Everything that happens in people’s lives affects their finances. At Family Wealth Management, we use a program called Money Quotient that helps us get to people’s core values and beliefs and hopes for accomplishment. “Putting money in the context of life™” is Money Quotient’s motto.

The Money Quotient tolls can help with planning your immediate, short range, and long-term goals. We calculate how much those goals would cost, and we try to build an income plan that is designed to accommodate them. If you’re out to top the S&P 500, that’s not what a goal is.

As part of the process, we ask what you want in life. What’s important to you? If it’s a vacation each year with the kids and grandkids, we build that into your plan. If it’s an education scholarship to your alma mater, we set that aside. Whatever you wish to achieve, we calculate it into the target rate of return that would be needed to fulfill it. We won’t go after a 40 percent return just to beat some benchmark. Why would it matter?

When people don’t have a focus, they can wind up competing against financial benchmarks. But when they have a clear vision of their retirement goals, they can start planning to reach those goals instead. That’s why it’s important to start the planning at least five years before retirement, so you can lay the groundwork and begin building.

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For the most part, 401(k) plans have replaced pensions as the prevailing vehicle for people’s retirement. But surveys and studies show some very bleak numbers. The balances in 401(k)s and IRAs may not be nearly enough to pay for comfortable retirements, as the previous generation’s pensions once did. And today, few companies offer pensions.

Why is it possible that 401(k)s and IRAs may not provide as much retirement income as a pension? There are several reasons. First, not all companies offer 401(k) plans, just as some companies did not offer pensions. However, investors who do contribute to 401(k) plans often are unaware of the array of annual charges, such as administration fees, sales charges, management fees, and individual services that they are paying and that are siphoning away their earnings. Fees aren’t “hidden” so much as they’re judiciously disclosed. Many people simply don’t know how or where to look for those fees.

Fees, regardless of how conspicuously they’re disclosed, should be but one criterion you pick for your 401(k) investments. Look at asset class, management’s relative competence, and track record first. Each of them will have a far greater impact on your long-term returns than fees. If you aren’t sure what fees you are paying or how your 401(k) stacks up, seek out the advice of a professional. See how Family Wealth Management can help at www.familywealthadvisory.com.

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“I have it there for emergencies,” she explained.

Few of us need access to all of our money at one time. Holding on to $300,000, a large amount of liquid assets, is often squandering potential. The price of liquidity is a low rate of return, and low growth means that inflation may overtake you.

Don’t Overlook This Big Retirement Risk

Keeping direct access to all of your cash is a depression mentality: Some of those who endured hard times held on so tightly to their money that they sacrificed growth and eventually succumbed to the ravages of inflation. Remember your Grandma saying, “A dollar doesn’t buy what it used to buy?”

Be wary of the depression mentality as you approach retirement. If you have a hard time letting go of your liquidity, a financial advisor (www.familywealthadvisory.com) can help by creating a written retirement income plan that spells out the details and strives to make you feel comfortable with your potential future income growth.

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The goal is for you to feel free of financial worry so that you can spend your time focusing on what you enjoy. In my opinion, that’s so much better than the old planning model in which you are in the middle, and circling around you like the moons of Jupiter are all of your current advisors: your CPA, who calls you up every March to ask you where your receipts are; your lawyer, whom you haven’t seen in eight years since she handled your daughter’s auto accident; and your insurance agent, who calls too much, always at dinner time. Then don’t forget your investment advisor who hid under the desk in 2008 and wouldn’t answer the phone. If you have such a “team,” ask yourself when was the last time that they all got together and talked about your plan?

If you have a constellation of advisors, each will see just a piece of the jigsaw puzzle. None of them is likely to help you know how to fit those pieces together. That’s a job for a primary financial coordinator, your CFO, who will work to keep the big picture in mind. You should expect regular communication. Receive a free no obligation assessment of your retirement plan at www.mysecondopiniontoday.com. A good advisor will keep in touch so that you can make the adjustments to stay on course toward your goals. We can’t change the wind, but we certainly can trim the sails.

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In my opinion, you need to match your assets to your aspirations; in other words, you need to plan your life and legacy so that your life savings have meaning. Your spending should support your values and priorities. Otherwise, you may be blowing through money aimlessly, or you are just trying to grow your pile bigger. 

Like any journey of any distance through an unknown area, without a guide and without a clear picture of your finances, it would seem to be difficult to know for certain whether you will make it to your destination. Start your journey with a free chapter from my book DistributionLand at www.distributionland.com and start uncovering how to make your journey a safe and rewarding one.

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When people ask us how much they should be saving, we tell them that ideally, if they want to retire with the same purchasing power in the future as they have today, they need to set aside a minimum of 15 percent. Under the old pension system, people contributed 15 to 20 percent. Companies built that amount into the benefit package. Nothing stops people from saving at that rate today, but many may not be doing so. The picture here is pretty clear: If people don’t contribute to their 401(k)s, or if they don’t contribute enough, of course they are not going to have enough in their accounts to cover their retirement. The 401(k)s and IRAs* have pretty much replaced pensions, but people may not have the investment skills needed to deal with them properly.

For example, people often change employers so it’s not unusual for them to have multiple accounts from previous jobs. What we see is that when people change jobs, they tend to look at their account with the previous employee as found money. They withdraw it and end up paying a penalty of 10 percent, if they are younger than 59 1/2. Not only that, but there will be taxes due on the contributions and earnings of the ‘windfall’ which may also result in putting them into a higher tax bracket. The result is that they may lose 40 percent of that money. If that’s the way you save for retirement, you are always starting from zero.

*Age, income and contribution limits vary for each plan.

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It’s important to understand the difference between taxable, tax deferred and tax-free investing. Let’s take a look at how each would affect a typical account. Suppose you started with $100,000 and added $10,000 each year for 20 years. Let’s presume a rate of return of 4 percent and a tax bracket of 25 percent.

• On a tax-free account, the account value after 20 years would be $516,893.
• On a fully taxable account, your rate of return is effectively only 3 percent. After 20 years, the account value would be $449,315.
• On a tax-deferred account, your account value after 20 years would again be $516,893. However, you have only postponed taxes. If you now paid them all, you would be left with an account value of $462,670.

A financial advisor can help you determine which is best for your individual needs. Here is some simple advice though: You should only pay taxes on money you are withdrawing as money to spend. Otherwise, there may be better ways to manage it. Visit www.familywealthadvisory.com for more resources and start uncovering what tax strategy works best for your situation.

Mutual of Omaha Investor Services, Inc. and its representatives do not provide tax advice. Consult your tax advisor for advice regarding your particular situation.

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You may have seen what is called the “risk pyramid,” rising from conservative fixed investments at the bottom to more aggressive growth vehicles at the top. Imagine that pyramid toppled on its side. You would have, at the left, the widest part—the fixed investments. At the right you would have the growth investments. This pyramid on its side is another way to visualize the time sequences in certain types of income planning. 

How does it work? Reliable sources of income such as Social Security, perhaps a pension, and income from a job are calculated first. Then we put in the targeted growth rate, and we use conservative figures. Then we set up four to six segments, usually in five-year payout periods. The first bucket takes you to five years into retirement; the second takes you to ten years; and so on. This process supports the use of the Time Segment Model.

If this sounds like a good plan for your retirement needs, get in touch at www.familywealthadvisory.com for more information.

*ROI Reliability of Income is a registered trademark of Wealth2k, Inc. Used with permission.

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According to Milevsky, product allocation can be accomplished with three product silos:

1. Traditional Investments: These could include separately managed accounts, exchange-traded funds (ETFs), mutual funds, and other conventional accumulation-based instruments. Throughout retirement, one would systematically withdraw these assets, attempting to make them last as long as possible and then use asset allocation to achieve a desired return with an acceptable degree of risk.
2. Pensions and Immediate Annuities: These could include defined benefit plans and fixed income annuity products (or payout annuities). In exchange for fixed income payments, you give up liquidity, investment control, and in some cases, the ability to leave any of these assets to heirs.
3. Guaranteed Income Products: May offer income for life, exposure to stock market gains and losses, and control. They are also designed to leave remaining assets as an inheritance and can provide protection against sequence-of-returns risk.

How much money you should allocate to each category depends on your expected retirement age, gender, health status, desired spending rate, and inflation assumptions. For more resources to help you understand your asset allocation options, visit www.familywealthadvisory.com.

Asset Allocation seeks to maximize the performance of your investment portfolio using diversification. Although using an asset allocation methodology does not guarantee greater returns or more consistent returns, it may be able to reduce the volatility of your portfolio.

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But how about first taking a good look at the picture on the cover of the box? Before you start working on the pieces, you need to have the big view.  You should work with an advisor who will make sure you get the perspective you need so that your investment strategy makes sense for you and is designed to advance your goals. 

Finding an advisor you can trust to give you direction, not just do what you ask, may result in a much more secure retirement future. Is your puzzle pieced together with the big picture in mind? Consider getting a second opinion on your current investment portfolio and schedule a free consultation at www.mysecondopiniontoday.com

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