Mandatory Arbitration Is the Best Dispute Resolution Tool

The title of this blog post is, in my opinion, a solid myth.  Good proof of that are recent bills in Congress intending to end binding arbitration because, in general it is:

•  Unfair.  The process is heavily biased in the industry's favor  Which is probably why the Securities Industry and Financial Markets Association (SIFMA) is against reforms.  In addition, the arbitrator's decision can rarely be appealed, which denies customers their legal due process.  It also precludes the victim from joining a class action.
  
• Expensive.  To be sure their treatment is legal and fair, injured parties must hire legal representation, as they're up against massively wealthy private institutions.
  
• Inefficient.  The financial services industry essentially has a monopoly on individual dispute resolution.  As a result there are substantial incentives to drag out the process and burn out their victims.

 The InvestmentNews article at the above link only compares arbitration with outright litigation.  Indeed, arbitration can be faster and cheaper than court proceedings.  However, I would rather have a judge decide what evidence is admissible as opposed to an industry insider.

But isn't there an even better alternative?  Since 2007 my advisory contracts have had a Mediation clause instead of arbitration, mandatory or otherwise.  (BTW, I've never even had to use Mediation with a client).  Here is Sec. H of my contract:

"H.MEDIATION
Should any dispute(s) arise between Client and Adviser or any of its directors, officers, employees,representatives or affiliates, Client and Adviser agree that dispute resolution through professional mediation is the most desirable first resort. A mutually agreed upon mediator shall be jointly selected by Adviser and Client according to the Oregon Mediation Association’s guidelines:
http://www.ormediation.org/. This clause shall be considered automatically modified, or voided in its entirety, where it conflicts with applicable laws and/or regulations."

My theory is that if we have a dispute, both parties just want to settle it.  If we can't work it out amongst ourselves then we agree to get another adult in the room to help us out.  If that fails, then you can sue me.

The takeaway:

1. Insist on a written agreement between you and your adviser (not to be confused with Investment Management Agreements, all of which currently contain arbitration clauses), spelling out your mutual obligations and expectations.
2. Don't sign such a contract unless there is no arbitration obligation.
   

Your Constructive Comments are Welcome!

HEALTHCARE WILL BE YOUR BIGGEST RETIREMENT EXPENSE

 The truth of this blog heading depends, of course, on the health and wealth of the individual.  But it is still rarely true.  In the plans I've developed, Taxes usually exceed projected health care costs 3 to 1.  I think a lot of health care cost calculators are unjustifiably alarmist for the purpose of selling insurance.  For example AARP's calculator said my health care costs would be close to $800,000 during my lifetime.

Huh?  If I met my maximum OOP every year for the rest of my life that would only add up to about $120,000.  Oh, you know, I'll bet they're referring to the total healthcare cost before insurance.  So why didn't they just say that?  How many age 65+ people are completely uninsured?

Vanguard Health Care Cost Estimator, on the other hand, seems to be more accurate.  I urge you to try it.  I plugged in all my details and here's what it churned out:

 

So that's a bit less than $120,000 in today's dollars.  And far less than the terrifying $800,000 generated by AARP's calculator. 
 

Taxes, on the other hand, take up the slack.  Below is a typical cumulative income tax projection that I create for clients.  (Here in Portland, OR we should probably include property taxes too as they average $500/mo. and increase about 3%/yr.  This is especially draining for fixed income folks.  But that's not included in the chart below).  Total tax bill for this client- without any strategizing -by 2040 is $837,000!!
Do you think it's essential, then, to have a retirement cash flow plan that factors in taxes?  A specific, written retirement cash flow plan is the only "insurance" for reducing that gigantic tax bill.

Your Constructive Comments are Welcome!

-30 + 43 = 13

This is a mercifully short blog just to drive home a few points.
First, the heading

-30 + 43 = 13

is indeed a myth, it is false . . . if we're talking about rates of return.  The correct math is this;

-30 + 43 = 0 or, more precisely, -30% + 43% = 0% return for those two time periods.

Suppose last month you invested $1000 in Bitcoin and by the end of the year your share is worth $700, a 30% loss.  If next year you gain 42.85% you would be back to even (700 x 1.4385 = 1000), a zero rate of return. 

In frothy markets like we have currently, everyone is an investment genius.  But our selective memory for achieving double digit returns doesn't accurately project over the long term.  Here are the keys to staying afloat and avoiding herd mentality:

1. Take all ego and emotion out of your investment decision making.

2. Remember your goals.  Very few people come to me with a goal of making as much as possible, especially after we work through what that really means to them.  Over what time period?  Compare to what?  Starting with what and adding how much periodically?  And, most importantly, why?  So you can buy a mansion in Paris that you can't visit?

3. Stick with the plan.  If you've done your Expense Plan, with all your dreams and goals built in to it, and our plan achieves those goals with very little risk, do you really want to let your lizard brain kick in to start running the show?

4. But be flexible.  Sometimes new hazards as well as new opportunities will present themselves and we'll have to adjust, that is, without succumbing to shiny object syndrome or FOMO (fear of missing out).

One of my favorite motivational speakers, Jim Rohn, once said that we have two choices in life, discipline or regret.  It took me many years to understand and absorb that somewhat grim prescription.  Words will fail, you just need to examine and initiate your own disciplined efforts.  What gives your actions power is the order in which you make them.

Look at your heart, for example, and the astonishing daily discipline with which it keeps you alive.  It isn't suffering or complaining at the effort (unless you have heart disease) or wishing it could just stop  and watch some TV.  Its most important task is keeping you, and itself, alive and healthy.  

So, what's most important to you?  Wouldn't it be worth a discussion with someone expert in getting specific with your goals, plans and dreams?

https://calendly.com/g---5 

Your Constructive Comments are Welcome!

EVERYONE SHOULD DO ROTH CONVERSIONS

I should point out, again, that the titles of these blogs are Financial Myths.  Especially this one.
Conversions from your pre-tax retirement accounts such as:

• Traditional IRA
• SEP IRA
• 401k
• 403b
• SIMPLE IRA
• TSA. etc.

must be calculated every year to be sure you don't bump yourself up into the next tax bracket . . . except sometimes.  For example, raising your Federal marginal tax rate from 10 to 12% isn't a big deal, normally.  Unless you're on Social Security and that causes your Social SEcurity to become taxable.  At higher income levels it's not a disaster if the Roth conversion bumps you from 22% to 24%, the upper limit of which is $164,925 for single filers, $329,850 for joint filers.

But assuming Roth conversions make tax sense, what do you do with the money?  Where do you invest it?  How?  In many cases the answers are diametrically opposed in terms of investment strategy.  Let's focus on two examples:

**Background #1:  You don't really need the money in your $500,000 IRA that you rolled out of your 401k when you quit work at age 60.  But you know it is a disaster to pass pre-tax retirement accounts to your kids.  Until age 70 you plan to live off cash, capital gains and rental income.  When you start Social Security at 70 you plan to stop taking capital gains in order to reduce its taxation.  (You're delaying Social Security until 70 because when you took the https://www.livingto100.com/ calculator it indicated your mortality age at 94, well past the breakeven age of 83)
Your Roth Conversion Strategy-
a. Convert as much as you can each year up to the top of your 24% bracket.  Why?  Because taxes are going up. 
b. This is also your gift to your kids, taking care of the taxes for them.
c. Invest very aggressively for the long term.  This will easily recoup the taxes you've paid.
Now you'll have a spending cushion that you can tap if you need it without affecting your Social Security taxation.  And when the kids inherit, they'll pay no tax on the Roth funds.

**Background #2:  You've been very conservative in savings and budgeting and if you can just meet your budget throughout retirement you'll be OK.  You need every penny, can't afford losses, and want the assurance of adequate, guaranteed lifetime cash flow.  You quit work at 60 because it was killing you.  You have a nice pension which, right now, is enough to meet your budget.  But it has no inflation protection.  You still have great longevity.  You plan to spend down your excess cash savings to bridge the gap between age 67-70.
Your Roth Conversion Strategy-
a. Convert just enough each year to stay in the 12% bracket.
b. Over the next ten years put it into a Roth IRA income annuity that accepts premiums after the first year. 
c. Once your Social Security kicks in you will need to reduce or stop the conversions to keep Social Security totally or at least partially tax free.
d. Turn on the annuity income in 15-20 years, which will be tax-free and guaranteed to last your lifetime.  It will also have no effect on taxation of your Social Security benefits.  And it will be welcome step-up in income for your later years.  In the meantime your principal and interest credits are protected.

Naturally, all the rules could change in the ensuing years.  Or even this year.  And there are a virtually infinite number of "Backgrounds" we could consider.  I like these because they're based on real people and result in vastly different strategies.  Disclaimer:  Even if one of these examples mirrors your situation exactly I haven't detailed every thing you need to consider because I risk making this blog a sleep aid.  It is well worth the time and expense to consult with your adviser to be sure you make no mistakes.

Your Constructive Comments are Welcome!

Democracies Guarantee Absolute Freedom

I hope the degree to which this topic is an absolute myth is obvious.  Sometimes I wish the framers of the Constitution had also listed a Bill of Responsibilities.

I'll just leave this article here for you to read and to reach your own conclusions.  What does this have to do with financial planning?  Context matters.  Democracy matters.  Equity and fairness matter in our lives as well in the minds of our lawmakers.  Freedom without wisdom and responsibility is fatal.  And makes it extremely difficult for the average person to plan a future.

Statement on the Principles of Democracy

January 19, 2021

We, the undersigned, are scholars of democracy who have watched the recent deterioration of U.S. democracy with growing alarm.

We recognize in American democracy today many dangerous conditions from other declining democracies: hyper-partisan polarization, mutual political enmity and distrust, zero-sum politics, lack of tolerance for opposition and minorities, rampant propagation of falsehoods and conspiracy theories, and the encouragement or rationalization of violence. The willingness of prominent politicians to violate basic democratic norms is a common warning sign of democratic distress. And when these violations become routine and expected, the downward spiral is very hard to reverse.

But we also see something uniquely dangerous in America right now — an electoral system that allows for minority rule. It is not only possible but now common for one party to win the presidency and the Senate, and then seek to establish long-term control over the judiciary despite a majority of citizens preferring a different party. It has also become common under divided government for an opposing party to obstruct on purely partisan grounds a president’s ability to even have judicial nominations considered.

It is one thing to ensure that the rights of political (and other) minorities are respected, to plant, as our constitution does, restraints on majority rule. But it is quite something else in a democracy to give a political minority the power to rule.

Minority rule is dangerous in two respects.

First, it undermines the legitimacy of governing institutions. A basic principle of democratic legitimacy is that a government must have majority support in order to make policy. A government that allows a minority to rule over a majority (especially for a prolonged period) violates this principle.

Second, and more dangerously, minority rule can prompt and enable the minority party to take increasingly radical and anti-democratic actions to entrench its dominance, by changing the rules to make it harder for its opponents to win elections, or even to cast ballots.

The minimum condition for a system to be democratic is that its people can choose and replace their leaders in free and fair elections. When a ruling party bends the rules to suppress opposition votes or rig the political playing field, a country can no longer be said to be a democracy, no matter how much it may allow freedom of the press and association.

As the world’s oldest democracy, the American system suffers from many deficiencies and anachronisms in need of reform. But no goal of democratic reform is more urgent and foundational than the fairness and representativeness of our political system.

The Congress should take the following steps to enhance democratic equality and fairness:

• Defend and expand the right to vote for all Americans.
• Require nonpartisan commissions in each state to redraw congressional and state legislative districts, so that state legislatures can no longer gerrymander districts to advantage their party.
• End the ability of a small group of ultra-wealthy donors to secretly bankroll candidates and parties by requiring transparency in all political spending.
• Narrow the conditions under which the Senate filibuster can be used as a tool of legislative obstruction.
• Grant the people of the District of Columbia and Puerto Rico the right to vote for statehood, which would provide full and equal representation to nearly four million Americans who are currently disenfranchised.
• Establish a nonpartisan, independent federal elections agency to ensure that the voting process is fair, consistent, secure, and legitimate.
• Study ways to reduce politicization of the federal courts.

The first three of these steps would be accomplished by the passage of HR 1, the For the People Act.

None of these reforms should be dismissed as partisan. Each of them seeks to address problems of unfairness and dysfunctionality that are eroding the capacity and legitimacy of American democracy at home and abroad. Each would make our precious constitutional system a more just and workable democracy, better able to address the great policy challenges that now confront us.

This is only a partial agenda for renewing our democracy. There would still remain the longer-term task of altering other perverse incentives that drive the hyper-partisan polarization of our politics. But these are harder questions that will likely require even bigger solutions.

In the near term, however, we urge our elected leaders to take these initial steps to make our democracy fairer, more inclusive, and more capable of addressing our major policy challenges. Even a democracy that seeks to prevent “tyranny of the majority” through checks and balances must ensure that, over time, government reflects the voice and interests of the majority, as they emerge through free, fair, and equal elections. Otherwise, democracy deteriorates into “tyranny of the minority.”

Larry Diamond
Senior Fellow
Hoover Institution and Freeman Spogli Institute
Stanford University

Lee Drutman
Senior Fellow
New America

Steve Levitsky
Professor of Government
Harvard University

Daniel Ziblatt
Professor of Government
Harvard University

Deborah Avant
Professor of International Studies
University of Denver

Naazneen H. Barma
Associate Professor of International Studies
University of Denver

Frank R. Baumgartner
Professor of Political Science
University of North Carolina, Chapel Hill

Sheri Berman
Professor of Political Science
Barnard College, Columbia University

Robert Blair
Assistant Professor of Political Science and International and Public Affairs
Brown University

Henry E. Brady
Dean, Goldman School of Public Policy
University of California, Berkeley

Rogers Brubaker
Professor of Sociology
University of California, Los Angeles

John M. Carey
Professor of Government
Dartmouth College

Michael Coppedge
Professor of Political Science
University of Notre Dame

Katherine Cramer
Professor of Political Science
University of Wisconsin-Madison

Rachel Epstein
Professor of International Studies
University of Denver

Henry Farrell
Professor of International Affairs
Johns Hopkins University

Morris P. Fiorina
Professor of Political Science and Senior Fellow
Hoover Institution
Stanford University

Luis Ricardo Fraga
Professor of Transformative Latino Leadership and Political Science
University of Notre Dame

Francis Fukuyama
Senior Fellow
Freeman Spogli Institute for International Studies
Stanford University

Daniel J. Galvin
Associate Professor of Political Science
Northwestern University

Laura Gamboa
Assistant Professor of Political Science
University of Utah

Martin Gilens
Professor of Public Policy, Political Science, and Social Welfare
University of California, Los Angeles

Kristin Goss
Professor of Public Policy and Political Science
Duke University

Jessica Gottlieb
Associate Professor of Government & Public Service
Texas A&M University

Virginia Gray
Professor of Political Science Emeritus
University of North Carolina, Chapel Hill

David Greenberg
Professor of History and of Journalism & Media Studies
Rutgers University

Anna Grzymala-Busse
Professor of Political Science
Stanford University

Jacob Hacker
Professor of Political Science
Yale University

Hahrie Han
Professor of Political Science
Johns Hopkins University

Gretchen Helmke
Professor of Political Science
University of Rochester

Liesbet Hooghe
Professor of Political Science
University of North Carolina, Chapel Hill

Daniel Hopkins
Professor of Political Science
University of Pennsylvania

William Howell
Professor of Political Science
University of Chicago

Bruce W. Jentleson
Professor of Public Policy and Political Science
Duke University

Theodore R. Johnson
Senior Fellow
Brennan Center for Justice

Richard Joseph
Professor Emeritus of Political Science
Northwestern University

Eric Kramon
Associate Professor of Political Science and International Affairs
George Washington University

Katherine Krimmel
Assistant Professor of Political Science
Barnard College, Columbia University

Didi Kuo
Associate Director for Research and Senior Research Scholar
Center on Democracy, Development and the Rule of Law
Stanford University

Timothy LaPira
Professor of Political Science
James Madison University

Yphtach Lelkes
Assistant Professor, Annenberg School for Communication
University of Pennsylvania

Margaret Levi
Professor of Political Science
Stanford University

Robert Lieberman
Professor of Political Science
Johns Hopkins University

Scott Mainwaring
Professor of Political Science
University of Notre Dame

Jane Mansbridge
Professor of Political Leadership and Democratic Values
Harvard University

Lilliana Mason
Professor of Political Science
University of Maryland

Corrine M. McConnaughy
Research Scholar and Lecturer, Department of Politics
Princeton University

Jennifer McCoy
Professor of Political Science
Georgia State University

Suzanne Mettler
Professor, Department of Government
Cornell University

Michael Minta
Associate Professor of Political Science
University of Minnesota

Terry Moe
Professor of Political Science
Stanford University

Yascha Mounk
Associate Professor of the Practice of International Affairs
Johns Hopkins University

Pippa Norris
Professor of Political Science
Harvard University

Anne Norton
Professor of Political Science
University of Pennsylvania

Brendan Nyhan
Professor of Government
Dartmouth College

Norm Ornstein
Emeritus Scholar
American Enterprise Institute

Benjamin I. Page
Professor of Decision Making
Northwestern University

Kathryn Pearson
Associate Professor of Political Science
University of Minnesota

Tom Pepinsky
Professor, Department of Government
Cornell University

Anibal Perez-Linan
Professor of Political Science and Global Affairs
University of Notre Dame

Paul Pierson
Professor of Political Science
University of California, Berkeley

Ethan Porter
Assistant Professor, School of Media and Public Affairs, Department of Political Science
George Washington University

Robert D. Putnam
Professor of Public Policy
Harvard University

Kenneth Roberts
Professor, Department of Government
Cornell University

Amanda Lea Robinson
Associate Professor of Political Science
Ohio State University

Jonathan Rodden
Professor of Political Science
Stanford University

Nancy L. Rosenblum
Professor of Ethics in Politics and Government Emerita
Harvard University

Kim L. Scheppele
Professor of Sociology and International Affairs
Princeton University

Kay L. Schlozman
Professor of Political Science
Boston College

Daniel Schlozman
Associate Professor of Political Science
Johns Hopkins University

Cathy Lisa Schneider
Professor, School of International Service
American University

Gisela Sin
Associate Professor, Department of Political Science
University of Illinois

Dan Slater
Professor of Political Science
University of Michigan

Anne-Marie Slaughter
Professor Emerita of Politics and International Relations
Princeton University

Rogers M. Smith
Professor of Political Science
University of Pennsylvania

Susan Stokes
Professor of Political Science
University of Chicago

Alexander George Theodoridis
Associate Professor of Political Science
University of Massachusetts Amherst

Chloe Thurston
Assistant Professor of Political Science
Northwestern University

*Institutions and titles are listed for identification purposes only.

 

Your Constructive Comments are Welcome!

THE TWO MOST IMPORTANT FINANCIAL TOOLS FOR 2017

This post heading is NOT a myth, for once.

Think about common risks in your life and the tactics you use to minimize or avoid them.

• If you're trying to lose weight then you burn more calories (read: Exercise) and consume fewer or at least better calories (quality proteins, greens, fruits & oils versus sugars, carbs & artificial or saturated fats).
• If you're taking a trip and worried about your car breaking down, you can take it in for service, check the tire pressure, top up the tank and other fluids.
• If you're worried about passing a class then you can burn the midnight oil, get help from your teacher and fellow students, search for tips and tricks online.

And so on.  We counterbalance risk with compensatory actions and strategies.

In my practice, most of my clients are concerned about two possibilities:

1. Outliving their income and assets
2. Inflation ballooning their living costs to unmanageable levels.

How can we compensate for these two very real risks in retirement?  We have two great tools (and I have Tom Hegna to thank for these concise ideas:

1. Risk pooling
2. Longevity credits

Let's review Longevity credits first.  I don't know if this is a true story or not but there were five elderly women who like to travel together in the Summer.  On New Year's day they would each put $100 in a box and save it for fun money on their trip.  One year, before their trip, one of them passed away.  The surviving four then had $125 each to spend on their trip.  They each received a 25% longevity credit.  

Is this a way to counteract inflation?  Of course!  (To be sure, in real life much larger groups are formed, but to similar effect.)

Cojoined with Longevity Credits- and making longevity credits possible, is Risk Pooling.  We've all seen schools of fish, flocks of birds, herds of wild animals.  There is great survival value in pooling the risk of predators.  By gathering together, more of them are likely to survive.  It's the same with house insurance.  If the risk were 1 in 1200 that a house would burn down in your neighborhood each year, you could band together with your neighbors to create a fund sufficient to replace that house every year.  (Ideally, it wouldn't be the same house.)  So instead of having to come up with, say, $500,000 to replace your house if it burned down, you would only have to pay 1/1200 of that each year, or $416, otherwise known as a Homeowner's Insurance Premium.

Aside from being a perfect hedge against outliving one's income (we'll get to that) Risk Pooling is a relection of our better nature, like the Amish coming together to build a barn for a neighbor.  Unfortunately, Risk Pooling is an insurance process and must be conducted by insurance companies under most state and federal laws.  I say "unfortunately" because insurance companies get a (mostly) undeserved bad rap.

Social Security is the best current example of both these concepts.  Millions of people participate and the law of large numbers, the larger the Risk Pool, means the system works more predictably the greater the number of participants.  Social Security is an insurance program, it is not a federal entitlement.  But wait, you say, how is that so many beneficiaries will take more in income out of the system than they put in?  The answer is Longevity Credits from the funds of those who die prematurely.

Much maligned annuities are similar tools for privately pooling risk and receiving longevity credits.  And they are much more flexible than Social Security:  you can design cash flow just about any way you like, level, increasing with inflation, for certain period of years,just for your lifetime or for the lifetimes of you and your spouse.  Annuities are like the vacation box.  And that's how we account for a lot of the "too good to be true" features they provide.  For example, let's take a couple with $250,000, he's 68 and she's 62.  The cash flow they desire is joint, lifetime income beginning in 10 years to give them an inflation bump up.  Their lifetime payout at that time would be over $25,000/yr.  no matter how long the last surviving person lives.  And in the meantime, unlike with Social Security, they have access to their principal if they need it.

So.  The two financial pillars for 2017, the year of unpredictability (to say the least) are:

• Risk Pooling and
• Longevity Credits

Your Constructive Comments are Welcome!

Interview with The Suit Magazine

1. Gary Duell, you are the Owner and Founder of Duell Wealth Preservation. What sparked your interest in this line of work and what were you doing professionally prior to this firm? What is the history of this firm?
* I began my career as an agent for Farmers Insurance. 
*After 15 years I was bored with selling house and car insurance.  I enjoyed learning about my clients and wanted to provide more value to them. 
*So, I got all the licenses needed in order to give financial advice.  But after working through several broker-dealers I found intolerable their restrictions on what I could say to my clients.  For example, we were forbidden to send follow-up letters to clients after a meeting to summarize what we discussed 
*So I formed my own RIA firm in 2007.


2. What qualities do you seek in your potential clients and on the flip side, what qualities do you and the firm possess that prompts potential clients to select your services?
THEM
*Lifetime students
*Sense of humor, affability
*Financially successful but not convinced of their success
*Open minded
*Connected- good referral sources
ME
*Also a lifetime student & generous teacher/consultant/collaborator
*Legal fiduciary
*Totally transparent
*Clean conduct

3. The paradigm suggests that the conversation has shifted away from the alpha approach [supposedly measurable gains attributable to the adviser] to a more conservative approach which provides a more customized solution. Do you agree with the premise?
*Alpha is problematic- 2 reasons:  Can you trust their past measurement of it?  And how do you justify projecting that into the future?
*Sheer computing power makes the latter approach- customized solutions -not only possible but necessary in order to claim to be a true fiduciary.
*Avoiding mistakes & losses is more important than chasing alpha.  This is something that can be promised.

4. Financial literacy among clients remains to be a problem. Planners say kids who grew up watching their parents go into debt want to avoid the same fate. Will we see more online tools to help "gamify" that financial planning experience while creating a more savvy relationship? 
*Absolutely.  So-called roboadvisers are appearing all over the place. 
*Initially these struck fear into the hearts of advisers but now most of us realize such software frees us to do the most important task:  connecting with and guiding our clients.
*These tools will most certainly become more prolific and powerful.

5. What does being a fiduciary mean to you and to your clients?
*I’m not sure it means much of anything to my clients until after I define it for them.  And even then the looks are skeptical.  We all know that legal obligations don’t guarantee good behavior.
*What I hope it means to my clients is that there are resources for verifying the fiduciary history of their advisers. 
*Which there are:  brokercheck.finra.com, for example, and each state’s regulatory agencies. 

6. Communicating with clients can be a challenging task, how do you insure plans stay on track, level set client expectations and most importantly handle unforeseen circumstances?
*We contact all clients no less than quarterly by phone or email.
*We issue a quarterly newsletter
*Annual review appointments are set a year in advance
*Special notices go out as need for topical or timely advice

7. With Americans enjoying increased longevity, what methods are you using to help clients create enough savings to last through what could be a retirement lasting as long as their working years while still maintaining their desired standard of living? What methods are you using to combat the potentially draining effects of long-term care?
*Virtually all of my clients are at or near the end of their asset accumulation phases.
*The moving parts that are available to work with at this point are Social Security benefits, pension timing & options, when to retire.
*Avoiding sequence of returns risk is task #1
*For long term care risk- which is substantial for couples -we explore three options, depending on level of assets:  LTCi insurance, asset-based solutions, Medicaid planning.

8. Do you think the current 401(k) fee disclosures are enough to fully inform savers or retirees of what they are paying for their accounts?
*Yes.

9. What has been your greatest success in this industry and what has been the failure or challenge that you learned the most from?
*My greatest personal success has been to teach classes and seminars.  Like the average person, I was more afraid of public speaking than death.  This has changed the quality of clients I acquire and also made my practice more fun and challenging.
*Biggest failure was dinner seminars.  It was hard to admit that I just don’t have the bright, magnetic personality for that to work for me.  Plus I think they have kind of a sleazy reputation. 

10. Goals for 2016 / 2017?
*Triple my business volume
*Settle on a roboadviser and asset custodian
*Figure out how to fairly charge for AUM
*Ramp up social media exposure
*Begin podcasting

All Advisers Are Well-Versed On Distributions From Retirement Plans

Yes this is a myth.  And here's a case in point from IRA guru Ed Slott's recent article in Financial Planning magazine.  The Greens were awarded $50,000 by the arbitrator!

PRACTICE

FINRA Award Goes to Client After Advisor’s Tax Oversight

By Ed Slott
April 11, 2016

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Subpar tax advice from advisors can lead to big rewards for clients — but not the kind of rewards you want them to reap.

In a recent FINRA case, an elderly woman and her daughter were awarded more than $50,000 for what an arbitrator deemed insufficient advice regarding the tax consequences of an IRA distribution. 

The payment was awarded even though the claimants had only suffered an increase in taxes of about $9,000 as a result of the total distribution of a roughly $30,000 IRA CD, and despite the fact that no investment had been purchased from the advisor in question.

How did this happen?

Marilyn Green, the elderly woman in question, owned a CD in an IRA that was held with Bank United. As Marilyn was already in her 80s and suffering from dementia and depression, her financial affairs were largely tended to by her daughter, Melissa Green, who had been granted power of attorney.

Sometime close to the CD’s maturity date, Melissa Green discussed her mother’s CD with Samuel Izaguirre, a Fort Lauderdale-based registered representative of LPL Financial. LPL and Izaguirre had entered into an agreement with Bank United to provide investment advice and brokerage services to its clientele.

THE RECOMMENDATION

During Melissa’s conversation with Izaguirre, he recommended that Melissa withdraw the approximately $30,000 held in the maturing IRA CD and place the funds in a personal checking account. He did not provide any information with respect to the potential tax consequences of such a transaction.

Following Izaguirre’s advice, in August of 2014 Melissa closed the IRA CD and transferred the funds to her mother’s personal checking account.

The following year, when Melissa visited her mother’s tax preparer to complete her 2014 return, she learned that the $30,000 IRA distribution resulted in roughly $9,000 of additional income taxes. Melissa was not happy, and the Greens filed a complaint that ultimately made its way to a FINRA arbitrator.

Your Constructive Comments are Welcome!

What I Learned From Bullies as a Child

This blog title isn't a myth and I'm sure doesn't appear to have anything to do with things Financial.  But it does.  Bear with me.
Throughout elementary school I was in most cases the smallest kid in the class.  Even the girls.  As a result I was alluring fodder for the bullies.
One especially relentless and vicious bully, Ken (not his real name, no need to embarrass him), liked to punctuate the routine shoves, punches and hair pulling by sneaking up behind me and putting me in a choke hold.  Needless to say, this was terrifying.  And I told no adults for fear that in retaliation he would become more relentless and vicious.
I loved school!  But Ken was making me want to stay away.  I was "sick" a lot.  During one of these sick days at home I came across an ad in a comic book for a "Self Defense" course.  For $1.00.  It included a "practice dummy" (which turned out to be a fold-out poster).  I sent off the order with my dollar bill.
I studied the materials and practiced in my bedroom,  Lo and behold, here was a technique for escaping from a choke hold!:  "Reach back over your shoulders and grab the assailant's clothing with both hands.  Squat and bend forward at the same time and then immediately thrust the legs up powerfully and pull with your hands."
Skeptical of false hope, nevertheless next time "Ken" put me in a choke hold I followed the procedure exactly.  To my utter amazement, he went flying over my head, upside-down, and landed badly on the pavement.  This guy was a foot taller than I.  He missed a couple days.  But the bullying stopped and we eventually became friends  This situation got my attention.

I learned several important lessons:

1. There are people out there who don't even know me who have the knowledge and desire to improve my life.  And they want to share it with me!
2. Reading and study can have powerful real-life results.
3. Strength and brains can stop bullies.
4. Some bullies are real people, probably with more problems than they cause.

Make no mistake I don't share this to give any quarter to bullies; they need to be immediately stopped.  Kids less ingenious and persistent than I are often driven to suicide.  I do share it for all of us who were bullied as children and those being bullied now.  Don't stand for it for a moment if you witness it or know of it.

What does this have to do with your finances?  Does anyone feel financially bullied in this fake economic "recovery"?  If you do, then pull out the books, do the homework, rehearse, and seek out those who know the answers to your problems and who have the desire to share them with you!  Learn how to throw those financial bullies over your head.

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Your Constructive Comments are Welcome!

ADVISERS DON'T MAKE ANY DIFFERENCE

Well, according to a recent survey by John Hancock Retirement Plan Services (as reported by the American Retirement Association) there is "an impressive retirement preparations gap among those who use the services of a financial advisor"(sic) and those who do not.

Here are some stats:

• Regarding 401(k)s, those with advisers were more than twice as likely to be saving the maximum (28% vs. 13%) as those without advisers.
• Those with advisers were more than twice as likely to be ahead or on track in retirement savings (70% vs. 33%).
• And the same for those who knew how much they needed to save to be on track:  33% vs. 14%.
• And yet again with saving for emergencies:  58% with an adviser had emergency funds.  Only 26% of those without advisers did.

The sample size was a very statistically valid 2000.

I take these results with a grain of salt, mostly because they are what I would like to hear.  Based on my own clients, those who are doing well already are also more likely to seek, and follow, my advice.  So it's possible the same is true of the 2000 folks studied by Hancock:  They already suspected they were doing OK but just wanted to be sure that was true, and, to avoid any mistakes.  That is the most often repeated explanation when I ask new clients why they came to see me.  So I don't think we advisers can take all the credit for the better results our clients achieve.

But see how I can make a difference for you:  http://garyduell.com/services/

Your Constructive Comments are Welcome!

ADVISERS DON'T MAKE ANY DIFFERENCE

Well, according to a recent survey by John Hancock Retirement Plan Services (as reported by the American Retirement Association) there is "an impressive retirement preparations gap among those who use the services of a financial advisor"(sic) and those who do not.

Here are some stats:

• Regarding 401(k)s, those with advisers were more than twice as likely to be saving the maximum (28% vs. 13%) as those without advisers.
• Those with advisers were more than twice as likely to be ahead or on track in retirement savings (70% vs. 33%).
• And the same for those who knew how much they needed to save to be on track:  33% vs. 14%.
• And yet again with saving for emergencies:  58% with an adviser had emergency funds.  Only 26% of those without advisers did.

The sample size was a very statistically valid 2000.

I take these results with a grain of salt, mostly because they are what I would like to hear.  Based on my own clients, those who are doing well already are also more likely to seek, and follow, my advice.  So it's possible the same is true of the 2000 folks studied by Hancock:  They already suspected they were doing OK but just wanted to be sure that was true, and, to avoid any mistakes.  That is the most often repeated explanation when I ask new clients why they came to see me.  So I don't think we advisers can take all the credit for the better results our clients achieve.

But see how I can make a difference for you:  http://garyduell.com/services/

Your Constructive Comments are Welcome!

THE DEVIL IS IN THE DETAILS

This blog heading is colloquially true, especially when it comes to Investment Adviser contracts.  A recent review of compliance violations found- first of all- that 22% of advisers didn't have contracts with their clients.  A contract isn't required unless a fee of some kind is collected from or owed by a client.  So if you are paying a fee of any kind- flat, hourly, percent of assets, performance based -a contract is required.

So what devilish details should you watch for in an advisory contractual relationship?  Here's a short list:

• First and foremost:  The absence of a contract altogether!  Do you really want to work with and pay someone without formalizing rights and expectations on paper?
• Any provision that compensates the adviser based on "a share of capital gains upon, or capital appreciation of, the funds- or any portion of the funds -of the client. (Sec. 205(a)(1) of the Investment Advisers Act).  I see these so-called performance fees in contracts all the time.
• Mandatory arbitration clauses.  These have become so common that the average person doesn't blink an eye signing them.  By doing so, you're giving up- in most cases -the right to sue individually or to be party to a class action against the adviser.  My contract only has a voluntary mediation clause; we agree to sit down and talk about a dispute before consigning our souls to the lawyers.  Never had to use it.
• Be aware of with whom it is you're actually contracting.  Is it the adviser himself or some obscure LLC or other obfuscatory entity that your adviser can hide behind?  My clients contract with me, and only me, directly.

Your Constructive Comments are Welcome!

I CAN'T AFFORD TO SAVE ANY MONEY THIS YEAR

The heading of this post is, as usual, a myth.  You can save money this year.  Thanks to WealthManagement.com for some of these tips:

1. I think all parents of college-bound kids are aware of the FAFSA.  There is no charge for this application for student aid.  And the early bird gets the worm; funds are limited.
2. Start or increase your 401(k) contributions, especially if you're not taking full advantage of  company matching.
3. Consider Traditional or Roth IRA contributions, especially for non-working spouses and your kids.  If your kids have earned income, the full amount (up to $5500) can be shunted into a Roth IRA.  IRA planning is complex and the best strategies depend on a careful analysis of your retirement expectations.
4. Max out Health Savings Account contributions ($3350 for singles, $6650 for couples and families).  As with IRAs if you're over age 50 you can kick in an extra $1000/yr.  This money can be triple tax free!:  Contributions are deductible, earnings are tax-deferred, and withdrawals are tax-free if used for legitimate medical expenses (see IRS pub. 969).
5. If you did a Roth conversion at the peak of the market in 2015, you have until 10/15/2016 to re-do it.  If your Roth is worth less than when you converted, you un-convert or "recharacterize" it, and then reconvert at the lower value thereby reducing your tax bill accordingly.
6. Have a neutral, unbiased, fiduciary adviser (like me) analyze the fees and expenses in your portfolio.  This is especially important in the later years when you should be conservatively allocated because taxes and fees from excessive turnover can consume your earnings. 

Your Constructive Comments are Welcome!

You Can Wait Until You Are 62 To Plan How to Take Social Security Benefits

The title of this post isn't a myth.  It's true.  You can wait until age 62.  It's just a bad idea.  If you are 50, you may still have time to start working on an ideal cash flow plan for your 60's & 70's.

I know.  So much can change over 10, 20 years.  And a well crafted cash flow plan will be organic and fluid, as it should be.  Why start so early in life?  So you don't leave free money on the table.  And to decrease the discipline required to make the plan work.

A cash flow plan becomes more important if you may be subject to longevity risk (outliving your money).  I suggest you use this calculator at Life Expectancy  I took the questionnaire and my life expectancy is 88, higher than I imagined.  For benefit timing strategies under current law, the break even age for delaying Social Security averages 8-12 years at age 70.  In other words, if your life expectancy is longer than 78-82 then you should prepare for benefit timing strategies.

"Can you give us an example about why and how a 50 yr. old would need to start Social Security planning?" you wisely ask.  I'm glad you asked.  Sure.  I wish I had the skill to show this graphically.

Assumptions:

1. Current age 50
2. Life expectancy is 85
3. Expected budget at planned retirement age of 65 is $5000/mo. in today's dollars
4. Expected retirement year budget inflated at 3.3%/yr.:  $8137/mo.
5. Social Security break even age is 78.  This means that by waiting until 70 to turn on Social Security, your delayed retirement credits will have increased your benefit by 24%. So by 78, the income that you lost by waiting is fully recovered.  After that, you're money ahead.
6. Expected guaranteed income at 65:  $5000/mo.
7. Income gap at 65:  $3137/mo. (8137 - 5000).  And let's assume Social Security will make up that gap at 70.
8. Total funding shortfall, with inflation, age 65-70:  $201,059.

So here would be my plan:

1. Set aside enough per month (including any employer matching, if applicable), before tax to accumulate the $201,059.  At 6% APR, this would require about $691/mo.  Use a true target date fund with at least quarterly automatic rebalancing.
2. At 65, roll this into an IRA annuity that guarantees the inflation adjusting $3137/mo. you'll need at 65.  This way you avoid sequence of returns risk.  You will also be spending down taxable money at a low tax bracket.
3. Save as much as you can in after tax vehicles like Roth IRAs, Roth 401(k)s, real estate, that may give you tax-free income beyond age 70, which will likely be your highest tax bracket years.

Every detail here depends on individual circumstances, ever changing tax regulations and many other factors.

Your Constructive Comments are Welcome!

There is One Best Trick for Maximizing Social Security Benefits

Do you get a lot of emails with the words "trick", "weird" "secret", "epic" and so on to the ends of hyperbole & hubris?  I do.  So I remind you again that the title of this blog- like all my titles -is a big, fat MYTH.  There are two moving parts to Social Security benefit optimization:

1. Social Security regulations, and,
2. Your life

And the most important part of that equation is Your Life, more specifically:

• Your age
•   
• Your marital status
• 
• Your current and future budget
• 
• Your past, current and future income sources
• How long and how much you expect to keep working
• 
• Your current health & genetic health history
• 

Social Security is an important but relatively small puzzle piece.  It's worth a $25, ninety minute class and a free hour with me to be sure you have an unbiased and holistic picture of your future.

Register Now!

Your Constructive Comments are Welcome!