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Posts Tagged ‘Certified Financial Planner

Why don’t more people go to financial planners?

Jim Lorenzen, CFP®, AIF®

Jim Lorenzen, CFP®, AIF®

Bob Clark, in a recent AdvisorOne article, says the answer is “fear.” Many people are afraid of:

• Being embarrassed by their current financial condition

• learning their financial situation is much worse than they realized

• of getting beat up for not saving more

• of being told to do things they don’t want to do, such as going on a budget, saving more, or buying more insurance.

He’s probably right.  The old adage WIIFM (What’s in it for me) maybe best answers what people really want:  How to get their financial house in order and keep it that way forever; how to achieve their goals with peace of mind; how to minimize risk; how to feel good about what their future!

Jim

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The Independent Financial GroupJim Lorenzen is a Certified Financial Planner® and An Accredited Investment Fiduciary® in his 21st year of private practice as Founding Principal of The Independent Financial Group, a fee-only registered investment advisor with clients located in New York, Florida, and California.   IFG provides investment and fiduciary consulting to retirement plan sponsors, and retirement and wealth management services for individual investors. IFG does not sell products, earn commissions, or accept any third-party compensation or incentives of any description.  IFG also does not provide tax or legal advice.  The reader should seek competent counsel to address those issues.  Content contained herein represents the author’s opinion and should not be regarded as investment advice which is provided only to IFG clients upon completion of a written plan.  The Independent Financial You can reach Jim at 805.265.5416 or through the IFG website, www.indfin.com, the IFG Investment Blog and by subscribing to IFG Insights lettersfor individual investors.  Keep up to date with IFG on Twitter: @JimLorenzen

How To Use a CERTIFIED FINANCIAL PLANNER Professional

Jim Lorenzen, CFP®, AIF®

Jim Lorenzen, CFP®, AIF®

You’ve heard about certified financial planners – you’ve probably seen articles by them and some interviewed on television and radio!  Are these people the guru’s of all things financial?  Is a CFP® professional the only resource you’ll ever need?

Hardly.

First, a little background:  A CFP is required to meet certain experience, educational, and ethical requirements.  To fulfill the educational requirement, candidates must have a bachelor’s degree or higher from an accredited U.S. college or university and also master a list of nearly 100 topics on integrated financial planning through a CFP Board-Registered program.  The topics cover major planning areas such as:

  • General principles of finance and financial planning
  • Insurance planning
  • Employee benefits planning
  • Investment securities planning
  • State and Federal income tax planning
  • Estate, gift, and transfer tax planning
  • Asset protection planning
  • Retirement planning

The course of study can take up to three years to complete, depending on scheduling.  Today there are more than 300 colleges and universities across America offering CFP Board-Registered programs in their MBA programs.  Upon completion of the course of study, the candidate must pass a ten-hour exam, conducted over two days.  Board exams are conducted two times each year at selected locations across the U.S. on specified dates.

You’ll notice I indicated there are nearly 100 topics covering integrated financial planning.  There’s your ‘tip-off’.  CFP practitioners should be viewed as general practitioners.  Just as your family physician – probably a general practitioner – will refer you to specialists for various issues, the same should be true of your CFP.

A recent law school graduate, for example, must sit for his/her state’s Bar Exam to practice law.  During law school, subjects included contracts, torts (personal injury) crimes, real estate, taxation, evidence, constitutional law, estae law, procedure, and many other areas; but, you probably wouldn’t even want an attorney who ‘specialized’ in everything!  An estate lawyer may not be the one you want handling your personal injury case, just as you probably wouldn’t want a podiatrist performing a liver transplant.

Likewise, while CFP practitioners typically do provide comprehensive financial planning services, you should expect a good CFP to act as a ‘facilitator’ bringing together a group of legal, tax, insurance, and others who are experts in their respective fields in order to coordinate an integrated solution. 

If you find any advisor in any field telling you they can handle everything themselves, I would personally advise you run the other way.  My guess is they’re more interested in helping themselves than they are in helping you.

Jim

 

Jim Lorenzen is a Certified Financial Planner® professional and an Accredited Investment Fiduciary® in his 20th year of private practice as Founding Principal of The Independent Financial Group, a fee-only registered investment advisor with clients located in New York, Florida, and California.   IFG provides investment and fiduciary consulting to retirement plan sponsors and selected individual investors. Plan sponsors can sign-up for Retirement Plan Insights here.  IFG does not sell products, earn commissions, or accept any third-party compensation or incentives of any description.  Nothing contained in this material is intended to constitute legal, tax, securities, or investment advice, nor an opinion regarding the appropriateness of any investment to the individual reader.  The general information provided should not be acted upon without obtaining specific legal, tax, and investment advice from an appropriate licensed professional.

Member - Retirement Plan Advisory Group

How To Handle Uncertainty

Jim Lorenzen, CFP®

Jim Lorenzen, CFP®

Markets hate uncertainty.

You’ve heard that a thousand times.  We all have.  And, it doesn’t matter which decade you’re in.  The 1970s, 80s, 90s, and the last ten years have all been periods of uncertainty.   Whether the questions were about inflation, interest rates, tax laws, or increased market volatility, there’s been one constant:

Markets never have been, and never will be, certain of anything.   I remember people back in 1991 wanting to wait until they would `know what the market was going to do’.  They’re still waiting, I think.

Name a time you’ve ever heard anyone say, “Well, at last we have certainty in the markets!”  I’ve never seen it; and I don’t know anyone who has, either.

Warren Buffett, someone everyone loves to quote, is famous for saying he never met anyone who could predict the stock market.  He knows more people than I do.  All I know is when I begin getting market advice from my dry cleaner, it does send me a message; but I digress.

Right now, everyone’s worried about congress and whether they’ll raise the debt ceiling[1].  The Democrats are doing their best to scare everyone regarding the consequences of failure, claiming the U.S. will default.  The Republicans are claiming our biggest problem is the spending and borrowing more won’t help – I guess we all remember our younger days using our first credit card, so we can relate to that.

History has been filled with uncertainty and unpredictability:

  • Pearl Harbor
  • The Korean War
  • The Cuban Missile Crisis
  • The Vietnam War
  • The rise of the Japanese manufacturing
  • Mid-East Oil Crisis
  • Skyrocketing inflation and interest rates
  • Plunging interest rates
  • The Iranian Hostage Crisis
  • President Reagan walking out of the peace talks with Soviet Premier Gorbachev
  • The fall of the Soviet Union

That’s enough; I’m sure you can add many more to the list, including the first Iraq war, etc. 

Uncertainty is not new.  It’s normal.

Predicting the future worse than futile – it borders on the idiotic

And so, it should go without saying that reacting to events is not smart.  It’s counter-productive.

Don’t fall for the line, “This time it’s different.”  It isnt’.

The answer isn’t simplistic; but, it is simple:   Those who succeed are generally those with a plan. 

Your plan is like a lighthouse in a storm:  No one pays much attention during fair weather; but, when the skies turn dark and storms are raging and your boat is being tossed around – when it’s hard to see through the dense fog – the lighthouse shows you the way. 

It’s the one thing that isn’t moving.  It’s what you depend on to get you through the uncertainty.  It’s tangible.

Your plan should be tangible, too.  If your financial plan is `in your head’, face it:  You don’t have one.  It must be tangible.  It must be something you and your spouse can both see, touch, feel, and refer to when the uncertainty is all around you.

And, it always is.

Jim

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Jim Lorenzen is a CERTIFIED FINANCIAL PLANNER™ and in his 20th year of private practice as Founding Principal of The Independent Financial Group, a fee-only registered investment advisor with clients located in New York, Florida, and California.   IFG does not sell products, earn commissions, or accept any third-party compensation or incentives of any description.  Nothing contained in this material is intended to constitute legal, tax, securities, or investment advice, nor an opinion regarding the appropriateness of any investment to the individual reader.  The general information provided should not be acted upon without obtaining specific legal, tax, and investment advice from an appropriate licensed professional.  The Independent Financial Group does not sell financial products or securities and nothing contained herein is an offer or recommendation to purchase any secrity or the services of any person or organization


[1] Just for the record, most are confusing two issues.  There is a difference between meeting debt obligations – bond payments to Treasury investors – and funding spending programs.  Failing to raise the debt ceiling will not result in debt default simply because Treasury revenue from current taxes is sufficient to meet those current obligations.  The real issue is not credit default, but the funding of the spending programs.  Without increase ability to borrow more, the government will be forced to prioritize their spending, which means cutting back on some programs which help get some politicians re-elected.  Naturally, if forced to prioritize, especially during an election season, many politicians will love to see programs cut for the largest voting constituency first – pain generates letters to representatives to change their vote.

 

Understanding Your Pension

Jim Lorenzen, CFP®

Jim Lorenzen, CFP®

So, you received your pension statement stating that you can expect $50,000 a year for life when you retire in twenty years.   Is that good?

It depends.   You knew I was going to say that, didn’t you?

Count  yourself as lucky.  Not too many people even have pension plans anymore.   But, will that pension be enough to meet your needs? 

Of course, you may continue to get raises which could raise your pension amount; maybe you’ll even get $75,000 a year!   But, what will that money actually buy?

That depends on your outlook for inflation, of course, and my outlook may be different from yours.  My chief economist, who does the shopping for our family, tells me a different story from what I’m hearing from Washington.  Food and energy, which are not counted in the government’s figures, are two things we spend a lot on – and they’ve been going up dramatically!  Housing prices are down, true, but we’re in our house and not moving – meanwhile, the cost to heat and cool the house has also increased.

My personal CPI (cost of living index), which I’ll call my PCPI, is different from the CPI I hear about on tv.  While some advisors are now using 3.5% in their projections, I think the number going forward will be closer to 4.5% – especially as, I suspect, the government will print money to reduce debt even as the economy, sooner or later, begins to actually find its way to a real recovery.

But, even if you achieve a $75,000 pension – and even if inflation is only 3.5% –  just what will your money buy 20 years from now?  According to my trusty HP10BII, your pension will be worth $37,692 in today’s purchasing power.  You’ll probably receive Social Security, too; but both will be subject to income taxation, and what those rates will be in 20 years is anyone’s guess – I know I have mine.   Could you live in retirement  today on $37,692 + Social Security before taxes?  What will your car cost?   How often will you need one?

Inflation doesn’t end when you retire!   Every pension I know of, except from the government, doesn’t include cost of living adjustments (COLA).    In another ten years, your pension will be worth only $26,721; and only $18,943 ten years after that!   That’s right:  You’re losing purchasing power to inflation every year… and by your third decade of retirement, you might even be a pauper!   And, that’s using the $75,000, 3.5% inflation scenario!

Planning ahead is important.   The cliché’ is true:  If you fail to plan, you are planning to fail.  The sooner you know your situation, the sooner you can not only create a plan – you can actually ACT to change your future.

Jim

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Jim Lorenzen is a CERTIFIED FINANCIAL PLANNER™ and in his 20th year of private practice as Founding Principal of The Independent Financial Group, a fee-only registered investment advisor with clients located in New York, Florida, and California.   IFG does not sell products, earn commissions, or accept any third-party compensation or incentives of any description.  Nothing contained in this material is intended to constitute legal, tax, securities, or investment advice, nor an opinion regarding the appropriateness of any investment to the individual reader.  The general information provided should not be acted upon without obtaining specific legal, tax, and investment advice from an appropriate licensed professional.  The Independent Financial Group does not sell financial products or securities and nothing contained herein is an offer or recommendation to purchase any security or the services of any person or organization.

Does Your Money Have A Purpose?

Jim Lorenzen, CFP®

Jim Lorenzen, CFP®

A senior executive of a high-tech company loved his company stock.  When it was at its peak, he’d tell all his friends about how well he and his company were doing.  His advisor suggested he sell at least some of his $10 million in vested holdings, especially since he had plenty of options yet to vest and he had few other assets.  No one could convince him about the dangers of his highly concentrated position.  When asked what the purpose of his money was, he could never articulate it.  He rode the stock all the way down to zero.

Then there was Margaret (not her real name) who loved investing.  She didn’t mind taking risks because she felt she had plenty of time to make up any losses.  She enjoyed trading with an online broker and began to equate risk with reward.  The more she made, the more she wanted.  When the markets tanked in 2008, her investment account lost more than 90% from its high and cost her half her original investment.   She may have had a goal – who knows? – but, it’s evident she never considered her purpose.

Purposes are different from goals.   Purpose goes beyond goals.  It’s the reason we have goals. 

“I want to retire at 60 with $10 million” is not a purpose.  It’s a goal.  Why?

“I want to be financially secure” doesn’t go deep enough.  What does financial security mean?  If you mean you want to maintain your lifestyle, you should be able to describe exactly what that lifestyle will look like:  Will you sell your home and relocate to a warmer climate?  Will you travel the country in a motor home or will you live in a house and travel?  Are you going to keep that waterfront summer cottage or sell it?  Tell me what each one of these decisions means to your quality of life.

Believe it or not, some people will say the purpose of their money is to provide for their retirement and their children, then they’ll fly to Europe for a first class vacation, neglecting to fund their pension for that year.

The point:  Does your money have a purpose?  Once you have a purpose,  you can set goals around that purpose –  and yes, you can have more than one purpose and each can have more than one goal attached.  But, your second question is key:  Do your actions match your purpose? 

To get to any destination, it helps to have a roadmap.

Jim

Jim Lorenzen is a CERTIFIED FINANCIAL PLANNER™ and in his 20th year of private practice as Founding Principal of THE INDEPENDENT FINANCIAL GROUP, a fee-only registered investment advisor with clients located in New York, Florida, and California.  He’s been a headline speaker at conventions throughout the United States, Canada, and the U.K. and has appeared in `The Journal of Compensation and Benefits’, as well as in The Profit Sharing Council of America’s `Insights’.    Jim has also appeared on American Airlines’ `Sky Radio’, heard on more than 19,000 flights.  IFG does not sell products, earn commissions, or accept any third-party compensation or incentives of any description.  Nothing contained herein should be regarded as tax or legal advice and the reader is urged to seek competent counsel to address those issues.   The above represents the author’s opinion and should not be regarded as investment advice which is provided only to IFG clients upon completion of a formal financial and investment plan.   For questions or comments, you can reach Jim at 805.265.5416 or through the IFG website, http://www.indfin.com.

How Long Will Your Money Last

Jim Lorenzen, CFP®

Jim Lorenzen, CFP®

If you plan on withdrawing from your retirement savings for a long period of time, it is important to examine the effect various withdrawal rates may have on a portfolio.

Several factors need to be examined when determining an investor’s withdrawal rate. The answer may depend upon the portfolio mix, how long an investor expects to withdraw from the portfolio, and the investor’s risk aversion and consumption patterns.

This image looks at a hypothetical 50% stock/50% bond portfolio and the effect various inflation-adjusted withdrawal rates have on the end value of the portfolio over a long payout period. The hypothetical portfolio has an initial starting value of $500,000. It is assumed that a person retires on Dec. 31, 1972, and withdraws an inflation-adjusted percentage of the initial portfolio wealth ($500,000) each year beginning in 1973.

How Long Will Your Money Last?

How Long Will Your Money Last?

 

 

The reproduction of this Morningstar slide leaves a lot to be desired – where’s a nine-year-old when you need one? –  but the withdrawal rates from left to right are 9%, 8%, 7%, 6%, and 5%.  As you can see, the higher the withdrawal rate, the greater the chance of potential shortfall.   The lower the rate, the less likely you are to outlive your portfolio.  Therefore, early retirees who anticipate long payout periods may want to consider assuming lower withdrawal rates.  For me personally, the comfort zone begins at 4%.  Naturally, 3% or less is better.

Government bonds are guaranteed by the full faith and credit of the U.S. government as to the timely payment of principal and interest,  but have not proven to be a hedge against inflation.   Meanwhile stocks are not guaranteed and have been more volatile than the other asset classes, yet have proven over time to provide real returns in excess of inflation and taxes.  The key, of course, is determining the mix of assets that ‘s right for your needs and risk profile.

As you know, it all begins with a plan.

Jim

 

 

About the data  

Stocks in this example are represented by the Standard & Poor’s 500®, which is an unmanaged group of securities and considered to be representative of the stock market in general. Bonds are represented by the five-year U.S. government bond and inflation by the Consumer Price Index. An investment cannot be made directly in an index. Each monthly withdrawal is adjusted for inflation. Each portfolio is rebalanced monthly. Assumes reinvestment of income and no transaction costs or taxes.

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Jim Lorenzen is a CERTIFIED FINANCIAL PLANNER™ and in his 20th year of private practice as Founding Principal of The Independent Financial Group, a fee-only registered investment advisor with clients located in New York, Florida, and California.   IFG does not sell products, earn commissions, or accept any third-party compensation or incentives of any description.  Nothing contained in this material is intended to constitute legal, tax, securities, or investment advice, nor an opinion regarding the appropriateness of any investment to the individual reader.  The general information provided should not be acted upon without obtaining specific legal, tax, and investment advice from an appropriate licensed professional.  The Independent Financial Group does not sell financial products or securities and nothing contained herein is an offer or recommendation to purchase any security or the services of any person or organization.

Boomers On The Bench

Jim Lorenzen, CFP®

Jim Lorenzen, CFP®

A recent poll conducted by MetLife included 500 Baby Boomers with $200,000 or more in investable assets.  What’s interesting is that they know why they’re paying a high price for keeping money in liquid investments because they see themselves in a vulnerable position – unable to maintain their lifestyle should unexpected expenses arise.

49% say they couldn’t cut spending by more than 10% without a dramatic change in lifestyle.  52% have had at least one unexpected expense in the past year that cost them $2,000 or more.  26% need money to help a friend or family member.  45% are using money from emergency savings to pay expenses.  22% used a credit card or other revolving debt; 9% took out a home equity loan and 4% borrowed from a retirement plan to pay bills.

Some simply become too conservative too quickly, often without understanding their true situation.  I recently had a client contact me saying his company may be relocating outside California – there’s a surprise – and, even though he’s a senior executive with a strong track-record, he wasn’t totally sure his position would be safe and wondered if he should reallocate about $100,000 of his equity holdings into short-term fixed income.   I must admit, my `gut’ reactions was the same as his.  I told him, “That sounds like a good idea, but let’s update your plan just to be sure.”

After going through the entire planning process using a `worst-case scenario’, the analysis of his current holdings revealed he had a much more secure position in place than he’d realized and that no changes were required at all!   This kept him from making what may have been a huge mistake – the kind that comes back to haunt you ten or fifteen years later, not to mention the current tax ramifications.

It pays to have a plan.

Jim

Jim Lorenzen is a CERTIFIED FINANCIAL PLANNER™ and in his 20th year of private practice as Founding Principal of The Independent Financial Group, a fee-only registered investment advisor with clients located in New York, Florida, and California.  He’s been a headline speaker at conventions throughout the United States, Canada, and the U.K. and has appeared in `The Journal of Compensation and Benefits’, as well as in The Profit Sharing Council of America’s `Insights’.    Jim has also appeared on American Airlines’ `Sky Radio’, heard on more than 19,000 flights.  IFG does not sell products, earn commissions, or accept any third-party compensation or incentives of any description.  Nothing contained herein should be regarded as tax or legal advice and the reader is urged to seek competent counsel to address those issues.   The above represents the author’s opinion and should not be regarded as investment advice which is provided only to IFG clients upon completion of a formal financial and investment plan.   For questions or comments, you can reach Jim at 805.265.5416 or through the IFG website, www.indfin.com.