A Business Owner’s Guide to Social Security

Keyboard Hands

For many small business owners I meet, their business is their retirement plan. They expect that either they will be able to receive an income while handing off day-to-day management to an employee or they hope to sell the business and use the proceeds to fund their retirement. Both approaches carry a high degree of risk as the success of one business will make or break their retirement. As a financial planner, I want to help business owners achieve financial independence autonomous from their business.

Social Security plays a part in their retirement planning, but for most people covers only a portion of their expenses. While the Social Security Administration observes that 65% of participants receive more than half of their income from Social Security, the average Social Security benefit today is only $1294 a month and $648 for a spouse.

Five Social Security Considerations for Business Owners

For the sake of simplifying the points below, I am assuming that the business owner is the husband, but anyplace I use “he”, this could of course be “she”. Age 66 is the Full Retirement Age (FRA) for individuals born between 1943-1954, however, the FRA increases from 66 to 67 for individual born between 1955 and 1960.

1) Salary versus Distributions

While sole proprietorships generally pay self-employment tax on all earnings, business owners who have established as an entity such as a corporation or LLC may receive income from salary as well as distributions or dividends. Only salary is countable towards your Social Security benefit; other forms of entity income, such as distributions or dividends are not subject to Social Security taxes and therefore not used in determining your Social Security benefit amount. (Benefits are calculated based on your highest 35 years of income, inflation adjusted; the Social Security maximum wage base for 2014 was $117,000.)

Avoiding Social Security taxes (15.3%) is often a consideration in selecting an entity structure. For example, we may see an owner pay himself $50,000 in salary and take another $100,000 in distributions from the company profits, rather than taking all $150,000 as salary. At retirement, a business owner’s Social Security benefit amount is only based on their salary, so in the example above, his benefit amount will be less than a worker who received the full $150,000 as salary. I’m not suggesting that business owners should forgo these tax savings and take more income as salary, however, they should consult with their financial planner to estimate their Social Security benefits and create other vehicles to save and invest their tax savings to make up for the lower SS benefits they will receive as a result of taking a lower salary.

2) SS between 62 and FRA

Approximately half of SS participants start taking benefits immediately at age 62; 74% of current recipients are receiving a reduced benefit from starting before FRA. Starting at age 62 will cause a 25% reduction in benefits versus starting at age 66. While SSA will automatically recalculate your benefits if you continue to work while receiving benefits, the actuarial reduction (up to 25%) remains in place for life.

3) Survivor Benefits

Many people consider their own life expectancy in deciding when to start Social Security. The payback for deferring SS benefits from age 66 to 70 may take until age 79 or 80, depending on your estimate of COLAs. If the owner is concerned that they will not live past 79 or 80, they often take benefits at 66. However, there is an additional vital consideration which is survivorship benefits for your spouse.

A surviving spouse will receive the higher of their own benefit or the deceased spouse’s benefit. The higher earner’s benefit will end up being the benefit for both lives. Therefore, it often makes sense to maximize the higher earner’s benefit amount by delaying to age 70, especially if the spouse is younger and has a longer life expectancy. For each year you wait past age 66, you receive an 8% increase in benefits (delayed retirement credits or DRCs), which is a good return. When people take early benefits based solely on their own life expectancy, they fail to consider that their benefit also impacts their survivor’s benefit amount.

4) File and Suspend

One of the problems with delaying to age 70 is that the owner’s spouse will be unable to receive a spousal benefit until the owner files for his benefit. This is generally not an issue if the spouse has a substantial benefit based on her own earnings. If she does not, however, there is a solution to enable the spouse to receive her spousal benefit while the husband delays until age 70. In a “File and Suspend” strategy, the business owner files for benefits at age 66, to allow his spouse to receive her spousal benefit, (the full amount, provided she is also age 66 or higher). The owner then immediately suspends his benefit, which entitles him to earn the deferred retirement credits until age 70.

DRCs do not apply to the spousal benefit, so if the spousal benefit applies (spousal is higher than her own benefit, or she does not have a benefit based upon her own work record), she should not delay past age 66. That’s why it is essential to know if a spouse will receive their own benefit or a spousal benefit. The spouse should never delay past age 66 if receiving a spousal benefit – you’re losing years of benefits with no increase in amount.

To recap: File and Suspend works best when the spouse is the same age or older and has little or no earnings history on her own.

5) Claim Now, Claim More Later

For a business owner who is still working, but whose spouse has already filed for her own SS benefit, at his FRA, he can restrict his application to his spousal benefit and receive just a spousal benefit. This will allow him to still receive DRCs and delay his own benefits until age 70, while receiving a spousal benefit without penalty. That’s free money. (Note: this only works when spouse is already receiving benefits and he is at FRA. You cannot restrict an application to the spousal benefit prior to FRA.)

I can help you to compare different Social Security timing strategies to make the best decision for your situation. Before we get started, you will need to first download the current Social Security statements online at www.ssa.gov/myaccount/ for both yourself and your spouse. A Social Security statement never shows any spousal benefit amounts, and the calculators on the SSA website do not consider file and suspend strategies, so you cannot consider these scenarios without using other tools.

Are Equities Overvalued?


In last week’s blog, we reviewed the fixed income market and discussed how we are positioned for the year ahead.  Today, we will turn our attention to the equity portion of our portfolios.  Perhaps the top question on most investors’ minds is whether the 5-year bull market can continue in 2015.  At this point, are equities overvalued or do they still have room to run?

I don’t think it’s useful to try to make predictions about what the market will do in the near future, but I’m certainly interested in understanding what risks we face and what areas may offer the best value for our Good Life Wealth model portfolios.  We use a “Core + Satellite” approach which holds low-cost index funds as long-term “Core” positions, and tactically selects “Satellite” funds which we believe may enhance the portfolio over the medium-term (12-months to a couple of years).

The US stock market was a top performer globally in 2014.  The S&P 500 Index was up over 13% for the year, and US REITs (Real Estate Investment Trusts) returned 30%.  Those are remarkable numbers, especially on the heels of a 32% return for the S&P in 2013.  With six years in a row of positive returns, valuations have increased noticeably for US stocks.  The S&P now has a forward P/E (Price/Earnings ratio) of 18, slightly above the long term average of 15-16.

While US stocks are no longer cheap, that doesn’t automatically mean that the party is over.  With a strong dollar, foreign investors are continuing to buy US equities (and enjoyed a greater than 13% gain in 2014, in their local currency).  The US economic recovery is ahead of Europe, where growth remains elusive and structural challenges are firmly in place.   Compared to many of the Emerging Market countries, the US economy is very stable.  Emerging economies face a number of economic and political issues, and struggle with declining energy prices, often their largest export.

US Stocks remain the most sought-after.  While today’s P/E is above average, “average” is not a ceiling.  Bull Markets can certainly exceed the average P/E for an extended period.  And given today’s unprecedented low bond yields, it’s tough to make a comparison to past stock markets; equities are the only place we can hope to find growth.  Current valuations are not in bubble territory, but it seems prudent to set lower expectations for 2015 than what we achieved in the previous five years.  And of course, stocks do not only go up; there are any number of possible events which could cause stocks to drop in 2015.

Given the current strength of the US market, you might wonder why we own foreign stocks at all.  They certainly were a drag on performance in 2014.  In Behavioral Finance, there is a cognitive error called “recency bias”, which means that our brains tend to automatically overweight our most recent experiences.  For example, if we did a coin-toss  and came up with “heads” four times in a row, we’d be more likely to bet that the fifth toss would also be heads, even though statistically, the odds remain 50/50 for heads or tails.

Checking valuations is a important step to avoid making these types of mistakes.  Looking at the current markets, Foreign Developed Stocks do indeed have better value than US stocks, with a P/E of 15.5 versus 18.  And Emerging Market stocks, which were expensive a few short years ago, now trade at an attractive P/E of 13.  We cannot simply look at which stocks are performing best to create an optimal portfolio allocation.  Diversification remains best not just because we don’t know what will happen next year, but because we want to buy tomorrow’s top performers when they are on sale today.

Our greatest tool then is rebalancing, which trims the positions which have soared (and become expensive), to purchase the laggards (which have often become cheap).  So we’re making very few changes to the models for 2015, because we want to own what is cheap and want to avoid buying more of what is expensive, even if it does continue to work.  We will slightly reduce International Small Cap, and add the proceeds to US Large Cap Value.  US Small Cap has become quite expensive, but small cap value now trades at a bit of a discount (or is less over-valued, perhaps), so that is another shift we will make this year.

Each year, I do an in-depth review of our portfolio models and I always find the process interesting and worthwhile.  This year, looking at relative valuations in equities reminds me that our best path is to remain diversified, even if owning out-of-favor categories appears to be contrarian in the short-term.

The Dangers Facing Fixed Income in 2015


Although returns were largely positive, 2014 did little to ease the risks in Fixed Income, and in some categories, made the situation decidedly more precarious.  Looking at the funds and ETFs I follow, municipal bonds, foreign bonds, and long-term treasuries saw their yields fall, with prices markedly higher.  Bonds with the longest duration experienced the greatest change in price.

We are now several years into a low interest rate environment which central banks, like the Federal Reserve, manufactured through their interest rate policies and quantitative easing (bond buying) mechanisms.  The market consensus was that these depressed interest rates were like a coiled spring, ready to shoot higher and eventually cause bond investors to endure painful losses.  The flip side of some bonds gaining 10-20% in value this year is that if interest rates were to increase by 1-2% in 2015, those same investors could potentially see 20% or higher losses in their positions.

A strong return in 2014 creates a challenging situation – if those categories were overvalued before, they’re even more expensive now.  Although the potential for interest rate risk is now higher than ever, the market is beginning to recognize that without increased signs of inflation, we might be stuck with these low rates for an unprecedented number of years. While the yield on the US 10-year Treasury is around 2.2% today, the equivalent 10-year government bond yields less than 1% in Germany, Japan, and a number of other countries. To accept such a low rate suggests that deflation remains a greater concern than inflation for investors in some locations.

Investors positioned defensively in short-term bonds, floating rate, high yield bonds, or TIPS, all lagged the Barclays Aggregate Bond Index in 2014.  How should we position for 2015 then?  In our Good Life Wealth model portfolios, we are taking a three-prong approach.

1) We don’t try to predict interest rates or speculate on bonds. The role of Fixed Income in our portfolios is to mitigate the risk of our Equity positions.  We are looking to have lower interest rate risk (“duration”) than the overall bond market. This means we will make less if interest rates continue to fall, but we will also lose less if or when rates eventually rise.

2) We will underweight areas where yields are too low to compensate for the potential risks.  For now, this means we avoid foreign and US treasuries and TIPS.  We keep cash to a minimum, to 1% or the amount required for 12 months of withdrawals.

3) We consider each Fixed Income category in terms of its potential rewards and risks.  For example, a fund with an SEC yield of 3 and a duration of 3, would have a ratio of 1; a fund with a yield of 2 and a duration of 4, would have a ratio of 0.5, which is less desirable.  That’s not to say that we can simplify our selection process to a single step, but it does help inform how quickly we would recover from potential losses, so we can be better positioned if interest rates were to rise.

Although bond prices can be volatile in the short-term, the beauty of bonds is that their Yield to Maturity is a very strong predictor of how the bonds will behave over their lifetime.  Our primary focus then is on the opportunity each bond category will provide over time rather than what might occur in the short-term.

With US Stocks sitting at or near all-time highs, bonds may be an after-thought for some investors.  And with today’s paltry yields, it’s no wonder.  However, bonds have an important role in protecting our portfolios and creating income to contribute to our total return.  We’re not going to ignore the risks in bonds, so you can count on our Fixed Income allocation to continue to be tactical in the years ahead.

What Not to Do With Your 401(k) in 2015

Canadice trail

In a recent article,  “Are You Smarter Than a Fifth Grader? You Better Be If You Want to Participate in a 401(k)”, I mentioned that a basic financial education might help prevent investors from making common mistakes with their 401(k) accounts.  What are those mistakes?  Here are the top five blunders to avoid with your 401(k) in 2015 and a preferred outcome for each situation.

1) Using your 401(k) as an emergency fund.  It’s all too common for participants to cash out their accounts if they have an emergency or when they leave a job. Withdrawals before age 59 1/2 are subject to a 10% penalty and ordinary income tax, in which case you end up losing 30 to 50 cents of every dollar in your account to the IRS.  Preferred Outcome: make sure you have sufficient emergency funds before starting a 401(k).  When changing jobs, roll your 401(k) to the new 401(k) or an IRA, or leave it at the old plan, if possible.

2) Contributing only up to the company match.  Getting every matching dollar available is a smart idea, but a significant number of participants contribute only up to this level.  Just because the company matches 4%, doesn’t mean 4% will be enough to generate the amount of money you need to retire!  Preferred Outcome: aim to save 10-15% of your salary for retirement.  If you can, contribute the maximum to your 401(k), which is $18,000 for 2015, or $24,000 if over age 50.

3) Giving up when the market is down.  No one likes to open their 401(k) statement and see that the account is worth thousands of dollars less than the previous month.  Unfortunately, if you move into a money market fund, or worse, stop contributing, you may actually be making things worse.  Preferred Outcome: focus on your long-term goals and not short-term fluctuations.  When the market is down, consider it an opportunity to buy shares on sale.

4) Not Being Diversified.  Although it’s tempting to pick the fund with the best 1-year return, there’s no guarantee that particular fund will continue to outperform.  (In fact, it’s quite unlikely.)  Other participants put their 401(k) into a money market fund, which is almost certainly going to be a poor choice over 10 or more years.  Your best bet is to be thoroughly diversified in an allocation appropriate for your age and risk tolerance.  Preferred Outcome: develop a target asset allocation; if in doubt, use a target date fund to make these decisions for you.

5) Taking a 401(k) Loan.  While taking a 401(k) loan is an option, I rarely meet participants with significant balances who take loans.  You have to pay back loans with cash, not salary deferrals, which means that many participants stop their contributions in order to pay back the loan.  Any amount not paid back on time is considered a distribution, subject to taxes and the 10% penalty, if under age 59 1/2.  Additionally, if you change jobs or are laid off, you will have to pay back the loan within 60 days.  Preferred Outcome: don’t sabotage your retirement by taking a loan.  Consider other options first.

At Good Life Wealth Management, we know how important 401(k) plans are to your retirement planning.  And that’s why all our financial plans include detailed recommendations for each of your accounts.

Year-End Tax Loss Harvesting


Each December, I review taxable accounts and look at each investor’s tax situation for the year.  I selectively harvest positions with a loss so those losses may offset any capital gains realized by sales or distributed by your funds this year.  If realized losses exceed gains, $3,000 of the losses may be applied against your ordinary income and any excess loss is carried forward into future years.

Depending on the time of your purchases, some investors have small losses in International and Emerging Market stocks for the year.  Although these positions may be down and have lagged US stock indices, I’m not suggesting that we abandon an allocation to these categories altogether.

What we can do is swap from one ETF (or mutual fund) to another ETF or fund in the same category.  This enables us to maintain our overall target allocation while still harvesting the loss for tax purposes.  And thankfully, with a proliferation of low-cost ETFs available in most categories today, it is easier than ever to make a tax swap while maintaining our desired investment allocation.

Tax loss harvesting reduces taxes in the current year, but is primarily a deferral mechanism, as new purchases at a lower cost basis will have higher taxes in the future.  Still, there is a value to the tax deferral, plus a possibility that an investor might be in a lower tax bracket in retirement or could avoid capital gains altogether by leaving the position to their heirs or through a charitable donation.

Most of our ETFs have no taxable capital gains distributions for 2014, a nice feature of ETFs compared to actively managed mutual funds, many of which are generating sizable distributions, even for new shareholders.  Focusing on individual after-tax returns is another way we can add value for our clients.

If you’d like to study tax loss harvesting in greater detail, I recently read an excellent article, Evaluating The Tax Deferral And Tax Bracket Arbitrage Benefits Of Tax Loss Harvesting, by Michael Kitces.

Are Your Retirement Expectations Realistic?

Wood Pile

While many individuals have very realistic ideas about retirement, I find that some people may be significantly overestimating their preparedness for funding their financial needs.  Here are three specific mistakes which can hurt your chance of success in retirement, and a realistic solution for each issue.

Mistake #1: Thinking you can live on a small fraction of your pre-retirement income.
Occasionally, I’ll meet someone who is currently making $100,000, but who thinks that they will need to spend only $40,000 a year in retirement to maintain their current lifestyle.  On a closer look, they’re saving about $15,000 today so they are really living on about $85,000 a year.  This is a key problem with creating a retirement budget: when we add up projected expenditures, it is very easy to underestimate how much we need because we often forget about unplanned bills like home and auto repairs, or medical expenses.  And don’t forget about taxes!  Taxes do not go away in retirement, either.

Realistic Solution: Even though some expenses will be lower in retirement, most retirees find that they need 75-90% of their pre-retirement income to maintain the same lifestyle.

Mistake #2: Taking too high of a withdrawal rate.
20 years ago, William Bengen published a paper that concluded that 4%, adjusted for inflation, was a safe withdrawal rate for a retiree.  While this topic has been one of the most discussed and researched areas in retirement planning, most financial planners today remain in agreement that 4%, or very close to 4%, is the safe withdrawal rate.  However, many individuals who have a million dollar portfolio think that they might be able to take out $60,000, $70,000, or more a year, especially when the market is performing well.

There are two important reasons why it’s prudent to use a more conservative 4% rate.  The first is market volatility.  The market is unpredictable, so we have to create a withdrawal strategy which will not excessively deplete the portfolio in the event that we have large drop, or worse, a several year bear market at the beginning of a 30-year retirement.  The second reason is inflation.  We need to have growth in the portfolio to allow for the increased cost of living, including the likelihood of increased medical costs.  At just 3% inflation, $40,000 in expenses will double to $80,000 in 24 years.  And with today’s increased longevity, many couples who retire in their early 60’s will need to plan for 30 years or more of inflation in retirement.

Realistic Solution: At a 4% withdrawal rate, your retirement finish line requires having a portfolio of 25 times the amount you will need to withdraw in the first year.

Mistake #3: Assuming that you will keep working.
Some people plan to keep working into their 70’s or don’t want to retire at all.  They love their work and can’t imagine that there would ever be a day when they are not going to be working.  They plan to “die with their boots on”, which in their eyes, makes retirement planning irrelevant.

Unfortunately, there are a number of problems with this line of thinking.  The Employee Benefits Research Institute 2014 Retirement Confidence Survey found a significant gap between when people planned to retire and when they actually did retire.  Only 9% of workers surveyed plan to retire before age 60, but 35% actually retired before this age.  18% planned to retire between 60 and 64, versus 32% who actually retired in that age range.  The study cites three primary reasons why so many people retire earlier than planned: health or disability, layoff or company closure, and having to care for a spouse or other family member.  The study also notes that one in 10 workers plan to never retire.  Even if you’re willing to keep working, the statistics are clear: most people end up retiring earlier than planned.

For a healthy 65-year old couple, there is a good chance that at least one of you will live into your 90’s.  If you still think you don’t need a retirement plan because you will keep working, do it for your spouse, who might have 25-plus years in retirement if something were to happen to you.  Don’t make your plan’s success dependent on your being able to keep working in your 70’s and 80’s.

Realistic Solution: Make it a goal to be financially independent by your early 60’s; then you can work because you want to and not because you have to.

A comprehensive financial plan addresses these concerns and establishes a realistic framework for funding your retirement.  And whether you’re 30 or 60, it is never too early, or too late, to make sure you are on track for financial independence.

5 Retirement Strategies for 2015


For 2015, the IRS has announced that contribution limits will increase for a number of retirement plan types.  For 401(k) and 403(b) plans, the annual contribution limit has been increased from $17,500 to $18,000.  The catch-up amount for investors over age 50 has increased from $5,500 to $6,000, so the new effective limit for participants over 50 is now $24,000. Be sure to contact your HR department to increase your withholding in January, if you are able to afford the higher amount.

Traditional and Roth IRA contribution limits will remain at $5,500, or $6,500 if over age 50.  SIMPLE IRA participants will see a bump from $12,000 to $12,500, and SEP IRA contribution limits are increased from $52,000 to $53,000 for 2015.

If you’re not sure where to start, here are my five recommendations, in order, for funding retirement accounts.

1) Choose the Traditional Plan 

More and more employers offer Roth options in their 401(k) plans, but I believe the most investors are better off in the traditional, pre-tax plan.  The only way the Roth is preferable is if your marginal tax rate is higher in retirement than it is today. The reality is that your income will probably be lower in retirement than when you are working.  Even if your income remains the same 20 years from now, it is likely that tax-brackets will have shifted up for inflation and you may be in a lower tax rate.  Lastly, there has been continued talk of tax simplification, which would reduce tax breaks and potentially lower marginal tax rates, which would also be negative for Roth holders. So, my advice is to take the tax break today and stick with the pre-tax, regular 401(k).

 2) Maximize Employer Plan Contributions

Your first course of action will always be to maximize your contributions to your employer plan.  Many individuals do this, but I’m surprised that with many couples, the lower paid spouse often does not.  If you’re being taxed jointly, every dollar contributed reduces your taxes at your marginal rate. And don’t forget that since 2013, on income over $250,000, couples are subject to an additional 0.9% tax on Earned Income and an additional 3.8% on Investment Income to provide additional revenue to Medicare.  Add the 3.8% Medicare Tax to the top rate of 39.6%, and you could be paying as much as 43.4% tax on your investment income.  That’s a big incentive to maximize your pre-tax contributions as much as you can.

 3) Traditional IRA, if deductible

If you maximize your employer contributions for 2015, and are able to do more, here is your next step: If your modified adjusted gross income is under $61,000 single ($98,000 married), then you can also contribute to a Traditional IRA and deduct your contribution.  If your spouse is covered by an employer plan but you are not, the income limit is $183,000. This opportunity is frequently missed by couples, especially when one spouse does not work outside the home.

And of course, if neither spouse is covered by an employer retirement plan, both can contribute to a deductible Traditional IRA, without any income restrictions.

 4) Roth IRA

If you make above the amounts in step 2, but under $116,000 single, or $183,000 joint, you are eligible to contribute to a Roth IRA.  If your income is above these amounts, you would not be eligible to directly contribute to a Roth IRA.  However, if either spouse does not have a Traditional IRA (including SEP or SIMPLE), he or she would be able to fund a “Back-Door Roth IRA”.  This is done by contributing to a non-deductible IRA and then immediately converting to a Roth.  Since there are no gains on the conversion, the event creates no tax.

 5) Self Employment 

If you have any 1099 income, are self-employed, or work as an independent contractor, you would also be able to contribute to a SEP IRA in addition to funding a 401(k).  You can contribute to both accounts, subject to a combined limit of $53,000, if you have both W-2 and 1099 Income.

One option I’ve not seen discussed often is that someone who is self-employed could also fund a SEP and convert it to a Roth.  If you don’t have any other Traditional IRAs, this could, in theory, be used to fund a Roth with up to $53,000 a year. The conversion would be a taxable event, but it would be cancelled out by the deduction for the SEP contribution.

There are quite a few variations and details in terms of eligibility for each family.  Want to make sure you’re taking advantage of every opportunity you can?  Give me a call to schedule your free planning meeting.

An Attitude of Gratitude


It’s Thanksgiving week and I want to thank all of my clients and readers for supporting me and my new company which we launched six months ago this week.  I am incredibly grateful for the opportunities I have received and look forward with eager anticipation to the year ahead.  I visited Thanks-Giving Square this week in downtown Dallas and was inspired by their story and mission.  Dallas has the drive and ambition to do great things, but also the humility to do so with a greater purpose and perspective.  And that’s why I’m proud to call our city home.

I spend most of my time dealing with the minutiae of financial planning, but I know that knowledge alone is not the source of success.  To make it work, you have to be an optimist, you have to believe in the process.  Over the past 15 years, we’ve had tremendous opportunities to create wealth, and many have grown their net worth dramatically.  And still there are people who will tell you that the market has been terrible over this time period and that they’ve not made money.

People who are thankful, who have gratitude, tend to have more success in their finances.  Gratitude and optimism are two sides of the same coin and maintaining that positive attitude goes a long way towards accomplishing goals.  But I don’t think we always feel grateful.  Most of us have to be reminded from time to time to step back and consider all the things we should not take for granted.

Is it worthwhile to try to be thankful?  Can you become more grateful?  In a 2003 psychological study, participants were asked to keep a journal.  One group was instructed to write things they were thankful for, while a second and third group recorded negative thoughts, or neutral events (no positive or negative instructions).  Researchers found that those with a “gratitude journal” felt better and were more optimistic.  They were also more likely to have made more progress on their personal goals.

We will all think of reasons to be grateful this Thursday, but why let it be a one-day event?  What if, instead, you wrote down just one thing you are thankful for, each day for the rest of the year.  That’s what I will be doing and I invite you to do the same.  I hope you will accept, and if you do, please send me a message after January 1 to tell me about your experience.  Thank you!



How Some Investors Saved 50% More


While some people view risk as synonymous with opportunity, the majority of us don’t enjoy the roller coaster ride of investing.  Our natural proclivity for risk-avoidance can, unfortunately, become a deterrent in deciding how much we save. Without having specific goals, investors often default to a relatively low contribution rate to retirement accounts and other investment vehicles.  They commit only how much they feel comfortable investing, rather than looking at how much they actually need to be saving in order to fund their retirement or other financial goals.

In the November issue of the Journal of Financial Planning, Professors Michael Finke and Terrence Martin published a study of 7616 people born between 1957 and 1965, looking at whether working with a financial planner produced improved outcomes for accumulated retirement wealth.  Here are their conclusions:

Results indicate consistent evidence that a retirement planning strategy and the use of a financial planner can have a sizeable impact on retirement savings.  Those who had calculated  retirement needs and used a financial planner… generated more than 50% greater savings than those who estimated retirement needs on their own without a planner. 

When I read the executive summary of their article, I wondered if perhaps the results reflected that higher income people were simply more likely to use a financial planner.  However, the authors took this into consideration.  They controlled for differences in household characteristics such as income, education, and home ownership… Even after controlling for socioeconomic status, households that used a financial planner and calculated retirement needs had significantly higher retirement wealth accumulation across all quantiles relative to households with no plan. 

Interestingly, the authors noted that this result of 50% higher wealth was not due to investment performance.  When they looked at individuals who used a financial advisor who was not doing a comprehensive plan (such as a stock broker), they noted that using a planner without estimating retirement needs had little impact on accumulation compared to having no retirement strategy at all.  

And that’s why we put planning first at Good Life Wealth Management.  Goals dictate actions.  Only when we have a clear picture of what you want to accomplish will we will know if you are on track or behind schedule.  We’re more willing to save when we are working towards a finish line, as opposed to worrying about what the market is going to do next.  If you’re looking for a comprehensive advisor to bring clarity to your goals and to carry out your game plan, I hope you’ll give me a call.

5 Ways to Save Money When Adopting a Pet

Black Lab Puppy

Americans love their pets, and although they repay every penny with their love and devotion, the amount we spend on our pets can be astronomical.  I’ve been a volunteer in animal rescue since 1997 and here are my top five suggestions for ways to save money if you’re looking to add a four-legged companion to your family.

1) Adopt Don’t Shop.  Puppies in a pet store or from a breeder can cost hundreds or thousands of dollars.  Adopting from a shelter may cost a fraction of this amount, and often, a shelter pet has already been vaccinated, wormed, and neutered, saving you $300 to $500 in initial vet bills.  Additionally, adopting a shelter pet saves a life, as currently, approximately 4 million unwanted pets are euthanized each year in the US. Take your time and make sure the dog or cat will be a good fit for your household – many pets are returned or wind up in shelters when people underestimate how much time and effort it will take to train a puppy to become a well-behaved adult dog.

2) Crate Train.  Although cute, puppies love to chew and can be quite destructive when left unsupervised.  They are naturally attracted to shoes, furniture, and other expensive items in your home.  Besides being costly to replace these items, it can also be dangerous for dogs to ingest these items.  There have been many expensive vet visits from dogs who got sick from eating something in their home that should have been off-limits.  Save yourself this headache and expense by buying a crate to keep your dog from causing trouble when you’re not home.  This has the additional benefit of helping with house training, which will save your carpets!  Over time, dogs really do start to like their crates.  My dog goes into his crate immediately when we get ready to leave the house – it’s his safe place.  Read up on crate training.  The $50-100 you spend on a crate may save you hundreds or thousands in preventable destructive behavior.

3) Ask Friends for a Veterinarian Recommendation.  The price of vaccines, neutering, or heartworm treatment can vary significantly from vet to vet.  Ask friends for a recommendation for a low-cost vet.  Some clinics offer one or two days a month that they provide discounts on vaccines.  Ask your shelter if they know of any free or low-cost vaccination or neutering clinics in your city.  Still, make sure to develop a relationship with one veterinarian who knows your dog or cat, to monitor changes in your pet’s health over time and make sure you stay up to date with any needed care.

4) Consider a Mixed Breed Dog.  A lot of people want a specific kind of dog, but unfortunately, many breeds have a higher likelihood of developing certain health issues.  For example, some breeds are prone to hip dysplasia, cancer, or ear infections.  These can be expensive to treat and often result in a shorter life expectancy for the animal.  Mixed breed dogs tend to be healthier, live longer, and have fewer of these genetic predispositions for certain ailments.  If you do want a specific breed, you can still probably find one through a local shelter or rescue group.

5) Buy Smart.  A 15 pound bag of my dog food costs $35, but a 30 pound bag only costs $45.  Buy the larger bags and use an airtight storage container.  Buy a high quality food and skip the expensive treats, such as rawhides, that have limited nutritional value and can upset a sensitive stomach.  Keep up with heartworm preventative and flea/tick medicine.  Although it is one of the largest ongoing costs, these preventative medicines are much less expensive than treatment, should your pet become sick.  And here in Texas, even indoor dogs have a very high likelihood of developing heartworms without prevention.

If you are looking for a pet, let me know and I will look for a good fit for you at Operation Kindness.  We also have fosters in our home several times a year, if you are interested in a puppy.