Planner's Pulpit
Planner's Pulpit

The Truth Shall Make You Free

 

Yesterday was Good Friday. Tomorrow is Easter Sunday. This marks the culmination of Holy Week, the most important days on the Christian calendar. Ask most believers about the significance of those days, and they’ll tell you that Jesus Christ was crucified on a Friday, and resurrected from the dead the following Sunday. Churches all across America will make a metaphor of this chronology with sermons entitled “It May Be Friday Now…But Sunday’s Coming!”

This chronology of crucifixion and resurrection has been fervently believed by hundreds of millions of people around the world. It’s also flat wrong. One of the hardest tasks anyone can face is convincing someone that a cherished belief is in error, and helping them understand why it matters. Ministers face this task regularly. So do financial planners.  In each case, the errors typically arise from simple misperceptions.  Consider this about the resurrection:

In John chapter 12, a group of scribes and Pharisees were questioning the authority by which Jesus said and did the things he did. They wanted a miracle as proof of the divine authority Jesus claimed to have. So they said, “Teacher, we want to see a miraculous sign from you.” Jesus responded by saying,   “An evil and adulterous generation seeks after a sign; and there shall no sign be given to it, but the sign of the prophet Jonah:   For as Jonah was three days and three nights in the whale’s belly; so shall the Son of man be three days and three nights in the heart of the earth.”

By so saying, Jesus staked His claim to Lordship on one and only one proof: that He would be buried and spend three days and three nights in the grave.  A quick count on your fingers demonstrates that you can’t squeeze three days and three nights between Friday afternoon and Sunday morning. Now either things happened the way Jesus said, or He is not who He claimed to be. So getting the chronology right is not about nitpicking or technicalities; everything rides on the accuracy of the one and only proof the Lord said He would give. The legitimacy of the Christian faith stands entirely on the truth of the resurrection (1st Corinthians 15:14-17). So how could so many believers embrace an error about the central tenet of their faith?

Most people are just reciting a tradition they’ve always heard and never examined. Others try novel ways of counting to make three days and nights magically fit between Friday afternoon and Sunday morning. But it never really works; it can’t. Still others maintain that the chronology doesn’t matter, because the fact of the resurrection is enough. But Jesus made the timing part of the proof, by declaring before the fact exactly how long He would be in the grave.

The root of the error comes in placing the crucifixion on a Friday based on statements in the gospels that Jesus was  placed in the tomb just before the Sabbath began (Mark 15:42, Luke 23:54). People know that the weekly Sabbath begins around sunset on Friday, so a Friday crucifixion seems self-evident. What people often don’t realize is that there were two Sabbaths that week. Jesus was crucified during Passover week. That week includes the Feast of Unleavened Bread, which is always a High Sabbath, regardless of the day on which it falls. (Leviticus 23:4-7) That high Sabbath preceded the weekly Sabbath by two days in the year Jesus was crucified. This is spelled out in the gospel narrative.

Unlike in Western society, where a new day starts in the morning, in the ancient Jewish world, a new calendar day started in the evening (Genesis  1:5). The Sabbath was ushered in at sunset, not sunrise. The 24-hour day ran from 6:00p.m., not from 12:00 a.m. With that in mind, here is a brief summary of the events as recorded in scripture:

 

  1. Tuesday: Jesus eats the Passover meal with His disciples. (Matthew 26:26-28).
  2.  Wednesday:  He is crucified  and dies around 3:00 p.m. (Matthew 27:46-50)  This is identified as the preparation day for the annual high Sabbath which began that evening (Mark 15:42, Luke 23:54, John 19:31). Christ’s body is placed in the tomb before the Sabbath begins (sunset).  Wednesday is night one in the grave.
  3. Thursday: The next day is called the day after Preparation Day (Matthew 27:62). It’s the High Sabbath. This is day one in the grave, and Thursday night is night two.
  4. Friday: the High Sabbath is now past, and the women prepared spices with which to anoint the Lord’s body later. They then rested on the weekly Sabbath that began as usual at sunset Friday. (Mark 16:1, Luke 23:56)  Friday is day two, and Friday night is night three in the grave. It’s also how we figure out the other days of the week in this sequence. Since the weekly Sabbath is always Friday evening and Saturday day, we derive the entire chronology by counting backwards from the known day.
  5. Saturday:  Day three in the grave. Jesus would have risen sometime Saturday evening around sunset. A resurrection delayed until Sunday morning would mean a fourth night in the grave, which cannot be. He fulfilled the prophecy literally, accurately, and completely — three days and three nights. Seventy-two hours.
  6. Sunday: The women come to the tomb in the wee hours of Sunday morning while it is still dark (Luke 24:1, John 20:1). The tomb is already empty, because Jesus rose the evening before.  Sunday morning is not Resurrection Day. It’s Discovery Day. It’s when the fact of the Resurrection became known.  (Matthew 28:1-6, Mark 16:2-6, Luke 24:2-3)

 

Saturday resurrection fulfilled the promised sign exactly. “It May Be Wednesday Now, but Saturday’s Coming” will never have the same ring to it as the messages based on the erroneous chronology.  But it is faithful to what the Bible says, and demonstrates the accuracy of the biblical prophecy and Christ’s claim to Lordship. God never deals in “kinda/sorta.” You don’t have turn the pages of scripture sidewise and squint at them to make things line up. He says exactly what He means. And that’s great to know!

I see several parallels between my work as a minister and my work as a financial planner. In both roles, I am required to know the details of things that most people don’t know. And in both roles I see a need to liberate people from things they think they know, because the truth will make them free.

Many people sincerely believe that now is not a good time to invest. They truly believe they can time the market. And they sincerely think that a planner’s value lies in choosing investments that will outperform some index, or some mutual fund, or their brother-in-law. All of these beliefs are erroneous. But it’s a rare person who can hold his most cherished beliefs up for scrutiny.

Are you open-minded enough to reconsider your basic assumptions and deep-seated beliefs in the light of unimpeachable evidence?  If you are, then I think your future is a bright one indeed.  We should definitely talk.

 

 

 

Protect Your Money Online

Are you an easy target for Internet fraud? You are if you are not exercising due care with the security of your online accounts. Here is a quick refresher course of safety principles to keep in mind:

1. Email is ground zero. Many websites like Facebook and Twitter require you to use your email address as your log-in. Consider having a secondary email account you use just for log-ins like this, different from the address you use to correspond with friends, family, and financial institutions. And whatever you do, ignore it when these websites invite you to give them your email address and password (!!!) so they can search for people you already know. If you wouldn’t give these people the keys to your house, then don’t give them the keys to your online house either. Protect your email addresses and passwords.

2. Easy is bad. Passwords should be something you can remember, but hard for anyone else to guess, even with computerized help. Don’t use the names of family members or pets, or any such thing that can be guessed by someone who knows you. An enormous number of people still use the word “password” as their password. Bad guys will try that one, believe me. In fact, your password should not be any single real word. Thieves can run “dictionary attacks” to try to hack your password. They have software that repeatedly tries to log in to your accounts using every word in the dictionary as a password. Making two attempts per second, they can try 172,800 words in a single day. Since the average American’s vocabulary is between 30,000 and 75,000 words, these attacks can succeed in breaking into your accounts quickly. You can defeat dictionary attacks simply by using random combinations of upper and lower case letters, numbers, and special symbols rather than real words. If a particular site is set up so that passwords are not case sensitive and special characters are not allowed, at least use a long phrase, rather than a single word.

3. Don’t hide the key under the welcome mat. Don’t write down a list of your passwords and keep it in a notebook or day planner near your computer. Potential thieves are not just lurking in cyberspace, they may be standing in your home or office one night. And you should decline those helpful offers from your computer’s operating system to remember the password for you.

4. One is not enough. some people have just one password they use for all of their accounts, because it’s faster and easier than remembering 25 different ones. Don’t do this. If that one password is lost, then your whole online life is at risk. In early 2013, Twitter acknowledged that it had been hacked, and that more than 250,000 usernames and passwords had been stolen. Imagine you were someone with only one password. The thief could now access your email with that same password (see point #1 above) and learn a lot about you  — including where you do your banking. They could then attempt to log onto your bank account as you. Even if they don’t know your username, most websites have those helpful “forgot your username?” prompts that will send the information to your email address of record. Do you see how this can go from bad to worse in a hurry?

5. Be leery of links. Every day I get spam email from senders posing as UPS, American Express, Pay Pal, Bank of America, LinkedIn, Facebook, and dozens of others private companies and government agencies. After delivering a bogus message, these impostor emails all invite me to click on a link, often to a place where I can “log in for details.”  These are “phishing emails,” attempts to trick me into providing impostors with my login credentials to the real sites. Never log in to a site you do business with from a link in an email.Enter the real site’s email address in your browser.

6. Think like a spy. Do you use public WIFI in places like Internet cafes or hotel rooms?  Install VPN software to keep your web traffic private. It’s a safer way to use WIFI hot spots. Do you have sensitive information stored on your computer?  Things like wills, trusts, and other legal documents, client records, or privileged communications? Use a good encryption program like PGP or TrueCrypt to make this data unreadable even if the computer is lost or stolen.

The annual Norton Cybercrime Report says U.S. consumers lost more than $20 billion to computer attacks in 2011. So by taking these precautions, you’re not being paranoid; people really are out to get you!

 

Public Service Announcement: Comments

The previous entry was about Internet hoaxes and apocryphal stories. Not everything on the Web is what it seems to be. That little truism stands front and center when you have a blog with comments enabled. One of the great things about a blog is the opportunity for social interaction it presents.  When you press the “comment” button in a blog post, we can have a two-way conversation. That’s potentially more interesting and helpful to you than the one-way, “read-only” information you get from the rest of the website. But that benefit is also a potential harm, because like everything else on the web, the incoming comments are not always what they seem to be.

An ideal comment is posted by someone who has read the blog post they are commenting on, and has a question, a follow-up observation, or maybe a different point of view. My hope is to keep the conversation going with a community of folks on the Web who will benefit from and contribute to the value of this site. Unfortunately, many of the comments received are not of this type.

Many comments are generic, one-word or two-word interjections like “Nice article!” or “Great post!” These generic bits of flattery are typically sent to every blog the sender can find. The sender’s goal is not to start a conversation, but to post a link to his own website or blog in hopes of generating traffic to it. It’s a dead giveaway when the included link is for items for sale, and is much longer than the actual comment to which it is attached.

Even worse are the comments designed to spread malware.  They link back to sites that attempt to get your computer to download a virus. I typically Google the linked sites rather than actually clicking through to them. And it’s amazing how often the site comes up as a known “attack site.”  So these senders are appearing to make nice while hoping to possibly take control of your computer. Identity theft is but the first item in a long list of ugly possibilities that arise. Once your computer is compromised, you run a greater risk of criminals being able to log into your financial accounts to steal your money..

I have been the victim of cyber attacks before. Containing and cleaning up the damage can be time consuming and expensive. Accordingly, I’m very careful about which comments get through.  All comments for this blog must be moderated by yours truly before they will appear. If yours does not appear, it’s probably for one or more of the following reasons:

1. If a comment is so generic it suggests the sender didn’t necessarily read the article, and could have posted the exact same comment to a hundred different sites without having to change it in any way, then it will not get posted. Still,  I’m tempted to put up an article of complete gibberish to see how many “thank your for that” comments I still get.

2. If the comment is full of the kind of grandiose verbosity and fractured syntax typically associated with Nigerian scam emails, it will not get posted.

3. If the comment links to a business one would not expect to find adverting on a Christian site, it won’t get posted.  In other words, escort services and porn purveyors need not apply.

4. If the comment inquires about what platform or security measures this site uses, it will not get posted.

5. Finally, comments linked to known or suspected attack sites (especially links to sites hosted outside the Americas) will not get posted.

Those rules may cause me to accidentally exclude a legitimate comment from time to time. I apologize in advance for that. But it’s mostly bad guys who transgress those rules. [And that's one of the key points I wish to make here. Spam, in the form of blog posts or emails, is not just annoying; it's a risk to your financial well being.]  On the other hand, if you are one of the good guys, the kind of person this site was built to serve, then I eagerly await your input. Do you need to have something clarified or further explained?  Is there a topic you’d like to see more of? Less of? Did something here inspire you? Then by all means, let’s talk!

We now return you to your regularly scheduled blog posts.

 

Is it Real, or is it Internet?

For those of you too young to remember, there was no digital media in the 1970s. People listened to prerecorded music on magnetic tape. You know…cassettes.  One famous series of commercials for Memorex brand cassettes suggested that the tape had such high audio fidelity, you would not be able to distinguish between the recording and the live event.  After showing you a snippet of famous performers (Ella Fitgerald, Chuck Mangione, others), the announcer would ask, “Is it live, or is it Memorex?”

Today there is such a glut of made up stories floating around online masquerading as fact, that many people  have trouble discerning true and false. Take the following story, which appeared in my Facebook feed today,  for example:

A True Story Serve as a Warning

To the men: warn your loved ones!

To the women: remember this!

About a month ago there was a woman standing by the Mega Mall entrance passing out flyers to all the women going in. The woman had written the flyer herself to tell about an experience she had, so that she might warn other women.

The previous day, this woman had finished shopping, went out to her car and discovered that she had a flat. She got the jack out of the trunk and began to change the flat.

A nice man dressed in business suit and carrying a briefcase walked up to her and said, “I notice you’re changing a flat tire. Would you like me to take care of it for you?” The woman was grateful for his offer and accepted his help. They chatted amiably while the man changed the flat, and then put the flat tire and the jack in the trunk, shut it and dusted his hands off.

The woman thanked him profusely, and as she was about to get in her car, the man told her that he left his car around on the other side of the mall, and asked if she would mind giving him a lift to his car. She was a little surprised and asked him why his car was on other side. He explained that he had seen an old friend in the mall that he hadn’t seen for some time and they had a bite to eat and visited for a while; he got turned around in the mall and left through the wrong exit, and now he was running late and his car was clear around on the other side of the mall.

The woman hated to tell him “no” because he had just rescued her from having to change her flat tire all by herself, but she felt uneasy. Then she remembered seeing the man put his briefcase in her trunk before shutting it and before he asked her for a ride to his car. She told him that she’d be happy to drive him to his car, but she just remembered one last thing she needed to buy. She said she would only be a few minutes; he could sit down in her car and wait for her; she would be as quick as she could be.

She hurried into the mall, and told a security guard what had happened; the guard came out to her car with her, but the man had left. They opened the trunk, took out his locked briefcase and took it down to the police station. The police opened it (ostensibly to look for ID so they could return it to the man)… What they found was rope, duct tape and knives. When the police checked her “flat” tire, there was nothing wrong with it; the air had simply been let out. It was obvious what the man’s motive was, and obvious that he had carefully thought it out in advance.

The woman was blessed to have escaped harm. How much worse it would have been had she waited in the car while the man fixed the tire, or if she had a baby strapped into a car seat. Or if she’d gone against her judgment and given him a lift.

I’d like you to forward/share this to all the women you know. It may save a life.

I was going to send this to the ladies only; but guys, if you love your mothers, wives, sisters, daughters, etc., you may want to pass this messages to them, as well.

REMEMBER and make it a HABIT to PRAY! and PRAY! and PRAY!!!

A sobering story, if true. But is it true?  It seems to be missing all the crucial details that would characterize an incident report in the mainstream press. Consider:

1. There is no date or location given. In what city and state did this occur?  There is a reference to “the Mega Mall.”  But that could refer to any large mall, or to a place called The Mega Mall in Lansing Michigan; or to The Mall of America; or to Bert’s Mega Mall in California; or to the SM MegaMall in the Philippines. It’s hard to verify a story that could have happened anywhere in the world. That’s why newspaper reports of crimes or attempted crimes always begin with the dateline; a notation at the beginning of an article giving the date and location.  Granted, the writer says “about a month ago,”, but would be more meaningful if I hadn’t first heard this tale over ten years ago.  In the version I first heard, it was duffel bag in the back seat, not a briefcase in the trunk, and it was a mall local to me, but it was identical in all other respects.

2. There are no names. The would-be victim is not given a name. Even Robin “last name withheld” or Suzy “named change to protect her privacy” would be more typical of a real news item than simply “the woman.”  And what is the name of the security guard who was involved?  Surely he was interviewed. And to what police station was this reported?  Their records would corroborate this story. Perhaps they could provide information on whether there had been similar occurrences in the area before or since.  And wouldn’t the police have tried a “lost and found” ruse to get the owner of the briefcase to come claim it? I’m no expert on the legalities of their opening the locked briefcase under the circumstances. But given that they did, and found suspicious contents, would they not have dusted the case and its contents for fingerprints, along with the wheel and jack in the woman’s trunk? Someone reporting on an incident from “about a month ago” could easily include information like this.

3.  There are security cameras everywhere these days. Were there none at the mall?  What, if anything, did they show? Was the woman interviewed by her local media?  If so, there’s probably a newspaper report or a You tube video of it somewhere.

In the absence of all the aforementioned information, this story might as well begin “Once upon a time.”  Now there is nothing wrong with a good piece of fiction that is clearly labeled as such. But to peddle fiction as fact is wrong. And do we really need to make up a scary story in order to encourage people to pray?  Finally, if people are easily convinced that these undying Internet stories are true, it suggests they might be easy prey for con artists. And in the financial world, there are plenty of those.   That’s next.

 

 

 

This Too will Pass

Woot! This is every investor’s idea of fun. Yesterday marked the fourth anniversary of the stock market’s current bull run. Meaning that the the stock market hit bottom on March 9, 2009, and has been trending upward since. The S&P 500, a broad index of big stocks, closed at 676.52 at the market bottom four years ago. It closed at 1556.22 today. The Dow Jones Industrial Average closed at 6,547.03 back on March 9, 2009. It closed at 14,447.29 yesterday. That’s a 131% gain for the S&P, and a 120% gain for the Dow. Spread over the four years, that gain is equivalent to a 23.35% annual return for the S&P, and a 21.88% annual return for the Dow. And the closing numbers for both of those indices are an all-time record. I’ll say it again: Woot!

Now before the celebration gets out of hand, I should remind you of a couple of things. First, this too will pass. The market will not head up forever. Somehow people have a hard time not believing that whatever is happening in the market right now will continue ad infinitum. When markets are tanking, advisors have the difficult job of convincing frightened investors that the collapse isn’t permanent; that the storm will break one day; that there is nothing to fear but fear itself; that their goals and dreams will not be well-served by abandoning ship when the seas get rough. Bear markets have come and gone before, we tell them, and this too shall pass.

Oddly enough, we have to give the same speech when unreasoning fear is replaced by irrational exuberance in a long-running bull market. Suddenly people who have been timid and principal-obsessed want to go all-in on small company stocks. They throw caution to the winds as they start imagining what their portfolios will look like after fifteen consecutive years of 20% gains. While I hate to be a wet blanket, I must caution those people that they have better odds of being struck by lightning than they do of seeing this run continue at this pace for years to come. Year over year growth of 20% or more has never been the norm, and there is no reason to think it is about to become the norm. The uptrend will invariably turn down again. The party is never permanent. This too will pass. If you can’t take the inevitable heat, now’s a good time to get out of the kitchen.

But I hope that’s not you. Because over long periods of time, the up days have always outnumbered the down days. The history of the stock market is of a long upward march regularly punctuated by catastrophic (albeit temporary) declines. The spoils belong to those who can stay disciplined through the ups and downs.

This brings up the second thing we need to discuss. Most investors don’t achieve anything near the index returns in their own portfolio. Why? Because when markets are tanking, they start to fear the decline will be permanent and bail out. That’s called selling low. And when the market turns around, they are slow to believe it, until record highs and euphoria convince them to buy back in. That’s buying high. You’re supposed to buy low and sell high. It just works better that way. But as one sage observed, the stock market is the only market where customers are unwilling to buy during a big sale. They want to wait until prices go back up before buying. If you doubt this, consider the fact that over the last several years, stock mutual funds have been suffering net outflows. That means more investor money was leaving the funds than was coming in. This finally changed about a month ago, as the markets were approaching new record highs. Consistently buying high and selling low will not make you prosperous.

How can you avoid the temptation to buy high and sell low? When you make your next IRA contribution, and when you have the opportunity to change your 401(k) allocation, consider this strategy: Put the most money into the asset class that performed the worst over the last twelve months. Put the smallest portion of your investment into the category that performed the best. You’ll be buying more of what’s on sale, and less of what’s marked up. You should consider reallocating the entire account balance (not just the new contribution) along those lines. You’ll be selling high (the stuff that appreciated the most) and buying low (the parts of your portfolio that are cheapest). It won’t feel right. It never does. But it’s smart strategy if followed consistently. So sell the winners, stock up on the laggards, and say it with me: Woot!

First, Do No Harm

Primum non nocere. “First, do no harm.” That phrase is indelibly etched in the public mind as being at the core of medical ethics. Perhaps it should be a core concept of financial management as well. While most people are looking for big gains and magic bullets, the core principle of financial management might well be not to make things worse.

With that in mind, the website Boston.com recently polled a number of members of the Financial Planning Association, including me. They created the following gallery highlighting the mistakes that professional advisors see investors make most often. Browse the gallery and make sure you’re your investing efforts aren’t being undercut by these mistakes! http://www.boston.com/business/2013/02/21/the-most-common-financial-planning-mistakes/8VuLk9Z2J0RMuE53tkBjfN/story.html

The Joy of Blogging

A tiny confession: I am not an adrenaline junkie. Some people thrive on risk. You know the type: downhill skiing on the black diamond trails; riding triple-looping roller coasters; investing in leveraged ETFs. The high-risk activities are fun when they work well, but can ruin your day when they don’t. Which is why I’ve decided to start blogging more. That’s not a non sequitur, as I’ll now explain.

I was recently interviewed on live radio. That’s something I’ve done over a dozen times, and I’ve always enjoyed it. It’s certainly not a high-risk activity when compared to skydiving or similar death defying pursuits. But everything is relative, and radio is riskier than blogging. Unlike a blog, live radio doesn’t give you any do-overs. I can type a sentence here, consider it, and edit it as needed until I feel satisfied that it’s good. When you read the final result, you’ll have no idea that the paragraph you like best took me six edits and 20 minutes to get right. Radio affords no such luxuries.

On my most recent interview, I made a verbal slip that I didn’t catch until I listened to the playback online. It wasn’t an end-of-the-world mistake by any means. Just a weird little slip, the equivalent of wishing someone a happy Friday when it is only Wednesday. It makes you look like you’re not quite up to speed. In my case, I made casual mention of the the stock market’s closing numbers, but misquoted the DJIA by about 1,000 points. I did this even though I was looking at the actual closing numbers while doing the interview. But there’s no going back and fixing it. And thanks to Internet radio, the sound file of my interview and the blooper it contains will live on and on.

Silver lining time: First, there’s the fact that our little failings, especially public ones, help keep us humble. Humble is good. It’s rarely fun, but always good. Second, it reminded me that any mistake I make in this blog can be fixed. Tapping away late at night on my laptop computer does not produce anywhere near the adrenaline rush of fielding unanticipated questions on live radio. But I won’t spend the hours after I post something smacking my head and saying to myself, “You idiot!”

So to all you patient readers who have wanted to see me post more here, the upshot of all this is that I’m in the mood for a little risk avoidance, and will be posting here much more than in the past. Stay tuned.

Hidden Benefits of the Fiscal Cliff

On New Year’s Day, Congress and the White House drove America off the fiscal cliff. That same evening, they engineered a soft landing by passing the American Taxpayer Relief Act of 2012. Talk about cutting things close. The brinksmanship and last-minute fixes provide a good example of how not to run a country. And naming the new tax law the American taxpayer Relief Act of 2012 when it raises tax payments for 77% of Americans is certainly noteworthy for irony, or maybe chutzpah.  While you’ve been hearing about the fiscal cliff and the law that fixed it for some weeks now, there are some important details that have been omitted from most of the media coverage I’ve seen. For example:

The Good

Will you be paying college tuition for yourself, your children, or your grandchildren? The new law retroactively reinstates the above-the-line tax deduction for qualified tuition and expenses. By “above the line,” I mean that up to $4,000 of these expenses can be deducted before calculating Adjusted Gross Income.  Since many unrelated tax benefits depend on the size of your AGI, above-the-line deductions are good. You can claim this tuition deduction if your AGI is less than $130,000 for a married couple filing a joint return.

The new law also permanently expands the student loan interest deduction. Before this law, taxpayers could only deduct student loan interest during the first five years of repayments. Now that time limit is removed.

Another temporary benefit made permanent by the new law is the expansion of Coverdell Education Savings Accounts. They were originally created with measly $500 annual contribution limits. A 2001 tax law temporarily increased this limit to $2,000. The new law means the bigger contribution limit is staying around. And eligible education expenses include both elementary and secondary schools.

Another item in the new law that may affect your college planning is its impact on Section 529 Plans. While the law doesn’t address these plans directly, the changes it makes to capital gains taxes may make you want to reconsider them. Specifically, the law makes permanent the so-called “Bush Tax Cuts” for all but the highest tax brackets. This means that capital gains and qualified dividends will be taxed at a 0% rate for people in the 10% or 15% income tax brackets. A married couple filing a joint return in 2013 with taxable income of $72,500 or less would pay no taxes on long-term capital gains or qualified dividends. Since the primary advantage of Section 529 Plans is that their gains are tax-free if spent for qualified education expenses, they may hold no advantage for people in lower tax brackets. If this is you, a standard brokerage account would provide you with more flexibility, both in terms of investment choices and in terms of how you ultimately spend the money, while giving up nothing in tax advantages to the 529 Plan.

The Bad

The law helps business owners by extending the Bonus Depreciation rules. that’s good. But the extension is only temporary, lasting for one year. That’s bad.

The temporary decrease in Social Security taxes is officially over, so your FICA tax payments will go back up from 4.2% to 6.2% of the first $113,700 you earn in 2013.

The Ugly

Beware the hidden tax hike. The politicians and the media have been trumpeting the fact that tax rates are only going up for single filers earning $400,000 or more, and joint filers earning more than $450,000. This is true. But if you earn more than $250,000 (single) or $350,000 (joint), your effective tax rates are still going up. That’s because your personal exemption and your itemized deductions (including charitable contributions and mortgage interest) are both phased out at your income. So while your tax bracket won’t rise, the loss of exemptions and deductions increases the amount of taxable income to which the rate applies.  Welcome to the Taxpayer Relief Act of 2013.  It wouldn’t be politics without some bad and some ugly, but at least this is a tax law with some good in it. Talk to me if you want to know more!

Don’t Die the Way Half of Americans Do

Everybody should be talking about this, but outside of academic circles, almost nobody is. “This” is a research paper done by three economics professors, one from Harvard, one from MIT, and one from Dartmouth. The research shows that 46% percent of of elderly Americans have less than $10,000 in financial assets in the year of their death. In other words, they basically ran out of money before they ran out of time. Not only is it no fun to be old and broke at the same time, it’s apparently bad for your health, too. The study found that the people with the least financial assets were generally in worse health than those who were more affluent. If you don’t want to be simultaneously old, poor, and sickly, you’ll need to take positive action to avoid being part of that 46%.

The study is called Were They Prepared for Retirement? Financial Status at Advanced Ages in the HRS and AHEAD Cohorts. Okay, maybe that’s  why no one is talking about it; that’s not nearly as compelling a title as, say, Left Behind, Star Wars, or The Incredible Hulk. It is, after all, an academic paper, and it reads with all the page turning suspense you’d expect from a research report — meaning none at all. It won’t be made into a blockbuster movie. It won’t ever become a viral video on YouTube.  Most people will never hear of it. And that’s a shame. Because its contents are too important to overlook. Here are some of the reasons why:

1. It’s about reality, not just projections. While many studies have looked at pre-retirees and tried to ascertain how financially prepared they might be, this one looks at how well off thousands of people actually were at the end of life. Nearly half had neither significant financial assets nor housing wealth. My own anecdotal observations suggest that most people don’t foresee themselves ending up in such straits, meaning many people are probably not as well prepared for retirement reality as they think they are.

2. Not everyone who died broke started out their retirement that way. Many people have money on retirement day, but deplete their assets over fifteen or twenty years of rising living costs. For these people, retirement becomes progressively more uncomfortable as they slowly go broke. The standard of living declines, and with it the perception of quality of life. The study shows this is not a rarity or an anomaly. It’s how nearly half of us end up.

3. People with little or no financial assets usually have a hard time coping with unexpected cash outlays.That elderly couple down the street knows that the paint on their house is peeling, and the lawn is getting weedy. They just can’t afford to maintain their home like they used to.  More importantly, when uninsured medical expenses start to multiply, they start foregoing needed care. Their health suffers. Physical discomforts and worries about health problems cause stress that leads to still more health problems.

While the study has no political or social agenda, it stands as an  indictment of my profession. Both of them, actually. As a financial pro, I shake my head at my industry’s narrow focus on serving high net worth clients. So many “wealth managers”  aren’t interested in taking on clients with less than $1 million (sometimes much more) in assets to invest. Why ignore the people who could benefit most profoundly from professional counsel? It’s the middle class that most desperately needs help to avoid the mistakes that can land them in that ill-fated 46%. The well need not a physician.

I also can’t help but reflect on the fact that I live in a country where at least 52 million people attend church most every Sunday. Yet despite all that scripture has to say about wise money management, I don’t believe that the financial status of Christians as a group is appreciably different from that of everybody else.  Clearly, the motivational scripture sound bites that pass for financial teaching in some Christian circles aren’t doing the trick.

The good news is that these problems are fixable.There are sound strategies that can help you avoid the fate of the 46%. Stick around — we’ll talk about a few of them in the next post.

Who Are They Kidding with These Headlines?

I was perusing a large, respected consumer finance website when I saw one of “those” headlines. The ones that grab your attention and make you do a double take. This one was entitled “Early Retirement Without a Fortune.” The introductory paragraph went on to say that it’s “not as hard as it looks.” This grabbed my attention, because I’ve always believed early retirement was indeed a challenge for most people not blessed with large inheritances or very high income. What did these people know that I didn’t? I plowed into the reading.

The article profiled a number of people who had quit work well before their sixties. And none of them had struck it rich as investors or entrepreneurs, nor had they hit the lottery or inherited millions. How had they managed to retire in their fifties, forties, and even earlier? It’s instructive to look at two examples of the people that were profiled.

Contestant #1 is age 62, and retired at 49. He and his wife live on $50K/year, deriving $17K of that from Social Security, and the other $33K from their investment portfolio. Only the value of the investment portfolio is just $350,000, meaning they are withdrawing at a rate of more than 9% per year. At that rate, they will likely run out of money before they run out of life expectancy. It looks even worse when you add healthcare to the mix:

One of the big unaddressed issues in many retirement plans is the rising cost of healthcare as we age. A study by The Center for Retirement Research at Boston College estimates that a pair of married 65-year-olds should expect to spend $197,000 in uninsured healthcare costs over the rest of their lives. And that’s not including the costs of a potential stay in a nursing home. So this couple did retire early without a fortune…but also without much long-term financial security.

Contestant #2 “retired” at the unbelievable age of 33. He probably lived with his parents. The article doesn’t actually say that. But it did say that he managed to save 80% of his take home pay each month while he worked. How does one do that while living independently?

Then he quit working, and managed to live on just $7,000 per year, spending $1,000 on hobbies, and the rest on basic living costs. That’s just $500 per month for food, housing, clothing, transportation, utilities, medical expenses…. It sounds like the parental basement to me. Oh, and his exit from the workforce lasted just four years, after which he got a job. That’s not early retirement; it’s a sabbatical or just extended unemployment.

The best description of most people’s goal that I have ever heard is this: having enough money to retire comfortably, and to stay comfortably retired. That’s doing it right. Retiring early is a great goal, but it’s not as desirable as retiring right.