Financial Checkup Checklist

Financial Checkup Checklist

Just like it’s a good idea to get a health checkup every year, it’s a good idea to get a financial checkup as well.  Doing so can help you detect problems early (while they’re still treatable) and will also help you gauge your progress and make sure you’re on track for a healthy retirement.

To help, I put together this Financial Checkup Checklist with areas that you should be reviewing.  Go through it and then touch base with me if you have any questions or there’s anything I can help you with.  Have a great week!

~ Joe


Annual Review: 7 questions for your adviser

Annual Review: 7 questions for your adviser

If you work with a financial adviser, it’s a good idea to get together at least annually to review your accounts.  As we get ready to transition into a new year and as our government grapples with the issues surrounding the “Fiscal Cliff,” now may be a good time to call your adviser and schedule that meeting.  Below are seven questions you can ask to make sure that your retirement planning stays on track.

Are there any actions I need to take before the end of the year?  Most of the questions below can wait until next year, but for obvious reasons, you need an answer to this one before December 31.  With changes expected to both dividend and capital gains taxes in 2013, review your holdings and ask your adviser what actions, if any, you should be taking before yearend.  Also, if you are 70 ½ or older you will likely need to make a Required Minimum Distribution (RMD) from your retirement accounts before the end of the year.

How did my investments perform relative to their peers?  It is difficult to gauge performance by returns alone.  If your stock mutual fund drops 20 percent does that mean that it’s bad?  Not if similar funds dropped 40 percent.  When monitoring performance, it’s important to have either a benchmark or peer group that you’re measuring against.  Your adviser should be able to review your holdings and see if the managers you’ve hired are earning their fee.  If so, great.  If not, changes may be in order.

Is my asset allocation still appropriate?  Your portfolio is likely made up of a variety of different asset classes such as U.S. stocks, foreign stocks, small cap stocks, government bonds, corporate bonds and municipal bonds.  How much you have in each area is referred to as your asset allocation.  The balance will vary based on a number of factors such as your age, risk tolerance, goals and outlook for the global economy.  As your circumstances change and as market movements alter your allocation, it is important to meet with your adviser and rebalance your holdings to get them back in line.

Is the amount of risk I’m taking still appropriate?  Investing too aggressively can result in significant losses to your portfolio.  Investing too conservatively can mean that your investments don’t keep pace with inflation.  Either of those outcomes will reduce the purchasing power of your money in retirement.  Work with your adviser to make sure that the amount of risk you’re taking is still appropriate for your circumstances.

Am I saving enough?  There are a number of assumptions that go into calculating how much you need to save in order to retire.  Even small errors in those assumptions can have drastic changes in the predicted outcome.  Rather than making a plan and then waiting 20 years to see if it works, it’s important to make small adjustments along the way.  With each new year, you have new information relating to things like investment returns, savings rates and taxes.  It’s important to evaluate that new information and ask your adviser “Based on these new realities, am I still on track to reach my retirement goals.”  If the answer is no, talk through any needed changes.

Is my withdrawal rate sustainable?  Of course, this question is only appropriate if you’re already retired and drawing income from your portfolio.  Running out of money is a major fear for many retirees.  To avoid that problem, it is important to have a sustainable withdrawal rate.  A suitable rate depends on a number of factors including investment returns, inflation, longevity and even luck.  A popular rule of thumb is to limit withdrawal rates to 4 percent, but everyone’s circumstances are different, so work closely with your adviser to make sure your income lasts.

Do you recommend any other changes?  A good adviser is realistic and honest.  Rather than telling you what you want to hear, he or she is paid to give you straightforward advice that will help you accomplish your goals.  Not only that, but a good adviser should be able to look at your total financial picture and offer comprehensive advice.  Take advantage of that knowledge and experience and ask what, if any, other changes are necessary.

The annual review is an important element to the client-adviser relationship.  It is an ideal time to evaluate performance and make necessary adjustments to help you reach your retirement goals.  Pick up the phone and schedule a meeting today so you can start the New Year off right.

~ Joe

I originally published this article at
How aging affects your financial decision making

How aging affects your financial decision making

As we age, our brains don’t work as well as they used to.  This is particularly true when it comes to making financial decisions.

A recent study by the Texas Tech Financial Literacy Assessment project showed that our ability to understand financial concepts and make good decisions based on that information peaks in our 50s.  After age 60, our abilities decline by about 2 percent per year.  By age 90, the typical person has about half the cognitive financial abilities that they had at 65.

Ironically, the study also showed that our confidence in our financial decision making ability rises as we age.  In other words, we get more and more confident even as we become less and less able.  How does the old saying go?  Often wrong, but never in doubt?

Since aging is a reality for all of us, what can we do to protect our finances from self-inflicted wounds?  Here are a few suggestions:

  • Hire a financial adviser that is trustworthy and younger than you.
  • Have a trusted family member that you can take to meetings with you.
  • As much as possible, have your finances on autopilot after 60.
  • Have a financial power of attorney in place so that someone can step in to help you if needed.
In short, surround yourself with people you trust and don’t be afraid to use them as a sounding board as you make decisions with your money.  Come to think of it, that’s good advice for any age.
~ Joe
5 key relationships for people over 50

5 key relationships for people over 50

“Plans fail for lack of counsel, but with many advisers they succeed.”  ~Proverbs 15:22

As you approach retirement, there are five people who can make a big difference when it comes to your health, financial security, and overall quality of life.  They are:

1. Your doctor

Getting old is inevitable, but aging doesn’t automatically need to be accompanied by poor health.  Your doctor can be a great resource when it comes to maintaining a healthy lifestyle.  He (or she) can advise you on eating habits and exercise routines.  He can provide screenings, tests or procedures recommended for people in your age group.  Should you have a colonoscopy?  Should you start an aspirin regimen?  Your doctor will know.  He can also offer advice on how to prevent certain illnesses and can catch small problems before they become big problems.  Of course, none of this will happen if you either don’t have a doctor or never go to see him, so make sure to schedule regular check-ups.  Be proactive with your health and you will be in much better shape to enjoy retirement.

2. Your lawyer

You probably won’t need to see your lawyer as often as your doctor, but you should still be on a first name basis.  Your attorney can help you draft a will (or trust) as well as legal and financial powers of attorney.  Everyone needs those documents no matter how much or how little they have.  Having your legal affairs in order will ensure 1) That your property passes to the correct people, 2) that the correct people take charge if you die or become disabled and 3) that things like expenses, hassles and taxes are minimized.  Use this checklist to review your estate plan annually.

3. Your accountant

Your taxes in retirement will be significantly different than they were during your working years.  Will working part time result in your Social Security benefits being taxed?  How will distributions from certain retirement accounts be taxed?  Does the state you’re planning on moving to tax retiree benefits favorably?  How will owning property in two different states affect your tax bill?  What if you plan on moving overseas?  Your accountant can advise you on all these issues.

4. Your financial adviser

Because finances are the number one concern for most retirees, having a good financial adviser is a must.  A recent study by LIMRA showed that people using an adviser were more likely to be saving for retirement and saved a higher portion of their income.  A good adviser can boost confidence and provide guidance, education and planning to make sure you meet your retirement goals.

Even if you didn’t use an adviser in your pre-retirement years, you should consider hiring one during retirement.  That’s because the issues facing a retiree are much different than the issues facing someone prior to retirement.  Most people are familiar with pre-retirement issues like saving.  They are usually less familiar with issues like cash flow management, pension payouts, retirement plan distributions, long-term care planning, dealing with Social Security and the tax consequences of certain distribution strategies.  Those are post-retirement issues and most people would benefit from the help of a competent professional when dealing with them.

5. Your spouse

Chances are good that, without a job or kids competing for your time, you’ll be spending a lot more time with your spouse during retirement than you did during your working years.  With that in mind, it’s a good idea to have some things in common and to always be nurturing that relationship.  It’s also a good idea to make sure that you are on the same page with your spouse when it comes to plans for retirement.  Here are some questions to get the conversation started.

How did you do?  Do you have those key relationships in place?  If so, great!  If not, get to work.  Having a good team in place will greatly increase your odds of a secure, healthy, rewarding retirement.

Touch base if I can ever help.


Don’t let death of a spouse derail retirement

Don’t let death of a spouse derail retirement

The odds are extremely good that my wife will outlive me.  Whatever the reason—genetics, a healthier diet, the fact that she uses our treadmill as something other than a clothes rack—there will likely come a day when she bids me adieu.

Most people know that women have a longer life expectancy than men, living about 81 years compared to 76 for the average male.  But what they may not have considered is what this statistic means in reality: namely that the overwhelming majority of people in retirement are women.

In the U.S., women make up nearly 60 percent of the population over age 65 and nearly 70 percent of the population of those over age 85*.   How should that reality affect the retirement planning of the fairer sex?


At a minimum, a longer retirement means the need for more income.  All else being equal, funding a 20-year retirement will be more expensive than funding a 10-year retirement.  That means more money will need to be set aside leading up to retirement and withdrawal rates will need to be sustainable (around 4 percent) during retirement in order to keep from running out of money.

Also, asset allocation will be more important than ever.  The portfolio will need to be invested aggressively enough to overcome the ravaging effects of inflation that are sure to happen over a longer period, but not so aggressively that investment losses wipe out principal.  Maintaining the proper balance is a key ingredient to making the money last.

Pension plans

A pension plan for a married couple can be an important source of retirement income, but what happens to that income when one of the spouses dies?  If the husband dies and it was his pension, does that income go away?  It depends.  If the pension benefit was based on his life only, then payments will likely end when he dies.  To avoid the negative financial impact that this would likely cause, couples should arrange with the pension provider to base the benefits on both of their lives.  “Joint Life” benefits will likely be smaller than those based on a single life, but they will also minimize the financial impact on the surviving spouse.

Social Security

Women are more likely than men to leave the workforce at some point in their careers in order to raise children or care for aging parents.  Some choose not to work outside the home at all.  This, along with the fact that women still tend to earn less than their male counterparts, can impact their eligibility for Social Security benefits.  Because of that, the Social Security Administration has special rules that apply to people who are widowed, divorced or still married, but with little in the way of earned benefits.

For starters, spousal benefits entitle everyone to either their own benefit or half of their spouse’s benefit, whichever is greater.  In addition, those widowed or divorced are able to collect benefits on their former spouse’s Social Security record if:

  • The former spouse is collecting benefits or is deceased
  • You were married for at least 10 years
  • You are 62 or older (60 or older if your spouse is deceased)

Getting remarried could affect your eligibility for benefits under certain conditions, so be sure to check with the Social Security Administration before heading back to the altar.  For more information visit and download the brochure “What Every Woman Should Know.”

Life Insurance

The primary purpose of life insurance is to replace a person’s income in the event of his or her death (Note: It can also be an effective estate planning tool, but that is a discussion for another article).  Because of that, many people keep adequate insurance coverage during their working years to protect their spouse and children, but then get rid of it when they retire.  This could be a big mistake if a significant portion of a couple’s retirement income is attributable to just one of the spouses, say in the form of pension or Social Security benefits.

How do you know if you need life insurance during retirement?  Ask yourself this question: “Would my death create a significant financial hardship for my spouse?”  If not, then you probably don’t need life insurance.  However, if the death of either you or your spouse would result in significant loss of income for the other, then life insurance can be a good way to protect against that loss.

Long-term care insurance

Long-term care insurance can help cover a variety of costs including home health care, respite care, adult day care, care in an assisted living facility, or nursing home care.  This type of insurance can make sense for women for a variety of reasons, but two stand out.  First, if a woman is predeceased by her husband, there is a good chance that there will be some large medical bills related to his final illness and care.  These bills can take a big chunk out a couple’s nest egg and impair its ability to provide income to the surviving spouse.  Long-term care insurance can help preserve those assets by covering expenses not usually covered by health insurance, Medicare or Medicaid.

Second, if a woman lives 5, 10 or even 20 years longer than her husband, there is a good chance that she will need some type of long-term care services during her life as well.  And because her husband died first, she will have fewer options if she becomes sick or disabled and needs someone to help.  A long-term care policy can provide peace of mind, minimize burden on friends or family, and help her get into her choice of facilities or be cared for at home as long as possible.

Estate Planning

Married couples typically create their estate plan (e.g. wills, powers of attorney, etc.) together, but it is the wife who tends to see that plan in action.  Because women live longer, it is the wife who will likely be the one to use the powers of attorney for finance and health care if her husband becomes disabled or incapacitated due to illness.  She will also need to handle his estate when he dies.  When that occurs she will need to update her own planning and make sure that it passes her property to the correct people and names the people she wants to handle her affairs in the event that she is no longer able.  Because of that, women should pay particular attention to their family’s estate planning and make sure that it is up to date and accurately reflects their wishes.

Living a long, healthy life definitely has its benefits.  It means more time with friends and family.  More time doing the things you love.  More time enjoying life and experiencing all that it has to offer.  Unfortunately, it can also mean outliving those you love.  By planning ahead, you can create security and peace of mind for yourself and your family and keep your retirement on track.


* Federal Interagency Forum on Aging-Related Statistics:
 Photo by Mark Brooks.  Used under Creative Commons License.  I originally published this article at


How to minimize taxes in retirement

How to minimize taxes in retirement

Update:  Before jumping into today’s article I wanted to give you an update on the learning post from last week.  It must have struck a chord with the IR community (who, like those from Lake Wobegon are good looking and above average), because it was the most read and forwarded article on the site to date.  If you enjoy learning new things, follow along with the challenges as we go and you’ll have plenty of things to talk about at the next cocktail party.

With the current challenge I’ve memorized the Americas, Europe and Africa.  A good start, but there are a lot of countries in Asia and Oceania that will be challenging.  With that update, let’s move on to today’s post, which is an article that I wrote for the Financial Planning Association.  With tax time upon us, I thought many of you would find it helpful.


As April 17 (you have two extra days this year) rapidly approaches, people all across the fruited plain are sharpening their pencils, firing up their calculators, and figuring out what, if anything, they owe Uncle Sam.  For all the ink spilled lamenting the complexity of the tax code, doing your taxes during your working years is a pretty straightforward task for most people.  Just add up what you made, subtract any allowable credits or deductions, and then grab your checkbook.

The process is similar during retirement, with the exception that you have greater control over your income, which means greater control over your tax bill.  That control means you can stretch your nest egg further by making good distribution decisions.  With that in mind, here are five ways to minimize your tax bite during retirement.

Know which accounts to access first

The money you’ve saved for retirement is likely held in different types of accounts that are taxed differently.  Some accounts are fully taxable, while others, like traditional IRAs, defer taxes until you withdraw the money.  Still other accounts, like Roth IRAs, may be free from federal taxes altogether.

Which accounts should you tap first?  A good rule of thumb is to take money from your taxable accounts first.  This will allow the money in your tax deferred accounts to continue compounding.  Access tax-free accounts last.

One exception to the rule of thumb might be if you are in a lower tax bracket now and anticipate that you will be in a much higher tax bracket in the future.  In that case, you may want to begin taking distributions from your tax-deferred accounts earlier.  In any event, work closely with your tax and financial advisers each year to make distributions decisions that make the most sense for your specific situation.

Minimize taxes on Social Security

If Social Security is your only source of income, chances are that you will not need to pay taxes on those benefits.  If you have other income sources, however, you may need to pay taxes on a portion of your benefits if your modified adjusted gross income (MAGI) plus one-half of your Social Security benefits exceeds what the IRS calls the base amount for your filing status.

For example, if your MAGI plus one half of your Social Security benefits is between $32,000 and $44,000 (for those married filing jointly) in 2012, you may need to pay taxes on 50 percent of your Social Security benefits.  If your income exceeds $44,000, you will likely need to pay taxes on 85 percent of your Social Security benefits.  Armed with this knowledge, it’s easy to see how a poorly timed IRA distribution or acceptance of some part-time work during retirement can impact your tax bill in a given year.

Relocate to a tax-friendly state

Different states tax things differently.  Consequently, where you decide to live during retirement is no small decision when you think about the various types of taxes that you pay (e.g. income taxes, Social Security and Medicare taxes, capital gains taxes, dividend taxes, property taxes, sales taxes, estate taxes and inheritance taxes).  If a particular state is willing to cut you a break in one or more of these areas, it is worth factoring that into your decision making.

For example, do you plan on working at least part time during retirement?  There are seven states that do not impose personal income taxes.  Will most of your income be from Social Security?  Thirty-six states don’t tax Social Security benefits.  Do you anticipate a free-spending retirement?  There are five states with no sales taxes.  Do you have a pension?  Ten states don’t tax federal, state and local pension income.  Before deciding where to live, inventory your income streams and decide which state will allow you to keep more of what you make.

Consider tax-free bonds

Municipal bonds are issued by states or municipalities and are usually exempt from federal taxes.  They may also be exempt from state and local taxes if you live in the state that is issuing the bond.  This preferred tax treatment along with their historically low default rate make municipal bonds a staple in many peoples’ retirement accounts.

Take advantage of Net Unrealized Appreciation (NUA)

If you own highly appreciated company stock in your 401(k) or other employer sponsored plan, you should review your options carefully before rolling that money into an IRA when you retire.  That’s because tax law permits you to distribute those shares from your 401(k) and pay income tax on the basis (your original purchase price) of the shares while continuing to defer the taxes on the unrealized gains.  Once the stock is eventually sold, you will only pay capital gains taxes on the difference between your basis and the sale price.  If, however, you roll all of those shares into your IRA at retirement, you will pay ordinary income taxes on the entire amount when you eventually distribute it from your IRA.

This strategy might be particularly appealing to someone in a high marginal tax bracket who currently pays income taxes at a much higher rate (35 percent) than capital gains taxes (15 percent).

Unfortunately, your tax bill doesn’t retire when you do, but there are actions you can take to minimize what you owe.  By working closely with your advisers, you can maximize your income and increase retirement security.