Financial Pulse Check

At least once a quarter, Ron and I review our investments with our financial advisor. We’ve been working with the same professional for over 15 years, and have a great relationship. Our most recent call took place yesterday.

(Please be aware that the following information is part professional opinion of our financial advisor, and part decisions based on our personal financial situation. In no way should this be considered expert advice on which to base your own financial decisions.)

Our portfolio is split between diversified stock funds, bonds, and cash. Last year’s decline in the stock market certainly affected us adversely – but as our financial advisor says, “It’s not a loss until it’s realized”. As long as the money stays invested for now, there is an opportunity to recover the value. Fortunately, during this volatile period we have had cash available, so have been able to leave our stock funds untouched. The market has improved 8 to 9% since the beginning of the year, but we were warned to expect a pullback in September or October (at least before the holidays), from profit-taking selloffs in the fledgling Bull Market.

Since retirement has actually begun for us, the specific distribution of our investments is pretty conservative. Our tolerance for risk is fairly low, since we no longer have an income to replenish losses. But we hope to be retired for a long time (the rest of our lives), so still need to be invested in stocks to get the type of returns required to fund our retirement. Every investor needs to determine their own tolerance for risk. High risk stock funds can generate anything from high reward to significant loss, and this sort of gamble is not for us at this point in our lives.

One decision we did make is to refinance the mortgage on our condo. Originally, we planned to pay the mortgage off early in 2010 when our ARM (Adjustable Rate Mortgage) resets to a new rate. But we can get a 15-year fixed-rate mortgage at 4.75%, and if we invest the money with which we would have paid off the note, we should get better than a 4.75% return on it. Our bank, UBS, will charge no points and no origination fee, so the fees (title search and appraisal) will be minimal and worth it in the long run.

We always feel more confident after a pulse check with our financial advisor. He provides expert advice and perspective, and gives us a chance to ask questions and discuss our ideas and concerns.

Savings Spree!

You are planning for retirement, or at least planning to plan for retirement. A big part of that is changing your mindset from a spending mentality to a savings mentality. At some point at or after retirement, you may not be earning a salary. A scary thought, isn’t it? You aren’t going to stop spending (or as I call it, “leaking money”), so your income will have to come from other sources you have created as part of your retirement planning. Let’s review some of the options you have for socking money away for your future.

RETIREMENT PLANS: If you are fortunate enough to have a job that offers a 401K plan, you should contribute the maximum amount against which the company matches your contribution. Company matching is “free money”! Annual contributions to IRA’s are also a good way to save for your future. You may be eligible to fund a Roth IRA if your modified adjusted gross income does not exceed the thresholds specified by the program (which vary by marital and IRS filing status). If your income is too high to qualify, you can still establish a standard IRA. Old-fashioned, company-funded pension plans are few and far between these days, but are still providing income for a subset of retirees.

PAYROLL DEDUCTIONS: Your automatic deduction for Social Security is another way you are saving for your retirement, with the expectation that you are going to get at least some of that money back for retirement. Visit www.ssa.gov/estimator to access estimates for your Social Security benefits based on your earnings records. Some publicly-traded companies offer an option to redirect a portion of your pay to purchase shares of stock. This can be a good way to save money in the form of an investment, although there is risk associated with owning stocks, and with having too much of your savings in one specific stock. (Remember Enron?) For those in higher earning brackets, your benefits may include an option to “defer” some of your income (before it is taxed) to retirement or the point at which you separate from your employer.

PERIODIC/AUTOMATIC TRANSFERS TO SAVINGS: You can choose to save a predetermined amount from every paycheck by establishing a transfer from checking to savings that happens automatically. Although a savings account is not a good place to keep large sums of money long term, this banking feature provides a mechanism to redirect “cash” from your pay on a regular basis.

WINDFALLS: Aside from your regular income, you may have opportunities to put away money that you obtain as a result of an inheritance, a legal settlement, a gift, the sale of an asset, or even an annual bonus from your employer. My philosophy on windfalls has always been to spend some (hey, enjoy life!) - and save some. A windfall can provide a welcome bump up to your retirement savings.

It’s satisfying to watch your nest egg grow, and important to keep track of your progress. Even though your savings may be spread around in different accounts, be sure you have a way to consolidate the information in one place. A simple spreadsheet can provide the means to stay on top of the results from your savings spree.

I'm Mostly Not Working

Today, I was late posting my “Retired Early” blog, because I was working. Huh?

When I retired from corporate life, I never actually committed to a total life of leisure. The fact is that I still feel the need to exercise the part of my brain that has all this work experience rattling around in it. But I had to get off the non-stop merry-go-round of corporate politics, deadlines, budgets, takeovers, counterproductive official hierarchies and assorted B.S., before I ended my career unceremoniously on a bell tower with a high-powered rifle.

So I started a consulting business – Haropulos Bailey Consulting. I figure I know as much or more about a lot of things than many consultants who have been paid big bucks by Hilton over the years. I’m smart, and when I have an assignment I work hard and add a lot of value. I have no financial goals to meet and have spent virtually no money on developing my company so far. Via a LinkedIn connection and a lunch date, I got my first (and so far only) client. I’m doing a little work (a few hours here and there) on a project that interests me, with someone I like and admire. I send an invoice, and they pay me. I kinda like it – my little business.

I need to develop a web site and do a little targeted marketing. I’m thinking about that. I also probably need to incorporate, or I will really limit the potential clients who will hire me. And I’m working on getting Ron interested in joining me, so I have another smart person on board – one with technical abilities I do not possess. He likes the “Creative Engineer” title I have proposed for him. Business cards should arrive next week and provide a small carrot for his involvement.

The rewards from my efforts are a little extra pocket money and brief waves of satisfaction. I am still protective of work infringing on my golf or nap time…so we’ll see where this goes.

Next week, my blog will get back to the steps involved in retirement planning. Sorry for the unplanned detour.

Aligning Spending with Priorities

For the past few weeks, I have written about the first steps required to prepare for your retirement planning. Most recently I recommended that you identify the expense categories you want to establish and track your normal spending patterns for at least three months. Be sure that in those three months all of your expenses are reflected (e.g. insurance or property taxes that may be paid less frequently, and holiday gifts that have impact at the end of the year).

Now that you know where your money is going, establish a budget. Set a number for each expense category you have defined. This new “spending plan” may be more conservative than your current spending habits – especially if you discovered some surprises that beg for better discipline. Now is the time to address any conflict between your short term desires and your long term goals.

Spend some time thinking about what is really important to you when building the foundation for your future. Talk earnestly with your spouse/partner to align your plans. Do your spending and saving habits support or thwart your long term priorities? Make thoughtful decisions about adjusting your spending in order to accelerate progress toward reaching important goals.

Each of you has your own unique needs and priorities to assure you can enjoy your life the way you dream it can be. But I can give you some examples of the adjustments my husband and I made to get our spending in line with our plans for retirement.

· Our library cards have allowed us to reduce spending at the bookstore.
· We shopped for new rates on auto insurance and substantially reduced our rate without sacrificing coverage.
· Prepared/pre-packaged food is more expensive than raw ingredients. We changed our grocery-buying and cooking habits and saved a lot of money.
· I do my own manicures, and my husband does my pedicures. (He said it was OK to tell you.)

One more thought for you… You may be able to reduce your housing expense by re-negotiating your mortgage. If your mortgage rate is already low, consider making payments every two weeks instead of once a month. This won’t reduce your monthly outflow, but will increase of the equity you have in your home by speeding the reduction of the principle on your note.

Apply discipline to align your spending habits with your priorities and your long term goals. Live your life today while planning a full life for the future. One should not exclude the other.