Retirement Planning: Baby Boomers Sacrificing their Retirements For Their Kids!?

The leading edge of the Baby Boom Generation (1946-1964) turned 65 this year. They will do so at the rate of 10,000 per day for the next 18 years (that’s 3.65 million a year!).

For many of these Boomers retirement IS NOT right around the corner. According to a survey released in June fifty-five percent of Boomers will retire LATER than they originally expected. Obviously, the economy and the investment markets has played a huge role in that trend. However, the real shocker from the survey is that 17 percent of those anticipating a delayed retirement indicated that it was because they have found themselves financially supporting their adult children or other relatives! More than half of the Boomers surveyed (54%) had said that they have actually had their adult children live with them for 3 months or more, and supported them in some fashion.

“Many of the young adults returning home are part of Generation Y, a group now often recognized as the ‘Boomerang Generation’.” A large portion of the Gen Y (1977-1989) group surveyed (23%) had indicated that they had moved back in with parents for 3 months or more, and 41% said that they had received post-college financial assistance from their parents (money for food, rent and discretionary bills like cell phones).

As a member of the Baby Boomer generation I speak from experience (I have four children). We have had the best intentions, but we are now setting the wrong precedent by financially supporting our adult children (specifically when it comes to discretionary items) to the degree that we are. Of course. we don’t want to see our children struggle financially, but almost all of my Boomer friends agree that we have coddled and protected our children for their whole lives – they’ve never suffered or wanted for anything. So what do we do now?

Financial assistance from Boomer parents should come, but be within reason — loans instead of gifts; supplemental distributions for food & housing instead of paying the entire freight; below market “rent” for living at home; and never an “allowance” for entertainment and vacations or trips. Financial assistance should never be open-ended, and there should always be an expectation of when it will end. Boomer parents should not let their children’s discretionary spending “requirements” come between them and their retirement. A budget or spending plan should be required as a condition of continual support, as well as regular discussions about what is being done to reach financial independence. Terms and repayment (if required) should always be documented and signed by all parties. It shouldn’t be easy, or even fair. While parents wouldn’t have their kids want for the basic necessities of life (food, clothing & shelter), these children should at the same time be highly incentivized to move out and move on.

For those that have already fallen in a “bad” habit or pattern with their “boomerang” children in providing Economic Outpatient Care (a term coined by Dr. Thomas Stanley in his 1996 book, The Millionaire Next Door) it is not too late to set yourself back on the path to success. A family meeting where a discussion of what everyone wants, and what everyone’s expectations are, can be a good place to start. If children are working, but still living at home, then a discussion of market rate living expenses should be part of the conversation and some  below-market, reasonable amount of “contribution” needs  to be collected (with the expectation that this will be raised to “market rates” over some pre-agreed-to time frame). Finally, parents need to re-examine their own retirement savings requirements, and make sure they themselves get back on track toward financial success. We can not, and should not, be enablers of creating EOC!

To turn it all around, here are four ideas to begin with today:

1. Reassess your goals. Estimate retirement readiness, make projections about the future, and develop a new plan to get back on track. We use MoneyGuidePro here in our office to make realistic projections about the future for our clients. Don’t let the needs (or for heaven’s sake wants) of your children derail your own retirement plans and security. How can you know how much you can help if you don’t know what you need to help yourself first? There is a concept in emergency care that says “never make a second victim”…the same applies here!

2. Work as a team. Have an honest discussion with your family about your own personal financial goals and expectations. Determine your spending habits and come up with a spending plan/budget for your children. Set up a timeline (no one wants to be cut off cold turkey – it creates feelings of animosity) to help both you and your children to regain their financial independence. Rome wasn’t built in a day….this could take 3 to 5 years to correct. Make a plan, then work it!

3. Consult the experts.Talk to a CFP® (Certified Financial Planner™) to look at all your options. They also may be able to facilitate a family meeting. Everyone also has psychological relationships with wealth and money. Experts in that area may need to be brought in as well.

4. Ask for help. You can’t do this on your own. These conversations with children and family members are hard, and may be emotionally painful.

To review the survey and find more information on this topic go here: http://files.shareholder.com/downloads/AMTD/1319884953x0x475088/bc913af7-5da2-4240-ab90-e285a86a3fab/Q2_II_Findings_Final060711.pdf

See you down the trail. Timothy A. Knotts, CFP®, Certified Financial Planner™

Investment Planning: the wealthy also let their emotions drive their investing!

According to a recent survey from Barclay’s wealth, even the well-healed, wealthy portion of our population trade their investment accounts too much, based on emotions – and they do so to their own detriment.

“The survey, released this week, found that despite their wealth, 41% of high net worth investors said they wished they had more self-control over their investing decisions. Furthermore, the wealthier they were, the more concern they had about their self-control.”

As Certified Financial Planners™ we tell clients, and prospective clients, of our office that what we do is not rocket science. However, the one thing that we CAN do that they will ALWAYS have difficulty achieving, is that we will always be emotionally dis-attached from the financial decision-making – both in preparing financial plans and executing them. Just this one attribute of working with a CFP® alone is well worth the fee charged – the cost to emotional trading, according to the survey, was measured at over 20% in lost returns over a decade!

One interesting finding of the survey was there were significant differences between wealthy women and wealthy men in their investing behavior. We find the same differences here in our office, with the explanation that it is due to ego - men seem to have a greater need to show that they are in control, and know what they are doing, than women in the financial arena. If they don’t, they feel less “manly” or emasculated. Women don’t seem to get hung up on this as much, and therefore are much more willing to follow professional advice, even when it goes against the general consensus.

For an article concerning this recently released survey read more here:  http://www.financial-planning.com/news/wealthy-investors-emotions-discipline-barclays-2674127-1.html?ET=financialplanning:e3507:1877176a:&st=email&utm_source=editorial&utm_medium=email&utm_campaign=FP_Weekend__070811

See you down the trail – Timothy A. Knotts, CFP®, Certified Financial Planner™

Are we unique? Our UVP (Unique Value Proposition)

I am working on coming up with a way to communicate why someone would want to engage us to help them solve financial planning issues as opposed to any other Tom, Dick or Harry who calls themselves a “financial planner”? We are CFPs® (Certified Financial Planners™), but that only narrows the field down to me and about 65,000 others in the US (another 65,000 outside the US!).

We are fiduciaries and registered investment advisors with the Securities & Exchange Commission – that narrows the field down some, but doesn’t mean much to prospective clients (being a fiduciary, and being held to a fiduciary standard, means that we MUST hold our client’s interests first above our own in any advice we give or recommendations we make. A Stock Broker is NOT a fiduciary – their recommendations just need to be suitable; a subtle but important distinction).

So…I’ve been working on a UVP (Unique Value Proposition) statement for our firm (The Hogan-Knotts Financial Group). Here’s what I’ve got so far. Let me know what you think. Does my description capture our ”uniqueness” enough?:

Independent & trusted for almost 35 years, we are financial coaches, wealth managers & investment advisors maintaining a fiduciary, fee-only relationship with about 135 clients & their families. We create, document, implement, stress-test and monitor a client’s financial plan; manage their investments; keep track of all the financial details so they don’t have to; and meet every three months to measure progress toward their financial dreams. We move people from where they are today…to where they financially want to be in the future. “Planning today for tomorrow’s success!”

See you down the trail!

Timothy A. Knotts, CFP®, Certified Financial Planner™

How to relieve financial stress

Following up on yesterday’s blog post about a survey that may have revealed some overconfidence about financial matters, the Certified Financial Planning Board of Standards also conducted a national opinion survey in early June 2011. Amongst the questions that were asked, one of them also inquired about consumer confidence in their finances. Of note, fifty-eight percent of those surveyed, who did not have a “financial plan”, admitted that they would feel more confident about their finances if they did.

However, there is one small problem, and the reason I put the words financial plan in quotes. “Too many consumers carry their financial ‘plan’ in their heads, rather than putting it down on paper, or working with a Certified Financial Planner professional to define and evaluate specific strategies for preserving and growing their wealth.” I couldn’t have said it better myself! 86% of respondents (a vast majority – 4 out of 5!) stated that every American needed a “financial plan”. However, very few actually had a documented, “official” and complete financial plan that is being tracked and followed-up on.

So, from the article, here are a few ideas that we can learn about planning, what planning is, and specifically some components of a financial plan from a CFP^® professional’s perspective:

• Stick to the basics, in the right order.  We learned in 2008 that too much debt is disastrous when the tide goes out; make it a priority to whittle down that debt.  If jobs will still be scarce for the foreseeable future, they will be even scarcer to those with lousy credit scores.
• At the same time, build up your stockpile of cash, no matter how meager are the returns to cash or savings accounts.  We learned in 2008 that high yields are so much pie in the sky when there is no liquidity in the system.  The amount you should be holding in cash has very little to do with the yield curve or the returns to other investments.  It does, however, have everything to do with your personal circumstances:  your job security, your health and your living expenses.  Cash will be your umbrella in the event of another rainstorm.
• You cannot just invest your way to wealth. The Great Recession woke us up to the fact that high rates of growth are ultimately unsustainable in the housing market, in our stock markets, in our economy as a whole. Consumers themselves need to do more of the work of building their wealth, through managing their spending, working longer and downsizing their homes and lifestyles. Sound financial planning is not a matter of simply choosing the “right” investment, but includes tax, retirement, education, insurance and estate management as well.
• In the downtimes, the value of a competent, ethical CFP^® professional who puts your interests first can be worth his or her weight in gold.  Recessions, especially in the form of double dips, can be pretty frightening, and for many consumers fear can get the upper hand of sound judgment.  A CFP^® professional is trained to manage the downside risk.

Here’s a link to the article that talks more about the survey: http://www.cfp.net/enewsletter/June2011.html

Here’s a link to the survey results themselves: http://www.cfp.net/downloads/CFPBoard_Public_Opinion_Survey_2011-06.pdf

Start “Planning Today For Tomorrow’s Success”. See you down the trail….Tim

More women than men feel anxious about money matters – but maybe both sexes should be!

Almost one-third of all women surveyed had higher levels of anxiety about their financial plans, and their ability to reach their financial goals. This was almost double the number of men feeling anxious answering the same survey.

I’d be interested to know, if measured, if the same number of men SHOULD be feeling anxious about their financial plans but they don’t because of the behavioral finance concept of “Overconfidence”? Based on our experience here in our office, women are more sensitive AND realistic when it comes to their financial plans, are more open to taking expert advice, and have very little ego invested in the process. I believe this behavioral “gap” accounts for a lot of the difference in the survey.

In the same survey, it was found that, among those questioned, 64 percent of women stated that they had general knowledge of stocks, bonds and mutual funds, compared with 84 percent of men. Again, our experience in the office is that men have just as much confusion, and are generally just as likely to be ill-informed, about financial concepts as women. It’s just not “manly” to admit to any knowledge gap in this area – a hold out from our days of living on the savannah, living a hunter/gathering lifestyle?

An article from Bloomburg on the survey and its results can be found here: http://www.bloomberg.com/news/2011-06-23/more-women-report-overwhelming-financial-stress-survey-finds.html

The actual survey results can be found here: http://www.financialfinesse.com/wp-content/uploads/2011/05/2011-Financial-Stress-Research.pdf

Start “Planning Today For Tomorrow’s Success”. See you down the trail….Tim

The rational management of money for everyone!

The rational management of money can be accomplished by everyone with these three personal finance thinking tools – a budget or spending plan (spend less than you make); a balance sheet (own more than you owe); & a life plan (how will you know when you get there if you don’t know where you’re going?). Check out this financial literacy framework for success: http://www.thinkyourmoney.com/financial-literacy.html

Start “Planning Today For Tomorrow’s Success”. See you down the trail….Tim