Table of Contents
- What Does it Take to Turn a Dream into Reality?
- Investment Shock Absorbers
- Sudoku Puzzle
- Recipe: Roasted Salmon with Green Beans
What Does it Take to Turn a Dream into Reality?
by James Lange, CPA/Attorney
My mother was in her mid-nineties when my wife, Cindy, my daughter, Erica, and I took her on a mini-vacation to New York City. This little trip was, in part, motivated by my mother’s heartfelt desire to buy a silk scarf at Bloomingdales. She mentioned how much she was looking forward to getting a silk scarf from Bloomingdales multiple times.
While there, we did the normal touristy things like going to museums, visiting Central Park, eating at wonderful restaurants, and seeing a Broadway show. On the last day, we made it to Bloomingdales.
My mother picked out a beautiful silk scarf. I thought, “Excellent! A successful trip!” Then, my mother asked the sales clerk for the price. Frantically shaking my head, I tried to keep the salesperson from telling my mom the price. I planned to buy it as a gift; she didn’t need to know the cost! Unfortunately, my timing was off. The scarf cost more than $100 and my mother said that that was much too expensive. I pleaded with her to let me buy her the scarf, but she would have none of it.
As we were leaving, I tried to slip back and buy the scarf, but my mother knew me too well. She said, “I know you’re going back there to buy that scarf and you may not buy that scarf for me.” What could I do? She was my mother, I had to listen and be respectful, but it made me a little sad.
I see this type of thinking with many of my clients. How do you balance desire with practicality? On the scale of the trip, buying the scarf was inconsequential. But for my mother, the financial outlay for a personal indulgence crossed the line—too expensive. So, how do you come to terms with what you can or cannot afford? When is an indulgence perfectly acceptable? When can you turn a dream into a reality?
One of our signature offerings for our clients is planning that we call, “Running the Numbers.” We look at the client’s collective resources, and determine how much money they can safely spend and never run out of money during their lifetime. We prepare detailed projections of what clients are spending now, and factor in changes and projections for the future. There’s a whole library on “the safe withdrawal rate,” which is determined by multiplying your investible assets by a certain percentage. The old rule of thumb, which has been challenged, is that, assuming appropriate investments, you could safely spend 4% of your portfolio for a thirty-year retirement. As you age and your life expectancy goes down, the safe withdrawal rate goes up. We frequently find that many of our older clients are spending far less than their particular safe-withdrawal rate, and some are spending too much. Of course, you have to consider other assets and sources of income such as Social Security, a pension, rental properties, a paid up primary residence that you could potentially sell or remortgage, or even apply to a reverse mortgage if push came to shove. You also must consider inflation which the 4% accounts for, but frequently, inflation is not accounted for with other assets…
…But, you’ll never know how much you can truly afford to safely spend unless you do the math or, “Run the Numbers.”
Another benefit of “Running the Numbers” is to determine a “master plan.” Most new clients come in with multiple accounts of varying investments. Most of the investment decisions were made independently and each seemed to make sense at the time—but there is no overarching coordination. People talked to the retirement plan administrator at work and decided on an asset allocation of their 401(k). They talked to an investment advisor and they followed some of that advice with regard to a different portion of their portfolio. Their CPA may have mentioned they should contribute to a Roth IRA. They may have even attended one of my workshops or read one of my books and made some Roth IRA conversions. At some point, usually after the first child, they drafted a will and bought some insurance. Maybe, though hopefully not, someone talked them into buying a commercial annuity. All piecemeal. We like to look at the entire picture and come up with an integrated plan considering all the client’s resources as well as their specific family circumstances and, perhaps most importantly, their goals and dreams. The objective is to come up with the ultimate personalized retirement and estate plan for each client. Then, for our assets under management (AUM) clients, we update the plan every year or even more often in the event of a major life change.
Jim and Barnetta Lange; Barnetta at 95 years of age.
Our plans frequently integrate long-term Roth IRA conversions strategies; we often recommend a series of small conversions over several years. We look at Social Security planning, and, more often than not, we conclude that for most married couples, the primary wage earner should wait until they are 70 before they start collecting Social Security. When we manage our client’s investments, through our collaboration with DiNuzzo Index Advisors and other affiliated investment advisors, we try to do everything we can to manage risk by diversifying portfolios. DiNuzzo Index Advisors take the idea of diversification even a step further by dividing investments into different stacks or buckets. Each stack has a different time horizon and purpose. For example, the short-term necessity stack would be very conservatively invested in things like cash, money markets, CDs, bonds, and maturing bond ladders. At the opposite end is the long-term stack for dreams and wishes which is invested in sectors that have historically higher returns such as small companies and international companies.
Knowing how much money you can safely spend and never run out of money is one of the best ways to achieve peace of mind. Granted, we can’t predict every eventuality. Life is risky! But we can make predictions based on reasonable assumptions. Once you understand how much you can spend, you can decide if you want to spend that much, or less. The choice is yours—but it is an informed decision.
Multiple clients have thanked me for changing the way they think and even act around money once they know what they can truly afford. Some have retired earlier, some have bought a second home, many have taken family vacations they would not have otherwise. What I don’t want anyone to do is deny themselves a silk scarf from Bloomingdales when in reality, they can certainly afford it.
P.S. If you are interested in our more traditional financial information (we have written 5 best-selling financial books, many peer-reviewed articles, have 185 hours of our radio archives, etc.), we encourage you to visit our website, www.paytaxeslater.com, that has a wealth of valuable free material of special interest to IRA and retirement plan owners, or call (412) 521-2732 for a free copy of The Ultimate Retirement and Estate Plan for Your Million-Dollar IRA or to see if you qualify for a free second opinion consultation.
Investment Shock Absorbers
Adapted from an Article by Jim Parker
Ever ridden in a car with worn-out shock absorbers? Every bump is jarring and every red light an excuse to assume the brace position. Owning an undiversified portfolio can trigger similar reactions.
In a car, the suspension keeps the tires in contact with the road providing a smooth ride for passengers by offsetting the forces of gravity, propulsion and inertia. You can drive a car with a broken suspension, but it will be an uncomfortable and unpredictable ride, particularly in difficult conditions. Throw in the risk of a breakdown or running off the road, and there’s a real chance you won’t reach your destination.
In the world of investment, a similarly unpredictable ride can await those with concentrated and undiversified portfolios or those who constantly tinker based on short-term rough patches in the markets. Everyone feels in control when the surface is straight and smooth, but it’s harder to stay on course during sudden turns in the market. The smart thing to do is to spread your portfolio across different securities, sectors and countries. That also means identifying the right mix of investments that align with your risk tolerance, to keep you on track toward your goals. Using this approach, your returns may not match the top performing portfolio, but neither are they likely to match the worst. More importantly, this is a ride you are likelier to stick with.
Just as drivers of suspension less cars change their route to avoid potholes, people with concentrated portfolios may resort to market timing and trading as they try to anticipate the top-performing securities. Predicting which part of a market will do best over a given period is tough. If you’ve ever taken a long road trip, you’ll know that conditions along the way can change quickly and unpredictably, which is why you need a vehicle that’s ready for the worst roads as well as the best. While diversification can never completely eliminate the impact of bumps along your particular investment road, it does help reduce the potential outsized impact that any individual investment can have on your journey. With sufficient diversification, the jarring effects of performance extremes level out. That, in turn, helps you stay in your chosen lane and on the road to your investment destination.
Happy motoring, and happy investing.
Roasted Salmon with Green Beans
Serves: 4
Prep. Time: 10 minutes
Cook Time: 10 minutes
- 2 tablespoons plus ¼ teaspoon sea salt
- 1 ½ pounds green beans, trimmed
- 1 teaspoon extra-virgin olive oil
- grated zest of 1 lemon
- 4 (6 ounce) boneless, skinless wild salmon fillets
- 3 tablespoons Dijon mustard
- ½ cup finely chopped fresh dill
- 1 tablespoon grapeseed oil
Preheat the broiler. Line a rimmed baking sheet with foil.
Bring a 5-quart pot of water to a boil over high heat. Add 2 tablespoons of the salt. Cook the green beans until crisp-tender, 3 to 4 minutes. Drain the beans in a colander and rinse with cold water. Gently pat the beans dry with paper towels and transfer to a large bowl. Toss with the olive oil, lemon zest, and remaining ¼ teaspoon salt. Set aside.
Pat the salmon fillets dry with paper towels and place on the lined baking sheet. Spread an equal amount of mustard over the top of each fillet. Divide the dill among the fillets, patting it gently into the mustard. Drizzle the tops of the fillets with the grapeseed oil to prevent the herbs from browning too much.
Place the salmon under the broiler and cook until the dill is a bit frizzled and the center of the fish is tender and pink, 6 to 8 minutes. Serve with the green beans on the side.