Do you know your life expectancy? What does life expectancy really mean, and why should we care?
These are the questions I answer in my video this newsletter.
Therefore, you should watch my video.
Hi there, Mike Brady with Generosity Wealth Management, a comprehensive, full service, wealth management firm headquartered here in Boulder, Colorado. Today I want to talk about life expectancy and withdrawals and Medicare and Social Security, etc. To be honest with you I only have three or four minutes so I’m only going to give you a little teaser and then I’m going to follow up in the next video.
The first one is life expectancy. If you are 65; I’m going to put up on the chart there, on the video, a chart. What you’ll see if you are 65 years old and you are a woman you have an 85% probability of living up to age 75. That’s a high probability of course. If a couple that are 65 years old the probability of one of you living past 75 is almost assured at 97%. We go out to 80, 85, 90. Let’s just look at 90 years old; if you’re 60 years old, from 75, 85, that’s 25 years to age 90. If you are a woman you have a 1 in 3 chance of living to 90. Periodically I’ll meet with someone who will say; well you know my mother and father they died in their early 80s and there’s no way I’m going to live to 90. Well, you know what, there’s a 1 in 3 chance that you will. Do you want to be that one and spend all your money in the next 25 years? Probably not; plus, many times our parents, that’s just kind of the way it worked. That generation they were smoking and drinking and all kinds of stuff and now we’re always eating kale and gluten free stuff so chances are we’re probably going to live a little bit longer. That’s what statistics have shown us.
One of the values that a financial advisor brings and I always bring to the relationship with clients is life expectancy, that’s usually; if my life expectancy is 85 or so I’ve got to make sure that I plan for much longer than that because that’s using the average. I think that chart there starts to show it. The reason why I bring that up is in retirement; I’m now going to throw one more chart up there for today and what you’re going to see is extending my age and category. From left to right it adds up to about 100%, some rounding and stuff like that, but the gray is the 10 years leading up to retirement at age 65. Then you hit 65 and then above. What you’re going to see is some housing and other increases as a percentage. Transportation goes down. Medical care of course goes up, etc. What we’re going to see on the bottom there is the average inflation from 1982 to 2013 of those particular categories. You’re going to see the medical care which is a higher percentage has a tendency to increase. You know this; you’ve been paying attention the last five years and I’m stating the obvious. Other things; housing is still almost 3%. The percentage of; the items that seem to go up as a percentage of your income also has some high inflation to it as well. That’s something that we have to keep in consideration. We live longer than what we think we’re going to do and many times things are more expensive than what we think as well.
Gosh, do I have time for one more really cool thing here? Here is the variation in healthcare cost. See that little graph there, the little United States there? What you’re going to see is the annual Medicare cost and in Colorado we’re right in the middle. We’re not on the cheap side like many of the world in blue, we’re between $3750 and $4500 and then $4500 after that entry has to do with those with traditional Medicare and comprehensive Medicare depending on where you live in retirement. We’re going to talk a little bit more at another video of some long-term planning, withdrawal strategies. One of the things that a financial advisor brings to the relationship are all the strategies about the de-accumulation of the portfolio; you’ve got the accumulation stage where you’re trying to save money and 401(k) all this type of stuff and then you hit a point and then it’s the de-accumulation. What’s your strategy? What’s your mix? How can you set things up to limit, to make the probability that you’ll outlive your money as low as possible because that’s of course a bad thing. These are some of the things I’m going to talk about in upcoming videos. Nice to talk to you today, sorry it’s so short but I did want to be short and pippy.
In my video today, I discuss what I’m hoping people don’t take away from 2013.
Diversification? What that?
For a full discussion of this, listen to my video.
Transcript:
Hi there, Michael Brady with Generosity Wealth Management, a comprehensive full-service wealth management firm headquartered right here in Boulder, Colorado.
Today, I want to talk to about the lessons of 2013. I know it is only mid-December but we’ve got 11 1/2 months and I think it’s close enough. More than anything, I want to talk about the lessons I’m hoping investors don’t take away from 2013.
Before I get started, let me just say you’ve heard me for a long, long, time talk about diversified portfolios. A diversified portfolio does not guarantee that in a generally trending down market, that you will not lose money. It’s going to be stocks and bonds and cash. However, a diversified portfolio is still absolutely essential.
This past year 2013, the best thing you could have done was have 100% of your money in the US stocks, either stock index or a preponderance of individual US stocks in general. Why have any of those international stocks? Or avoid bonds. In general, bonds, ETFs, or bond mutual funds in general are down single digits or maybe even double digits if you’ve got some long term treasuries. If you’ve got a real estate investment trust, maybe you’ll break even for the year. If am an unsophisticated investor, I might say, “Gosh, this whole diversification things, ah that’s crazy. We should just look at the US stock market the past year and so for 2014, I should just have 100% of my money in the US stock market.”
My answer is that is the wrong lesson. I happen to be bullish. You’ve heard me considering the last two, three, four months, that because of the quantitative easing and the amount of money that’s out there, et cetera, and some other factors, I happen to be more optimistic for 2014 than I otherwise would be. I think at least for the next couple of years, things might be okay but of course that could change. As data changes, maybe my opinion changes. However, the reason why, I’m going to throw a chart up on the screen there and I’m going to highlight the purple ones. You probably can’t see it because it’s kind of small but that happens to be one unmanaged stock market index and you’ll see that in some years, 2003, 2004, 2005, 2006, near the top there, it is one of the best performers. All the way up until 2007 and then it’s the worst performer losing well over half of its value, 53%.
Then in 2009 it’s the best and then it’s okay for a couple years and then it’s absolutely the worst in 2011. Then it’s the best in 2012 and in this past year it’s down near the bottom again. That is all over the place but right there in the middle you’re going to see that the diversified portfolio, the asset allocation thing there is sort in the middle. It is never the highest, it is never really the lowest and that is one of the things that diversification has to do. If going forward into 2014 we know which asset class was going to be the best one to be in, of course we would move 100% of our assets. Unfortunately, we never know that going forward because we can only look in the rearview mirror and say this is the one that I wished that I had. Beating yourself up over it doesn’t help and then taking that and assuming and extrapolating that into the next year just rarely works.
I am going to throw another chart up onto the screen there and what you’re going to see is that over the last 62 years. This is all the way from 1950, that green bar there on the left hand side is the range in one year that some stocks in one of those years, it took two years when the stock market index went 51%. But also one year, it lost 37%. If it was bonds, the very best was that 53, the very worst was 8, but a combination of the two is that last one of 32 to 15. As we go out five years, what you’ll see is you’re starting to normalize your returns and start to get low or high but also higher lows, which is usually what people are looking for. Of course, if we can have our cake and have all of the high highs and of course the highest of lows, that would be a perfect world but when we go out 10 years and then 20 years, what you’ll see is a diversified portfolio starts to get rid of that uncomfortableness of the huge year by year fluctuation because when you have that huge decline on a one year, most people take that the next year will also be a huge decline.
When we look back to the beginning of 2009, March of 2009, that was kind of a low for the market after that huge horrible fourth quarter of 2008 and the first couple months of 2009, most people were not thinking wow the US stock market is what I want to buy into. That is not what most people were thinking but that is actually in hindsight the best time to buy. What I’m hoping that people will not take away from 2013 is that diversification has no value and that is a big joke. That is not the case. A portfolio of stocks and bonds and cash and then of course other types of asset classes that surround it, historically have had the effect of reducing some of the volatility in the high highs and the low lows over time and it creates in my opinion a better portfolio.
One of the concerns that I have is that so many unsophisticated investors will only look at 2013 and dump all of this money in 2014 into just that one asset class which is the US stock market or the unmanaged US stock market index either through an ETF or a mutual fund or an indexed fund or something like that for the wrong reasons. Not because they’d really thought it out but they’re going to have unrealistic expectations and that is unfortunately probably going to come back and bite them. Maybe not in 2014, maybe not in 2015, but if they come with these unrealistic expectations without a diversified portfolio—if I’m wrong, they’ll have nothing to stand on from a diversification point of view to offset what that wrong analysis was. That’s it.
It’s been my experience that when people don’t reach their financial goals it’s not because they failed to buy stock A over stock B, or bought this mutual fund over another.
Most of the time, it’s the bigger questions they’ve failed to answer, like “am I spending more than I earn?” or “what happens if I lose my spouse?”.
What is the dynamic value Generosity Wealth Management brings to the table? A = helping clients answer and address these issues, and keep the big picture in mind.
For a full discussion of this, listen to my short video where I expand on these ideas.
Good morning. Mike Brady with Generosity Wealth Management, a comprehensive, full service, wealth management firm, headquartered in Boulder, Colorado.
Today I want to talk about the dynamic value that I bring as a professional to the relationship with my clients; or at least my philosophy of where I probably add the most value. Here it is:
Point A is today. Prospective clients come in and they usually have a point B; what their goals are in the future and most of the time that’s retirement. Of course there’s usually a point C as well which is not outliving your money. So there’s a point B, something that we’re striving for in the future and of course a point C which is a secondary goal which is not outlive their money. Where I add value is all the planning from point A to point B and of course to point C. All the decisions that are there.
Understanding and explaining with the client and working with them the interdependence of all the various variables of; the saving, the investing and when to retire. All the decisions around retirement, how much the particular portfolio supports with various assumptions, upon retirement or withdrawal. All those various decisions- because what my experience has led me to really understand is when someone has not reached their particular goal it’s usually not because they bought stock A instead stock B or they had mutual fund A instead of mutual fund B; it’s because they frankly, didn’t save enough money; they spent more. Here’s your income and here’s your expenses and the expenses were greater than the income. They just didn’t save enough. Or it’s because they had some kind of a catastrophic event along the way like the loss of a spouse, the loss of a job, the loss due to some kind of a disability; and so part of that planning process is to proactively identify and talk about what are the contingency plans that we should have that could derail the great plan that we’ve come up with together. Many times that’s trying to identify them and have a plan for them. So that’s where I think I add some of the best value in the relationship.
I do believe that just having the appropriate investment plan that’s consistent with the risk level and the tolerance and the goals of a client are absolutely essential. I don’t want to minimize that in any way; however, I do want to say that that’s kind of the sexy part that everybody likes to talk about but I think what people really should focus on is that planning and a contingency for all those things that could derail that particular plan. That’s where I add the dynamic value to the relationship.
Mike Brady, Generosity Wealth Management 303-747-6455. Hopefully you’re my client; if you’re not my client hopefully you’ll give me a call and we can talk about what that client/ advisor relationship would look like.
Mike Brady, 303-747-6455. Have a great day. Thanks, bye, bye.
I was recently asked “what are some characteristics or traits you’ve noticed in people who seem to reach their goals?”.
Hmmmm…..good question.
I suppose I could be completely self-serving by saying “they click on my videos in my newsletter” but that’d be too obvious.
So, I’ll start off by saying “they treat their life and goals like a business”.
For the rest, you should watch the video.
Good morning. Mike Brady with Generosity Wealth Management, a comprehensive full-service wealth management firm headquartered right here in Boulder, Colorado, although I have clients in many different states.
Today, I wanted to ask a question that a client had of me. They asked after reading the book The Millionaire Next Door, it was like, “Mike, in your over 20 years of meeting with clients, hundreds if not thousands, what are some of the characteristics that you’ve seen that are similar to those that have achieved their goal? People who perhaps 20 years ago you met and they stated what their intention was and then they were successful in reaching their goals, and others that were not successful.” I want to answer that question here today. By the way, read that book The Millionaire Next Door, because you’re going to find some habits that this book talks about that people with very good balance sheets that have worked hard for their net worth, but they have many similarities together. That’s really kind of what I’m talking about here today but just more of from my anecdotal and observational experience.
The first thing is, they treat their finances, their goals, their retirement goals, etcetera, as a business. They have a good conversation with themselves and with me and with their spouse and perhaps their family about where they want to go, and they have a plan; they have a goal, they have a plan and they review it periodically and that could be within the year, maybe annually, maybe every other year just to track where it is that they’re going. They also understand the relationship between income and expenses, saving and investing. You’ve seen me do this before. This is your income and this is your expenses and the difference between the two, the income has to be greater than the expenses. It’s that simple. If you don’t know if your expenses are equal to your savings or if they’re even greater, than that’s the first warning light on the old dashboard that you might not be setting yourself up for success.
No matter how busy a client is, whether they’re a doctor, a lawyer, a business owner, or a family with a bunch of kids, the people that I have found have been very successful treat their life like a business. I have to say one indication of that is they a lot of times return paperwork very quickly. They have prioritized up all dealings with their finances and reaching their particular goals. That could be educational goals for their kids as well. That could be providing for older members of their family you know, etcetera. Whatever those goals are they have made a real priority, they’re organized, and they address it accordingly and in a timely fashion.
Another thing is they are engaged. They review paperwork, they ask good questions, and they’re more engaged and that’s one thing that I’ve found is common amongst those that reach their goals. Then the last thing is a little self-serving and I’m just going to preapologize on that one, but they have good advisors and they have an estate planning attorney, they have a CPA, and they usually have a good financial advisor, and hopefully that’s me of course, that’s my observation. They listen to them, they ask questions, there’s a true dialogue, a relationship, a collaborative relationship, and they have a tendency to follow that advice particularly when all of those members are working together, agree on how to go forward and they have good advisors and they recognize the value that they’re bringing. Those are some things that I have found in my over 20 years of working with people, and I can many times tell starting off when I meet someone who doesn’t become my client whether they have the right habits or not just by the fact of whether or not I ask them for the data to do a financial plan and they can’t even pull that together. I really question at that time how serious they are about their goals in order to get a plan and then of course to review it.
That’s it for this week. Mike Brady, Generosity Wealth Management, 303-747-6455. If you’re my client, I love you. If you’re not my client, I would love to talk with you and hopefully we can both love each other and help each other out.
Are you interested in talking with me about your finances and investments but not sure if we’re the right fit?
I have clients of all portfolio sizes, ages, employment, and stages of life.
What I like to do is make a difference in someone’s life. Frankly, it’s just as rewarding for me to work with a young couple who are serious about planning and saving for their future as it is to manage portfolios and wealth for business owners and retirees.
Don’t be shy. If you’re curious about whether we’d be a right fit, give me a call and we can talk. It would be a great honor.
