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Aging parents? 3 steps to pave a smoother financial path forward

Aging parents? 3 steps to pave a smoother financial path forward

Anna is amazing. At 94 years old, she is still incredibly energetic and remains larger than life in every way. Yes, she needs a bit of help getting out of bed in the morning, but from her perspective, that’s her only limitation. As she’s told me time after time, “My mind is still ticking away perfectly!” She firmly believes her cognition is faultless, and because she is fiercely independent, she’s kept her children completely removed from her finances.

A few years ago, Anna sold a piece of real estate and put all of the cash in her checking account. She still has plenty of cash remaining—enough to pay full-time, agency caregivers for another five to seven years. However, because her children are out of the loop, they have no idea how much savings she has or how soon her assets will run out. They worry that she’ll outlive her savings, even though Anna is set, literally, for life.

As a financial advisor, I see situations like these all the time. Anna’s situation is a simple one, but not all seniors—or their families—are as fortunate. It’s a fact that aging affects financial decision-making, even if that decline is not obvious to family members. That makes creating a long-term plan that includes some basic checks and balances, as well as a pre-determined timeline for transitioning financial responsibility from the parents to the adult child, one of the most important pieces of a smart financial plan.

If you have aging parents (or if you’re the aging parent yourself!), take these three steps as soon as possible to avoid costly mistakes in the years to come. Your future self will thank you!

  1. Start talking.
    In many families, money can be an emotional topic, and just as it can be difficult for many seniors to understand why they need to hand over the car keys when driving becomes unsafe, handing over control of their finances can also become quite the challenge. Ease the way with a family meeting. Have an open, honest discussion about how much money is available to pay for your parents’ care and who is the most suitable person to manage the assets when they are no longer capable of making prudent financial decisions. Decide together when and how to hand over the financial reins.  

    If you need help, consider hiring a mediator—a trusted financial advisor, family therapist, or mediation specialist. With the help of an impartial third party, everyone involved is more likely to remain open-minded and, hopefully, walk away with confidence in the plan and greater peace of mind. I also recommend sharing my blog post To protect your financial future, hand over the keys to your kingdom today with your parents to initiate the conversation. Hopefully, it will open the door to a more comfortable conversation.

     
  2. Create a system of checks and balances.
    As your parents age, they will inevitably need more and more assistance, and a system of checks and balances can help avoid a crisis. According to a 2016 report from the National Institute on Aging, trouble managing money is one of the earliest signs of Alzheimer’s disease and other age-related dementias. The deficit often becomes clear when the checkbook suddenly doesn’t balance because bills are paid twice, when every charity (not a select few) receives a check, or when a caregiver has too much influence.

    At our firm, we ask every client to sign an incapacity agreement when they turn 65. We ask, “What would we see you do that would be out of character so you would want us to intervene?” The answers range from making sudden changes to their financial plan, to gifting large amounts of money, to becoming secretive about their assets. The agreement allows us to call the person they name in the contract (perhaps you) when we see one or more of these triggers. By having this conversation long before any decline is anticipated, we’re able to ease the transition from financial independence to asking for help.

     
  3. Establish joint control of your parents’ accounts.
    We typically recommend establishing a revocable living trust, appointing the most responsible and available child as co-trustee, and opening a bank account in the name of the trust with multiple signers: the parents and the co-trustee. Another option is to name the adult child as an authorized signer (not a joint owner) on the parents’ account. Many of our clients’ families use our powerful eMoney Personal Financial Portal to oversee their parents’ financial transactions and balances and collaborate with us as financial planners.

Even without signature authority, Mom and Dad can give you visibility into their accounts using an “interested party statement” or giving you online access to their accounts so you can help manage the finances even from a distance. Both of these options are safer than opening a joint account, which can put your parents’ assets at risk. If your parents are not well enough to participate in financial decisions, that’s when it’s time to trigger the previously established power of attorney for their financial matters.

For any child, taking control of your parents’ assets can feel like you’re overstepping an invisible line in the sand. Suddenly your old roles are reversed, and you’re the one holding the purse strings. Yet making that transition can be an important stress reliever for everyone involved. If you don’t know where to begin, talk to us. We’re happy to help guide you through this delicate transition to create a smoother path toward a sound financial future—for the whole family.

 

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To stay on track in today’s market, simply take a look at the past

To stay on track in today’s market, simply take a look at the past

So far, October 2018 has been a discomforting reminder of what it means to be an investor. Intellectually, we all know that wise investing requires carefully balancing risk and reward over the long term. Despite having lived through the financial crisis of 2008, the Dot-com crash in early 2000 and, for some, the stock market crash of 1987, it’s been easy to forget about the risk side of the equation in recent years. As “the market” and our portfolios have swelled to unimaginable heights, we’ve come to expect long-term, stable, extreme growth, and we fear any loss of those gains.

Last week, the market dipped into potential correction territory. It’s no wonder that we’ve been getting a few calls and emails from clients who are feeling a new level of stress and anxiety. The two main concerns we’re hearing right now are 1) the stock market keeps going up (so it must crash soon!), and 2) my portfolio is performing much worse than “the market.”  These questions can make any investor feel like they need to do something. The place to begin is by addressing these very emotional concerns. As Benjamin Graham famously wrote 70 years ago in his book The Intelligent Investor:

“The investor’s chief problem—
and even his worst enemy—is likely to be himself.”

As long as you have an investment strategy in place that is designed to meet your goals and your needs, my short answer about what to do is simple: nothing. Here are some facts to help alleviate investors’ two main concerns, no matter what the market does next week, next month, or next year:

  • What if the US stock market crashes?
    A quick look at some facts about your portfolio and the market itself can help put the fear of a looming crash in clear perspective. First, if you’re a client of ours, the percentage of your portfolio in S&P US stocks is somewhere between 9% and 30%. That means that stocks play a balanced role in your portfolio, which is diversified in other assets like bonds, real estate, and international stocks. This diversification is designed to protect you from a US correction. Your allocation is designed to meet your goals through ups and downs, so sticking with that allocation is going to be your best long-term investment strategy.

    Second, no one can time the market. If you try to guess when to get out and back in, the odds are overwhelming that you will guess wrong. For more in this, see my blog post Volatility, escalators, and yo-yos from three years ago in October 2015. (Yes, it is the same old story!)
  • Why isn’t my portfolio keeping up with the stock market?
    No one wants to miss out on big gains. Headlines keep reminding us how great the US stock market is doing. It’s time to address this media-fueled FOMO (fear of missing out!) once and for all.

    Since most clients have less than 25% in S&P stocks, it’s not an apples-to-apples comparison between balanced portfolios and the US stock market. Also, when it comes to your long-term returns, risk matters, and the S&P 500 is about 180% riskier than our balanced portfolios. Lastly, bond prices, which also make up a portion of a balanced portfolio, have decreased this year, but these losses are temporary paper losses. For more depth on this topic, see my blog post Wall Street has gone wild! Is it finally time to change your investment strategy?

This is the perfect time to take a trip down memory lane. I opened the doors to Klein Financial Advisors in 2003, just five years before the financial crisis. This September marked ten years since the failure of Lehman Brothers, which is considered the triggering event of the financial crisis and the great recession. Consider these numbers for some perspective: On October 11, 2007, the S&P 500 Index closed at 1576.09. On March 9, 2009, the S&P 500 Index bottomed out at 676.53. That means that an investor with $1,000,000 in stocks would have seen the value of her investment drop by more than half, to $430,000.

In the weeks, months, and years that followed the crash, I held a lot of clients’ hands and successfully shepherded them through the financial crisis. Fear was rampant, but I assured them that the market would rise again and their portfolios would recover. However, many other advisors did not. Some advisors allowed their judgment to be affected by fear and inexperience. Many investors fired their advisors and went to the sidelines. After the crisis, many other advisors ‘played it safe’ by saddling their clients with illiquid, low-returning annuities and non-traded REITs—products designed by banks and brokerage firms to “limit volatility” and therefore investment returns. And just last year, after the 2016 election, some advisors counseled clients to hold cash for months. It was a costly mistake.

Experience, education, and judgment matter. Remember that so-called experts in the financial media industry are entertainers. Single-day returns are largely insignificant, and your portfolio is tailored to you and your life goals. So we repeat our mantra: stay disciplined and stay the course. And if you ever feel doubt creeping in, give me a call. I’m a skilled and patient hand-holder, and I’m always here to help.

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In Your Best Interest: Our Fall 2018 Newsletter

In Your Best Interest: Our Fall 2018 Newsletter

Click here to view the full newsletter, including recent news, important dates, financial tips & tools, and more.


Market Highlights Q3 2018

One lens we use to assess our economic and financial wellbeing is market prices for US stocks and foreign shares of corporations. From that perspective, Q3 was quite favorable for investors. US stocks and global stock indexes rose on strong economic indicators and corporate earnings. As you can see below, each of the US indexes posted solid gains, and global stocks overcame declines seen in the first half of the year. Prices for 10-year Treasuries dropped by the end of the quarter, pushing yields higher by 20 bps.

If your portfolio lagged compared to these impressive gains, don’t be alarmed—and don’t worry. A balanced portfolio is designed to avert risk by including US bonds which saw negative returns in the quarter due to the inverse relationship to rising interest rates. A balanced portfolio further includes global stocks whose returns were lower than the US market. Balancing risk and reward is the goal, and your portfolio should always reflect that reality. 

That said, current economic indicators point to continued growth. Jobs are up 196,000/month for the past year, and hourly earnings are up 2.9%. Interest rates are the highest they’ve been since April 2008 which signals a strong economy, and GDP growth is at 4.2%. Home sales are stable, consumer spending remains strong, and consumer confidence is at an 18-year high.

One of the few distractors from growth has been turmoil in international trade. The trade battle between the US and China has dampened Chinese stocks, though higher numbers at the end of Q3 hint at decreasing concern about the real impact of the trade war. Brexit—and its potential impact on commerce in the UK and Europe—remains uncertain. On the plus side, a revamped NAFTA (USMCA) agreement should ease tensions between the US and our trading partners in Mexico and Canada; Japanese stocks are approaching highs not seen since the early 1990s; and Germany, France, and the UK all saw gains in their respective stock benchmarks.

Will growth approach 4.0% in the last quarter of the year? Are security prices “too high”? Is a recession inevitable? We know that today the US economy is strong and security prices are exuberant. As always, the prudent investor stays invested, stays the course, and sticks to the basics with a balanced, risk-appropriate approach to growing and protecting your wealth through all market cycles.

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Rain in the forecast? It’s time to plan like an Easterner!

Rain in the forecast? It’s time to plan like an Easterner!

When I heard that there was a chance of rain this week in Southern California, I didn’t bet any money on the fact that it would happen. But I did do what I needed to: I pulled in my cushions from the patio and set my potted plants out from under the eaves ‘just in case.’ I suppose all that planning comes from my east coast upbringing. Where I grew up, we always expected a change in weather, and we never made plans without a backup. That was true for weddings, picnics, and even a short drive out to dinner. Yes, you could plan your day and hope for the best, but you always (always!) had a contingency plan.

When it comes to your finances, I recommend a good old, Easterner approach to planning. Why? Because even the best laid plans can go awry. Life happens, which means everyone needs a contingency plan.

Over the past week, I’ve been focused on income planning for two of our clients who are just entering retirement. It’s a deep-dive exercise in preparing for almost any possible scenario. We began, of course, with the basics: looking at their current assets, as well as their goals, values, and retirement dreams. Next, we built a plan that should fulfill their expectations. If they spend at the assumed rate. If the market remains at least somewhat reliable in its behavior. And if they live to be 100—no more and no less.

But we didn’t stop there.

I’ve always loved the Eisenhower quote about planning for battle: “Plans are useless, but planning is indispensable.” He knew first-hand that it is impossible to plan for an emergency on the battlefield because, by definition, an “emergency” is something that it is unexpected and certainly not going according to plan. My take on his wisdom is this: smart planning is what gives you the power to be flexible and adapt to stress when life doesn’t go according to plan.

So how do we plan for the unexpected? We shoot holes—lots of them—in every plan to see how it holds up. To do that, we look at the many stressors that could throw your plan off track. What if you or your spouse dies tomorrow? What if you need long-term care, and for how long? What if interest rates go through the roof, the stock market drops, or inflation escalates? And what if all of those things happen at once? Working from the best-case scenario, we look at the worst-case circumstances, and we create a plan that has the highest possible chance of succeeding—no matter what life throws your way.

What’s powerful about this approach is that it helps your plan build muscle. Pushing the boundaries helps us see what we can change to protect against stressors. The planning process also helps you understand which risks are worth taking—and which aren’t. Let’s say you’re already retired, and you have a large percentage of your portfolio invested in equities. That might be fine if you’re collecting a decent Social Security income, your house is paid off, and you have a good pension coming in.

But what if you don’t? What if you’re still paying a hefty mortgage, your Social Security income is minimal, and your only additional income is coming from your IRA? In that case, a significant market correction could create a major decline in your income so that overweighting equities could be devastating. Planning helps you understand risks, as well as the tradeoffs you may need to make if the unexpected occurs.

I’m a perfect example of someone who experienced a confluence of unexpected plot twists in life. My ‘plan’ was to get married, have two and a half kids, get a dog, and live happily ever after. When I found myself divorced with two kids and no dog, then remarried, then widowed, it was pretty clear that my best-laid plans were dust. In a way, I was lucky. All of those things happened when I was relatively young. I had time to rethink my plan, both emotionally and financially. But I never could have predicted then where I’d be today.

Here are the things you can predict (aside, of course, from death and taxes!): we will get rain again in Southern California, and we will see a market correction. By planning for whatever may come your way, you can act with knowledge rather than react out of fear. That’s the value of a carefully crafted, long-term financial plan. Armed with a financial plan that includes both the best-case and worst-case scenarios, when life takes you off track (as it surely will), you’ll have built the muscle memory to face any challenge with resilience and strength. Best of all, you can head into the unknown with financial confidence and peace of mind. That’s an empowering way to face any storm—and even find your rainbow.


Want to learn more about planning for the unexpected? See my blog post: There’s no such thing as an unexpected expense.

 

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September is the perfect time for a financial la rentrée!

September is the perfect time for a financial la rentrée!

I’ve been a Francophile for as long as I can remember. I’ve studied the French language (and used to be pretty darned good!). As I teenager, I spent two full summers as a student in the South of France in Aix-en-Provence and Grenoble. I fell in love with French culture, food, literature and, yes, even some cute French boys! When late August rolls around, I’m sure I’m not alone in wanting to emulate the French who, like the rest of Europe, almost completely shut down for a much needed (and completely un-American) two-week-long vacation. But there’s something new about France that I only recently discovered: the French tradition of la rentrée.

As you might expect, la rentrée does have some association with back-to-school season, but it’s about so much more than school children. La rentrée is a time when everyone—school children, yes, but also authors, politicians, and even newscasters—returns from the summer break filled with a nationwide sense of optimism for a fresh beginning. We may be thousands of miles away from Paris, but in the spirit of all things French, I’m on a mission to create our own financial la rentrée right here at home.

The best thing about la rentrée is that it doesn’t feel like a chore. There’s no word to describe it in English, but the closest I can come to putting it into my own words is that while there may be work to be done, each task is approached with hope and happiness and positive energy. Here are five simple steps to kick off your own financial la rentrée this month:

  1. Review your tax strategy.
    With autumn comes the final stretch of the tax year, which means that it’s your last chance to make changes that can have a real impact on your tax bill come April 15. While tax planning is important every year, the new Tax Law makes careful planning particularly important in 2018. As I wrote in my recent tax planning blog post, the current tax tables may understate your withholding, so now is the time to compare your actual withholding amounts with your projected tax bill, and to seek out other opportunities to optimize your taxes.

     
  2. Check your credit report.
    When is the last time you checked your credit report? Monitoring your account balances and financial transactions is very easy and it’s the best way to prevent identity theft and fraudulent use of your credit history. I recommend CreditKarma which offers unlimited and free access to your credit report, as well as a free credit monitoring service. I also like the idea of placing a credit freeze on your account which requires institutions to contact you before approving any new request for credit. Learn more about protecting your financial privacy in my blog post Getting personal about privacy.

     
  3. Weigh your cash balances.
    Cash planning is the foundation for any solid financial plan. If you don’t already have a sufficient “freedom fund” of cash, read why it matters and how to get started in my post There’s no such thing as an unexpected expense. If you do have your fund in place, take a look at how your balance has changed in the past year. If your balance is increasing significantly, you’re likely living below your means and may need to review your financial plan to be sure you are making your money work effectively. If your balance is decreasing, take a close look at why. If you’re living beyond your means or not saving appropriately for vacations, household purchases, and other “expected expenses,” an adjustment is in order.

     
  4. Review your long-term goals.
    Are your financial goals SMART: Specific, Measurable, Achievable, Relevant, and Timely? Are they in writing? As I wrote in my last blog post Am I on the right path?, whether you are investing your time, your money, or both, you need a plan. Reviewing that plan regularly to be sure you’re on track toward your vision of the future is a must. Sit down and spend some dedicated time to explore your goals today—alone or with your partner if you have one—and create a SMART plan to get there on time and on target.

     
  5. Get help with the details.
    When I was in my 20s, I was able to keep myself motivated and physically fit all on my own. These days, not so much. That’s precisely why I hired a personal trainer. Nancy S. knows how to get me in shape and how to keep me motivated throughout the process. Most importantly, she points out things I didn’t know about how to get and stay fit and healthy. When it comes to your finances personnelles, a Certified Financial Planner (CFP®) can be your dream coach. A CFP is trained to help you identify SMART goals and create a realistic plan to get you where you want to be when you want to be there. No matter where you are in your financial life, hiring a fiduciary advisor may be the best la rentrée activity there is.

La rentrée is all about optimism and creating a fresh start.My personal la rentrée this year has been focused on rediscovering my love for French. I’ve been brushing up on my vocabulary and grammar using the Duolingo app (if you want to discover or rediscover any language, I highly recommend it!), I’ve been nose-down in Martin Walker’s Périgord-based detective series Bruno: Chief of Police, and I just discovered a French-language podcast called Coffee Break French that I can’t wait to start. I’m on my way to better, more proficient French and having fun along the way. I hope you’ll join me by embarking on your own la rentrée to improve your finances. What a wonderful way to slip into autumn. And if you do need help to make it happen, you know where to find me. À bientôt!

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All written content on this site is for information purposes only. Opinions expressed herein are solely those of Lauren S. Klein, President, Klein Financial Advisors, Inc. Material presented is believed to be from reliable sources and we make no representations as to its accuracy or completeness. Read More >