The Financial Red Zone


December 19, 2012

by CATHY MENDELL of Elevation Capital Strategies
I must admit, my favorite sport to watch is college football. What’s not to love about college football? From the brash, outspoken coaches to the insane rivalries to the crazy sideline antics, college football is pretty nutty. But that’s what I love about it. Its fans are quirky, passionate and loyal to the bitter end. So, what can football teach us about retirement planning?
It’s your fourth quarter, crunch-time. You’ve entered the five years before retirement that I call “the financial red zone”. You can’t afford any huge mistakes here. Now is the time when you need to protect what you have. When you’re close to the goal line, you have to wrap the ball up with two hands. A dropped ball in the end-zone or throwing a Hail Mary isn’t going to work in your portfolio if you’re near retirement.
In the game of football, officials and coaches have a huge impact on the results of the each game and of the season results.
Football officials… the men on the field we all love to hate. But without these keepers of the rules, a football game could not progress with any sort of structure or sanity. Officials play a very important role in the game, from keeping the game rolling along and calling penalties when a rule is broken. Officials are responsible for monitoring the game, enforcing the rules of the game and recording all rule infractions. In the financial world, our “officials” are the SEC/FINRA governing agencies. Their role is to make sure that you are not led down a “Madoff” path and that your advisor is licensed and educated to work in this highly regulated field.
Coaches… As the game gets quicker, the role of the coach can never be underestimated. Coaches are essential for teaching and developing players at every level of football. To give their players the best advantage, coaches must be aware of the latest techniques and philosophies involved in coaching the game. Most players can quickly pick up on whether their coach is good and knows what he’s talking about.
The financial coach that you choose can either lead you to a successful retirement, or take you down a path of uncertainty, and retirement distress.
How do you know if you’re getting good financial coaching?
During the height of the financial crisis, a study compiled by Prince & Associates showed that 81 percent of investors with $1 million or more planned to take money away from their advisor.
This study illustrated that the enormous loss of wealth during the “Great Recession” gave investors a peek into the poor quality of advice they had been getting, and thus, sophisticated investors were taking their money elsewhere to put in more capable hands. Almost four years later, investors may still be wondering if they are getting good wealth-building advice or simply being sold products.
I want to arm you with the top seven warning signs that you could be getting bad advice:
1) Advisor never asked to see your tax return. Tax rates are set to skyrocket in a matter of months, so when’s the last time your advisor asked to review your tax return? If you want to take advantage of the tax laws for the informed, then your advisor should be monitoring your tax return every year. Maybe you’re missing out on a valuable Roth conversion, missing deductions or just simply paying too much in taxes. Your tax return is the heartbeat of your financial life. If it’s not being reviewed regularly, that’s a giant red flag.
2) Portfolio contains only one type of investment. There isn’t a one-size-fits-all investment, so your portfolio shouldn’t be made up of just one type of investment (mutual funds as an example). Nothing screams “product salesman” as loudly as a single-product portfolio.
3) No distribution strategy for your IRAs. For years, you’ve had a plan for putting money into IRAs and 401(k)s, but what’s your plan for when all that taxable money comes out? Anyone can come up with an investment plan for your pre-tax accounts, but it takes a real pro to make sure a distribution strategy is in place to limit the government’s take.
4) Working with a generalist. Does your adviser work with people of all ages and backgrounds? NO ONE can be ALL things to ALL people AND be really good at his job. For example, I would want a Cardiologist to do my heart valve replacement rather than my family doctor. The same goes for wealth advisers. For a comprehensive retirement plan that will stand the test of time, you’ll want a specialist.
5) Same old advice. Still hearing the same thing you heard back in 2008? “Hang in there, it will come back.” “It’s only a paper loss.” You won’t hear these excuses from a good, proactive adviser.
6) Hope as an income plan. Want to make sure you don’t run out of money in retirement? Then don’t trust the Wall Street way of taking 3-4 percent out each year in retirement. Advisers love to show you Monte Carlo simulations to prove that you shouldn’t run out of money in retirement. The key word here is “shouldn’t.” Shouldn’t implies hope, and hope is not a plan. Your income and lifestyle shouldn’t depend on the markets; they should depend on math. Work with a specialist who builds an income plan using quantifiable mathematics.
7) Weak inflation protection. With interest rates at historically low levels, combined with massive amounts of debt, inflation is on the horizon. If you’re near or in retirement, you will be negatively impacted the most. If your adviser hasn’t proactively met with you to discuss how to protect your wealth from inflation, that’s a warning sign.
Retirement Offense, Defense and Special Teams
Coaches often talk about winning the three phases of the game: offense, defense and special teams. Surprisingly, retirement planning has three phases as well: saving, investing and distribution. Saving can be seen as your offense, since you go out and earn that money and then religiously put it away for tomorrow. Investing is really defense; you need to defend against market decline, unnecessary fees, growth that exceeds inflation and protection of your loot. Finally, distribution is where the special teams shine. Your Retirement Income Specialist will know how to craft a plan that ensures a sleep-well-at-night portfolio to last your lifetime. Game On!
Cathy Mendell of Elevation Capital Strategies can be reached in Bend at 541-728-0321 or Securities offered through Pete Mendell and Dirk Wall through GF Investment Services, LLC, Member FINRA/SIPC. Investment Advisory Services offered on a fee basis through Global Financial Private Capital, LLC, and SEC Registered Investment Adviser.


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