The 3 Keys to Surviving Major Life Transitions

Originally in ForbesYou might think that the most important work a financial advisor can do is related to allocating a client’s investment portfolio, or perhaps helping secure a timely insurance policy or drafting the optimal estate plan. In fact, their most important work is done when clients are in the midst of navigating life’s major transitions.

Help

I have very recently undergone two of these major life events — a job change and a move — in the span of five months. Crazy, right? Who would willingly subject themself to two of life’s most stressful changes within such a small window of time? Fortunately, I had at my disposal three keys to surviving major life transitions, and I’d like to share them with you:

Key #1: Flexibility

“Blessed are the hearts that can bend; they shall never be broken.” — Albert Camus

In February, I left the company I loved after seven years of life-changing work to lock arms with a national alliance of financial advisory pioneers dedicated to the practice of “building relationships by doing the right thing.” But in order to build a new and rewarding relationship with them, I had no choice but to sever some relationships with others.

I had to tell colleagues at my former company — good friends — that I was leaving, knowing that our work was the primary basis for our friendship. I also had to forgo working with some clients whose financial plans I’d helped craft, and in whom I’d invested personally.

I had to impose myself on new colleagues as I fumbled through onboarding. I had to learn new systems, protocols and personalities. I had to wonder if, at the conclusion of a probationary stretch of forgone forgiveness, my new colleagues would still want me on their team!

So much change in so little time.

You’ve heard that death and taxes are life’s only guarantees. But I’m still holding out for an Elijah-style exit, and half of Europe pays taxes little mind. No, it is only change that is a guarantee in this life, and flexibility is its only effective counteragent.

We can and should envision and plan for major life transitions, but we should also expect our path to be diverted by unknown variables. We must be willing to flex our plans in these dynamic times of change.

Key #2: Margin

“Everything takes longer than it does.” — Ecuadorian proverb

In the  first week of June, my family moved from our beloved Baltimore — leaving behind our close-knit families, community support systems and favorite sports teams — in an experiment to see what life would look like from a different vantage point. We chose Charleston, South Carolina, as the backdrop for our adventure, pinpointed for its promise of a slower pace, higher quality of life and lower cost of living.

Major life transitions, however, are necessarily taxing on our time and money, at least initially. And because of the elements unique to every major life event, it is virtually impossible to accurately forecast the necessary allotment of time and money that will be required.

This can be maddening to me as a financial planner. I strive to forecast every expense one could anticipate, but change invariably costs more money and consumes more time than expected.

The only solution is to plan for the unexpected by leaving a reasonable margin of time and money — a buffer — that can be consumed by the inevitable surprises that arise. Expect that it will take 20% longer and cost 20% more. This is the only defense against heaping more stress on an inherently stressful event.

I’ll also add that our move was, in part, an exercise in the creation of margin. Despite Charleston’s great reputation as a city that offers  a high quality of life, the cost of housing, especially, is still lower than in the Mid-Atlantic. We were able to reduce our overall monthly housing costs, our biggest single expense, by 20%.

We also added a significant margin of time to our calendars. We effectively wiped clean our slate of commitments, decades in the making, and now we get to choose exactly what, where, when and to whom we’re willing to dedicate ourselves.

Key #3: Grace

“Failures are finger posts on the road to achievement.” — C.S. Lewis

Failure is inevitable, especially in the case of major life events. Grace is unmerited favor in the face of failure. This brand of grace is most often discussed from the pulpit on Sundays, but I raise the topic here more for its practical benefits than its spiritual.

The nature of life’s major transitions — specifically the changes and surprises that come with them —are a breeding ground for failure. Some are inconsequential while others come with great risks, but most come as a result of our limitations.

We err, and in order to move forward we must extend grace to ourselves and to the others on our journey.

It must be said that not all major life transitions are equal. The benefit of my recent life events is that each of them, while taxing and stressful, led to something new and exciting. You may be facing another brand of life event — a death, a divorce, an injury or a loss not of your choosing. Your situation is different — it’s harder — but that makes the use of these three keys even more vital.

When we employ flexibility, margin and grace in navigating life’s biggest transitions, we have the opportunity to not only survive them, but to thrive in and through and even because of them.

If you enjoyed this post, please let me know on Twitter, @TimMaurer.

Here’s Why People Ignore 80% of What Their Advisor Tells Them

Originally in MoneyI’ve heard it estimated that out of all the financial and estate planning recommendations that advisers make, their clients ignore more than 80% of them. If there’s even a shred of truth in this stat, it represents a monumental failure of the financial advice industry.

To explain why, let me tell you a story about a financial planning client I worked with a few years back. In one of our first meetings, she and I were reviewing her three most recent tax returns. As I discussed them with her, it became clear that the accountant who had prepared those returns — an accountant who had been recommended to her by her father — had filled them out fraudulently. A bag of old clothes that she had donated to charity became, on her Schedule A, a $10,500 cash gift. She also deducted work expenses for which she had already been reimbursed.

Is A Million Bucks Enough To Retire?

Originally in Forbes“Wow, those guys must be millionaires!” I can recall uttering those words as a child, driving by the nicest house in our neighborhood—you know, the one with four garage bays filled with cars from Europe.

The innocent presumption, of course, was that our neighbors’ visible affluence was an expression of apparent financial independence, and that $1 million would certainly be enough to qualify as Enough.

Now, as an adult—and especially as a financial planner—I’m more aware of a few million-dollar realities:

Retirement Stress Test Graphic - v3-01

1)   Visible affluence doesn’t necessarily equate to actual wealth.  Thomas Stanley and William Danko, in their fascinating behavioral finance book, The Millionaire Next Door, surprised many of us with their research suggesting that visible affluence may actually be a sign of lesser net worth, with the average American millionaire exhibiting surprisingly few outward displays of wealth. Big hat, no cattle.

2)   A million dollars ain’t what it used to be. In 1984, a million bucks would have felt like about $2.4 million in today’s dollars. But while it’s quite possible that our neighbors were genuinely wealthy—financially independent, even—I doubt they had just barely crossed the seven-digit threshold, comfortably maintaining their apparent standard of living. To do so comfortably would likely take more than a million, even in the ’80s.

3)   Wealth is one of the most relative, misused terms in the world.  Relatively speaking, if you’re reading this article, you’re already among the world’s most wealthy, simply because you have a device capable of reading it. Most of the world’s inhabitants don’t have a car, much less two. But even among those blessed to have enough money to require help managing it, I have clients who are comfortably retired on half a million and millionaires who need to quadruple their nest egg in order to retire with their current standard of living.

The teacher couple, trained by reality to live frugally most of their lives, don’t even dip into their $400,000 retirement nest egg or their $250,000 home equity because they have two pensions and Social Security that more than covers their income needs.  Their retirement savings is just a bonus.

But the lawyer couple, trained by reality to live a more visibly wealthy existence, aren’t even close to retiring with their million-dollar retirement savings. In order to be comfortable, they’ll need to have at least $4 million.

A million bucks, then, may be more than enough for some and woefully insufficient for others.

Real Estate Quagmire Sinks Gen X, Y Fiscal Hopes

Originally published CNBC

Throughout the course of my career, I've heard a lot of financial horror stories. The majority of these stories are told by baby boomers whose aggressive stock market strategies went bust, often at the behest of a transaction-oriented "advisor."

foreclosure-1

The most pain—yes, even marginally greater than that of former Enron employees and Bernie Madoff scam victims—has been felt by a younger generation, however, in America's suburbs, far from Wall Street.

My bad! I was wrong about rising rates and bonds

Originally published CNBC

"I was wrong."

There are few words strung together that possess such power to free us. In less than a second, we're able to reconcile the inconsistency between our previous conviction and the apparent truth. Humbling, yes, but also strangely euphoric.

Well, I've earned the opportunity to claim said euphoria, as I must confess that I had bought into the most prevalent myth du jour surrounding bond investing. You'll forgive me, I hope, because this misconception—like all of the most powerful ones—is especially deceptive because it's grounded in half-truth.

bondpit

Let's be quite clear: Rising rates simply do not guarantee negative bond returns.

The Scarcity Fallacy: Is Less Really More?

Originally in ForbesHaving the privilege of walking through life with people vocationally, aiding in the acquisition, maintenance and dispossession of earthly resources as a financial advisor, I’m burdened with a heightened sense of the battling spirits of scarcity and abundance.

The dehumanizing poverty that torments the Majority World screams that resources—here and now—are scarce. Remembering when I handed a bowl of vitamin-charged oatmeal to a boy who lives and breathes in La Chureca, the Nicaraguan squatter town subsisting off of Managua’s trash, I occasionally twinge at my willingness to pay $5 for a cup of premium Central American coffee. That expenditure could buy a week’s worth of mush, keeping children of the dump alive.

This is one of the children at the feeding center in "La Chureca," the city dump in Managua, Nicaragua.

This is one of the children at the feeding center in "La Chureca," the city dump in Managua, Nicaragua.

How could I not consume less?

And share more?

Why Beating The Market Is An Uphill Skate

Originally in ForbesIt is absolutely possible to beat the market, just as I’m sure it’s possible that someone could climb Mt. Everest in a pair of roller skates.

It is so improbable, however, that it’s rendered a fruitless, if not counterproductive, pursuit.

After 16 years in the financial industry and seeing countless great investors eventually humbled by market forces they could not control, I’ve finally relinquished my skates.

Mt._Everest_from_Gokyo_Ri_November_5,_2012

Make Your Career Move An Easy Job

 

Originally published CNBCYou know what has to be done, but it doesn't make it any easier. You've done all the research, asked all the questions and mulled over your options, and you know that moving on from your current company is the right thing to do.

 

interview6

You wince, imagining the look on the face of your boss and co-workers when you tell them. You're no longer an insider, but an outsider or—worse—a competitor. Even your relationship as friends could be compromised. It's stressful for everyone, but especially for you because ultimately it's your choice.

As you go through your morning routine on the day you're delivering the news to your company, every step seems more pronounced than it typically does. Maybe it's because you recognize it could be the last time you'll go through the paces exactly like this. Or maybe it's because the adrenaline has already notched up in anticipation of the discussions you're about to have with your boss and colleagues.

Indeed, along with marriage, divorce, death and personal injury, changing jobs is consistently ranked as one of the most stressful things a person can do. That stress can be substantially reduced, however, if you're better prepared for what comes next. Here are three ways to make the most of your job transition:

1. Leave well. "It's more important to leave well than it is to start well," a good friend once told me. And it's true. You've already made a good impression on your new company—you got the job! But while you're heading on to new and exciting adventures, your former employer is left to deal with the rejection and cleanup from your departure.

Make it easier by offering to stay on for a reasonable period of time, but not longer. In most cases, shorter is better for all parties, as it reduces the awkwardness and hastens the healing.

Part of leaving well is preparing to deal with impulsive counterattacks mounted consciously or unconsciously by your former co-workers. Especially if you brought or maintained client relationships, the words "I'm leaving" may magically transform you from friend to foe—but let that be their choice, not yours. Take the high road whenever possible.

2. Don't leave anything behind. Along with your personal Swingline stapler and the letter opener your parents gave you, don't leave your 401(k) or any other transferable benefits behind.

Specifically regarding your 401(k) or other comparable plan, you typically have three options, depending on the design of the plan you're leaving and the plan your new company offers. The first option is to leave it there; I rarely recommend this unless you're in love with the plan investment options and pay close attention to them.

Option two is to transfer the old 401(k) into the new plan, if they allow it. This gives you the benefits of consolidation and, while rarely advisable, the ability to borrow from your plan—a provision not available in old retirement plans or IRAs.

For most, the sensible choice is to aggregate the newly antiquated 401(k) plan with other prior plans in the form of a direct rollover to an IRA. In this case, you are not limited to the investment options in the new 401(k)—options that are notoriously mediocre. Be certain to check all the right boxes to ensure that your rollover is not a taxable event.

It's also important to take stock of any company benefits that are transferable. Although they are nearly extinct, pension plans of various sorts accrued during your tenure may do nothing for you now but could be meaningful in the future.

One client recently had a premonition that she'd left a small pension behind from a previous job. I encouraged her to call the company's human resources department, and indeed, there was $9,000 sitting in a plan earning 3 percent per year that she can't touch for another 15 years.

If you're blessed enough to have annual income in excess of your saving and spending needs, you may have a qualified or non-qualified deferred compensation plan to handle. And while also rare, there are occasions in which group benefits—such as life, disability income or long-term care insurance through your company—can also be traversed to private policies with the vendor.

3. Make the most of your fresh start. Nobody's perfect—including you. But as the saintly image of yourself you've been promoting to your new company starts to settle into something closer to reality, you do have an opportunity to trade some bad habits for good ones.

Take advantage of this clean slate by embracing the time-management method that's worked so well for your friend, or finally start using a system to seize control of your email inbox.

Develop a healthier rhythm of life and work. Be careful not to overextend yourself at the beginning of the new gig, lest you set expectations you'll never be able to live up to.

Make wise choices with your new benefits package. Increase your 401(k) contribution to the level you know you should be saving, and put sufficient time into really understanding the new investment options and determining the optimal mix for you. Don't forget to add beneficiaries to your new 401(k) plan and any group life-insurance coverage in the new benefits package.

As you review your group benefits—especially health, life and long-term disability-income insurance—be sure to actually understand them and acknowledge whether or not you should be supplementing them privately. (You can be almost sure that the base level of free life and disability-income insurance is insufficient.)

Consider opening your mind to a high-deductible health plan, which gives you the option to utilize a Health Savings Account (HSA). Many assume this is too complicated or costly, especially if you have a young family, but even in that case, this can be a great way to make nearly all of your household medical expenses tax deductible.

While certainly stressful, a job change navigated well can be an amazing personal and professional launchpad—especially when you leave on good terms, don't leave anything behind and take full advantage of the fresh start.

If you enjoyed this post, please let me know on Twitter, @TimMaurer.

Tim Maurer, a certified financial planner, is director of personal finance at the BAM Alliance and an adjunct faculty member at Towson University. He has co-written two books with best-selling author Jim Stovall. Their most recent release is "The Ultimate Financial Plan: Balancing Your Money and Life." 

 

What You Can Learn From Bill Gross And PIMCO’s Troubles

Originally in Forbes“Trouble. Trouble, trouble, trouble, trouble.” Reading all the news about Bill Gross and PIMCO, I keep hearing that Ray LaMontagne song in my head. (Go ahead—give it a listen while you read this, just for fun.)

The king of bonds isn’t yet abdicating the throne, but it’s been a rough stretch since PIMCO came down from the mountain to translate the etchings on the “New Normal” tablets. It was, of course, hard to argue the logic in 2009, that U.S. markets would struggle under the weight of a sluggish economy hampered by high unemployment and systemic government debt. But as it often does in the face of supposed certainty, the market defied man’s expectations.

EGO