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Pope Francis: The Best Case for Fiduciaries

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Coming up on the (gasp) 30th anniversary of my graduation from Fairfield University, I find myself nostalgic for the courses that taught me so much beyond the classroom.

The (late) Dr. Art Anderson gave his Sociology students much to chew on, including this nugget:  “In the work world, all of you are ahead of the game.  You have straight white teeth and a nice smile.”

He wasn’t paying us a compliment though.  Being a Jesuit school with an emphasis on education and social justice, the underlying challenge was to be more than another fresh face in a fancy suit with a captivating smile. If you’re not familiar with Jesuits, think Pope Francis; the most outspoken Jesuit of all.

The financial services industry could use a little Jesuit influence, if you ask me; everyone would be a fee-only fiduciary.

Regardless of religious affiliation (or lack thereof), financial professionals would do well to take a page from the Pope’s book:

  • He puts the interests of others ahead of his own, with clear intentions;
  • He treats people with respect and compassion;
  • He guides them to realize their potential;
  • He says the difficult things that need to be said, for the good of correcting what must be righted; and
  • He never manipulates or takes advantage of others, but rather chooses to look out for them.

When I speak with people who are unhappy with their advisors, none of these attributes appears to be present.

These disgruntled people have felt shamed, embarrassed, ignored, marginalized or taken advantage of.  Intentional or not, these advisors spoke in a language that put their clients at a handicap at the get-go.  They never divulged the motivation behind their recommendations was directly tied to how much they earn; and it was reflected in portfolios “constructed” with no rhyme or reason.

In short, their actions were guided by transacting for the client to make the most money.

In a recent TED Talk, Why the Future Worth Building Includes Everyone, Pope Francis said, “Only by educating people to a true solidarity will we be able to overcome the “culture of waste,” which doesn’t concern only food and goods but, first and foremost, the people who are cast aside by our techno-economic systems which, without even realizing it, are now putting products at their core, instead of people.”

I don’t believe that the Pope was specifically referring to the financial services industry, but clearly it has application here – and to life in general.  Substitute any word for product (money, power, prestige) and everything shifts away from caring for people.  Nowhere has this been more apparent than in the Wild West of retirement plans for teachers, where I have seen people taken gross advantage of; the fact that it is legal turns my stomach.

I am very fortunate to be surrounded by colleagues who do care.  They support the endeavors of my husband, Tony, and me as we try to educate and right the wrongs we see in the 403(b) space; where teachers, and other non-profit employees have a minefield to navigate.

I can hear cynics everywhere asking, “What’s in it for you?  How much do you make off of them?”  Glad you asked: A whopping 0.40% per year.  On a $50,000 account, that comes to $200 for the year.

Working with clients in a meaningful way; addressing their fears and concerns; helping them plot a course through it all; and assuaging their discomfort is more rewarding than any fee I can be paid.  Making sure they don’t fall prey to unscrupulous salesmen just waiting to sell them an annuity with 3% in annual fees and surrender charges that last 15 years, is an added bonus.

I’ve been accused by some of being too Pollyanna for this industry.  I’ll take that as a compliment.

In the words of Pope Francis, “…each and everyone’s existence is deeply tied to that of others: life is not time merely passing by, life is about interactions.”

Amen.

Focusing on the quality of those interactions can make the future very bright, indeed.

Too bad some of us need reminding.

 

 

 

 

 

 

 

Destination Unknown?

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Imagine you’re about to set out on a road trip.  You would absolutely need to have an idea of where you wanted to go – north, south, east, or west.  You would have to work within the confines of how much time you had for this trip – that would determine how far you could go.

Your financial goals are no different than that road trip; failing to plan means planning to fail.

Even if you haven’t given retirement much thought, in terms of what it looks like and feels like, chances are you have an idea of when you would like to have the freedom to walk away.  For those of you bemoaning that you will need to work until you die, it’s time to see if that is really true or simply your worst fear taking over and freezing you in your tracks.

But, you have to set your goals.  You have to make this a priority.

The trouble is, unlike the mortgage payment or electric bill, there are no immediate ramifications if you don’t take the time to do this.  It is important, but it is not urgent. The consequences of your inaction won’t be felt for decades.  That is why it is easy to procrastinate – especially if you are suffering from paralysis.

There are a number of helpful calculators on line that can gauge where you are and where you need to be in order to meet your goals, such as the ones at Vanguard.

What I like about these calculators, is that they help you nail down the answers to the questions I raised in my last blog, A Plan to Overcome Paralysis.

If you are tired of worrying about the great unknown, here are your starting steps:

  • Determine how much will you need. The retirement expenses worksheet will help you get a handle on what your living expenses will be in retirement.  You may not have a mortgage payment in retirement, but perhaps travel or hobbies may constitute more of your budget in retirement then it currently does.
  • Take inventory of the money you will live off of every month from fixed sources (e.g., pension, social security, rental income etc.) and plug it into a retirement income worksheet. The end result of this exercise is you will have a better sense of how much you will need to draw from your investments in order bridge any gap from your fixed income sources.
  • Find out when you can retire. Vanguard’s calculator is easy to use:
    • Plug in how long you plan on living in retirement.  It is not unreasonable to expect to live into your nineties, so don’t short-change your life expectancy.
    • Enter how much you currently have saved and how much you want to be able to withdraw annually to supplement social security, pensions or other sources of income (see your retirement income worksheet).
    • Don’t forget to adjust the pie chart to the side, which asks for how your portfolio is currently invested (stocks, bonds, cash).
    • Once all that data is plugged in,  you can run a simulation to see the probability of achieving your goals and not outliving your money based on the amount/type of assets you have, and the time frame you need the money to last over.

In the event the results that you get are unsatisfactory, don’t get discouraged.  The numbers may not work, but you then can explore what it might take to reach that goal. You may need to invest more money, increase your allocation to stocks (if that risk level is appropriate), delay retirement, or plan on working a part-time job in retirement (or some combination of things).  Then you can decide which sacrifices you are willing to make and whether these actions are enough to move the needle in the right direction. The control is yours; you get to decide.

Once you have a sense of the parameters you are working with, you will no longer randomly throw money into an account without rhyme or reason.   You will know what you are working towards. Most important, this will free you up to actually envision what you want your retirement to be so you can begin to enjoy the process of planning with purpose.  Then, you will confidently know what your destination is and how to get there.

 

Making Your Own Luck

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“What’s your goal?” My husband’s question was simple, but I didn’t know if I should bother to share my complete answer, because it seemed unreasonable.

We hadn’t started our family yet, which was a goal of ours. But I wondered if winning Lotto was the only ticket to my other dream: to be able to stay home with our kids for as long (or short a time) as I wanted.  Back then, my earnings were almost five times his salary and I doubted we could sustain ourselves on his take home pay alone, especially with the added costs of a baby.  Sharing this thought with him might have made him feel badly; instead it motivated him.

 “That’s it? That’s the goal?” Tony said, as if he had known it all along. “OK, give me some time, I’ll figure it out.”

I had it drummed into my head from friends and colleagues around me, who were enslaved to the double-income household: “There’s no way you can live on one salary – especially a teacher’s salary.”

Quietly I worried that I had given him a goal that was not within reach. I thought, maybe I could stay home for a year at most. I even started to accept that option, if it came to that. Thankfully, it never did. The more naysayers there were, the more determined he was to make a viable plan.

Stock piling became the first part of the strategy; generating investment income was the other component. We lived as if his salary was the only income we had, and aggressively saved and invested my salary and bonus. That is not to say that we didn’t enjoy ourselves. We made time for some travel; we ate out at restaurants within reason – but the savings/investing came first; what was left over was ours to play with. We put off starting a family until we felt we were on solid ground.

An interesting thing happened along the way. We had the opportunity to buy a small cabin in New England for a great price; it was very tempting and we came close to doing it. It was affordable based on our total income; but ultimately it would have taken us off our goal. When another opportunity presented itself — to move farther from New York City (where I worked) to an area we loved and where we wanted to raise our family– we struggled with the idea. I didn’t want all our savings/investing to dry up because this house was more expensive than the one we were living in. After careful consideration of all the numbers, Tony figured we could swing it, provided I was still willing to commute an extra 2 hours each day until we started our family. With trepidation, I agreed.

Then we faced a series of unexpected events. For starters I became pregnant and soon we found out we were expecting twins. Almost immediately, I ended up on bed rest.  Short-term disability gave way to long-term disability, which was less than my salary (although I wasn’t spending any money commuting).  When our sons arrived a full two months early, we were stunned.  After more than two weeks in the neonatal intensive care unit, they were released to come home – but with all sorts of equipment (like an apnea monitor to detect the cessation of heart beats or breathing and caffeine to keep the heart beat rate up).  To add to all this tension, I had used up all my leave and was due back almost as soon as the boys came home from the hospital.  I still can’t say how I would have been able to leave my babies under those circumstances – or who we would have asked to take on such a grave responsibility.  I am just so thankful that Tony thought to ask the question about my goals – and that I dared to utter it out loud.  Otherwise, our backs would have been against the wall.

Many times, there isn’t one right way to reaching a financial goal.  Sacrifices, compromises, and non-negotiable items differ by household.  The point is the goal kept us focused and shaped all the decisions we made – we passed up opportunities to spend our money in favor of getting us closer to what was our top goal.  Most important, had we not planned this out, I would have been headed back to my four-hour roundtrip commute; our preemie babies occupying my every thought.   Some call it luck – but I know Tony’s careful planning and our commitment to reaching our (seemingly unreachable) goal had a lot to do with the blessings that came our way. 

The financial wisdom I would like to impart is: Don’t be afraid to look at your dreams – even if they seem impossible to reach.  Instead of thinking about why you can’t get where you want to go, ask how you might get there.  Do this, and down the road, you may find yourself being referred to as the “lucky one”. 

 

 

 

 

 

 

 

 

School Year’s Resolutions

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September may be the ninth month, but for anyone with children, it feels like the start of school marks the beginning of the year.  Why wait until January to make resolutions that you know will benefit you and your family right now?  An added bonus is that you can get the kids on track by setting a good example.  While each family has its own challenges, there is a common theme that most families struggle with:  planning and organization.  These two issues permeate every aspect of our lives and also greatly impact personal finances and household budgets.  By taking steps in the right direction, you can start to feel more in control which begets calmness.  Isn’t that a wonderful way to start the school year?  Below are some of the most common School Year’s Resolutions and tips on how you can take steps in achieving these goals.

Eat Healthier. 

Getting dinner on the table while juggling extra-curricular activities and homework can often lead to poor choices (as in unhealthy and expensive take-out).  TIP:  The simple act of meal planning before you shop for groceries can greatly decrease what you will buy and what you will spend.  Using the local flyer as your guide for sale items, make up a week’s worth of healthy dinners and lunches.  Shopping with Pea Pod and other delivery chains may also save time and money, as old shopping lists are saved and a running tally of the grocery bill is ever-present.  There will be time to gather your coupons, further reducing the bill.  Whether you order on-line or physically go to the store, the one simple step of meal planning with the flyer will ensure you buy the best-priced items and will have ample food for all your meals.  Furthermore, when you have a menu pre-set, you are less likely to pick up a pizza.

Organize Closets, the Garage and Pantries.

Wherever stuff lurks there is the potential to save a lot of money.  How many times have you had to run to the store to buy something you know you have but couldn’t find (such as scotch tape, a hammer, a flashlight, etc.)?    TIP:  Group like items as you would in a store.  You don’t need to spend a fortune on organizing supplies.  Old shoe boxes, clear storage bags, over the door hooks and bags can all help consolidate items based on their use.  Gift wrapping supplies, from scissors, tape, paper, bows, and generic cards can all be placed in one shopping bag; common household tools like measuring tape, flashlights, screw drivers and hammers can be placed in a box.   Designate a space in the coat closet for umbrellas, hats, scarfs, and gloves so you are not left scrambling the first morning there is inclement weather.  Don’t forget to extend this exercise to the food pantry, as well.   Then you will know what you need (or don’t need) next time you food shop.  When you are organized, less time and money will be spent by your household, guaranteed!

Purge Papers. 

From school handouts, to artwork, to junk mail and personal files – paper piles up and things get lost.  TIP:  Set-up a binder book or expandable file for each child that will house the class contact list, book orders, assignments, handouts, invitations, and artwork that you want to keep (consider framing or hanging a bulletin board to post larger items).   Toss junk mail as soon as it enters the house and get removed from mailing lists.  Keep an eye on your financial files, as well.  Here’s what to keep and what to shred:

  • Keep only the current year’s payroll stubs, which can be shredded after you get your W2 and verify that your annual compensation amount is correctly reflected.
  • Provided you do not need them to support income tax filings, bills and canceled checks that have already been reflected in your current bank statement can go after a year (exception: hold receipts indefinitely for warranty-items or large ticket purchases for insurance purposes).
  • Bank statements.  Keep the monthly statements for the year.  After you file tax returns, hold on to any checks that relate to your tax preparations (housing/mortgage related expenses, payment of taxes, or business expenses) and your year-end statement.  Get rid of the rest.
  • Investment statements.  For retirement accounts, keep records of all non-deductible IRA contributions to prove that you already paid taxes on these monies.  Keep quarterly statements of all investment accounts and make sure the year-end statement matches up before disposing of the quarterly statements.  Keep records of purchases and sales of securities for capital gain tax purposes. 
  • Taxes:  Keep seven years’ worth of income tax records and supporting documents (receipts, checks, W2s, 1099s, etc.).
  • Credit card receipts.  Keep receipts to reconcile against your monthly bill.  After verifying that the balance due is correct, shred all but those receipts you need for tax purposes.
  • Housing Papers.  Keep all documentations relating to the purchase or sale of property for at least six years after you no longer own it.  Keep receipts pertaining to all household improvements for tax purposes.

Get in Balance. 

Many parents and children are so over scheduled that life has become a series of running from one place to the next (which often results in a “drive-thru” dinner).  Take an inventory of the activities and events your household participates in and decide which ones truly fit your family’s need for balance and recreation.  Eliminating some may be a sanity-saver and a budget booster.

 Making some small adjustments, such as these, can result in a less harried home life.  When you know what you are making for dinner, and you know where everything is, there are far fewer last minute errands to the store.  When the schedule isn’t jam-packed, you can actually enjoy dinner together and show your kids that down time is to be savored.  When the precious commodities, time and money, are preserved, you will feel more in charge of your life and less a part of the rat race.  Perhaps you’ll be inspired to stay healthy as a family, and use this found time to go for an after-dinner walk or bike ride.  Your kids will function better in a calmer environment, and you’ll be more present to guide them through life’s daily challenges without all the distractions. 

As they quietly learn from you, maybe, just maybe they will even be encouraged to make some resolutions of their own.