Friday, June 30, 2017

Eighty Percent

I read a sobering statistic last week:  eighty percent of women will die single.

 Though sobering, I guess it should not be surprising since women, on average, live four to five years longer than men.

 What is sadder, however, is another eighty percent figure: women are eighty percent more likely than men to live in poverty in their later years of life. 

 Put these two statistics together and it becomes clear that women as a group suffer a financial disadvantage, especially after about age sixty, and the men in their lives owe them a responsibility to not leave them unprepared.  It takes some planning, but it’s really not that hard.  Here are some simple steps a spouse—of either sex, really—can take to help his mate.

 1. Don’t do all the banking and investing alone.  Involve your spouse at least to the point that she knows which bills need to be paid each month and what bank and investment accounts are owned either jointly or singly, along with the account numbers and passwords.

2. Be sure the beneficiaries are named for each account.  For a bank account that is owned by one spouse and not the other, simply making a “pay on death” (POD) designation is enough.  Laws prevent a spouse from being excluded as a beneficiary on some accounts without her knowledge, but keep beneficiary designations current on investment accounts, insurance policies, etc.

3. Have all end-of-life documents (will, power of attorney, trust, etc.) up to date.

4. Choose your annuity payment carefully.  If selecting an annuitized pay-out (i.e. with automatic and regular payments during retirement) for a pension or other retirement account, choosing the highest dollar payment is likely not the best choice if two or more people depend on that income.  The highest monthly payment likely comes when selecting a single-life annuity, meaning that the payments only keep coming as long as that one person named as the single life is still living.  If he dies, the income stream ceases for the survivor.  Far too many women suffer this fate.  Opt for the dual-life annuity.

5. Thoroughly understand the ramifications of your choice of when to start drawing your Social Security retirement benefits.  Yes, you may begin collecting benefits as early as age 62.  But each year you delay collecting, the monthly benefit grows.  You may qualify to receive $2000 per month at full retirement age (currently 66), but if you begin collecting at age 62 the benefit will be closer to $1500…permanently (except for cost of living increases).  It will not go up to $2000 when you reach 66.  If you are the husband in a married couple and have the higher Social Security benefit, it is usually advisable for you to delay filing for benefits for as long as possible in order to maximize your benefit.  Your wife may collect a smaller monthly check and together you may manage to have a comfortable lifestyle.  But if you die first, her Social Security benefit becomes a survivor’s benefit, and the amount will be what you were collecting and nothing else; she cannot collect two Social Security benefits.  Maximizing the larger of a couple’s two Social Security monthly checks is one of the most important ways to guard a widow’s financial security.

 6. Consider life insurance.  If you are not comfortable with the outlook for an income stream for your surviving spouse or have already made a bad and irrevocable choice with your Social Security or retirement account benefits, you might be able to help secure her financial stability as a widow with an affordable life insurance policy.

 These are just a few steps to take.  Review your own financial situation and ensure you have a plan to ensure not only how much money to bring in each month but for how long.

Until next time,

 “Anyone who does not provide for their relatives, and especially for their own household, has denied the faith and is worse than an unbeliever.” I Timothy 5:8 NIV®*

 *Scripture quotations taken from the Holy Bible, New International Version® NIV®
Copyright © 1973, 1978, 1984, 2011 by Biblica, Inc.™
Used by permission.  All rights reserved worldwide.

Friday, June 23, 2017

Don't Pull the Goalie!

The National Hockey League Stanley Cup playoffs recently concluded with the Pittsburgh Penguins capturing their second consecutive title.  As usual, I took time out to watch a few games—more than I watched during the whole rest of the season.

 I like the rapid and hard-hitting action of ice hockey.  It has more speed than soccer, more continuity of action than football, more physicality than baseball.  Once you know the rules, it’s not a hard game to follow.  The only part of the sixty minutes playing time that still leaves me scratching my head is end-of-the-game strategy.  Without exception, if a team is behind by one or even two goals, in the last two or three minutes of the game the coach of that team will take his goalie out in favor of putting an extra “attacker” on the ice, an additional offensive player to try and score a goal to even the tally.

 I suppose the strategy makes sense because a loss gains the team nothing in the regular season and in the playoffs costs a precious game or even spells elimination from playoff contention.  But I think the strategy merits a little more careful consideration.  Pulling the goalie leaves a team without its last line of defense, somebody standing in front of the goal to block the other team’s shots.  And even with that extra attacker on the ice, at least one of the players has to play back a little more cautiously to guard against an opponent heading down the ice to score into an unguarded net.  So by my math, the team with the extra attacker really only gains the equivalent of about 50% of an extra attacker.

 Now a coach will look at that and say, “It’s worth the chance in order to tie the score.”  But I look at the odds of success.  And the odds—as measured by actual experience—are abysmal.  In the games I watched, I lost count of how many times I saw a coach pull the goalie.  Not once did the team doing so actually net a goal to even the score.  However, I counted at least four times in which the opposing team cushioned its lead by scoring into the empty net of the team with that extra attacker.

 If I were the coach (and this is just one more of many reasons I’m not in the NHL), I’d never pull the goalie.

 But this is a blog about personal finance, not sports; so what’s the point of all this?

 When someone is behind on their savings, whether it be for college tuition, retirement, or whatever, it is tempting to go all out and invest aggressively to make up for lost time and hopefully make some big gains to enable him to meet his goal.  When a 55-year-old sees her nest empty as the last kid graduates college and suddenly realizes that the $5000 in her 401k account is not nearly enough to begin funding a decent retirement, she may look to strike it big with some risky investment, or somebody’s “sure thing” that’s had great returns for the last couple of years. 

 But big returns come with big risks, and trying to cram forty years’ worth of investing into five or ten is not likely to yield the desired results.  In fact, the odds of success are akin to those of pulling the goalie in ice hockey.

 No, the best investment strategy of all is to use the power of time.  Investing even small amounts regularly over several decades and picking solid (if not always glamorous) investments will be like playing sixty minutes of good, solid hockey.  Your odds of success are better, and you don’t leave yourself defenseless in the last two minutes, so to speak, of the game, the very time you can least afford to lose money.

Until next time,

 “Dishonest money dwindles away, but whoever gathers money little by little makes it grow.” Proverbs 13:11 NIV®*

 *Scripture quotations taken from the Holy Bible, New International Version® NIV®
Copyright © 1973, 1978, 1984, 2011 by Biblica, Inc.™
Used by permission.  All rights reserved worldwide.

Friday, June 16, 2017

Boxer Shorts and Budgets

If your high school class in economics started you on the road to hating any talk about Gross Domestic Product, inflation, or recession, then first of all you probably had a dull teacher.  But it also means that you didn’t learn the more exciting—dare I say risqué?—aspects of economics, like looking at underwear.  Well, not looking at underwear itself, and I certainly don’t mean looking at people in underwear.  I’m talking about sales of underwear, specifically as tracked in the so-called Men’s Underwear Index, or MUI. 

The MUI is an unofficial but very real gauge of the health of the U.S. economy that focuses on sales of men’s underwear as a leading economic indicator.  It is based on the observation that men do not replace their undergarments during economic downturns, presumably seeing other purchases as more essential.  So if sales are slipping, the economy is on its way down.  Sales increasing?  The economic recovery has arrived!

The MUI was famously followed by no less than Alan Greenspan, former chairman of the Federal Reserve.  I don’t think he ever testified before Congress about the MUI, but it’s hard to know for sure.  He always talked in the five-dollar words of arcane economics language when he was testifying.  (I can hear him now:  “Sales of covering commodities for critical national assets ticked upward in the third quarter…”  And there wasn’t a single Congressman who understood what he said or who asked what he meant.)

Regardless of its value as a national marker for recession or recovery, the MUI can teach some valuable lessons at the personal financial level.

First, when a couple sits down to make their household budget, sorting necessities from wants is a critical first step.  While they might agree that “clothing”, as a category, is a necessity, a woman is likely going to want to only wear undergarments in good repair.  She will list that as a necessity.  The man?  His natural inclination when money is tight is probably to pare down the clothing allotment and keep wearing that pair of boxers whose elastic barely holds them up, regardless of mom’s words ringing in his ears from childhood, “Suppose you get hurt at school and have to go to the hospital and everyone there sees your tattered underpants!?”  Replacing holey boxers is a very low priority to him.  So just be aware of your mate’s different priorities and be a little flexible when you make that household budget.

Second, most fathers learn a self-sacrificial spirit if and when they experience financial hard times at any point in their life.  If the man in your life has that quality, know that giving him practical gifts is not a bad idea at all.  While a woman might ordinarily cringe if given a blender on Mother’s Day, dad will likely appreciate the thoughtfulness of someone who took even his used power tool with the frayed cord (but otherwise in good condition) to get it re-wired so he wouldn’t have to keep wrapping it in electrical tape and take his life into his hands with every household project in which he used it.

Finally, adjusting your purchasing choices (and timing of those purchases) is a real-life reaction to how you perceive your personal financial situation.  And when economists take the choices of millions of others like you and condense them into something like the MUI, they can get a pretty good picture of how the public at-large sees the state of the economy.  That’s a lot more telling than having a politician preach to us how well the economy is recovering.  The economy—economics—is personal, and that should be the first lesson in Economics 101.

So ladies, taking a peek into your man’s underwear drawer might tell you something about where he sees the economy going.  You might even make investment choices based on what you see there, though I would be very reluctant to go that far.  At the very least, see if he could use some new boxers.  Remember, he probably needs a fashion consultant as much as he needs help crafting the family budget.  Be there for him.

Happy Father’s Day.

Until next time,

“As bad as you are, you still know how to give good gifts to your children.  But your heavenly Father is even more ready to give good things to people who ask.” Matthew 7:11 CEV

Friday, June 9, 2017

What You Don't Know About Your Spouse

A survey of newlyweds by Experian found that 20% of men had some type of financial account that they kept secret from their bride.  The study did not delve into the reasons for keeping the account hidden, so I’d like to think these were funds stashed away to pay for the flowers they occasionally bring home to their sweethearts or the surprise weekend getaway for her birthday.  If only.

Let’s not let the women off the hook, either.  One in eight newlywed women also admitted to having a secret stash of money according to the same survey.

This may be perfectly understandable, though not desirable, when we consider the place given money in our society and how couples approach—or rather, fail to approach—the subject of money before they marry or decide to live together.

Childhood experience and the lessons taught us by our parents, whether those lessons were deliberately taught, accidentally taught, or simply passed on by omission, will inevitably shape our approach to money in our own marriage.  Was the subject taboo around your house growing up?  Did money represent power, prestige, security, or even identity for one or both parents?  These will influence the attitude toward finances that we carry into adulthood.  But it may be hard to predict how they will influence us.  A parent may have been such a miser and caused the family to go without meeting any wants that the child learns that behavior as a negative one and does the opposite.  Or a parent spends freely and teaches the love of having good things—and the child embraces that and must have the best and the finest and have it now when he grows up. 

Unfortunately, those attitudes become so entrenched that it is hard to break them or to adapt them to the needs of a spouse who may harbor a much different financial persona.  I suspect it is fear of having to alter the comfortable accommodation they have developed with money that causes some men and women to hide a portion of their money from their significant other or not be completely forthcoming about their financial situation.  They need something saved for a rainy day, or to spend as they wish and not be accountable, or simply to feel like they have complete control over some portion of the family wealth.

Regardless of the reason, having secret accounts fits into a pattern of cluelessness between spouses when it comes to their money matters.  The results of another survey done by Fidelity Investments demonstrated 43% of married individuals could not accurately say how much their spouse earned.  And 10%, when they did guess, were off the mark by more than $25,000.  Yet another survey found that 21% of married or co-habiting couples did not have even an approximation of their mate’s retirement account balance.

It points to the sad reality that couples are not working together toward their financial goals and may even be pulling in opposite directions.  It only contributes to the phenomenon that financial planners are warning us about: people are not planning for their retirement.  Whether out of fear of what the numbers will tell them or some other avoidance excuse, they are stumbling into the unknown, and it will likely cause some marital discord or even divorce and spell a very uncomfortable retirement.  If a couple is not planning together for it, they are likely to have very different visions of what retirement will or should be.

Regardless of your stage in life, now is the time to improve communication with your spouse and/or family.  You are in the boat together; you want to row in the same direction.  Start talking, but with compassion and a willingness to accept what has shaped the other’s attitudes toward money. 

Until next time,



“Any kingdom divided against itself will be ruined, and a house divided against itself will fall.” Luke 11:17 NIV®*

 *Scripture quotations taken from the Holy Bible, New International Version® NIV®
Copyright © 1973, 1978, 1984, 2011 by Biblica, Inc.™
Used by permission.  All rights reserved worldwide.

Friday, June 2, 2017

It's Up to You, Parents

A friend of mine remarked a couple of years ago that he marveled at the ability of the U.S. economy every June to absorb hundreds of thousands of new jobseekers thrust into the workforce when they graduate high school or college.  “Where do all those jobs come from?” he wondered.
 We’re in the middle of graduation season again, and when I think of all the young adults seeking employment, that is not the only question that comes to mind.  I wonder how prepared they are to handle money.
 The only formal education on personal finance that I had at all from first grade through undergraduate college was a short segment in social studies sometime in elementary school where we learned how to write a check from some little booklets that, as I recall, were furnished by a local bank.
 A review of graduation requirements at colleges of the Big Ten conference, including powerhouses like Ohio State University and Northwestern University, found that only one mandated a course on personal finance.  All fourteen (yes, fourteen institutions in the Big Ten—I don’t guess math is taught, either) require some kind of diversity class to obtain a diploma.
 But if passing a financial literacy course were universally required of college graduates, who should teach the course?  Business department faculty?  Math professors?  Social science teachers?  How about psychology staff, or even religion faculty?  I believe each could bring a necessary perspective to the subject, but in the end I think they would be less effective than the student’s parents and real-world experience.
 Financial competence is about more than mastering some basic knowledge and following some rules.  The genius of being human is to learn from experience and the ability to consider context and bend, or even break, a rule depending on the circumstances.  One author used the example of the generally accepted wisdom to save three to six months’ worth of income as a safety net.  She did not follow that rule upon graduating from college because she had high student loan debt and wanted to pay it off to save on interest charges.  Her safety net was moving back in with her parents, if necessary.
 Money inevitably comes with emotional baggage.  Whether our childhood household struggled to have enough money to pay the monthly bills or was always flush with cash to procure any want, that experience will shape our attitude toward money and probably eventually be a source of conflict with a spouse or other important people in our lives.  Money may come to represent power or embarrassment, freedom or subservience, a blessing or a curse.
 We may enforce a level of financial literacy on students, but the key to their success handling money will be to know themselves, to have self-awareness of what money represents to them and of their unique circumstances that will dictate how to apply, or even whether to apply, the rules.
 Parents can start their children on the road to financial literacy by including them in age-appropriate decision-making for the family finances.  Whether it be by having a voice in choosing among several destinations for a family vacation or assisting with the grocery shopping, the child can learn from someone most acquainted with their personality and background, someone who can teach real-time in real-life situations and can model the right behavior.  In my own case, I think I learned more from my parents’ occasional bad money-related decisions—bad outcomes are powerful lessons—and their husband-wife give-and-take in approaching financial decision-making.
 Include the kids, parents.  They will learn responsibility and a right perspective on money and not even realize it until years later, when they are miles ahead of those who were not so fortunate to have such good teachers.
Until next time,
 “Start children off on the way they should go, and even when they are old they will not turn from it.” Proverbs 22:6 NIV®*
 *Scripture quotations taken from the Holy Bible, New International Version® NIV®
Copyright © 1973, 1978, 1984, 2011 by Biblica, Inc.™
Used by permission.  All rights reserved worldwide.