Tips to develop a sense of command and control over your financial future

Most of us cannot imagine the sudden loss of our spouse. Yet, difficult as it may seem to accept, U.S. Census data indicates that the overwhelming majority of married women will be on their own for a significant number of their later years.

Should this happen to you, you might be thrust into economic self-survival at a time when you may feel particularly vulnerable and least able to cope. Nevertheless, serious decisions would have to be made, often having a lasting impact on your future financial well-being.

Planning for the Unimaginable

There is an unpredictable aspect of “sudden loss” in that we never quite know how we will react to certain events until they actually occur.

While no one can ever be totally prepared to deal with personal trauma compounded by legal and financial matters, there are steps you can take to help you navigate through this difficult period.

The key is to find a way to help provide structure in your life at a time when structure may be disintegrating.

It Happened…What Do I Do?

When the initial shockwaves hit, there are matters that will require immediate attention: notification of family and friends; funeral arrangements; and contacting an attorney to review the will and handle the legal aspects of your spouse’s estate.

Let your closest friends and most trusted advisors help you with some of these details and short-term decision-making, but proceed with caution regarding major financial decisions such as whether to sell your home, borrow or lend money, invest, make major purchases, and make work/career changes.

During this period, you will most likely face competing demands on your financial resources. If your spouse was the primary income earner, it may take some time to assess your financial situation. During the first few months, pay bills that need to be paid, but spend cautiously, paying attention to cash flow and liquidity.

Rebuilding After the Shockwaves

Certain timetables (e.g., timely filing of tax returns) can’t be overlooked, but much of the financial recovery process should be orchestrated to match your emotional recovery.

Some of the important aspects that will have to be addressed eventually will include assessing the needs of dependent children; making housing decisions; determining your income needs; making decisions about insurance settlements; evaluating your insurance needs; and managing money on your own.

Many of these decisions may flow naturally from an appraisal of your needs (and/or desires) to participate in the workforce.

• Will you want to work?
• Will economic necessity dictate that you must work?
• If you are currently employed, will you stay in the same position?
• If you have not worked for some years, how well will your skills fit the job market?
• Will you need to acquire more education or enhance your technical skills?

While professional advice will be helpful, don’t allow yourself to be pressured in areas in which you need more time. Your goal should be to develop a sense of command and control concerning your financial future. Align yourself with advisors who will have the patience to work with you at your pace, advisors who will help you gain the knowledge and confidence necessary to go it alone.

Obviously, the earlier you begin to educate yourself concerning financial matters, the better prepared you will be to withstand the impact of facing sudden loss. The quality of your life may depend on your financial skills and your willingness to take responsibility for managing your own financial affairs.

Copyright © 2022 FMeX.

Getting old is hard. Your parents’ ability to manage their own finances may decline as they age. Helping them with money matters is a sensitive issue you need to approach carefully.

When you hit a certain age of your life, you may realize that one topic keeps coming up in conversations with your friends: care for aging parents. The concerns aren’t limited to health care managing money is also a big problem.

Parents aren’t likely to recognize their own declining abilities, so knowing when and how to step in to help is important. Here are some tips:

1. Watch for warning signs. When visiting your parents, take a look around the house. Are there unpaid bills piling up on the counter? If the things that are normally done are not, it may be a red flag that your parents are struggling with the upkeep.
2. Be aware of the people in your parents’ lives. Make sure that you have a list handy of people you can contact, and keep the lines of communication open. Friends, caregivers and church members can offer insight to any changes in your parents’ behavior. Don’t forget your parents’ professional contacts, such as their attorney, doctor, insurance agent and financial advisor.
3. Be subtle. Most people have a difficult time relinquishing control over their finances. Try offering guidance and help instead of taking over their finances completely.
    
   Suggest that you can help balance their bank statements or set up online banking and automatic bill payments. This offers an excuse to start a discussion on their financial matters and helps relieve the stress on your parents to stay on top of everything. You can also start the conversation by purchasing a book about financial concerns and discuss the book with them.
4. Work with your siblings. Sharing responsibility can be tricky, but keeping everyone in the loop is critical. If one sibling lives closer, in-person tasks may be easier for him or her. Set up monthly telephone meetings with siblings to make sure that everyone is aware of the situation and can make decisions together.
5. Prepare a power of attorney. This is a form that authorizes you to make business or financial decisions on your parents’ behalf. If they are willing to sign and notarize a power of attorney, you have greater oversight of your parents’ finances. Make sure that you notify the family and that everyone knows who has power of attorney.

No one likes to lose independence. Helping your parents with this transition is difficult, but it’s in their best interest and yours.

Copyright © 2022 FMeX.

Things to think about as you review your long-term retirement strategy

Tempted to stash your money in a bank CD? Or maybe under your mattress? Think either one of them will keep pace with inflation? Think again.

Inflation

Inflation is defined as an increase in the general level of prices for goods and services. Deflation, on the other hand, is defined as a decrease in the general level of prices for goods and services. If inflation is high, at say 10% – as it was in the 1970s – then a loaf of bread that costs $1 this year will cost $1.10 the next year.

Currently, the inflation rate in the US is very high. Historically, inflation in the US has averaged 3.3% from 1914 until 2021, but it reached an all-time high of 23.7% in June 1920 and a record low of -15.8% in June 1921.

So how does inflation affect your retirement savings? The answer is simple: inflation decreases the purchasing power of your money in the future. Consider this: at 3% inflation, $100 today will be worth $67.30 in 20 years – a loss of 1/3 its value. Said another way, that same $100 will only buy you $67.30 worth of goods and services in 20 years. And in 35 years? Well your $100 will be reduced to just $34.44.

Bank CDs

A certificate of deposit – a CD – is what’s known as a time deposit account – a bank agrees to pay interest at a certain rate if savers deposit their cash for a set period of time. Generally speaking, the interest rate paid by the bank increases as the term (the length of time the bank has your money) increases. CDs are also insured by the Federal Deposit Insurance Corporation for banks and by the National Credit Union Administration for credit unions.

As the chart below shows, CD-yields have been in a steady decline for the past 35+ years:

More specifically, compare three dates from 1984, 2017 and 2022 to see the disparity:

	July 3, 1984	January 6, 2017	January 13, 2022
1-year CD yield	11.27%	0.27%	0.14%
5-year CD yield	12.06%	0.86%	0.26%

The Mattress

Surprisingly, we all know people who prefer to keep their savings under a mattress or in a shoe-box hidden away in a closet. But here is what a world-renowned study of every investor who hid their money under a mattress or in a shoe-box found:

Avg. Annual Returns	Mattress	Shoe-Box
Last 5-years	0.0%	0.0%
Last 25-years	0.0%	0.0%
Last 100-years	0.0%	0.0%

Unfortunately, there was not enough data going back more than 100-years, but I suspect the returns would have been the same.

The Stock Market

If you are looking for average stock market returns over a long period of time, you are likely to get different numbers from different sources. This is because your answer really depends on a number of variables, including which index you review, whether dividends are included or not, whether the effects of inflation are calculated, etc.

Most financial professionals would agree, however, that the long-term data for the stock market points to an average annual return of about 10%. In fact, the S&P 500 has returned a historic annualized average return of 10.5% since its 1957 inception through 2021.

And let’s not forget what 2021 brought investors:

• The DJIA rose 18.7% in 2021;

• The S&P 500 rose 26.9% in 2021;

• NASDAQ rose 21.4% in 2021; and

• The Russell 2000 Index rose 13.7% in 2021.

What Investors Need to Remember

Although there are times when buying a CD might be appropriate, generally speaking, buying CDs should not be part of your long-term retirement strategy – unless you happen to be very close to retirement age. CD rates today just don’t keep pace with inflation. And putting your money under a mattress is worse (and probably uncomfortable too).

Instead, I encourage you to explore the thousands of financial products that provide better options. And remember that over long-periods of time, the stock market has outpaced inflation, today’s CD yields and hiding your money under your mattress.

But before you invest in anything, consider the risk/reward tradeoff, your goals and your time horizon
– and call our office to discuss.

Copyright © 2022 FMeX.