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Has day-to-day complexity overwhelmed our ability to adapt? November 14, 2014

Posted by forwardfinancialplanning1 in Financial Planning, Health Insurance, Personal Budgets, Retirement Savings.
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Those who study evolution stress that the species that survive are not always the strongest, but rather, the species that can best adapt to change. One has to wonder if “a failure to adapt” is at work in present day America.

Being a child of the 1950’s I can’t help but reflect back to the financial/health care world in which I grew up. My parents did a respectable job of providing for us, without needing to know a single thing about IRA’s, 401k’s, variable annuities, Health Maintenance Organizations or insurance company pharmaceutical formularies. But, in order to thrive in the USA of 2014, learning about these and other financial/health care concepts is an essential survival skill, This blog has often lamented about the abysmal state of financial literacy in today’s working age population. A recent Kaiser Foundation study has provided me with similar concerns regarding health insurance literacy.

The Kaiser Foundation found that given appropriate data, only 16% of respondents could accurately calculate out-of-pocket costs for an out-of-network lab test. Only 33% could define a formulary while just 51% could calculate out-of-pocket costs for a hospital stay. Further, only 72% could define a health care deductible and 76% could define a health care premium. Since only 4% answered all ten survey questions correctly, it’s probably safe to say that a lot of mistakes and poor decisions are being made in this facet of day-to-day living.

So my question arises once again, “Has the complexity of our modern financial/health care world exceeded the general population’s ability to learn and adapt???”


Movie Review September 28, 2014

Posted by forwardfinancialplanning1 in 401k plans, Pensions, Personal Budgets, Retirement Savings, Retirement Spending.
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We’re generally not in the business of conducting movie reviews, but regular readers know that the woeful state of America’s retirement preparedness is a common theme of this blog. This topic is well addressed by the creators of “Broken Eggs” which is now available at no cost to viewers. It makes our case far better than we could.

Have a look at: http://brokeneggsfilm.com/broken-eggs-movie/#.

Why should your failure to plan create an obligation for me? July 31, 2014

Posted by forwardfinancialplanning1 in 401k plans, Personal Budgets, Retirement Savings, Roth IRA, Traditional IRA.
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Most of us go through life knowing that we should be addressing some particular need, but often failing to act upon this necessity. For instance, I positively know that I need to lose 20 pounds, yet I’m not making the requisite dietary changes. However, I’m living with the consequences of a larger than optimal waistline and I don’t expect others (society as a whole and taxpayers in general) to come to my rescue.

However, I wonder what’s going to happen when a very large swath of American society hits retirement without having properly saved for it. A recent Harris poll confirms the degree of unwillingness to address an obvious need. Among people in the 68+ age group who have not yet retired, 51% say that having enough money to retire is a major concern, yet only 29% of this group is putting aside anything to meet that need. Among Boomers aged 49-67, three quarters are worried, yet only 43% are saving. Gen X’ers (aged 37-48) are more worried at 77%, but are doing only marginally better with a savings participation rate of 48%. Millennials (aged 18-36) are saving at a 46% rate, with 72% of them being concerned enough to describe it as a “worry”.

So when you look across all of these generations, you see that less than half of Americans as a whole are acting on this critical need. What’s going to happen when they are all aged and too feeble to work? The current “progressive/liberal” movement will surely seek to socialize the costs, and with more than 1/2 of the (voting age) population doing nothing to prepare, they may be able to pull it off!!
If anything causes the “American Experience” to collapse from within, this might be it………………

Does anyone verify these survey reports? November 8, 2013

Posted by forwardfinancialplanning1 in Investing-General, Personal Budgets.
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Came across a newspaper article which cited some data that I found awfully hard to believe. The LA Times stated that a recent Black Rock survey of small investors found that US investors currently held only 18% of their investible assets in stocks and only 7% in bonds. Further, they claimed that small investors currently held more than 48% of their investible assets in cash. The article further claimed that these supposed “facts” reflect lingering investor fears caused by the painful bear market of 2008 and early 2009.

After thinking about this for a second, I started to wonder if this was just another example of poor survey design, biased sampling or just plain old stretching the truth. Also wondered where the remaining 27% of investible assets resided (gold? commodities? baseball cards?).

It wouldn’t be surprising to learn that nomenclature surely skews the so-called facts that this research uncovered. Since this survey claimed to be surveying individuals about stocks, bonds and cash, it was clearly ignoring institutional investors. And while many institutional investors are insurance companies, foundations and the like, the term “institutional investors” also includes mutual funds and exchange traded funds (ETF’s). And who owns a great portion of the mutual fund and ETF universe? Individuals, of course!! Somehow they weren’t part of the survey sample.

So, be careful before you conclude that since 48% of individual investor cash is sitting on the sidelines (which would suggest lots of pent-up demand for stocks), it’s a great time to load up on stocks. The survey data may have ignored two of the primary methods employed by individuals to participate in both the stock and bond markets.

The “good old days” probably were………… October 29, 2013

Posted by forwardfinancialplanning1 in Credit Cards, Economic Conditions, Personal Budgets.
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One often hears the adage that “things were better in the good old days”. This cliché fails, of course to recognize our mind’s propensity to block out unpleasant memories while maintaining our more favorable impressions of the past. However, it’s hard to argue with facts and here are some very sobering ones.

The Economic Policy Institute maintains an enormous data base of statistics and publishes an on-going report entitled “The State of Working America.” This report found that for the US population as a whole, household debt as a share of disposable income rose from 22% in 1956 to 118.7% in 2011.

If this is progress, we really don’t need any more.

Please don’t try to be so helpful…………… September 4, 2013

Posted by forwardfinancialplanning1 in Personal Budgets, Real Estate.
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A friend of mine is fond of saying, “The most dangerous words in the English language are, ‘I’m from the government and I’m here to help.'” While my friend has a definite tendency towards sarcasm, I often see examples of the accuracy of his statement.

Many observers have noted that one of the causes of the financial debacle of 2007-2009 was a system-wide deterioration of mortgage underwriting standards. This was the case for private lenders, but was true in spades for the Government-Sponsored-Entities (GSE’s) known as Fannie Mae and Freddie Mac. Many argue that these two bowed to Congressional pressure from the liberal/progressive side of the aisle to expand home ownership %, especially among lower income groups. The congressional pressure worked. We expanded home ownership with all sorts of questionable loan practices (Alt-A, “liars loans” etc.) and caused a near melt-down of the mortgage and mortgage backed securities markets. We, as taxpayers, are still paying for this mess.

So in keeping with their theme of “never letting a good crisis go to waste” our Congressional leaders spawned the legislative monster known as Dodd-Frank. This bill adds an enormous number of regulations and creates the Consumer Financial Protection Bureau (CFPB). As its name implies, the CFPB is charged with protecting consumers and obviously, predatory mortgage lending is at the heart of much of their activity.

So now, five years after the mortgage fiasco, the CFPB is introducing a whole new series of regulations in the area of mortgage loan approval and origination. One of the many new rules that goes into effect in 2014 limits people from taking out a mortgage or refinancing an existing one that puts their overall household borrowing at more than 43% of their income. This new debt cap includes all sorts of common forms of debt including student loans, most fees and points related to a home purchase and property taxes. It also tightens rules on loan documentation, and lenders who “flex” in order to provide customers with easier credit terms, will be open to consumer lawsuits if loans go bad. (You were stupid to make this loan to me, so now I’m suing you…)

Lending experts predict that the new rules may make mortgage loans much more difficult to obtain for some classes of borrowers. And who are these borrowers? The SAME PEOPLE who weren’t qualified to borrow in the first place prior to the aforementioned relaxation of lending standards.

I hope others see the irony here———–the same group (Congress) who brought us the “pain” is going to “fix things”. And, the new rules are going to lock out the same constituency that they were supposedly trying to help in 2004-2007. While I can agree that solid lending standards are a necessity, the higher standards were there all along prior to 2004-07. Wouldn’t we have been a lot better off if Congrss hadn’t meddled in the mortgage markets in the first place?

More evidence of “failure to plan” August 21, 2013

Posted by forwardfinancialplanning1 in Financial Planning, Personal Budgets, Retirement Savings.
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At the risk of being redundant, this blog has commented numerous times (June 24, 2013, June 3, 2013, May 3, 2013 et al) about the financial planning conundrum that many Americans face. A majority of people express a lack of knowledge or interest in investing, planning for financial goals etc., yet they fail to do anything about it. That is, they fail to seek out the help of a financial planning professional and just muddle along while readily acknowledging that they don’t really know what they are doing. A local TV commercial humorously reminds me that many homeowners often generate additional work for this particular advertiser by trying to self-repair their plumbing. With the stakes being so much greater with college planning, retirement planning. long term care planning etc., one would think that “self-repair” would be even less prevalent.

A recent study of 1,000 participants of 401k plans commissioned by Schwab Retirement Plan Services highlights the magnitude of this paradox. A full 52% of respondents found explanations of their 401k plan investment options more confusing than their health care benefits (Now there’s a tough hurdle to clear if there ever was one!). Likewise, 57% said they wished there was an easier way to figure out which 401k investments to choose. And, 46% stated they don’t know what their best investment options are, with 34% reporting a lot of stress in deciding how to allocate their 401k dollars.

A full 61% of those surveyed wanted personalized advice regarding their 401k, including asset allocation, risk tolerance and retirement income planning. Such professional advice would seem to have a positive impact with over 60% feeling confident (if advised) that they would be better able to make the correct 401k investment choices compared to only 32% of those going it alone.

Once again, we’re musing, “Why don’t they just pick up the phone?”

The importance of having an emergency fund August 9, 2013

Posted by forwardfinancialplanning1 in Financial Planning, Personal Budgets, Retirement Savings.
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Financial planners universally advise clients to hold an emergency fund as a cornerstone of their personal economic foundation. The logic here is that life has its up’s and down’s, i.e., roofs leak, automobiles have transmission failures and job losses occur. By having an emergency fund invested in highly liquid accounts (savings, money market funds etc.), households can mitigate the need to disturb long term investments, such as retirement (e.g., 401k plans) and education accounts (e.g., 529 plans) due to an immediate and pressing need. Also, by leaving these special purpose accounts untouched, households can avoid the income taxes and penalties usually associated with the account liquidation event.

There’s a great deal of anecdotal evidence that this is good advice, but we recently came across some hard data that supports this notion. A portion of the 14th annual Transamerica retirement survey focused on “displaced workers”. Transamerica grouped unemployed and underemployed workers under the general description of “displaced.” The survey was conducted this past March by Harris Interactive polling a national representation of 610 U.S. unemployed or underemployed workers aged 18 and older.

While 59% of respondents reported owning some sort of retirement account, 36% of displaced workers had raided it to make ends meet. And not surprisingly, those who had been in the “displaced” category for more than a year had taken withdrawals at a higher rate of 42% versus only 23% for those who had been “displaced” for less than a year. Being underemployed proved to be better than unemployed as the withdrawal rate for this group was notably lower.

The saddest part about all of these premature distributions, however, is the enormous monetary loss due to income tax penalties. Absent the possibility of being aged 59 1/2 or qualifying under one of the IRS section 72t exemptions, most of these withdrawals were hit with the 10% tax penalty in addition to ordinary income taxes. While Washington clearly needs to more closely balance revenues and expenses, this is not the best way to do it!!!

It’s not brain surgery, but MD’s are struggling with it August 5, 2013

Posted by forwardfinancialplanning1 in 401k plans, Financial Planning, Personal Budgets, Retirement Savings.
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It’s a poorly kept secret that this nation is headed for a retirement crisis. Public pension pools are underfunded, the Baby Boomers have grossly under-saved and subsequent generations aren’t doing dramatically better. Many claim that they simply don’t earn enough money to properly save for retirement, but most financial planners would argue that a lack of awareness and knowledge of the fundamentals of retirement saving/planning is a bigger problem. That is, if people took the time to better understand the magnitude of their retirement planning challenge, they would take steps to improve their outcomes. And, if people can’t or won’t take the time to do so, they should hire a planner for the task (See also, “Why don’t they ask for help?” posted on June 24, 2013)

Here’s a recent research study that suggests that the financial planners may have a point. AMA Insurance took a national poll of 2,365 physicians and found that their top financial concern was having enough money to retire. Fully, 48% of the respondents said that they were “behind” on preparing for retirement, and 54% stated that the time they spend on personal finances is inadequate.

Clearly, this is a population which is highly compensated, and surely has the brain power to “run the numbers.” However, like many people in our modern society, they are most likely very busy and prefer to spend their free time in other areas.

So, this leads us to the question that’s been raised on this forum (in regards to the general population) numerous times in the past—-“Why don’t they ask for help?” The financial planning practitioners of the world make a living doing exactly what’s missing in this picture. Undoubtedly, most doctors don’t repair/service their own automobiles—why not hire a capable advisor to do the financial planning as well?

This explains a lot…………… July 26, 2013

Posted by forwardfinancialplanning1 in Economic Conditions, Personal Budgets.
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What can consumer research on individual spending tendencies tell us about the fiscal train wreck known as the state of Illinois? Perhaps nothing, but it’s pretty easy to connect some dots here based on recent findings.

Market research firm Scarborough conducted a study regarding the general population’s attitude on saving and spending. Those who “mostly agree” with the statement “I am a spender rather than a saver” were termed “Spenders”. “Savers” were identified as people who “mostly disagree” with that statement. Scarborough’s nationwide research determined that 9% of US adults were “spenders” while 29% labeled themselves as “savers”.

The results get interesting when geographical considerations are taken into account. For example, respondents in Fort Myers, Florida were 19% more likely than the general US population to identify themselves as “Savers”. But how do these geographical trends relate to Illinois’ financial woes?

Well, it’s a widely known fact that Chicago and its politicos run the state. The top dogs in both houses of the legislature hail from Chicago, as does the governor who was elected despite the fact that he only carried 4 out of 102 Illinois counties. Not surprisingly, three of those counties are in metro Chicago. And, despite a Democratic super-majority in the state legislature, our “leaders” (term used very loosely) have been unable to put the state’s fiscal house in order.

The connection to the Scarborough research? It turns out that survey respondents from Chicago were 33% more likely than the general US population to be a “Spender”. This represented the highest weighting towards spending money of any US city included in the entire survey. So I guess it’s not surprising that these spendthrift ways and lack of financial responsibility permeate state government. After all, you can’t accumulate a 5 billion dollar backlog of unpaid bills, maintain the worst underfunding of any state pension system and have the lowest state bond rating without being really good at spending money. Just “comes natural” up in Chicago!