The Top 5 Financial Advisement Questions Clients are Asking Me Today

answers-financial-questions-most-asked

Clients ask questions all the time. Usually they are based on a conversation with a friend or associate, or sometimes another family member. Lately, I have noticed a significant increase in people asking the following 5 questions. I am not sure why, other than many of them are concerned over the current volatility and uncertainty many are currently experiencing in their lives or in their minds. Whether it is due to politics, stock market activities, changing interest rates or the increase in frequency and severity of natural disasters, I don’t know. What I do know is these are questions that are making many of them uncomfortable, with many reporting it is starting to affect their ability to relax and sometimes, sleep.

I would like to offer some insights to these issues that, hopefully, will help you to relax and enjoy life more.

pay-off-my-home

Question #1: Should I pay off my mortgage?

Whenever things get a bit sketchy in the stock market, or the economy in general, this question comes out of the woodwork. It usually happens when someone sells an asset, inherits money or gets a big severance package, they say, “if I pay off my mortgage it will be like getting a guaranteed 4%” (or whatever interest rate they are paying on the mortgage as the rate of return).

While you are saving the expense of the interest charge, you are putting the money where it will earn a guaranteed interest rate of 0%! What people forget, this is more than just a dollars and cents question. It is a question of use and control of your home equity as well. Not only do you earn a greater return not accelerating (paying off sooner) your mortgage, having the use and control of that money can provide a critical edge if things get bad like in 2007-2010, when you couldn’t do a cash out refi.

For more information on paying off your mortgage, please see my post from a couple of years ago by clicking here.

stock-market-correction

Question #2: What kind of impact would a market correction have on my retirement?

The best answer is, “that depends”.

If you are young and more than 5 or 6 years away from retiring, then it isn’t a big deal, unless the roller coaster ride created by a 40-60% correction would keep you awake at night. There is no substitute for peace of mind. Since we finished the market drop in 2009, we have had nearly 10 years without a significant drop in stocks.

Many people’s recollection of how they felt and were affected by that event has faded. Many of the traditional measurements of how much risk is in the market are at extreme levels.

What if you are less than 5 or 6 years from retiring, or already retired? Then a market correction could be devastating to your future financial security. There have been a number of studies, including Prudential’s “The Retirement Red Zone”, which says that market drops within 5 years of retirement, before or after, can force someone to either postpone retirement, or force drastic cuts in the amount of income that can be reliably drawn from your portfolio. The one thing I know for sure, once you retire, going back to work can be a very difficult transition, if suitable employment can be found.

If you find yourself in the above situation, reduce your exposure to stocks so that only money you won’t need to use for the next 5-10 years is allocated there. There are many options that won’t be hurt by a market correction, contact your investment adviser or us if you want to look at alternatives. The important thing to remember, alternatives need to be independent or “not correlated” to the performance of the stock market itself to be effective.

I wrote on this topic a few months back and encouraged investors to take stock while things are calm as it can get emotional when markets are dropping by hundreds of points a day.

long-term-care

Question #3: Do I need Long Term Care insurance?

You may not need Long Term Care insurance, but you definitely need a long-term care plan!  

The cost of chronic illness care is one of the most common reasons people go bankrupt in retirement. Costs can run over $100,000 per year, even in your home! According to the Department of Health and Human Services, about two thirds of all folks who reach 65 will need this type of assistance before they die! How much can you afford to pay?

Long term care is when you need help to get through your day. Most of us know someone who is in this position and needs assistance with:

  1. Getting in and out of bed, chairs, etc. (Transferring)
  2. Dressing
  3. Eating
  4. Bathing
  5. Walking independently (Ambulating)
  6. Getting to the bathroom (Toileting)

These are known as the 6 ‘Activities of daily living’ (known as ADL’s) that trigger a long term care event. Also, dementia or Alzheimer’s can trigger the need for a care giver or other assistance.

You must have a plan to manage these issues that includes powers of attorney (both medical and general) and a liquidation plan or other instructions to guide those folks who may have to make decisions about your care as to what assets to sell to pay for your care.

If you think you want to self-insure, you will need access to at least $200,000-$300,000 to pay for just a few years of care. If you think your wife or husband will be able to be that caregiver, you must not have ever known someone who needed care! Try to picture them picking you up and putting you into the bathtub or lifting you out of bed. Now, picture them doing it 20 years from now. See, we all continue to age and being a care giver takes a lot of physical and emotional strength and stamina.

While Long Term Care insurance (LTC), can be a powerful asset to help with this issue, many people wait so long to investigate this tool that is isn’t affordable. There are other insurance and investment options that can help to increase the assets available to help pay for care. The message I want you to hear is, have a plan in place BEFORE it is needed!

money-to-retire

Question #4: How do I know if I have enough money to retire?

This is the question Wall Street wants you to ask. You may recall advertising over the years for Fidelity’s “Green Line” or ING (now Voya) asking “Do you have your number?”, where people were walking around with huge numbers under their arms, most well into the millions! Many people saw these ads, and others, and concluded that it wasn’t even worth trying to save for retirement, since they couldn’t relate to saving millions of dollars!

Here is the real question that will let you know if you have enough, “How much lifetime income do I have available to me in retirement?” See, during our working years, you pay your bills from your paycheck, and save money to invest and build wealth. Once you retire, you need to replace your paycheck in order to pay your bills. A couple of years ago, I wrote a blog post on this topic, outlining the steps to figuring out how big of a paycheck you need in retirement. Once you know that you can plan strategies to create reliable income streams that you can depend on regardless of markets and the economy, in order to support your desired lifestyle.

Once you know what your target is, then select strategies that are intended to produce income. Things like stock portfolios and real estate equity are volatile and you can’t find a reliable way to predict and depend on how much of those assets can be cashed in and spent.

Dividends and rents are income that are derived from these assets, but it is hard to know what kind of income will be produced in the future. Sometimes renters leave and dividends can be cut (GE cut theirs in half recently). There are a number of other assets that are oriented to creating income, my post called “Are your Guaranteed a Happy Retirement”, discussed a variety of these strategies and the pros and cons for each.

You can’t enjoy a truly happy retirement until you can answer this question.

rising-interest-rates

Question #5: Will I be hurt by rising interest rates?

The short answer is; “it depends”. If you have savings, higher interest rates will mean more income. If I own bond mutual funds, there is a strong probability that I am going to lose money, at least for the near term, now that the Federal Reserve started increasing rates to a more “normal” level.

If you are thinking of buying a home and borrowing money for a mortgage, that will increase what it costs each month to live there. Other purchases and consumption will also increase in costs. Short term, there will be a period of adjustment and some asset classes like gold and stocks might go down in value due to the increased cost of capital. In the long run, rates will be relative. If the cost to borrow goes up, so will the interest being paid on savings.

However, there is one cost that many people are not considering. At some point, increased interest rates will force the government to increase taxes!! That’s right, higher interest rates will mean that taxes will need to increase. In fact, we are currently guaranteed a tax increase in just a few more years.

In 2025, the tax cuts for individuals will EXPIRE. In the meantime, we have increased our annual deficits and the accumulated debt is increasing at a projected $1 Trillion plus each year until then. That money is borrowed, and the interest being paid will go up as rates increase. Currently, 21% of the federal budget is spent on interest on our national debt. That is just the federal debt. States will also have the same issue. As that crowds out other spending by government on services, taxes will need to go up or we will see defaults on this debt and that will force interest rates up even more.

While rates are low for both interest and taxes, I encourage all of my readers to make plans to protect their lifestyles from this potential spiral!

financial-advisor-top-5-questions

Did I answer your financial question?

I hope these questions and answers offered you some food for thought. The questions are those that my clients and associates are asking in increasing frequency. If you can think of others, let me know and I will be happy to include both the questions and answers in a future post. If you are asking the question, you are probably not the only one.

If you find these questions to be pertinent to your situation, and you are struggling with strategies and answers to them, contact us and we will be happy to help you out!

roger-gainer

Roger holds the coveted and well-earned designations of Chartered Financial Consultant (ChFC®) and Retirement Income Certified Professional (RIPC®) from the American College. He is also a licensed insurance agent for life and health insurance, a Certified Paralegal for Estate Planning, and a current board member of SASM.