By Jean Jacques Borno

Printed in the ABA Journal

The old-fashioned common sense of our grandparents still stands as a reliable guide to money. Whether you are digging out of holiday debt or managing substantial assets, the principles are similar and are worth repeating.

Don’t keep up with the Joneses. Comparing and competing with others can lead to financial overextension. All your income disappears every month to support too much house, too many vehicles, and premium coffee. Many things that you see others enjoying are not paid for—those big spenders may be up to their ears in debt.

The advertising-driven consumerism of American society has lured millions of us into confusing our needs with our wants. Most new purchases trade potentially income-producing assets (money you can invest) for income-draining liabilities (new car, vacation home).

But possessions do not bring peace or financial independence. Enough really is enough. Pare down your lifestyle and clarify what you really value. If your spending expands as your income expands, you can miss many great opportunities to reduce debt and build wealth.

Get out and stay out of debt. Ben Franklin said, “He who has four but spends five has no need of a purse.” If you spend more than you earn, you are living in debt rather than building wealth.

Analyze your spending—are the culprits new clothes, dinners out? Do whatever it takes to control them—stay out of stores, eat at home, tighten your belt. Shred the credit card offers, choose one card to use carefully, cut up the others, and pay them off, the one with smallest balance first, until you are debt-free. Then pay your credit card bill in full every month—no excuses.

Never go into debt for holiday purchases. Use only cash, checks, or a debit card tied to your checking or brokerage account to buy gifts. Make a list and stick to it. Pat yourself on the back when you spend less than you budgeted.

On a budget but still need to buy gifts? Try being creative. If the gift is for a golfer or burgeoning gourmet, consider a subscription to Golf Digest or Gourmet magazine. Not only does it cost less than $25, but the recipient also will appreciate it—and you—all year long.

Live below your means. Spend less than you make. Everyone has enough to save. If your income were cut by 10 percent, you would find a way to adjust. So deposit 10 to 20 percent of every check into an automatic-deduction investment account (your company’s 401(k) or an account with a brokerage firm).

Don’t put all your eggs in one basket. Diversification is the key to preserving your invested assets. Picking just one or two stocks or funds is risky, as is parking money in multiple accounts at multiple firms. If your investments are the players on a team and you are the owner, you still need a coach. Find a good financial advisor and book a consultation.

Take care of yourself. Your goal is to achieve eventual financial independence, which occurs when your investment income meets or exceeds your monthly expenses. Achieving this takes time but pays off in psychological freedom. Forget shortcuts and trying to get rich quickly—the goal is a slow, gradual process built on the cumulative effects of your long-term choices.

Be a good steward. With wealth comes great responsibility; it requires education, attention, time, and effort, because even a fortune can be lost with poor management. Also with wealth comes great opportunity: the delightful experience of having sufficient surplus to give charitably, to provide for others. Ebenezer Scrooge still illustrates the misery of hoarding and the joy of giving.

Money is a powerful tool that can be frittered away, wasted on temporary satisfactions, or used wisely for a long-lasting legacy. Cultivate uncommon common sense in matters of finance to set your course on the ultimately more satisfying path.

Printed in the ABA Journal

Printed in the ABA Journal

Kenneth Labowitz gives it about 10 more years. By that time, he’ll be 68, and he an­ticipates having paid for his three chil­dren’s educations as well as coming into some money through inheritances from his parents and in-laws.

It’ll be time, Labowitz says, to start doing “the other things I want to do in life besides work.” Other than not working, however, Labowitz isn’t so sure what retirement really looks like.

While he’s “reasonably confident” that he and his wife will be able to afford retirement—they’ve each funded individual retirement plans through their jobs, have investments in the stock market and have substantial equity in their home—he can’t shake the nagging question of whether he’s being realistic about the life­style he hopes his retirement planning will afford him.

“I read in lots of publications that maintaining the lifestyle that you want to have is going to cost far more money than what most people predict,” he says. “Can you retire without having a gazillion dollars put away? I don’t have a clue as to what is realistic.”

Labowitz also assumes his retirement nest egg will include proceeds from the sale of his law practice. (As a principal in Dingman Labowitz in Alexandria, Va., he serves as a court-appointed fiduciary for a Virginia hospital and several court systems.) But he admits he does not know how to evaluate the law firm’s worth, much less how to sell it.

PRIME TIME

Financial planning experts say Labowitz’s situation is not unique—and he’s not necessarily at a dis­advantage. While the best time to start saving for retirement is with your first paycheck, planning for retirement can wait a bit. But Labowitz is wise to start his planning right now.

“Unfortunately there is not a formulaic answer because everyone has different spending habits and different ideas about retirement,” says financial planner Sarah O’Neil, a principal in the Chicago office of Gem Asset Management.

But there are some common considerations that will help lawyers like Labowitz start to determine, as O’Neil says, “if you are at point A, now how do we get you to point B?”

Labowitz may even have time on his side, says Washington, D.C.-based financial adviser Jean Jacques Borno of Morgan Stanley. By doing some retirement planning closer to his actual retirement date, he will have a better vision of what he wants the next phase of his life to look like, Borno says.

Labowitz’s first step should be to firm up his vision of a retirement lifestyle, O’Neil says. Then he’ll be able to examine his assets to ensure that he can fund it.

And there’s no time like the present to start en­visioning the future. Retirees do tend to spend more money in the first five or so years after retirement, since they are often enjoying travel and other activities while their health is still good, but O’Neil says that generally most spending habits do not drastically change. “You don’t usually start buying Gucci purses in re­tirement if you didn’t do it when you were working,” she notes.

One important question that Labowitz must answer is whether he is serious about not working during retirement, Borno says. Many aging baby boomers choose to continue working either out of need or desire, and that income stream can change retirement planning because it means the retiree does not have to rely as heavily on an investment portfolio for income and can instead let it continue to grow through riskier investments.

When it comes to running numbers, Borno says it also is imperative to start doing an inventory of assets in advance of retirement, including checking a portfolio for that all-important factor: diversity.

“Some people think that they have a diverse port­folio because they have four or five different brokerage accounts. But when they look under the hood, it’s basically different mutual funds with all the same holdings,” he says. “They are going up and down at the same time.”

Ideally, 15 years before retirement is the time to start getting aggressive about planning, says Borno. Increase 401(k) contributions as much as possible and reduce debt. It’s especially wise to pay off credit cards while you still have steady income, he says.

O’Neil also encourages clients to take Social Security as soon as they are eligible. Given the time value of money, it is a mistake not to, she says.

FINAL TOUCHES

Both Borno and O’Neil recommend continually fine-tuning the retirement plan by re-evaluating your goals and checking the value of retirement port­folios on a regular basis.

As retirement looms closer, they recommend shifting investment portfolios into more conservative positions. “We can look historically at the performance of their portfolio,” Borno explains. “We also want to protect against the risk of a negative stock market when they are taking money out of it.”

O’Neil cautions not to forget to factor in inflation: In 10 years, for example, it will take $128,000 to cover today’s $100,000 budget.

Of course any plan must take into account poten­tially substantial expenses like education for children or grandchildren and the price of caring for elderly parents, O’Neil says.

“I always recommend talking to your siblings about your parents. Will one sibling be taking the responsi­bility or will it be shared among the children? It is important to have a plan in place,” she says.

It is also important to have a plan in place for your own health care as you age, Borno says. He ad­vises that clients purchase long-term health care insurance for themselves, but when to buy is almost always a gamble. A long-term policy is cheaper to buy when the beneficiary is younger and healthier, but then the policy may not be needed for decades. On the other hand, if you wait until your 70s to purchase a policy, it may be cost-prohibitive, Borno says.

Immediately before retirement, he recommends making further adjustments to a retirement plan. These should include further reducing estate tax liabilities by sep­arating assets between spouses and also funding any future bequests.

Ideally, Borno says, Labowitz’s retirement planning shouldn’t end—even when he retires. It’s important that he continue to evaluate his portfolio’s return in its entirety, he says, to make sure risk remains low and the income continues.

Printed in the ABA Journal
Oct 1, 2007
By Jill Schachner Chanen

With the average life span increasing, many of us will have 30 years of retirement or more.

• Are you prepared for retirement?
• Will your savings and retirement income be enough?
• What forms of income will you have?
• Do you know what your income needs will be at retirement?

It’s never too early to start planning for retirement.

A Financial Planner can show you some of long term investment strategies and vehicles to help you meet your retirement savings goals, minimize your estate tax liability, and provide security for your spouse/family.

You should have an estate plan if:
1) you are the parent of minor children.
2) you have property (real estate) or a business.
3) you are concerned about health care treatment should you become disabled or terminally ill.

Estate planning includes more than just a simple Will. Estate planning also typically minimize potential taxes, and sets up a contingency plan to assure your preferences regarding health care treatment are followed.

Good estate planning identifies what will happen with your home, business, investments, business, life insurance, retirement plans, and other property when you become disabled or die.

A Financial Planner will help you answer these questions:

• Am I saving enough for my retirement?
• How will inflation affect my retirement income?
• I’m retired now, how long will my savings last?
• How much retirement income will my retirement investments provide?
• What are the best retirement investment funds for me?
• How much can I contribute to an IRA or 401K?
• What will my IRA be worth at retirement?
• What happens if I withdraw funds early from my IRA?
• I’m self-employed, how much can I contribute to a retirement plan?
• How long will it take to double my money?
• Taxable vs non-taxable savings comparisons
• How should I allocate my assets?
• How can I protect my assets from probate and estate taxes?
• What is my potential estate tax liability?

Insurance reduces risk and provides security for yourself and your family’s future. To know how much insurance you need, you’ll need to consider your lifestyle and what the possible risks that could affect it. When calculating how much life insurance you need, consider the following:

• Estate Expenses
• Funeral Expenses
• Mortgage
• Loans and Debts
• Replacing Annual Income (number of years?)
• Children’s education
• Resources available at death: Savings, Stocks, Mutual Funds, Retirement Funds, Life Insurance, and Other Assets

When you think of insurance, the first that comes to mind is auto and home insurance. Replacement of these assets in the event of damage can be very costly. Most people hold auto and home insurance policies.

Life insurance is essential to many families, giving extra security if the unthinkable should happen. The loss of a breadwinner is devastating enough, without having the added stress of worrying about how to cover the bills and mortgage.

Other types of insurance are equally important. Life events such as illness, accidental injury, loss of employment income, or a death in the family can affect family security. Yet these potential risks to your lifestyle can be reduced by the right insurance planning.

Changes in lifestyle also determine the types and amount of insurance you need. The amount of life insurance that you have will likely change throughout your life, depending on your life circumstances. Some of these changes might be getting married, starting a family, changing jobs or preparing for unexpected events.

Should you have Term, Universal Life, and Permanent Life Insurance?

To meet modern trends, life insurance providers also offer to act as an investment vehicle, building up a sum of extra equity over the lifetime of the policy. This can be withdrawn or borrowed against, and usually offers a tax-free sum on retirement or death.

Deciding on an amount of life insurance you should have requires careful consideration. A Financial Advisor can help you determine just how much insurance you need based on your age, your income, family circumstances and obligations, assets owned, and debts owed.

• assess your current financial situation.
• create a realistic plan to meet your financial goals.
• understand how to meet your financial and retirement goals.
• put your financial plan into action and monitor your progress.
• update your financial plan to grow with your changing needs and goals.

If you have any of these questions or concerns, you will benefit from a consultation with a Financial Planner:

• Confusion about conflicting financial advice and options.
• Paying too much income tax.
• Not saving enough for retirement.
• Not sure where to invest money.
• Changes in life that affect your financial future, such as a career change, marriage, retirement, loss of a spouse, birth of a child, etc.
• Not enough time to attend to personal financial affairs.

Financial Planners are licensed professionals with a broad background in finance. They can guide you through some important life decisions. They can help you manage the risk involved in making decisions that can paralyze some of us, such as:

• What kind of retirement plan do I need?
• Am I paying too much in taxes?
• How can I save money for retirement – tax free?
• How much life insurance do I need?
• How can I make sure my estate is left to family members, and does not depleted by probate court and government taxes?
• Can we afford college tuition for our children – and how do we save for this, knowing how much tuitions are spiraling?

Would you benefit from having professional advice when it comes to planning your financial future? A Financial Advisor is a partner that can help you understand your options and help you build and protect your assets.

A Financial Planner can also help you evaluate different life insurance plans and help you determine which policy or product is best going to serve your own unique needs and budget.

To assess your financial position and learn about some of the ways in which we can assist you, call us to schedule an appointment. Evening hours are available, and we can meet in your home or our office.