“If I had known grandchildren were so great, I would have had them first,” goes the bumper sticker. Grandparents think their grandchildren are grand and grandchildren think their grandparents are grand. At least, that’s the way it should be. 

But how would you like for your grandchildren to think a little less of you? Only because of two words you omitted?  Would you want some of your grandchildren to end up with more of your assets after your death than the others? There could be reasons you would want that; but assuming that’s not the case, how could a careless error cause this?

I recently helped a grandmother who was vulnerable to this happening. Her primary beneficiaries were her children. On her insurance contract, if one of her children had died before her, when she died, the surviving children would receive the deceased child’s portion in equal shares. If, for example, a common accident had resulted in this situation, two of her grandchildren (the children of her predeceased child) would have received none of the insurance proceeds. All would have gone to her other children.

This is not what she wanted. The insurance company default was “per capita” instead of “per stirpes”. Her Last Will and Testament would have had no power over it. Insurance contracts, 401(k)s, and IRAs typically transfer directly to designated beneficiaries—not through probate. 

The Latin phrase “per stirpes”, meaning  “by branch” were the instructions the insurance company needed to correct the problem. Have you checked your will or trust lately? Have you checked your primary and contingent beneficiaries on your retirement plans and insurance policies?   Don’t tarnish a good legacy with confusion and disappointment. Leave a legacy of thoughtfulness regarding the distribution of your assets to your heirs.

The last time I remember seeing someone wearing a leisure suit was at the Wagon Wheel restaurant in Dahlonega, oh, probably ten years ago. It caught my attention because nobody else wore leisure suits at that time. They had been out of style for at least a decade. But this fellow didn’t care. He seemed to be perfectly happy.

In my business, I see some portfolios with out-of-style investments. People sport them around, just as happy as they can be.

For example, investors can get emotionally attached to an individual stock. They’re not holding it because of performance. Nor does it meet an objective investment criterion such as earnings growth, dividends, price momentum, or valuations—no, they keep holding it because it is already there.

Back to my analogy…They just keep wearing it because it’s in the closet and can’t stand the thought of dumping it. They keep sporting around this hideous, double knit, polyester, whatever…hoping that maybe, some day, it will become fashionable again.  

In the mean time, growth opportunities are passing them by while the countdown to retirement marches on. 

The fear of change paralyzes some investors in a time warp. Becoming comfortable with the status quo is often an investor’s worst enemy.     

So, here are some tips on investment fashion.   

1. Sell off some of the highly valued assets while there are buyers paying the high prices. Technology and large company US growth stocks in years 1999 and 2000 had historically unsustainable returns and enormous valuations. Scaling back, at the least, was in order. This is a lesson we can use to our advantage. 
2. Consider selling or exchanging expensive investments. For example, variable annuities with total annual expenses (M&E, management, and riders) as high as 2.5 to 3% are not worth the cost, in my opinion. There are often better alternatives.
3. Diversify. Getting the right quantity and mix of stocks, bonds, cash, etc. is critical. Unless you know for certain where the next big upward move will be (and no one does), cast a wide net. Too much concentration in any stock, industry, or asset class is risky.
4. Focus on performance. Every investor should know the historical returns and risk associated with his/her portfolio—not just the individual investments inside. Choose a method of money management that has demonstrated  strong, consistent, long-term results.

Does your portfolio need a makeover? Don’t you think it’s time to dump the leisure suit and slide into an Armani? You’ll feel much better about yourself. 

I do not like to use the words “poverty” and “retirement” in the same sentence. My business is about helping people enjoy a nice lifestyle in retirement without worrying about being short on money. But the new rules of retirement force us to confront this issue.

Government statistics reveal that 63% of people age 65 and older have annual incomes under $25,000.¹

Government and employers guaranteeing retirees income and health benefits throughout their retirement is the way it was. More and more, as people are living longer, both the government and employers are decreasing retiree benefits and shifting more of the financial burden on us.

The challenges are real. Longevity, reduced benefits, inflation, market risk, and rising health care costs are converging to create what some have called “the perfect storm” for retirees.

 These four steps can help you steer clear of the storm.

1. Prepare for the unexpected. You cannot prepare for every disaster that could strike, but you can have a cash fund for emergency expenses. Having the right insurance for liability, sickness, death, disability, and/or long term care also makes good sense for many people.

2. Save as much as you can. A vital part of good financial planning is having cash flow margin to invest for future needs. If we spend it all now, there is no money for future needs. Predictably, a large majority of retirees polled regret not having saved more for retirement. Don’t just be a money conduit. Let some of it stick to you on the way through.

3. Don’t settle for pitiful returns. People often play it too safe and sacrifice eating well later for sleeping well now. Inflation over time can ravage your retirement assets. At least give yourself the chance of getting the returns you need for a better retirement.  

4. Don’t take too much risk. Chasing returns, buying overvalued stocks, and not being properly diversified, to name a few, are risky mistakes that can leave you sweeping up after everyone else has left the party. And sadly, too many of those burned over the last few years have too little time to make up the losses.

To do your best financially, planning is crucial. Good planning puts real numbers  to your goals. Early planning makes the goals easier to achieve.  It is no surprise that those most satisfied in retirement are those who planned early.

¹ Source: Social Security Administration, The Office of Policy, Income of the Population 55 or older; February 2002 

How should we view money? God has made it clear we should not love it (1Tim 6:10), trust in it (1Tim 6:17), nor hoard it (Luke 12:18).

The reason is this: We can only serve one master.  Jesus said, “No man can serve two masters: for either he will hate the one, and love the other; or else he will hold to the one, and despise the other. Ye cannot serve God and mammon.”

So does that mean we should be unconcerned about our finances? Not at all. Jesus Christ said, “If therefore ye have not been faithful in the unrighteous mammon, who will commit to your trust the true riches?” (Luke 16:11). Notice how powerful this verse is. How we manage material things, “unrighteous mammon”,  is so important, it affects our spiritual blessings, “the true riches”.

We are stewards of the  money that God has entrusted to us. He calls us  to faithfully manage it.

Instead of loving money and trying to “use” God, as many do, we should love God and use money—and use it wisely.    

One of the greatest financial planning tools our benevolent representatives in Washington have ever granted us is the Roth IRA. (Half sarcasm, half sincerity)

The Roth IRA allows after-tax money to grow tax free. (Remember an IRA does not refer to the investment—it refers to the tax treatment. You can have all kinds of savings and investments inside your IRAs. Also remember, IRS eligibility requirements apply. You also must have earned income to contribute and higher income levels can limit your contributions.)

With a Roth, there are no Required Minimum Distributions (RMDs) at age 70.5 as with traditional IRAs.

Also, consider the tremendous tax-free wealth building potential for your heirs by “stretching” the Roth.

Having a bucket of tax free money in retirement can also give you some control over your taxable income when you are drawing from your assets in retirement. This could make a significant difference in the amount you are taxed on social security  income.

Why wait until April of next year to make this year’s contribution? Invest early in January and get a 15.5 month tax-free advantage. If you do this every year, the compound growth on the tax savings can be significant.

God does address this subject in scripture. “But they that will be rich fall into temptation and a snare, and into many foolish and hurtful lusts, which drown men in destruction and perdition.” (1Timothy 6:9)

Notice, it is not necessarily wrong to be rich. It’s wrong to “will” (desire) to be rich.

So what is the proper attitude toward being rich?

We shouldn’t desire to be rich. If we are rich, we should not be “high-minded, nor trust in uncertain riches, but in the living God, who giveth us richly all things to enjoy.”  (1Timothy 6:17)

Why then should we seek to get a good return on our money?  Here’s why.

Regardless of how much we’ve been given, God expects us to manage it well. (Read Matthew 25:14-30; Luke 16:11).

 The proverb below conveys the right attitude. …Give me neither poverty nor riches…Lest I be full, and deny thee, and say, Who is the LORD? or lest I be poor, and steal, and take the name of my God in vain. (Proverbs 30:8,9)

Years ago at an investor’s conference, I heard a successful investor start his speech by raising a $1 bill and ask what it was worth. After a few responses from the audience, he explained that the proper reply would be to ask “When?” A dollar bill today is worth a dollar. That same dollar, fifty years from now, would be worth $289, if it earned an average 12% annual compounded rate of return. So when you spend that dollar on something frivolous, you could be giving up $289 later. 

The speaker at the conference also visited schools, teaching 4th graders these basic principles. Here is one of the illustrations he used as best I remember it.  

You start a lawn service, cutting grass. Starting with a pair of scissors, it takes you 20 hours to cut your first yard for $40. But you don’t spend all the $40. After 20 jobs, you have saved enough to buy a basic push mower. Now you can complete more jobs because you can do them much faster. Not spending all the revenue, you eventually invest in a small fleet of top-of-the-line mowers and hire workers to do the mowing. For each job at $40, you receive $10 per job, which produces a substantial passive income. 

All this was possible because all along the way, you saved a portion of the income and invested it. 

In this great capitalistic country of ours, too many Americans are letting the power of capitalism pass them by.   Save and invest! Make your money work for you, so you won’t always have to work for it.

My definition of financial freedom is being able to enjoy a nice lifestyle without having to work for income, and without being a financial burden to others. 

I didn’t say you would not work. I said you would not have to work for income. Work is honorable. It is usually hard work that enables people to achieve financial freedom. The idea is to work hard and be wise with your investments, so you can enjoy the fruit of your labor now and later in life. 

Financial freedom means being free from the pressure of working a job you don’t enjoy. You can take the time to do more meaningful things—more time for God, more time for family and friends, more time for church and charities, more time taking care of yourself, more time enjoying life. 

Achieving financial freedom is simply balancing two things: passive income and expenses. When your sustainable passive income equals or exceeds your living expenses, you’ve arrived. 

So you can attack it from two angles: 1) increasing passive income (income you don’t have to work for from sources such as pensions, investments, rental real estate, social security, etc), and/or 2) reducing your living expenses (just make sure you still “enjoy” a “nice” lifestyle).    

It’s not necessarily about amassing great wealth, per se. What good is wealth that does not benefit your life? But the aim is ultimately to have positive cash flow to free up your time. After all, isn’t time our most precious resource?  

However, for most people, building a nest-egg is one of the best ways to produce passive income in retirement. And the bigger the nest-egg, the larger the cash flow. This is why saving and growing your money is important.  

By understanding the formula, and thinking more about building passive income and reducing unnecessary expenses, you may be surprised how soon you can achieve financial freedom.  

For those who have already achieved financial freedom, your challenge is to give yourself the best chance of maintaining it. You may also want to think about expanding your giving and/or lifestyle, as well as planning for what your assets can do for others when you are gone. Helping others now and in the future is the highest and best use of money.  

Misconception 1. A Roth IRA is invested a certain way. Truth: People ask me sometimes “How is a Roth IRA invested?” The answer is, “Anyway you want” (based on the investment options offered by your IRA custodian). In other words, you can be as cautious or aggressive as you like. The Roth IRA speaks of the tax-treatment—not the investment. After-tax money goes in. The gains and principle come out tax-free (assuming you’re 59.5 and have held the IRA 5 years).

Misconception 2. Roth IRAs are for young people. Truth: If you’re older, but still have earned income, why wouldn’t you want to enjoy tax-free gains versus taxable gains? The ability to cherry-pick your withdrawals from tax-free accounts as well as tax-deferred accounts can give you greater tax control during your harvesting years.      

Misconception 3. My Roth contributions cannot make a big difference in my retirement. Truth: The contribution allowance is now $4000 for those under age 50 and $5000 for ages 50 and older. Double that, and an older couple can contribute $10,000 in one year. That can add up over time.

Misconception 4. If you contribute to a 401(k), you cannot contribute to a Roth IRA. Truth: The amount you contribute to your 401(k) does not limit your contribution to your Roth IRA. Many people would actually be better off getting the company match on their 401(k), and contributing to a Roth next, assuming they cannot save enough to max out both. 

Misconception 5. The Roth IRA ties up your money. Truth: The principle from a contributory Roth IRA can be withdrawn for any reason, any time (before 5 years has passed), with no taxes or penalty. 

Many advisors will not stress the benefits of Roth IRAs with their clients because they don’t want the paperwork hassle of opening small accounts. But that’s no reason for you to miss out. I can open an IRA account for you in about 15 minutes—traditional or Roth—by phone or in person.