MONEY matters

Of all the many golden rules when it comes to managing money, one of the most classic and familiar is to “live within your means”. How many times have you heard that expression?

But how about “living below your means”? Suze Orman, (whose style is not my favorite, but whose message is clear and spot on) has a new series called The Money Class which is where I heard the phrase living below your means. I’ve watched some of her specials before, yet I think this is her best yet. From the intro I watched on PBS, I believe this Money Class series is going to really benefit many, many people in bad financial shape.

No, this is not an oxymoron. Over 200 people that make over one million dollars per year are asking, practically begging, the leaders in Washington to raise their taxes. I have never seen anything like this in my life.

To counter the image that most if not all wealthy people are greedy and only care about their own self interest, this group of citizens are determined to shake things up and let us all know that they deeply care about the social contract we have with all our fellow citizens and that they are deeply passionate about our collective common good.

I'm a big a fan of former U.S. Secretary of Labor Robert Reich, so I wish I could have been on the steps of Sproul Hall at UC Berkeley last night where Reich gave the annual Mario Savio Memorial Lecture.

Reich called his speech "Class Warfare in America," and he talked about the concentration of wealth in the US at the top of the economic pyramid, and what he called, "the irresponsible use of wealth to undermine our democratic system.”

Last week Lemony Snicket's Daniel Handler wrote these 13 Observations on Occupy Wall Street. I caught him on Rachel Maddow's show last Friday where he shared the story of how these observations came about.

While taking a swim at his health club, he found he had to share a lane as it was a little more crowded than usual. The guy he was to share the swimming lane with wasn't too happy about it, and had no intentions of sharing his lane because, "I'm a major donor in this building, so I don't think I have to share a lane."

When considering the retirement alternatives out there - people are getting more and more creative in their thinking. Karen DeMasters outlines some other options you may not have considered, including what is known as a '"transitional strategy', in an article she wrote that appeared in the most recent Financial Advisor magazine.  

In laying out a case where when approaching retirement, one has to balance both time and money, the article states, "T. Rowe Price believes that even if you both work part-time in your 60's while you begin playing, the financial benefits may be significant, or, in some cases a couple may choose to have one spouse retire while the other continues working."  It's not often you read an article about retiring with the phrase 'funding your fun' in it.

Over the years, I’ve heard the same concerns again and again by people who are dipping their toes into the financial planning waters for the first time. As when I started Spiritus Financial nine years ago, my aim continues to be on financial education and empowerment, not on selling. The more you learn about money – the more successful you’ll be financially. So here they are, the five most common myths I’ve encountered in my financial planning practice.

1) High allocations to bonds, CD’s and other fixed income investments will reduce risk

I suppose that depends on how one defines risk. I define it as running out of money before you run out of life. If a major allocation to fixed income will produce returns that virtually assure you of depleting your portfolio in this lifetime, how can one define that as a low-risk portfolio?

Adding the appropriate allocation to equities may create more fluctuation, but it could reduce the risk of running out of money. Before constructing an investment portfolio, one must not only measure 'risk tolerance,' but the return necessary to achieve their goals.

In an recent article by the Financial Planning Association (FPA) a 2010 study of wealthy female investors showed that women were more likely to consult a professional advisor than men. One reason is that women in general are more cautious or conservative when making financial decisions.

According to the study, in addition to seeking professional financial advice, women are opting for more education around money issues. And just like the old stereotype about the differences between men and women in asking driving directions (in pre-GPS days) - women are not afraid to ask for financial guidance and advice.

I used to think it was mostly a west coast thing. What I’m referring to is the rapidly growing number of couples that are putting quality of life ahead of their standard of living - those who are downsizing and simplifying. In many cases, the men are encouraging and supporting their wife/life partner to be the breadwinner in the family, while they often stay at home to care for the kids and run the household, or work from home part-time.

Here in the San Francisco Bay Area, where the culture very much encourages self-empowerment, this trend is exploding. There are classes and workshops that focus and teach women how they can best cope and support the men in their lives that are (and this was the wonderfully delicious euphemistic term used to market an upcoming workshop), under-earners.

It’s a Leap of Faith

From my vantage point as a holistic financial planner, I often meet the men that have voluntarily simplified their lives. Many describe making the change as a leap of faith. And for full disclosure, when I meet with couples where this idea or concept is on the table, I do everything in my power to see how this can work and make it happen for them.

When I meet people that truly desire to reinvent themselves, but the only major obstacle standing in the way is money - I can’t wait to get started on a financial plan with them. Because my first priority is having my clients be successful, having a personal financial plan in place is the only way to proceed.

Transition to Success

Of course, talking about this type of personal transformation, I’d be remiss if I didn’t mention the book Your Money or Your Life which very often provides the catalyst and self-confidence necessary to make major life changes. It’s when you begin to challenge all the core assumptions in your life, especially the ones about how much you ‘should’ make or the type of work you ‘should’ be doing that life really gets interesting.

The vast majority of men I meet that are contemplating this downsizing and simplifying life choice are currently in high stress, high income careers or jobs that feel more like they’re making a ‘dying’ instead of making a ‘living’. Many guys are literally just burned out from striving and never arriving as every time they were close to reaching the finish line, someone moved the goalpost yet again. Men making this downshift in terms of career change risk the wrath of not only society, since this is still very much out of the norm, but often friends and extended family make their opinions of your choice that much more of a challenge.

Women Leading From the Heart

Swimming upstream is much more challenging than going with the flow. Men that begin reflecting on their life choices often notice the creative juices really start bubbling to the surface.  They may feel empowered and inspired to “quit their day job”, they might take personal mini sabbaticals in order to regroup or rest, they often reinvent themselves by taking a gig that’s low stress and easy on the mind and soul.

But we still live with sexism so with these unorthodox choices comes the dubious distinction of possibly being dubbed lazy, under-earner, girlie men, slacker or a poor provider for the family. But down the road, when the investment made in yourself and your family by taking some time off to just slow down enough so you could think clearly manifests into a happier, healthier and more prosperous you, it’s then that all the naysayers will tell you how smart a move that was back then to take some time off.

For all the men I have helped and encouraged to make this move, the X factor that has made the difference between a successful or unsuccessful reinvention is the unconditional love they have received from their wife/life partner during this transition.

It’s what teamwork is all about. A wife helps her partner to become a happier man, him becoming happier helps her love him even more. The more love, the more abundance they attract into their lives, and on and on it goes…

Mark Twain said it best: “Twenty years from now you will be more disappointed by the things that you didn't do than by the ones you did do. So throw off the bowlines. Sail away from the safe harbor. Catch the trade winds in your sails. “Explore. Dream. Discover.”


Photo by Mr.T in DC

I'm not saying it's fair, not by a long shot, but these are some facts about women in the workforce:

• On average, women make less money than men - 77 cents on the dollar
• Women contribute less to retirement plans like IRA’s and 401k’s and less to Social Security during the course of their work lives
• On average, women work 12 years less than men (by taking time off to raise kids or care for elderly parents)
• Women generally don’t have a pension since pensions require length of service and women often take time off to raise kids or care for parents
• Women live 5-7 years longer than men, so they’ll need more savings when retired

Being Proactive and Planning for a Successful Retirement

Women who take charge, do the math, plan for contingencies and work with their partners and/or financial planners have a better chance of securing their finances in retirement than those who shrink from the process, according to a new study.

The MetLife Study of Women, Retirement, and the Extra-Long Life: Implications for Planning, shows women face a number of unique financial risks—including outliving retirement funds, aging single, lower retirement incomes, greater health care costs and added care-giving responsibilities—and have not planned adequately to address these concerns.

Slightly more than half of the women surveyed know the likely amount of their retirement income/assets and only 44% have calculated the amount of their essential expenses, according to the study. Approximately one-in-six (16%) reported that they have or plan to delay retirement, on average, four years.

The data suggests that women who work collaboratively with spouses, partners, financial advisors and even knowledgeable friends, report higher confidence in their retirement security. Among men and women, men are more likely, by a margin of 65% to 55%, to calculate retirement income.

"The combination of risks for women and their relatively inadequate retirement planning has become known as the ‘perilous paradox,' but the message is clear that women are able to avoid that," said Sandra Timmermann, director of the MetLife Mature Market Institute. "The risks and costs of ‘living long and living female' call for an ‘affirmative action' plan. We find that those who plan for a steady stream of income, along with some flexibility for the unexpected, are best prepared for what can be an extended future."

Longer life spans for American women create additional costs and financial constraints that can lead to greater financial challenges in retirement, according to the study. As of 2009, women aged 65 years or older had significantly lower annual retirement incomes than men—an average of $21,500 vs. $37,500. American women are more likely to experience retirement alone since many never marry or are widowed or divorced.

Retirement Planning-Taking the Next Step

If you’re like most people, (both men & women) the thought of developing a comprehensive financial plan that provides you a clear and easy to understand roadmap of your retirement income is easier said than done.

Yet the sooner you know where you stand and how best to move forward, the sooner you’ll enjoy the benefits and peace of mind a solid financial plan brings to your life.

 

 

Fair/Not Fair Photo by Xuoan's Dailies