In his recent book At Last, the English writer Edward St. Aubyn describes the choices that members of a wealthy family make to distribute their wealth, and how those choices affect the family in ways not expected. In a way, the book illustrates the discussion we often have with wealthy families: wealth is better than the opposite, but it’s very important to plan how that wealth passes to succeeding generations, so that it doesn’t end up destroying initiative and achievement. Perhaps there’s a need for both philanthropy and maximizing the opportunities for the family. Careful planning and open discussion are vital. This quote from the book says it all: “No doubt his grandmother and great-grandfather had hoped to empower a senator, enrich a great art collection or encourage a dazzling marriage, but in the end they had mainly subsidized idleness, drunkenness, treachery and divorce.”
It seems that these days, every other person is a coach: life coach, executive coach, retirement coach, stage coach. But calling yourself a coach or any other kind of expert doesn’t make your advice worth listening to. Some people in the St. Louis area recently found this out “the hard way”. According to Financial Advisor online news, a local investment advisor and radio show host who called himself a financial coach persuaded people to give him more than $3,000,000 to invest. His plan was to relend it at high interest rates to people who couldn’t get loans through conventional sources, mostly real estate developers. Surprisingly, he wasn’t successful, and will now be serving 9 years in prison, in addition to having to repay the $3,000,000+.
There are many examples of this kind of financial investment abuse these days, particularly as baby boomers retire and have money to invest. Two points to remember: if it sounds like the greatest investment deal ever, it probably isn’t; and always find out what credentials and experience any investment advisor has had. There are websites to check the status of advisors, to see if any complaints have been filed against them. Don’t invest your money just because someone calls himself a coach.
And that is, not involving your spouse in the planning and decision-making process. Even in these modern times, it’s often the case that the husband makes and carries out financial decisions. The wife knows little about why decisions were made. Then, if the wife is the surviving spouse, she is lost in trying to decide on financial matters, and can be prey to people who want to help themselves to her assets. It’s far better to explain every step with your spouse, if you have one, and to be sure that both of you understand what’s being done and why. The same can be said for those who don’t have a spouse but have children. Involve someone else in your family (who is trustworthy) to review your financial and retirement decisions.
An interesting report from Bernstein Investments discusses choices you can make that will enhance the chances that you will have a successful retirement. Here are their categories:
1. Setting an asset allocation for your retirement assets that will improve the likelihood that you won’t outlive your money.
2. Seizing opportunities to defer taxes, by first withdrawing and spending funds that don’t generate taxes.
3. Optimizing the use of Social Security. There are many choices and opportunities that aren’t generally known.
4. Setting a spending level. How much do you need to live on, and if you have enough, how much do you want to live on?
5. Deciding when to retire, which includes how you retire: off a cliff or gradually.
6. Choosing a savings rate, and sticking to it except in emergencies.
The US Department of Justice has established the Elder Justice website, at www.justice.gov/elderjustice/. The introduction of this website is further proof of the serious issues, financial and otherwise, that are facing the growing number of senior citizens. The site contains information to assist victims and family members, prosecutors, researchers and practitioners in combating elder abuse and financial exploitation.
A recent study (there must be whole industries of people who prepare recent studies) from Northwestern Mutual reports that Millennials, also referred to as Generation Y, plan to work beyond age 65 in much larger numbers than their elders. Given that this cohort is people now ages 18-34, I would take with a large grain of salt what they say are their plans 30-45 years in the future. One of their reason for planning to work longer is that they have little confidence in the future of Social Security. That’s not an unreasonable position, given the failure of our elected officials to consider minor changes to the Social Security program that would ensure its survival. Nevertheless, as people get closer to normal retirement, which most people think of as age 65, they tend to shorten their work horizon. Currently, the average age at which people retire is under 65. There’s no way of knowing what people will think of as normal retirement 30 years from now, but the advice will always be the same in preparation for it: save more, spend less.
More thought is being given to the idea of where to live in retirement. Although many still depart for the warmth of southern climes, others feel they want to stay where they have been. Is this a good idea? It often is, but, according to an article in Wealth Management, there are some questions to ask:
1. what will it cost to live in my home, including any remodeling to accommodate decreased motor skills?
2. is there adequate transportation available if I can’t drive?
3. how much will in-home health care cost?
4. will I be able to get to doctors, sports and entertainment venues and other social situations after I retire?
A recent article in US News offers four simple rules for maximizing retirement plan investments:
1. contribute enough of your own income to max out the employer match, if there is one.
2. research investment options, such as low cost, diversified funds.
3. don’t take early distributions.
4. start saving for retirement as soon as possible.
It’s a measure of readiness for retirement, but, unlike other measures of readiness, it’s not just based on financial status. A report from the Goldenson Center at the University of Connecticut lists four non-economic factors entering into a determination of retirement readiness: your level of job satisfaction; your health status at retirement; the level of financial planning you have done; and your level of adaptability. The health point is a very good one: if you’re healthy at retirement, your costs for health care will be less and your ability to continue working in a part-time job will be greater. Adaptability refers to being able to do other work after retirement, like consulting. Of course, retirement is primarily about money, but not wholly. Health is important, as are the other factors. I would add another unmeasurable factor: your ability to find other interests, things to do after retirement, that enable you to live a satisfying life.
An organization called the MIT AgeLab has produced some very interesting research on the challenges and benefits of the retirement process, and I think you would find a visit to their website useful. Google MIT AgeLab. An article that appeared in a local publication recently, written by a representative of the Hartford Funds and using research from the MIT AgeLab, asks three simple questions that will help to define the success of your retirement, or the lack thereof:
1. Who will change my light bulbs? Who will take care of those minor and not so minor household chores that I could do when I was younger?
2. How will I get an ice cream cone? Will I be able to get to stores and offices as easily when I am older?
3. Who will I have lunch with? That is, my friends move away or pass on, I’m not in an office with co-workers any more, and my children might be far away. Who will I talk to?