Tag Archives: Personal Finance

Aging and Financial Skills

By Larry Luxenberg  

 

Diminished Ability to Handle Personal Finances

As people age, they gradually lose their ability to handle their own finances. Often, this process is so gradual that the person himself and those around him are unaware of what’s happening until something serious happens. The elderly control the most assets and are the most susceptible to financial scams and poor choices. As people get older, their financial affairs often get more complex. They must deal with complex choices on healthcare, long-term care, taxes, life insurance, pensions, Social Security and estate planning. Often just handling the routine chores of daily financial affairs become beyond reach. Recently The New York Times had an article discussing the research behind the loss of cognitive skills needed for personal finance. Steps to mitigate these inevitable problems include striving to simplify your financial affairs — consolidating your holdings in a small number of financial institutions, trimming your actual number of holdings, avoiding complex or exotic instruments. Another common solution is to use automatic bill paying where possible. People should also find trusted family members, friends or professionals who can step in when needed. Appropriate advanced directives such as powers of attorney and health care proxies also need to be in place. Planning for the inevitable will help avoid many of the worst potential pitfalls.

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Scams for Elderly

By Larry Luxenberg  

Protecting Against Financial Scams

Financial scams are getting much more sophisticated and are a growing problem. It’s easy for anyone to momentarily let down their guard and get nailed. It’s especially easy for the elderly. So much has changed in recent years and the elderly often have a tough time sorting out the legitimate advances from the smooth talking con artists. A recent study showed that the elderly who have been working with a financial advisor or some other trusted advisor are much less likely to fall victim to scams. Financial products have gotten much more complicated over the years. With the advent of cheap computing power it became possible to add many more features to products. Now consumers have choice about everything but it’s much more difficult to sort out what is really important to them, what they need and what they are paying for. As we age, our brains become less agile and can get overwhelmed with this growing complexity. Nowadays, everything comes with an inch thick instruction manual. While there’s no sure way to ward off all scams, the one good rule is that if something sounds too good to be true, be especially wary.  Recently, Financial Planning Magazine ran an article on protecting against scams: http://www.financial-planning.com/30-days-30-ways/protecting-elderly-clients-more-scams-2692756-1.html?utm_campaign=30%20days%2030%20ways-may%202%202015&utm_medium=email&utm_source=newsletter&ET=financialplanning%3Ae4297713%3A1591a%3A&st=email

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False Precision in Financial Planning

By Larry Luxenberg  

Craving Certainty

Recently The New York Times published an article about financial planning and how much people crave certainty. The result is that many financial plans have page after page of numbers and graphs and charts. The more numbers, the more confident people feel about the future.

But these plans can be so overwhelming that many go unused. In the Times article, author  and planner Carl Richards deplores this kind of false precision. He argues that for most people, the future is impossible to predict and plans must be flexible to account for the vagaries of life.

The planning process itself forces people to think hard about their goals and priorities. Often, latching onto a firm goal, even if it’s one that’s difficult to attain, might make success more likely than having a vague but less lofty goal.

Being disciplined and thorough in planning can yield significant results even if the ultimate destination is far removed. Identifying the key variables and options during the planning process can provide a clarity of purpose and a route to get there.

Planning and adapting the plans from time to time are a valuable exercise. Just don’t get too caught up in the details and miss the big picture.

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Social Security Information

By Larry Luxenberg  

Social Security Website

Social Security retirement benefits is a more complex and important subject than most people realize.

In retirement, Social Security typically accounts for one-quarter to one-half of retirement income. The size of those benefits is dependent on your 35-year work and earnings record as well as at what age you begin taking your benefit check,  whether you have a spouse (and their age and record), other dependents, your work plans, and other factors.

A good place to start looking for information is the Social Security Administration website, www.socialsecurity.gov. For those who like to get their information online, a useful page is, http://www.socialsecurity.gov/onlineservices/. This page tells you some of the many things you can use the Social Security website for.

The Social Security Administration also can be reached by telephone or in person at their local offices. Social Security also publishes pamphlets that give quick summaries of various features. “Update 2015” provides some of the current numbers.

Social Security serves tens of millions of people and needs many rules to get this done effectively. Learning as much as you can yourself and consulting a financial professional, accountant or lawyer if needed can help you get the best results for your individual situation.

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Negative Interest Rates

By Larry Luxenberg  

Desperately Seeking Yield

Investors are perplexed and concerned about continued low interest rates.

People who think of themselves as conservative investors like to rely on guaranteed fixed interest rates. Over the last six years that hasn’t been much fun.

In early 2009, the Federal Reserve Board lowered their short-term interest rate target to close to zero and it’s remained there ever since. It seems hard to believe but as recently as early 2008, the target was 4.25 percent.

Investors’ choices in this environment are unattractive: they can accept little risk and interest rates of close to zero or take on different kinds of risk.

Many investors refuse to take on risk. In fact, by some estimates as much as $3 trillion is invested at negative interest rates. With a negative interest rate it means that the investor is paying the issuer or custodian to hold their money. They’ll get less money back than they put in.

In a world of seemingly low interest rates forever, investors will take increasingly “clever” or risky moves to get higher yields. They may not recognize the risks until it’s too late but the risks are there. Prudent assessment of risks and an overall plan are the best ways to survive this period.

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Financial Affairs — Much More Complex Than Most People Realize

By Larry Luxenberg  

Do it Yourself? — Not!

 
I run into a lot of do it yourselfers who manage their financial affairs adequately, even capably.

But many run into issues and by the time I am called in, it is often too late or significant damage has already been done.

Recently, I’ve been brought it to work on the financial affairs of several people where the need arose unexpectedly. I had to guess the clients’ wishes and scramble for clues to piece together their financial pictures. If we’d had the opportunity to talk for even a short time, the process would have been much more successful and much easier. Other times I’ve come across mistakes where the do it yourselfer didn’t realize he was in over his head.

There’s no buzzer that goes off telling you that you have to make a significant decision or you should look into something that hadn’t occurred to you.

Most people manage their financial affairs one piece at a time without even a list of all the pieces that are required. Each piece, in and of itself may be fine, but the overall structure can collapse if even one critical piece is missing.

Personal finance is much more complex than most people realize. I encourage everyone to learn and be involved with their financial affairs. But I also strongly recommend calling in professionals before the crisis hits.

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Pension Mistakes of Investors

By Larry Luxenberg  

Pension Woes
Recently the New York Times highlighted the troubles of the New York City pension system. The pool of money held to pay future benefits is at least $100 billion short of where it needs to be.

Experts debate the exact amount but it’s clear that there’s not enough money to cover obligations. The pension troubles consuming the budget, rising from 2 percent of total spending to 11 percent in a decade.

What’s also clear is that this huge institutional investor is making the same mistakes as ordinary, small investors: paying too little attention to something that cries out for focus, failing to properly allocate assets and falling prey to the siren song of unrealistically high projected returns in alluring investments.

It’s a shame that boring old stocks and bonds don’t have the pizzazz of alternative investments — hedge funds, private equity, venture capital.

The Times mentions that the pension system’s investment return goal was unrealistically high at 8 percent annually. Actual returns were two percent a year.

Individuals make the same mistakes and this doesn’t have to be; a little realism and some good planning go a long way toward achieving a successful and comfortable retirement. We can help.

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