Vanguard LifeStrategy Funds

You probably know by now, I’m a big fan of Vanguard, well, Jack Bogle in particularly.

Bogle completely changed the investment industry and for the better. He has saved literally billions of dollars for average investors. I simply can not stress his importance for average investors enough.

Bogle should win the Nobel Prize in some category for his work to benefit humanity. The irony is, just like ALL who challenge the status quo, Bogle was seen as a pariah for the longest time. In fact, until about the mid 2000’s, professional investors despised Bogle because he called them out.

Now, though, very few will challenge his arguments, that low cost beats high costs. The studies are numerous and simply too abundant to cite. Just look up any research on the number one determinant for investment performance. It’s always fees. The lower the fee, the better the performance.

In this 4-part series I’m going to share with you the Vanguard LifeStrategy funds and what there is to know about them.

We start here with the Aggressive Growth Fund – VASGX.
We look at performance, the allocation, the expenses, turnover, tax consequences AND we dive into the down years of 2000, 2001, 2002 and 2008.

The question that you must answer before you invest is not what did the fund do since inception, 1994. But what it did during those down years and if you could have handled that?

Before you invest, you need to answer that question truthfully.

Episode 71 – Financial Planning Q & A

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In this episode I take some of the questions I receive from Quora.com and answer them

Question 1 – How should I decide whether a risky investment (large upside and downside) should be made in a Roth account or a taxable account?

Question 2 – If you are starting a new job, are there any reasons you would not rollover your old employer’s 401k to the new one?

Question 3 – How are financial planners usually paid?

Question 4 – Who is liable for the taxes of a deceased individual if the estate doesn’t have the funds?

Question 5 – What is a good age to raise the contribution percentage of a 401k?

Question 6 – Can you collect social security if you run an all cash business?

Question 7 – Is “Buy term and invest the rest” dead?

Question 8 – What’s the most underrated financial planning advice, which is highly effective?

Question 9 – Why do banks give you so much less return than you get with index funds?

Question 10 – What was your top learning from 2008 -2009?

And a few more.

Social Security For Widows And Divorcees

“You explain this better than anyone on this planet.”

“Thank you , thank you! This was a subject I needed to know more about. Im a divorced “survior” and your links have been very helpful! Thank you!”

“Oh my gosh you’re amazing! Thank you so much for your time you are so thorough and so helpful God bless you!”

“Beautifully and clearly explained. Thank you very much.”

These are just some of the comments I get on my Youtube channel on the videos I do about Social Security benefits for divorcees and survivors.  Here is part 1 of my video for divorcees. Here is part two, which I just did last night. (I have over 200 videos now on the channel so by all means go there and check it out. I’m sure you’ll find a topic of interest to you.)

Okay, so why do I post these comments, other than to make myself look good?

Because I was able to land for a podcast interview the person who taught me nearly everything about Social Security!

For over a year, I’ve been trying to get her to be interviewed.  And nothing but crickets.  She’s a VERY busy lady so I wasn’t shocked.  But in my last request, I said the magic words, “Elaine, on my Youtube channel, I’m getting a million comments/questions from women about their divorce and survivor benefits.”

Elaine has personal knowledge of being a divorcee and a divorcee survivor when it comes to receiving Social Security benefits.  My comment reached her on a personal level.  And thus I landed her.

Elaine Floyd is the most important person you’ve never heard of.  Her education for professional advisors on Social Security is, without question, the most important education I’ve ever received.  Nothing else even comes close.  (Actually, that’s not true, the tax training I received when I was a business banker back in 2002 was pretty close. That training was also conducted by a Baby Boomer divorced lady.  Coincidence?)

The training Elaine provides has completely revolutionized the financial advisory business.  I am living proof of that.  Previous to coming across Elaine back in the mid-2000s I was a typical “financial advisor”.  I put that term financial advisor in scare quotes because I wasn’t advising on anything other than investments.  And that was what most financial advisors were doing back then. Focused solely on investments.

Well that’s not financial advice, my friends.  That’s investment consulting/advice; two completely different things.  But, for me at least, when I first started receiving Elaine’s training back around 2006 or so, I began to realize that there was a much broader world out there and I changed.

I always wanted to be a financial advisor to help people.  Ordinary people.  People who put in a honest day’s work and were getting by the best they could but maybe could use a bit of a helping hand to figure out their financial circumstances.  People like my own family in fact.

But how do you do that when the only thing you can do is sell investments?  What happens to people who don’t have investments, or whose investments are tied up in their employer plan? How do you help them?

And then, Elaine Floyd’s training on Social Security found me. And the whole world of real financial advice opened up.  Elaine also offered training on Medicare too.  Both of these are topics that affect every, single American. Every one.

For someone who is interested in helping the type of people I just described being knowledgeable on these two topics was the best thing ever.   Now, I believe I am doing what the Good Lord intended.  Look at the comments above.  And that’s just a small sample.  They go on, just like that.  And it’s because of Elaine that I was able to help these people.

Elaine is a force for good in an industry that way too often turns its back on the people who need us the most. Because of her some in my industry, not enough mind you, have answered the call to bring real financial advice to the middle class.  I can’t stress enough how revolutionary this truly is.

So, with a bit of persistence, and luck in saying the right things, I was finally able to land her for my podcast.  This won’t be until the second week of September due to her hectic schedule.  But I’ll let you know when I have the episode ready.  You can find my podcast here.

In the meantime, put Elaine Floyd on your list of must-read writers.  You won’t regret it.

The Most Important Advice I Can Give

As I celebrate my 48th anniversary of being on this earth today, I wanted to share with you the most important piece of advice I’ve learned over that time. In fact, this advice is so critical that once I share it with you, you may want to unsubscribe from this email list because everything else will fail in comparison.  Ready for it?
Okay here goes.

If you want to be happy then BE HAPPY!

It’s that simple. You, and only you, control your happiness.  No one else does.  Thus, because happiness is literally in your control if you want to be happy then do it. Be Happy!

It’s funny because my father wasn’t around much when I was growing up.  So, I didn’t have many of those ‘typical’ experiences a boy has with his dad.  However, I remember acutely him saying to me one time that “it’s okay to be sad.” His premise was that being sad was just a human emotion, no different than being happy.

For some reason, that has been ingrained in me for decades.  But it wasn’t until I quit drinking in 1997 and started going to AA that I learned the corollary to “it’s okay to be sad.”  That was when I shared with this pretty rough group in Phoenix a situation that was eating away at me.

After the meeting, a crusty old guy who definitely had lived a hard life, came up to me and asked me why I was letting this situation affect me so much.  “Because it’s not right,” I told him.  “It’s completely unjust and something needs to be done about it.”

Then he said something profound.  “So, the way you’re going to deal with this is by letting it make you miserable?  It’s beating you twice, the way I see it. Not only is an injustice being inflicted on you but you’re also allowing it to make you miserable.”

I responded in my most typical, chip on my shoulder way. “But how can you expect me not to be miserable. Until this is resolved I can’t possibly be happy.”

To which he said. “Do you want to be happy?”
And of course I said, “yes”.

And you can guess what he said in his reply… “If you want to be happy, be happy. Only YOU can control your emotions. So, it seems to me, you are actually WANTING to be miserable and that’s why you’re allowing this to make you miserable.”

BOOM!  Like a ton of bricks crashing on my head. No PhD in Freudian psychology needed.  Just some hardscrabble old guy who had lived a hard life telling me truth I’d never received before. And from that day on it’s been a different kind of struggle.  Now, with the wisdom bestowed on me, I know what makes me happy, it’s me.  I also know what makes me angry, sad, depressed etc… again it’s me.

However, going back to what my dad told me being sad isn’t a bad thing either.  It’s just another human emotion.  Allowing yourself to be sad when something is sad it’s not a bad thing.  Same goes for getting angry.  Shoot, Jesus even got angry at the money changers in the temple.  If Jesus can get angry well certainly we can too.

But you can’t let anger or sadness make you miserable.  You, and only you, are in control of that emotion. Young children sold into sex-trafficking.  That SHOULD make you angry. Without question.  Angry enough to do something about it even.  But it shouldn’t make you miserable.

The one thing I want for my 4 kids as I am certain you also want for your loved ones is for them to be happy.  I don’t care if they’re rich world travelers with fame and notoriety.  Matters not to me.
But I do hope they find happiness. So, I tell them all the time, if they truly want to be happy, then be happy. It’s all within themselves.

Why You Should NOT Rely Solely On Financial Planning Software

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Time For A Social Security Quiz…

Fun right? But read on, this is going to be incredibly important for you. 


When I was running an analysis on cash flow in retirement for a client, we’ll call them Bob and Jane, I noticed something horrific.  See below if you can identify what is wrong. 
Here’s a hint. Bob is the higher earner and in this scenario we have him dying at the age of 80. 

Anything jump out at you?

Well if you notice in the year after Bob dies, Jane’s Social Security is only $20,173.   Of course, if you’ve been following my emails and/or blogs you’ll know that Jane will actually receive the greater of her own benefit or what Bob was receiving at his death.

In this case Bob was receiving around $46,000 in Social Security benefits.  Yet, the software has Jane only retaining her own benefit.  This is a $26k mistake, made annually.  And as much as I wish it so, this is NOT user error.  This is a programming error.  The developers simply do not understand how Social Security works well enough to program the correct information.

This program also has Bob and Jane paying tax in GA even though they certainly will not given their total income.

Unfortunately, in the 20+ years I’ve been a professional financial planner, this is not an exception to the rule.  It is the rule. Just last night, I was looking at a different program because I’m very familiar with the  retirement planning professional this software group retained on their staff. Their Social Security models have issues too.

I’ve seen another software program run retirement scenarios where the retiree has a 100% success rate even though the retiree doesn’t have enough money to pay off his debts.  How can this be? Well if the investment return assumptions are 6.5% for a conservative portfolio we can make a lot of retirements look great, on a computer.

I’ve had other programs say a retiree needs $4 million to retire. When in fact, they probably need all of $800k or so.

At the end of the day, software is, and will forever be, junk in, junk out.

So, what does this mean for you? Well, you need to be careful with your software-generated retirement plan.  Make sure the numbers are legit.  Ask questions.  Make sure your planner knows what the heck he or she is talking about.  If they are just saying “Look Ms. Smith, you’re going to be okay because the computer says so.”  That does not inspire confidence.   The HUGE firms are more guilty of this than the smaller firms in my opinion.  The HUGE firms offer boilerplate financial planning with an off-the-shelf program that a lot of times was designed specifically for them.  Again, not confidence inspiring.

I use the software as a tool to help present a plan to a client. It certainly is not the end-all solution because the program is only as good as the developers behind it.  Who are those people? Do they know what they’re doing? Do you really want to trust your retirement to them?

Do a double and triple take with ANY financial planning document that is presented to you.

Lastly, if someone says your financial planning is good to go because they did a “Monte Carlo” analysis and you’re at at 95% success rate, the first thing you should say is… “That’s great! Is that before or after taxes and fees?”

Here’s a podcast episode and accompanying blog I did on this topic. Again things aren’t always what they seem and YOUR financial planning is too important not to know everything that went into making your financial plan.

As always, contact me with any thoughts, questions or concerns.

Vindication is so, so sweet!

This research paper from Vanguard came to me in my inbox yesterday.

It is the typical discussion about health costs in retirement. Something you should certainly read, but not anything I want to go into in this email because the paper says something wayyyyyy more important, which should NOT be overlooked.

“Although health care costs increase, spending in virtually all other categories tends to decline with age. BLS data support this conclusion.” (page 14)

Indeed.  Welcome aboard Vanguard!

A LONG time ago, in 2005, a guy named Ty Bernicke wrote an article called Reality Retirement Planning in the Journal for Financial Planning.

It was the SEMINAL piece of research I’ve ever read because using Bureau of Labor Statsitcs (BLS) numbers he showed that retirees actually DECREASE their spending in retirement.

Back then this was revolutionary and controversial. Jonathan Clements at the Wall St. Journal ‘challenged’ Bernicke to some degree but not in a convincing way, in my HUMBLE estimation. Unfortunately, I can’t link to the article due to the WSJ paywall.

Ty stood his ground though, agreeing that Clements did have some valid points, but ultimately saying he felt his research was pretty solid.

Turns out Bernicke was right.  The idea that most retirees spending is going to increase on a linear trajectory to the Northeast year over year, as ALL planning models show, is just incorrect.  Yes, some people WILL spend more in retirement.  However, almost 15 years AFTER Bernicke’s piece appeared the evidence, if you will, for actual retiree spending is almost uniformly going in one direction. Vanguard’s piece, VANGUARD OF ALL COMPANIES, confirms this.

I, for one, could not be happier.  As I’ve always despised the idea that a couple needs something upwards of 7 figures or more to retire comfortably.  Why do “planners” say that? Because their models show it.  But what are those models based on??? Remember folks, junk in, junk out.  And those models are based on a lot of junk in.

So, instead of telling people they can quit their grinding, soulless job to go volunteer at the local NICU to help orphaned babies, the financial planning industry has been scaring people.  “Oh no, Ms. Smith. You should work another 10 years or else you’re going to be eating cat food and will need to move in with your kids.”

That’s bad planning. Horrible actually because Ms. Smith might hate her job and longs to help out the community in other ways that are meaningful to her.

So, remember my friends, as you are contemplating retirement, please, for the love of all that is good, ask your planner, how are you modeling my spending? Are you increasing it with inflation each year?  Why?
What’s the basis for this assumption?

Now, lastly, the planner may say “health care” is the reason I’m inflating your income needs.  Ummmmm…no.  I’ll have other comments on health care costs in retirement but for the time being feel free to watch my video on that here.  Just remember housing is by far and away the biggest expense a retiree has.  Nothing comes remotely close

At the end of the day, Ty Bernicke  is one of the hero’s of financial planning.in my opinion.  Not unlike John Bogle, Bill Bengen and the many others who challenged the status quo to benefit the profession and its clients.

I hope he feels vindicated.

Planning for health care costs in retirement

Inflation Is Destroying Your Social Security Benefits

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Social Security benefits have been reduced by 34% in REAL dollars since 2000 according to a study by the Virginia Senior League.

This is happening even with the Cost of Living Adjustments for Social Security benefits.

Let’s put it like this. In 2000 you had $1 in Social Security benefits. That $1 could buy you a loaf of bread, let’s just say.

Fast forward 18 years and now that loaf of bread costs $2. But your $1 dollar of Social Security benefits has only grown to $1.66. This means you can no longer afford that loaf of bread.

That is what’s going on with the REAL Inflation rate, i.e., what the true cost increases for retirees, vs. the Social Security Cost of Living Adjustments.

This is not good folks. It means you are losing purchasing power each and every year you are on Social Security. Purchasing power is the ONLY thing that matters. Actual dollars don’t matter. Purchasing power per dollar is what matters. Always remember that.

Oh, don’t forget you are also paying tax on your inflated dollars as well which puts you even further behind.

Not good.

https://www.cnbc.com/2018/06/21/social-security-benefits-buy-34-percent-less-than-in-2000-study-shows.html

From CNBC.com “Almost 70% of millennials regret buying their homes. Here’s why”

Interesting headline to the article.

Made me click.  But what the article actually says is COMPLETELY different to the headline. Proving, once again , that you have to read the articles and avoid the click bait of the headline.

In fact the article says explicitly “the survey found that about half of millennials had regrets about the home itself.”(emphasis mine).

Now don’t get me wrong, I’m not saying that’s good. But it’s not what the headline says. Not even close.

In fact the article even says around 4 in 10 millenials felt that made a ‘bad choice’.  Okay, well that’s a whole lot different than the headline would lead us to believe.

 

 

Arguments in FAVOR of Retirement Plan Loans

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In this video I go over some of the objections about retirement plan loans.

These are the big ones:

* Money you borrow will be out of the market and thus not growing
* Why pay off a mortgage or equity line debt when that interest is tax deductible?
* What if I leave my employer before the loan is paid off?
* I’m paying the loan back with after tax money, only to have it taxed later when I take it out.

Retirement Plan Loans

Love to hear your comments as these are 4 main reasons I hear NOT to borrow against your 401k.

But while they all have SOME validiity, not to the extend that it seems EVERYONE is always saying “DON”T EVER BORROW AGAINST YOUR 401K,! ONLY FOOLS DO THAT!”

I disagree.

Here’s another post on this topic.

 

 

Get The Tax Bomb Book Here! For FREE!

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