to make it work. It's all about unconditional acceptance.

Sound like your family? Not mine either. Or any real family I have known up close. It's an ideal we might strive for, but reality is much more complicated and messy. In most families some members make personal sacrifices and may occasionally--or even constantly--remind the others of what they have done. Many families have an overachiever and an underachiever; an ant and a grasshopper. Because real families are made up of imperfect people, these differences in ability and temperament are handled (and often mishandled) differently by each family. And every person perceives the words and actions of the others through his or her own unique filter. All of this makes families, even loving, well-meaning ones, emotional powder kegs.

Add to this volatile organism money, which triggers intense feelings of greed, fear, shame and power. Talking about money is taboo in many famililes; regardless, everyone in the family knows who has it and who doesn't. Inequality almost always leads to resentment, though it may be suppressed for many years in the name of keeping the peace. But over time, children grow to adulthood, parents age, possibly become disabled and eventually die, and issues boil to the surface.

What, if anything, can parents do to manage such an inherently explosive issue?

• Decide what you consider a fair way to dole out resources. Do you want to give an equal amount to each child, or do you want to provide extra support to a child who has struggled or chosen a path that has not led him or her to financial security? Your personal or family philosophy will inform this decision. When you meet with your financial planner and estate attorney, tell them your wishes so that they can help you incorporate them in plans and documents. Talk to your adult children about your choice as well -- they may not agree, but at least they will not make inaccurate assumptions or be surprised by what happens later on in life.
• Some families create a shared loan fund and leave it to their adult children to govern its use. A pool of money is set aside in an account that is available to all family members. Siblings may borrow from the fund, rather than hitting up mom and dad, as needed for education, down payments, etc. All participants must agree to repay responsibly so that the money is there when someone else needs it. This works well for families with an equal and strong sense of fairness and obligation.
• One child often bears more of the responsibility of caring for aging or ailing parents -- due to proximity or a strong caregiving personality or both. Consider providing reasonable compensation for these services. Too many times, the caregiving child grows resentful, and the sacrifices he or she has willingly chosen to make are thrown in the faces of other siblings on a regular basis. We've seen cases as well, where the caregiving child has started finding ways to compensate him or herself on the sly, triggering anger and resentment in the other siblings. It's better to recognize up front that the services provided have value and pay accordingly.
• Choosing your most capable child as your trustee and/or personal representative seems logical, but it creates tremendous tensions between siblings. Suddenly, one sibling has authority over the others. This magnifies any brewing resentments. A better solution might be to name a more neutral party to these roles -- another close family member or friend perhaps.
• Educating your children early and often about money issues may be the best way to inoculate your family against future money wars. While openly discussing money may seem unnatural and even rude in our culture, assuming your children will just pick it up and figure things out makes no more sense with regard to money than it does with sex or drugs.

Every family is unique and extraordinary, and dysfunctional in its own special way. It's worth giving some thought and care to how money issues are handled -- no need to make things any more difficult than they already are.

Annette Simon

Copyright 2009 Money Dames

Who's Afraid of 50?

I turned 50 earlier this month. That's not unusual and certainly not newsworthy; thanks to the internet I'm in touch with many friends from my past who are exactly my age and everyone seems to take turning 50 pretty much in stride. But passing this big milestone has led to some reflection (and angst) on my part. I've been spending a lot (maybe too much) time thinking about my age, and what it means to me -- both emotionally and financially.

In many ways I feel relatively ageless. On the inside, I am more-or-less who I was at 18 -- fun-loving, impatient, analytical, casual, rule-bound... in many ways a bundle of contradictions. I have different people in my life, much more responsibility and experience to draw on, better impulse control but my thoughts and feelings on a day-to-day basis are very much the same. When I was in college, my faculty advisor once told me that she was stung by a student who said she (the student) couldn't identify with where the professor was coming from. My 50+ year old advisor told me, "I can completely identify with this girl -- I'm just like her." Although I couldn't imagine it to be true at the time, I get it now.

But if I look at myself today through the eyes of 18-year-old Annette (or my 17-year-old daughter) I see a very different picture. I see a middle-aged mom who is reasonably fit for her age, knows nothing about current music, loves movies, television and books, seems to be pretty successful professionally, secure financially and is lucky to have a very nice husband who puts up with her many quirks.

Not exactly what I imagined thirtysome years ago. Back then, I thought I could do anything if I decided I wanted to -- an assurance (or delusion?) I now see in my own sons. An ardent feminist, I dreamed of climbing to the top of the corporate ladder or building my own business empire. Things came easily to me at that age and it was wasn't hard to envision myself on top. I couldn't wait to escape my small town life and take my place in the big outside world.

But my younger self never anticipated that I would be unhappy in corporate life and would flounder about professionally for many years trying to find the right path. It turned out I had neither the drive nor the discipline nor the stomach to thrive in the cutthroat world of big business. After graduate school, a series of jobs in consulting provided me with a great education but the long hours and excessive travel made me miserable. It took a break from the workforce and a few dramatic family crises to bring me to financial planning.

I didn't have it all wrong wrong at 18. It turns out I was a city girl trapped in a small town and to this day I love urban life. When we moved to a house just a block from downtown several years ago I had finally realized my dream of city living and have loved every minute of it. Being in the city makes me feel more alive, younger I guess. And, I have been part of building a modestly successful business and have served in several leadership roles in my professional association for the past 13 years. I'm not the CEO of GM (thank goodness!) but it's been challenging and rewarding and fits my personality perfectly.

Financially, I've had a rare luxury. My husband and I were starving students after college, barely making it with our part-time jobs and begging for loans from our parents when we fell short. Until the birth of our oldest child, I earned more than my husband -- yes, the entire first two years of our marriage I was the "primary" breadwinner. Since then, the next 23 years, he has earned more, and even now much more than half our total household income. His financial success has allowed me to figure myself out while we put away money for college and retirement. We won't be retiring at 55 as we once dreamed, but we're in pretty good shape and on track to cut back and take things slower sometime after 60.

It sounds like we're living the dream, and in many ways we are. But I'm a planner, and I know that in life, autopilot doesn't work. In my 50 years I've seen unplanned pregnancies, parents die young or end up prematurely disabled. I've seen couples who seem completely happy together call it quits and model husbands announce their wish for a divorce by having their wives served with papers. I've seen accomplished professionals laid off and unemployed for extended periods. And don't get me started about can't-miss investments that have gone completely afoul. Everyone needs a Plan, and a Plan B and a Plan C.

Life is a series of unexpected events. I think that's something I know at 50 but had no clue about at 18. Back then, I thought I knew what lay ahead; now I never know what's coming next -- but that's what keeps it interesting. I haven't concluded that being 50 is better than being 18, but I wouldn't go back for anything. I'm more interested in seeing what happens next.

Annette Simon

Copyright 2009 Money Dames

Are We There Yet?

After just three up days in the market, some people are starting to check their account balances to see how much of their losses have been recovered. If only it were so easy!

Here's a depressing lesson in portfolio math that we'll all need to keep in mind as we (hopefully) dig out of the hole the market has fallen into since last summer. When the market drops by any percentage it always needs to rise by a greater percentage to get back to where it started. Take this simple example:

Say the market index you are using is at 100 and drops suddenly by 50%. Now the index is 50. If it rises 50%, the index will not be 100 again, it will be 75. It has to rise 100% to get back to your starting point of 100.

How does this translate to what's going on in the markets? Using the S&P 500 as a measure, the market lost over 56% of its value from the high in October 2007 to the low (to date) on March 9. To make it back to that 2007 starting point the market needs to gain 130%. The 10%+ gains we saw this week are a start, but we have far to go.

Annette Simon

Copyright 2009 Money Dames

I am SO not into this World View

OK, so last night I went to a chick flick. I knew it had received bad reviews, therefore should have expected all I got and don't have the right to vent. But I'm doing so anyway.

The movie: He's Just Not That Into You (HJNTIY) playing in the local suburban theater. The audience: all the pre-teen kids in the neighborhood (or so it felt) and us - Annette, me, and a friend. There was a smattering of other grown-ups but we were in the minority.

The back-drop: From the kids - kicks, giggles and ushers escorting selected parties out for behavior. From the adults - Sshhes and hisses - completely ignored, of course.

The basic premise: women are pathetic and desperate, and men are inconsiderate commitment phobes. This theme was foreshadowed by a preview of a movie that appeared to be a cross between Fatal Attraction and The Hand that Rocked the Cradle. The preview showed a crazed woman vindictively chasing a happily married guy. The twist? She is very blonde and he is African-American. This being the movies, they are naturally both very attractive, as is everyone else in the cast.

Everyone in HJNTIY also is very attractive but that doesn't stop Jennifer Anniston, Ben Affleck and sundry from drowning in angst. We have 5 women in various categories : single, living with someone, married, slut and flake.

The single woman wants a man (any man), the shacked-up one wants a wedding ring, the wife wants perfect bathroom tile and a baby - apparently in that order, the slut wants someone else's husband, and the flake will settle for a 'real' rather than a virtual date.

Their behavior? Endless analysis, whining, spying, and stalking. The women are so uniformly annoying that by the end of the movie, I was completely on the men's side.

The ending? The single woman (very improbably) gets a guy, the wife dumps her husband, not for cheating but for smoking (a worse sin perhaps in our PC world?). Jennifer Anniston gets her ring, the slut gets a singing gig, and the flake (the most sympathetic character in my opinion) gets a relationship.

What do the men get? Not clear.

What does this have to do with women and money - the theme of this blog? Nowhere, by any of these women, is there any discussion of self-reliance, independence, savings and planning, or an exploration of finding fulfillment via a challenging and interesting career. Its all about the guy - finding, pursuing and getting him.

It stings to see the way popular culture stereotypes women. Maybe this movie bothers me because I am now single and recognize some of this behavior in myself and my friends? Could be. No criticism hurts as much as one with a grain of truth in it. All I can say is this single is going back to PBS for a while ...


Veena Kutler

Alternative Investments -- Money Dames-Style

Has the relentlessly falling market got you wondering what to do with money you would normally invest? Are you leaving extra cash in your checking or savings account rather than adding to your retirement or investment account?

We continue to believe that the market will turn around and that it could happen fairly quickly. By waiting for a sign that it's safe to get back in, you risk missing out on the biggest gains; and missing just a few of the highest return days can reduce your overall returns quite dramatically.

Our prescription: Think about how much of the money in your investment portfolio you will need to pay for expenditures in the next three to five years, then set that amount aside in a money market fund or CDs. What's left in your account should be long-term money -- funds you will not be drawing upon for five or more years. This money should be invested in a diversified portfolio incorporating a moderate level of risk that allows it to outpace inflation but still lets you to sleep at night. If you are not planning to draw upon your investments for five or more years and have the ability to contribute to your accounts, it makes sense to continue to do so and to buy securities at what will in the long run probably look like bargain prices.

We've been repeating this mantra since the downturn began and stand by it as the most sensible course of action. But, many people have reached the point where they don't want to hear it anymore. Adding to accounts that seem to shrink on a daily basis is more than they can stomach. They are accumulating cash -- building their checking, savings and money market funds rather than put any more money into the bottomless pit the market has become.

If you find yourself in that camp, here are some ways to make good use of your excess cash until you feel safe getting back into the market:

• Accelerate your mortgage payments. Paying extra principal will reduce the time it takes to retire your loan and yields a guaranteed rate of return -- the interest rate on your loan minus the value of tax deductions (for interest you will not pay in the future) you are forgoing. Reducing your debt increases your overall net worth just as much as increasing your assets -- and it's a sure thing.
• Prepay tuition. Check with your child's college or private school to see if they will allow you to prepay for one or two years of tuition. Tuition increases have outpaced general inflation for years, and if you believe the market will continue to drop it makes sense to pay future tuition bills now rather than waiting for your education fund to shrink further. Our caveat on this -- don't pay too far ahead -- especially if your child is starting at a new school or not entirely happy with the school she attends.
• If you definitely plan to purchase a house, remodel, buy a car or other big-ticket item in the near future, it might make sense to dive in now. You'll have great bargaining power in markets that are starved for buyers.
• Invest in yourself. If you've been thinking of going back to school to improve your job skills or train for a new career, use some of your cash-on-hand to cover the cost.
• Remember to look for opportunities to harvest lossses in your taxable accounts. Sell losing securities to capture the losses (up to $3,000 each year can be deducted from income, the remainder can offset realized gains this year or in years to come). Invest in another, similar fund if you want to be positioned to participate when the market rallies, or keep the proceeds in money market or other stable asset classes if you can't bear the risk. Just remember that you're locking in losses when you sell in a down market and don't reinvest in equities or stocks.

And a final reminder: you should always keep enough cash on hand to cover at least six months of living expenses, more if your income is at risk or irregular. These suggestions are only for investors who have a reliable income source that leaves you with excess cash you would normally be adding to your retirement or investment portfolio. We are not endorsing an irrational spending spree or depleting your cash reserves to pursue the ideas above.

Above all else, be sensible and plan to return to regular saving and investing as soon as possible.

Copyright 2009 Money Dames

All that Glitters is not Gold

As the world economy reels and markets around the globe plummet, gold has made a comeback as the darling of speculators and terrified investors alike. Some folks are so worried about the collapse of the economic system they are purchasing gold bullion and having it delivered to their homes. (See WSJ article).

Up more than 9.7 % this year, gold has been one of the few opportunities for positive returns in a dreadful period. So why aren't we jumping on the bandwagon and recommending gold to our clients?

Historically, gold has been a terrific hedge against inflation. As the dollar, or any currency, weakens, investors turn to commodities with perceived value, driving up their prices. In today's world, where long-standing institutions are failing and once-in-a-lifetime events seem to happen on a daily basis, many buyers are again looking to gold as a "safe" asset.

Unfortunately, it is anything but that. Contrary to popular belief, gold has no intrinsic value -- it is simply worth what the market will pay at any point in time. And that price has been extremely volatile over the years, rising and falling very dramatically over short periods of time. In the last gold rush, during the early 1980's, many speculators lost their shirts by mistiming the market. In fact, individual investors have been notoriously horrible at deciding when to buy and sell gold. With prices up so dramatically this year, it's not surprising that frightened buyers are piling in.

As with anything else, the smart time to buy gold is when the price is low, not at a high level. And the smart way to hold it is in a mutual fund or ETF and as a very small (2% or less) percentage of your total portfolio.

Gold pays no dividends or interest, and for those who choose to physically hold gold the costs of shipping, storing and securing their investment are very high.

Moreover, gold is best used as a hedge against inflation, yet most economists worry that the biggest risk we now face is global deflation.

On balance, we don't see gold as a panacea for an ailing portfolio, or even as a good buy at current prices. We're sticking to our boring mantra -- diversify, diversify, diversify -- and in these tough times adding a folksy adage: Patience is a Virtue.

Copyright 2009 Money Dames

How Much is Enough?

With the S & P 500 down more than 45% since October 2007, virtually every U. S. investor is holding a portfolio that has shrunk dramatically. Many boomers are asking themselves if they will ever recover their losses or be able to save enough to retire in their old age.

It all comes down to one question -- how much do you really need to maintain your desired lifestyle in retirement?

There has been a fair amount of academic research to determine how much you can continually withdraw from a portfolio over 30-35 years -- the length of the typical retirement these days. Based upon the range of historical returns in a diversified portfolio (pre-2008) a safe annual withdrawal rate is 4%-4 .5%, adjusted annually for inflation. In dollars that means that you can safely withdraw $40,000 - $45,000 from a $1 million portfolio in year one. In year two, if inflation is 3%, your withdrawl will increase to $41,200 - $46,350.

If you are spending $135,000 now and hoping to sustain the same lifestyle through 30 or more years of retirement you need to accumulate an investment portfolio of approximately $3 million unless you have a pension or other source of income in retirement.

Most people find this breakdown sobering, if not completely depressing -- and it doesn't even account for the likelihood that your savings are in pre-tax dollars (if they are in your 401(k), IRA or other retirement account). We'll deal with that gloomy aspect of the issue on another day.

The bottom line, for most of us in middle age, is that retirement, in the tradional, gold watch, puttering away your days in the garden or on the golf course model of the past is not in the future for us. But it's also true that it wasn't a realistic scenario even before the bottom fell out of the stock market in 2008!

Relatively few people had saved enough to achieve full retirement at age 60 or 65 . We have been a nation of spenders for years now -- almost no one, especially in the baby-boom generation-- has been able to pare back current consumption so that they are living a lifestyle they can reasonably sustain in retirement just by saving diligently. Most of the lucky few who are well-positioned for retirement received a windfall: an inheritance, stock options that paid off handsomely, or a cash settlement from a lawsuit or the sale of a business.

So don't beat yourself up. Retirement may not be a reality -- but work keeps us vibrant and engaged. You may not be golfing or fishing every day, but you can probably slow down and find work that feeds your soul and supplements your savings. That's the view we're taking.

Annette

Copyright 2009 The Money Dames

Are You Financially Literate?

We've been surprised by how little many otherwise sophisticated, successful people know about financial matters. The Madoff affair and the sub-prime credit crisis are both financial disasters that largely could have been averted if more Americans had a solid grasp of some basic financial concepts. Our hope is that the Obama adminstration recognizes this and will embrace the cause of increasing financial literacy.

Until they do so, here are a few questions to test your own financial literacy:

1. What is the difference between a stock and a bond?

2. How is investing in an IRA or 401(k) different from investing in a brokerage account or mutual fund?

3. What is the difference between term, universal and whole-life insurance?

4. Is $1 million enough to retire on?

5. How much income is too much to qualify for college financial aid?

6. Is real estate a better investment than "the market?"

7. How much can you reasonably expect to earn on a risk-free investment?

8. What is the average rate of inflation?

9. What are the basic estate planning documents everyone should have?

10. What types of insurance does everyone need to own?

11. What credentials, education and legal obligations are financial advisors required to meet?

12. How long will it take to repay your credit card balance making the required minimum payment each month?

13. Should avoiding taxes be your first priority in making financial decisions?

14. Which of these factors is the most significant determinant of portfolio performance: Security selection (which stocks and bonds you buy), asset class allocation (how much you have in stocks vs. bonds, large vs. small companies, etc.) or Market Timing (picking the right dates to move in and out of the market)?

15. How much cash do you need to keep in a checking/savings account for emergencies?

16. What is a mutual fund?

17. How much of current income do you need to save for a secure retirement?


If you can answer all of these questions accurately and confidently, good for you -- you have achieved an outstanding level of financial literacy.

The answers...? Oh you want the answers! We'll be addressing these questions and more in entries to come over the next several weeks. Stay tuned and submit your questions if we don't cover them.

Annette Simon

Copyright 2009 The Money Dames

Advisor=Scapegoat -- One More Benefit to Consider

A couple of weeks back we posted an article enumerating the benefits of working with a financial planning professional. Over the weekend, it occurred to me that we missed one of the valuable services we offer to our clients.

Many times clients tell us that they have no trouble holding down spending for themselves, but it's too hard to say "no" to their children and grandchildren. In many instances, we have become the go-to excuse for clients trying to get these expenditures under control. They don't want their kids to be mad at them, but can blame those witches -- Veena and Annette -- who won't let them shower the grandkids with gifts or pay for lavish family vacations .

We're happy to be the bad guys. The kids won't love us now, but may be grateful someday when mom and dad aren't eating dog food in their eighties!

Annette

Copyright 2009 The Money Dames

Pre-paying the Mortgage -- Should I or Shouldn't I?

Clients often ask whether we recommend accelerating their mortgage payments in order to retire the debt faster. It's a question that might have two answers -- one based on the economics and another based on your peace of mind and risk aversion.

The numbers side of the equation is fairly simple. It's a matter of comparing the rate of interest you are paying to the investment return you expect to earn going forward. Just remember, as you make this comparison, that the interest portion of your mortgage payment is tax-deductible, and reduces the cost of your mortgage. So, for example, if the interest rate on your mortgage is 6% and you are in a 40% combined (federal plus state) tax bracket, your after-tax cost for the loan is 6% x (1- 40%) = 3.6%. If you have the opportunity to earn more than 3.6% after taxes on relatively safe investments the numbers say you should not pre-pay. (Excuse the rhyme).

But beyond the numbers it's important to consider what is going to allow you to sleep peacefully at night. By doubling the equity portion of your monthly payment can pay off a 30-year, 6 % mortgage in less than 21 years. Reducing your fixed monthly expenses might allow you to retire sooner or at least cut back and take life a little easier. It's hard to attach a numeric value to that benefit, but the value is very real to many people.

Balance is one of the mantras we return to again and again in our practice. We seek balance in our own lives and try to provide it for our team members. And we encourage our clients to look for balance in their financial lives as well. Finding the right balance on this mortgage question is a personal decision, and not a purely financial one.

Annette Simon

Copyright 2009 Money Dames

My reasons for becoming a personal financial advisor

Annette had very compelling and personal reasons for becoming a financial planner. My story is not as heart-wrenching but personal nonetheless.

I started my career in finance on the institutional side. I have an MBA in finance and am a CFA (Chartered Financial Analyst). I began my investment career on the staff of a large pension fund which had substantial internal asset management. I then worked for a mutual fund company where I managed portfolios for pension funds and other institutions.

I first became interested in personal finance fifteen years ago when my husband and I went through the estate planning process. We used one of the most respected estate attorneys in our area and during the course of the planning the attorney spent a lot of time patiently explaining the estate plan and his recommendations. Even though I had spent many of my working years in finance and investments, and had the academic background, I remember being baffled by his explanations. I had no idea what he was talking about and why he was recommending that we purchase life insurance to fund an irrevocable life insurance trust for our children’s benefit.

When I asked the attorney who we should purchase insurance from, he gave us two referrals. The first agent sold fully loaded policies and the second a relatively new product – low-load whole life insurance. The attorney said he couldn’t make a recommendation on which policy was best for us and said we should go with the agent we felt comfortable with. This response instead of putting me at ease, made me very uncomfortable. I was baffled by the attorney’s reluctance to help us evaluate the relative merits of insurance policies and approaches. After all, he knew all the details of our family and financial situation! I really didn’t want to take the sole word of the insurance salesperson who was offering the policy. I realized that I would have to do the analysis as best as I could myself and dived into the illustrations and other material offered by the agents. I finally concluded that the low-load policy was the best for us and we went with it. At the time, I recall being surprised that we had no one to help us with this planning decision and realized that there was a need and gap to be filled.

My next brush with personal financial advisory was when I left the mutual fund company to join a small money manager who worked with individuals rather than institutions. During that stint I learned two things. First, that most of the clients at the firm were desperate for planning help and that many meetings were filled with questions from the clients on the topic of planning rather than investments. The second thing I learned was that no one at this small shop did serious detailed planning. There was some attempt to answer client questions, but the knowledge and tools available to a professional financial planner were missing. I soon left that firm and went into business for myself working with individuals and families. I was convinced at this juncture that clients needed both planning and asset management in order to best achieve their financial objectives. Although I had some basic planning insight I felt that I wanted to team up with an experienced planner to offer my clients expertise in both investments and planning. I was lucky enough to meet Annette and today in our practice we provide all our clients with planning help.

In finanical planning we say that as soon as the plan is printed it is out of date. And that's certainly true in my case. With the ending of our marriage in sight, all the estate planning we did is back on the table. Wills, medical powers of attorney and many other documents need to be re-thought and redone. The technical part of this is easy for me now. Harder is the emotional and personal arena that need to be probed.

Veena Kutler

Why Work with a Financial Advisor?

Does working with a professional advisor make a difference? We think the answer is a resounding yes. Here’s why:

1. We help clients set and stick to their most important life goals. That is huge. Most people think about what is important. Few write down those goals, even fewer monitor those goals, and an even smaller percentage measure to see if their goals are being met. Advisors who practice holistic planning help with that process. It is often profound for clients to realize after working with advisors for several years how much progress they have made toward their goals.

2. We lead clients through mature, objective and deep conversations about very important family planning issues. Most couples avoid discussing contentious money matters and when they do it often devolves to a very emotional exchange, even an argument. As an objective, knowledgeable and trusted advisor we facilitate difficult discussions in a non-judgmental way. Moreover we help by providing advice and feedback based upon our years of experience. Often, this is akin to counseling albeit with three cups of technical advice, a teaspoon of humor and a half cup of reality testing questions.

3. Fiduciary, fee-only advisors evaluate clients’ financial situations objectively and weigh their options with only the clients’ financial success in mind. Because we are paid by and answerable only to our clients, we can help them cut through and ignore the noise. TV, newspapers, and websites are full of conflicting and often contradictory advice; friends and neighbors brag about their investment successes. Often this random information sounds impressive and compelling – but it may not be accurate or appropriate for every individual’s situation. A professional who knows the totality and specifics of her clients’ personal circumstances can protect them from chasing after the can’t-miss investment of the week.

4. A good advisor is a great resource for clients to help them manage their busy lives. We know smart, ethical attorneys, accountants, mortgage brokers and professional coaches, useful websites, pertinent books, strategies for problem solving, etc. Clients are consumed with their day-to-day activities and seldom come up for air to think about alternative ways of solving issues. We have extensive networks and can refer them to resource professionals who can help make their lives easier.

5. We serve as a sounding board, helping clients think through tough issues. At times that may mean we protect them from themselves by heading off bad decisions. In the horrifying days of mid-October, who didn’t contemplate going all to cash and wondering if any of their portfolio should be in the equities market? We provide sound advice in the heat of the moment to help them stay calm, reduce the emotion and make a rational choice based on facts, not hearsay. That model of measured advice and help in difficult times only comes from a trusted advisor—not from a salesperson.

Annette Simon

Copyright 2009 The Money Dames

Can One Live as Cheaply as Two?

Years ago, as a newlywed I remember learning that because we were married my boyfriend and I would now pay higher taxes than we did before although our incomes were exactly the same. That was my introduction to the marriage penalty inherent in our progressive tax code, where a married couple pays taxes at a higher rate than if they were two singles earning the same wages. I complained to an older married friend that this seemed really unfair. Her view was that married people get other breaks so maybe paying slightly higher taxes was OK. Recently I recalled that long-ago conversation.

Newly single, I realize how expensive it is for two people who used to live as one household to live separately. When I lived with my husband in one household we had to make the mortgage payment monthly, pay utility bills, grocery bills, property taxes, insurance and other such incidental expenses. Now we are in two separate households and the expenses have doubled. Instead of one mortgage payment, our incomes support the same mortgage payment plus an apartment rental. The grocery bills in my single household seem exactly the same as before, utility bills are no different, neither is landscaping, insurance and various other expenses. The only difference is that these expenses are being replicated across town in my ex's household.

Across the gap of 20+years, I recall that half-forgotten conversation; now I get it and can see for myself the breaks that marrieds get and why net income drops for both parties after divorce.

Veena Kutler

More Thoughts on Madoff

The Madoff affair has stirred up a buzz within the financial press and among financial advisors. Some advisors had client assets with Madoff and were caught in the fallout. Most advisors had no exposure and of these some are now congratulating themselves in the press for having the prescience to dodge the bullet. I find the extent of back-patting going on to be interesting and wonder how many of us advisors were lucky rather than insightful.

I remember a very smart, experienced analyst telling me once that even the best analysis can’t protect against fraud perpetuated by a determined person, because finding fraud requires detective work rather than analysis. Given that, what can be done going forward to protect assets from a fraud like this? Just as a good diet and exercise help us stay healthy there are basic investment rules that we can follow to help keep our portfolio sound. But just as diet and exercise alone can’t prevent every disease, the basic rules won’t always keep you out of the crazy pitfalls of the markets.

Transparency – It’s helpful to have securities that are priced daily and even if it is a fund to have regular reporting so the securities held by the fund are known and valued. This policy rules out using hedge funds that aren’t required by law to report their holdings, and until hedge funds are transparent we don’t believe in investing in them.

Show Me the Money – Having an independent custodian that hold the assets and is independent of the money manager introduces a good check-and-balance. Madoff’s investors sent their money to Madoff. Even large mutual funds use outside custodians (such as State Street Bank) to custody assets and don’t hold the money themselves. Separation of the money manager and the custodian is a good thing.

Diversification – Diversifying among managers, styles and asset classes is still the best and no-brainer way to reduce if not avoid risk. Keep in mind that the biggest losers in the Madoff fraud are those who had all their assets with the Madoff firm.

If it Smells Like a Free Lunch… – I’m not convinced that all Madoff investors were being greedy. My guess is that some felt that the returns of 8% - 10% a year that Madoff was targeting indicated a conservative strategy. Not being market professionals, they didn’t know that target requires a swing-for-the-fences mentality. Think about it – there’s no way 8% - 10% can be achieved consistently in down markets by using low-risk strategies.

Veena Kutler

The Making of a Financial Planner

What makes someone want to become a financial planner? In my case you might call it a series of unfortunate events.

My father died from pancreatic and liver cancer almost 15 years ago. In the last year of his life he suffered terribly not only from the ravages of his disease but because his financial life began to unravel at the same time.

For most of his life he had been a successful businessman. He and his brother sat atop a small empire of retail stores and a variety of investments in local businesses in my Midwestern home town--a family business my grandfather built after emigrating from the Ukraine. We lived very comfortably in our small community while I was growing up; in fact I'd say my brothers and I were pretty spoiled, never wanting for anything. I saw my dad as a savvy businessman and a person of the highest integrity.

Our fortunes first began to turn when my dad and uncle decided to open a new store halfway across the country in Nevada. Until then I had been unaware that dad was unhappy with his life, but he was restless and looking for a big change. Boy, did he get it! Our family voted (four to one -- I was the only one opposed) to relocate so that dad could manage the new venture. Soon after moving the family he left my mom and filed for divorce.

Not surprisingly, my mom chose to leave Nevada and headed back to the east coast where she had grown up. During her marriage mom had paid the bills, but dad really managed all other aspects of the family's finances. Every element of money management was new to her -- living on a budget, buying a house on her own and making big financial decisions -- and she was ill-equipped to deal with any of it. Over the years she was victimized by salesmen and brokers who won her trust and sold her inappropriate products with no regard for what she really needed.

Meanwhile my dad fell in love and remarried. While his love life was flourishing, changes in the IRS rules created massive tax liabilities for the family business. It was a financial blow dad never really recovered from, but he hid it from the rest of us even cooking the books to keep his brother in the dark. I think he believed his fortunes would turn and he would make it all right, but he got sick and ran out of time.

After his condition was diagnosed, dad began to count on a large life insurance policy he had purchased to keep the business afloat and to provide an inheritance for his wife and three adult children. The plan was in place and might have worked as dad hoped, but less than a month before his death my step-mother convinced him to transfer ownership of his life insurance policy to her. She promptly made herself the sole beneficiary and received the entire death benefit when he died.

That sounds like the end and enough to motivate me to want to learn more about financial planning, doesn't it? But there's more!

Dad's life insurance policy was what's known as key-man insurance, intended to carry his business partner--his brother--through several months during which he would find someone to fill dad's shoes and keep the business (which my dad had thrust deeply into debt) afloat. So it wasn't really dad's policy to leave to his children or his new wife, and it certainly wasn't his to transfer to a new owner. It's probably not too surprising that my uncle sued my step-mother and after months of very ugly back-and-forth they came to a settlement. She bought him out; over time she paid off and negotiated down the remaining debts. She owns and runs my dad's business to this day.

While all of this was happening I began taking CFP courses. I wanted to learn how to spare others from the mistakes my family had made.

Initially, I saw my step-mother as the villain who stole my inheritance. When my uncle sued her and won, he joined the bad-guy team. But as I learned more about personal finance I realized that my dad and my uncle had an agreement and dad had broken it first by changing the beneficiaries of his life insurance policy and then by giving it to his wife. So my uncle was a victim too. Even my "evil" step-mother was going to be stuck with credit card bills my dad had hidden. I could eventually see that she was doing what she needed to just to keep his wreckless acts from dragging her down financially. She wanted to save her house and the assets she had built up over a lifetime. I can understand why she did what she did.

My dad blew it by failing to plan, by denying the reality of his financial limitations, and of course by lying to everyone along the way. I'm even willing to see him as a victim -- a victim of unfair tax laws and even more a victim of love! He was so eager to please his second wife he didn't want to confess his failings; he wanted to give her everything.

And in the end, I don't really see myself and my brothers as victims at all. We were clearly last in line for the insurance money. We didn't receive any inheritance at the time of his death, but my dad put us all through top-notch colleges and instilled a work ethic that has allowed each of us to survive and flourish on our own. And his missteps brought me to a profession I love--that's a pretty good silver lining in my book.

Annette Simon

Copyright 2009 Garnet Group LLC

Budgeting -- Unpopular, but oh so Important!

In recent years the idea of living on a budget has fallen out of favor. Baby-boomers, we are told, don't care for budgets. They prefer a spending plan -- it fits more with their mindset.

Call it a budget or a spending plan or whatever you like, successfully managing your financial life starts with getting control of your cash flow. In the simplest terms, when spending exceeds income, you're in for trouble. This is true whether you make a lot of money or almost none at all.

That's the big idea, but most people are looking for more guidance than that. They're wondering, for example, how much they can reasonably spend on housing, or how much they should be saving for retirement. Here are a few benchmarks to start with, established by the Foundation for Financial Planning.

First some definitions:

• Disposable Income - This is your total income from all sources minus federal and local income taxes and your own contributions to your retirement plan(s). Taxes are not optional and we recommend treating retirement savings (at least 10% of your total income) the same way -- as though you have no choice about it.


• Living Expenses - Includes rent or mortgage (principal, interest, taxes and insurance) food, utilities, medical, transportation -- required expenses, none of the fun stuff.


• Discretionary Income - Subtract your total living expenses and debt payments (non-mortgage debt) from Disposable income to reach this number.

Using these concepts, here are some ratios that can help you determine whether your lifestyle is reasonable based upon your savings and income:

• Basic Liquidity Ratio - Divide your total savings (money in bank accounts and liquid or readily salable investments) by your monthly living expenses. The result is the number of months you can survive without an income, or your Basic Liquidity Ratio. This ratio should be greater than or equal to six, meaning that you could survive on your savings for six months if you were suddenly unable to work and earn an income.


• Debt Ratio - Find your Debt Ratio by dividing your monthly debt payments (excluding mortgage payments) by your total monthly income. A Debt Ratio greater than 10% is a red flag indicating that the interest on your credit cards or other loans is eating up too much of your income.


• Housing Ratio - This is your rent or mortgage payment (principal, interest, taxes and insurance) divided by your total monthly income. If your housing ratio exceeds 30% you are house poor -- spending too much of your income on housing, which leaves you with too little for retirement savings and other living expenses.

Use these ratios to take a good hard look at your lifestyle. If your ratios are out of line -- you are living with excessive risk and building a financial house of cards that will probably fall apart with the first strong wind.

Annette Simon

Copyright 2009 Garnet Group LLC

Five Financial Resolutions for 2009

I like New Year's resolutions -- even though they're often futile and left by the wayside within days, sometimes hours. Because once in a while a resolution sticks and we succeed in making real change. Here are some financial resolutions for 2009 you're welcome to adopt:

1. Procrastinate in a productive way. We're all great at procrastinating-- I do it constantly when it comes to tedious work, household chores, doctor's appointments and other less than exciting activities. Try taking that natural ability to procrastinate and using it to postpone and maybe avoid unproductive habits, like impulsive spending. Put off buying those great new shoes for a few day; wait another month to shop for a new rug. It's likely you'll forget about the items that seemed so essential and move on. This sometimes works for binge eating too (admittedly not a financial issue). Wait an hour to eat the cookie that is calling your name (I hear one now). The craving may pass and you'll be glad you waited.


2. Save and invest regardless of market conditions. This is important for a couple of reasons. First, saving and investing consistently is by far the best way to build wealth over your lifetime. Stopping because of market conditions (or because you have increased your spending) puts you at risk of dropping a good habit. Moreover, investing when the market is beaten up, as it is now, is like buying everything on sale. Many advisors and economists think that we are in for higher than average growth in the markets over the next few years as a result of the dramatic declines that occurred in 2008. There's no guarantee this will happen, but it's a good bet that this is a bad time to stay completely out of the equity markets.


3. Start a family conversation about money issues. This might be with your parents, your children, your siblings or your spouse. Money is one of the last taboos -- most people would rather talk about their sex lives than discuss money with their family. Do you know if your parents have adequate resources to support themselves through their lifetimes? Have they prepared wills, durable powers of attorney and any other appropriate estate planning documents? If you explaing why, even young children can understand that saving for the future is an important family value and we can't buy everything we want just because we want it. It's much easier to learn and keep good habits when you are young than it is to change bad habits as an adult. Are you and your spouse on the same page when it comes to spending, saving and charitable giving? Opening the lines of communication with your family about financial matters a good way to avoid hurt feelings and potentially unwelcome surprises down the line.


4. Have your estate planning documents reviewed. If your documents are more than five years old or you have had significant changes in your life or family structure (e.g. birth or death of an immediate family member, divorce, all children now over 21) it's likely you'll need to update your estate plan. There have been changes in estate planning laws in many states that make it important to update the language in any wills or trusts as well. And if you don't have, at a minimum, a will, a general, durable power-of-attorney, and a medical power-of-attorney you need to see an attorney who specializes in estate planning to draft and execute these basic documents. Estate planning documents that are clear and properly drafted are especially important for unmarried partners who are not protected by most states' laws.


5. Diversify, diversify, diversify! Yes, every asset class was hit this year, but some more than others. No one can consistently predict the future (even the smartest guys in the room) and successful investing is more often than not the result of diversifying as broadly as possible and keeping your emotions out of your investments. Falling in love with a stock or a piece of property (we saw a lot of this in recent years with real estate investments) will almost inevitably break your heart and your bank.

Here's to a better year. Cheers!

Annette Simon

Copyright 2009 Garnet Group LLC