Yearly Archives: 2015

How to choose a financial adviser

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Simple, but not easy. Anyone and their brother can call themselves a financial adviser, advisor, planner, investment specialist, wealth manager, etc. And let me tell you that you would be shocked by the brouhaha in financial trade journals over whether or not advisors should have to be compelled (!!) to adhere to a fiduciary standard. A fiduciary standard simply means that the advisor is legally obligated to put YOUR best interests first, rather than, say, the product that pays him the best commission, wins him the free vacation contest, or allows him to meet his sales quota and keep his job.  People who are not fiduciaries are SALESPEOPLE and, uh, maybe what they’re peddling to you is somewhere in the realm of possibly being remotely suitable for you. If you hear any of the following terms, hold onto your shirt and wallet and run: non-traded REITs, master limited partnerships, most annuities, whole life, hedge funds—wait, the list is getting a little long.

 

But don’t take my word for it. Gregory Karp, who writes a column called Spending Smart for the Chicago Tribune, recently had an excellent article about how to choose an advisor. You can read it for yourself.  I couldn’t have said it better myself, and I welcome anyone who wants to quiz me on any or all of his criteria. I particularly like that he highlighted the difference between fee-based (you’re talking to a broker/salesperson who is getting a fee AND commissions), and fee-only (you’re paying solely for advice, which should be free of owing any commissions or referral fees to anyone).

 

My only complaint about the article is that the Trib tends to bury consumer financial articles in the business section, where the people that need to see it often don’t. If only we could get this information into the features section, next to the gardening, decorating, recipes, and parenting advice.

 

Triage when you’re laid off

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When companies need to merge or downsize, you can hear the insect buzz of layoffs in the wind. It used to be that the first hired would be the first fired, but the trend I’m seeing now is to lay off the employee over 50 years old, as the most expensive and shortest “useful life” to the company. Makes you kinda long for the days of seniority and unions. If that’s you, well, you can just retire early, no? These guys have hearts of gold.

I offer a dozen ideas, below. It’s a tough time for you, no doubt, but realize it was a business decision, not really having much to do with you. How do I know? Because I’m seeing it over and over, company after company.

  1. Negotiate hard for outplacement counseling. You want professional advice on shaping up your resume, looking your best, and planning out a battle strategy. If your company doesn’t offer it, or you can’t guilt them into it, invest the money in a career counselor for yourself. It’ll be one of the best $2,000 you ever spent on your career.
  2. Seek out every professional organization in your field, join them if possible, and attend meetings (and conferences if possible). You need to expand your network.
  3. Learn how to do a decent job on your LinkedIn Profile. Most people just park a profile, but you are going to need to work it. Look at all your connections’ connections and seek introductions.
  4. A lot of people keep Facebook for personal friends. You should still contact them to let them know you’re in the job market. Most people would love to help, but they have to KNOW.
  5. While I usually advocate paying off credit cards monthly, this may be the time to make minimum payments. You need to marshal your cash.
  6. Make every effort to live on severance and unemployment, and plan for one year. This may mean cutting expenses to the bone. It’s not forever.
  7. If you can’t cut, downsize—instead of eating out, downsize to coffee. Netflix instead of movies out. Vegetarian one night. You get the idea. The mantra is prudent and frugal (not cheap and desperate).
  8. Absolutely don’t beat yourself. I’ve seen plenty of clients in your position. This is just a corporate juggernaut, not your individual fault. Now, you make good business decisions to manage your career.
  9. Don’t cash out your IRA. However, if it looks like your income will be very low (evaluate towards the end of the year), this might be a great opportunity to convert a traditional IRA to a Roth.
  10. Find a part-time gig, teach a class, freelance, whatever you can think of to get a little money coming in. Don’t, however, decide to start a business which requires materials or equipment or anything that needs funding.
  11. Don’t do anything rash. Even if you have to sell your house, try to make the decisions when you’re calm—maybe you can rent the house temporarily.
  12. If you have children in college, notify the school immediately. They may be able to re-evaluate financial aid.

People over fifty do find jobs. It can take longer, and it may not be at as high a salary as your former position. You may need to revise your retirement plans.  It may not be quite the same future as you thought, but what ever is? You do have a future, and you can make revised plans for it.

 

 

 

Should you stay home with the kids?

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I did, and don’t regret it for a minute. It was tons of fun and a chance to do all the things I hadn’t done in my own childhood. Staying home with your children is not primarily a financial decision, but it does have some profound financial consequences. So as you are making decisions about whether you will be a stay-at-home parent for some portion of your child-rearing years, here are some financial points to consider.

  1. Consider your Social Security benefits. Sure, collecting Social Security seems like a million years away. But since benefits are based on your entire record, taking into account your 35 highest earning years, taking 20 years, or even 10 years, out of your lifetime earnings record can hit hard on your future benefits. (see more information here). Stay-at-home parents who later get a divorce can have a much bleaker retirement picture than someone who has worked consistently. If you have been married at least 10 years, (or stay married), you will be eligible for spousal benefits—generally, ½ your spouse’s primary benefit. However, this may be much less than if you had maintained employment at a relatively high earning job.
  2. Consider disability benefits. If you do not have a recent work history and become disabled, you may not be eligible for Social Security disability payments. If you are not employed, you will probably not be able to get private disability insurance either, since generally this insurance is based on earning. There are some ways to approximate disability insurance and protect you, but it’s complicated—contact me to discuss this if the situation applies to you.
  3. Evaluate your life insurance. Many people have life insurance primarily through their workplace. If you are not employed outside the home, consider what replacing your services would cost your family, and investigate appropriate life insurance.
  4. Be careful about working for your spouse’s business for free.  If the spouse owned the business before marriage, you are probably not going to be entitled to any share of the business’s worth in the event of divorce. Also, you are not building up Social Security benefits. Finally, if you are unpaid you will not have an employment record should you need to borrow money, secure credit, or purchase disability protection.
  5. Keep some credit in your own name (not joint). Too many people decide to cancel all those old individual-account credit cards in favor of joint accounts when they marry. Or let those accounts lapse over disuse. In the event of the spouse’s death or disability, or divorce, a stay-at-home parent may not be able to qualify for a credit card. Always keep one major credit card as an individual account, and use it from time to time to keep it active. The easiest cards to get are department and discount stores, but one with a significant limit that will allow you to book travel, rent a car, or pay for a hotel or emergency daily expenses is the one to have.
  6. Know how staying home will affect your student loans. If you are on a repayment forgiveness plan because of working for a non-profit, your loans may kick back to full repayment. Be sure you calculate what this might cost you. I have seen cases where leaving non-profit employment would increase loan repayment by the mid-five figures!
  7. Start a small business and run it like a business. It’s much easier to take a part-time business to full-time than it is to start from scratch.
  8. Keep your network and your professional contacts alive. Same reason as #7.
  9. Take every opportunity to upgrade your professional skills. At some point the baby goes to college. You will have the rest of your life. Upgrading skills keeps you current and marketable. Most people will eventually return to work.

Sure, this is disaster planning, and my sincere hope is that you will never have such a disaster. All decisions require weighing the choices and consequences, however, so do some planning and–enjoy your children.