Question: We’re in our early 60s. I’m afraid our “golden years” are passing us by. I want my husband to retire. But I can’t get him to. What should I do?

Answer:

The retirement decision has two parts: numbers and emotions.

The Numbers

Even if you feel sure you have enough money to retire, don’t skip the number-crunching. A gut sense that you can retire is nice … but it’s an experiment whose result won’t be known for many years. And after the results become apparent, it may be too late to do anything about it.

The numbers side of the retirement decision is complicated. Obviously, an element of the retirement cash flow plan is straightforward: Assume a rate of investment return, consider other income sources, and see if projected expenditures are covered by the result. But this simple method leaves too many crucial questions unconsidered. To illustrate, questions like these can have a profound effect on your retirement:

• How will my investments behave if inflation roars back?
• How much downside is there in my investments? How would a really bad stock market early in my retirement years affect my retirement prospects?
• Are my investment choices right for me? For example, your mutual funds may be costing you more than you realize, which can place an unnecessary drag on your net results. Do you know what constitutes “high cost” in investments?
• Do you know what average annual return you reasonably can expect from your particular investment portfolio? Do you know how much money you reasonably can expect to withdraw from your portfolio each year? Can you adjust that number upwards for inflation each year, and still retire?

Few do-it-yourself investors can do more than guess at the answers to questions like these. That’s not because they are stupid, but because they have made their living another way and gained their expertise in other fields.

A financial planning professional should be able to help offer a valuable perspective on the retirement numbers for you and your spouse. By the way, by “financial planning professional” I do not mean a stock broker or insurance salesmen. They may be fine if you want to buy stock or insurance, but their skill set isn’t what you need to help you make your broad retirement decisions. You can contact me for counsel on that, or the National Association of Personal Financial Advisors has published this helpful guide regarding characteristics to seek in your financial advisor.

The Emotions

In my experience, the retirement decision also is highly emotional. Say the numbers have been crunched and you both know what your retirement funding picture is. But what if your spouse still doesn’t want to retire?

It happens all the time. It’s scary to make life changes. Many successful people derive a sense of personal worth from their work. Many get intellectual stimulation and meaning from their work. Many like helping others through their work. Permanently walking away from this is not an easy decision.

The thing is, life is a balance, and for every choice you make, you sacrifice something. Get a feel for what you are sacrificing with continued work by doing a “Regrets” list. Each of you goes into a room alone for 10 minutes to write down the things you would most regret having not done if you died tomorrow. See if your regrets help put things in perspective for you.

Of course, part-time work or charity work can provide meaning and social interaction in retirement. Retirement doesn’t have to represent a cliff. It may be both possible and sensible to gradually retire, moving from those 60-hour work weeks to 40 hours, to part-time, and so on. Together, try discussing specifically what you would both do with increased free time, and what specific ways life will continue to be important and challenging.

Last but not least, be sure your visions of retirement are, if not identical, at least in alignment. Maybe you visualize back-to-back world cruises, but your spouse has in mind sleeping late and reading the entire paper every day. If your goals are further apart than you realized, an objective, third-party counselor may help you identify some middle ground, so that those golden years you’re seeking can finally come into focus.

I’m always intrigued by the psychology behind investing, especially when long-held beliefs are challenged, and sometimes changed.

For example, take the common assumption that we grow wiser as we age. I believe this is true in a number of important ways, because there is no substitute for experience. But according to some of the latest research, as we grow older and wiser, we can also experience something known as “the positivity effect,” which means we tend to pay less attention to negative details and more attention to positive, big-picture outcomes.(1)

In other words, experience teaches us to not sweat the small stuff. And this I believe as well.

Clearly, there are many ways in which a sunny outlook can be advantageous at any age. But its darker side may explain why the elderly are so often targets for some of the craziest financial scams. A recent survey conducted by the not-for-profit Investor Protection Trust indicated that as many as one out of five Americans over the age of 65 have been victimized by a financial swindle.(2)

A study researcher summarized why these figures might be so high: “Increased attention to positive information is a recipe for optimistic, but not necessarily realistic, financial planning.”(3)

Beyond that, other new studies suggest that financial “loose ends” – unpaid bills, missed advisor meetings, etc. – may be strong warning signs that a loved one could be suffering from early stages of Alzheimer’s disease, especially if he or she has traditionally been good at managing the household wealth.(4)

Such behavioral changes can serve as a red flag that medical care may be needed. They can also be important warning signs that family members should consult with their advisors and take a second look at household finances, before significant damage is done. In this regard, it can be helpful to be working with a fee-only financial advisor who provides comprehensive, ongoing financial planning services working in close relationship with you and your family. He or she may be well-positioned to notice a change in the financial dynamics before you do.

So, by all means, keep your sunny position. But until we find that fountain of youth, it’s also in our best interest to continue improving our understanding of how aging, in sickness and in health, can impact our financial decisions.

It’s no news that our military personnel put themselves in harm’s way every day they serve our country. Sometimes they pay the highest price in our defense. Their families pay the price too.

Now the New York Attorney General’s office alleges that insurance companies MetLife and Prudential prey on our fallen heroes’ families by holding onto the death benefits from their life insurance policies.

Most of us assume that, if we die, our life insurance policy will pay off in the form of a check delivered to our family. Instead, these insurers put the service member’s death proceeds into an interest-bearing corporate account, delivering a book of drafts (similar to checks) to the policy beneficiary. The insurer argues this arrangement is a win-win: The account pays a modest interest rate, and the beneficiary can use the drafts like checks. The insurer profits from a portion of the interest if the account stays put.

Some military families feel they have been taken advantage of at the very time when they are most vulnerable.

My bet is that the insurers are mystified as to why military families (and the New York Attorney General) are so upset. After all, the family can write a check on the balance. And it does earn interest. Where’s the beef?

The beefs are two. First, unlike most bank accounts, the insurer’s corporate accounts are not FDIC-insured. That’s a big deal if the insurer goes out of business. Second, the military families miss a tax opportunity by leaving the death proceeds in the insurance company account: For up to one year after receipt, they are entitled to put all or part of the proceeds into a Roth IRA or Coverdell education account, where the proceeds can grow tax-free to fund retirement or education.

MetLife and Prudential informed the beneficiaries that the money could be withdrawn from their accounts, but reports say that the insurers stayed mum about the right to transfer the balance to a tax-sheltered account. The insurers had no legal obligation to brief the family on the Roth IRA opportunity, but surely the families of our fallen service members deserve more consideration. I can understand why the AG is upset.

If you’re a beneficiary of one of these insurer’s accounts, what should you do? According to CPA Sheri Allshouse in Houston, if you want to contribute part or all of the proceeds to a Roth IRA but the one-year deadline has passed, it’s probably simply too late. Nevertheless, she says, there have been cases in which the IRS has shown some leniency in late transfers between Traditional IRAs and Roth IRAs. Talk with your CPA before you conclude that there’s no hope.

In addition, Houston CPA Laura Conway warns that the Roth IRA rollover is available only for life insurance proceeds from Servicemembers' Group Life Insurance (SGLI) and military death gratuity policies, both programs sponsored by the Veterans Administration. Other life insurance benefits are not eligible.

Given the tough financial times we’ve all lived through recently, you may be concerned that your account is not FDIC-insured. Two thoughts here. First, rating agency Standard & Poors assigns a relatively strong AA- rating for financial stability to both MetLife and Prudential, implying that these insurers are unlikely to go belly-up anytime soon.

But you may still prefer to have an FDIC-insured account, and if so you’ll need to transfer your balance to a bank. Be careful that you don’t go from the frying pan to the fire: With some exceptions, FDIC insurance generally covers only the first $250,000 you have at the bank. These days lots of banks aren’t nearly as financially strong as some of the major life insurance carriers, so if you transfer money to one or more banks, be sure to keep the amount at each bank under the FDIC-insured limit. You can use the FDIC’s calculator to determine exactly how much of your bank account is FDIC-insured. And remember that not all banks are members of FDIC. Click here to be sure the bank is a member.

Don’t hesitate to call on us if you have any questions or if we can help in any way.

If you're a big saver and your significant other is a big spender (or vice versa), you might be surprised to learn that might have been the very trait that attracted you to them in the first place.  According to a paper written by Scott Rick and Deborah Small of the Wharton School of Finance and Eli Finkel of Northwestern University:

"Surveys of married adults suggest that opposites attract when it comes to emotional reactions toward spending."

Interestingly, it's been found that most single men and women state that they would actually prefer a mate with similar spending habits.  To read the full article, click here.

Does your retirement plan take inflation into account?  Since Vietnam, inflation has averaged 4.6% per year.  This may not sound like much, but since 1969 the purchasing power of a dollar has dropped by more than eighty percent.

Moreover, an interesting strand of economic research suggests that a retirement planner should also take into account "keeping up with the Joneses" - that is, spending even more in retirement to keep improving your lifestyle along with everyone else.  The historical rate of inflation, alone, understates the challenge investors face in funding a comfortable retirement.

If you're interested in a technical article that explains the details for you, read on...

International stocks are an important component of a well-diversified stock portfolio. Based on world market capitalization, sixty percent of a U.S. investor’s stock portfolio might be allocated to international stocks. A number of other considerations argue for reducing that exposure, however. While no fail-safe formula defines the best combination of U.S. and international stocks, the available evidence suggests that the traditional portfolio of 70% U.S. stocks and 30% international stocks has historically offered enhanced long-term returns with reduced risk, and probably is at least a well-reasoned starting point for most U.S. stock portfolios. To learn why, click here.

In this hour-long interview, Nassim Taleb, originator of the Black Swan hypothesis, argues that investors give too little weight to the risk of statistical “outliers.”  He says that the odds that unlikely events will occur are greater, and their impact is greater, than investors generally perceive.  Daniel Kahneman, well-known authority on behavioral finance, agrees with Taleb’s thesis but argues that the human need for certainty and security will prevent people from perceiving risk differently.  This conversation on perceived risk is especially interesting given the backdrop of the recent upheavals in global financial markets.  A personal note:  Once I got past the first ten minutes, I found the remainder of this hour-long interview intriguing.  The video offers, from an odd quarter, a point of view supporting my typical financial planning advice to avoid excessive portfolio risk and avoid or pay off most indebtedness.  It’s worth a listen if you have the time.  Click here for the video.

Rationality tells us we need to be completely realistic.  But psychological research tells us that holding a few unrealistic views about the world and our place in it can make us healthier, wealthier and happier.

In a seven-minute video, David Booth, the chairman of Dimensional Fund Advisors, explains why inflation makes US Treasury bills riskier for the long-term investor than stocks.