Message from CFP Board

Eleanor Blayney, CFP® and Consumer Advocate for CFP Board

An elderly woman client called me almost in tears. "I want to give my granddaughter a computer, but I don't think I have the money."

As her CERTIFIED FINANCIAL PLANNER™ professional, I knew that this was so far from being the case as to be almost laughable. She had plenty of money – that was a fact – but her anxiety was a fact, too. I needed to respond with utmost seriousness.

"What makes you think you don't have the money? What did your last bank statement say?" I asked gently. She said that the bank showed a balance of almost $50,000, but she had been trying and trying and could not reconcile her check register to the statement. Because she could not make the two agree, she decided she could trust neither. In short, she had no idea how much money she had.

I quickly got her comfortable with her wealth again, and sent her happily off to go computer shopping. But our conversation stuck with me as I tried to understand its deeper significance. What became clear was the following insight: because my client did not know what she had, she felt unable to give anything away. She was too afraid that whatever she did have would not be enough.

My client is certainly not alone with her "not enough" fears. Too often, not knowing what is enough keeps people from honoring what's really important to them. They are afraid to take that long dreamed-for trip, support a cherished cause, or give money to a family member, because they are too uncertain as to what they will need. This may particularly afflict women, such as my client: research has shown, for example, that women are far more likely to make significant philanthropic gifts at their deaths, rather than giving during their lifetimes. This "just in case" grip that they put on their money deprives them of the satisfaction of seeing what difference their gift makes.

I believe strongly in the importance of being selfish first when it comes to money. Looking to yourself first in terms of what is needed to support your lifestyle and choices just makes sense. But I also believe in the importance of knowing what those needs are. Only when we have quantified and planned for these needs, which is indeed the essence of comprehensive financial planning, can we then become free to be generous.

As we come toward the end of this holiday season, the routines of gift-buying and gift-giving, imagine how much more festive the season would be if you had confidence that your financial affairs were in order, and it's "okay" to spend on others. We can carry the same confidence into charitable gifts we make at year-end, or help we offer to family or friends now or year-round, and thereby fully enjoy our ability to share our resources. This all comes – not from getting or earning more money – but simply knowing what you do have and what you need.

Give yourself the gift of talking with a CERTIFIED FINANCIAL PLANNER™ professional and preparing a plan for your financial goals and needs. Far from being a selfish gift, it may be the first step to true generosity toward the people and causes you most care about.
In celebration of CFP Board's 25 years, CFP Board's Consumer Advocate, Eleanor Blayney, CFP^® is rolling out a series of 25 relevant and timely tips and strategies for the five key milestone phases in a person’s life. Presented in a multimedia format, a group of tips will be released each month from August to December 2010 on CFP Board's Web site. Tips for the "Starting Out Years" (ages 18-25), the "Nesting Years" (ages 25-40), the "Prime Time Years" (ages 40-55) and the "Wealth Accumulation Years" (ages 55-65) are available now. Visit www.CFP.net/advocate for tips for the "Reinvention Years" (ages 65 and over).

Personal Finance News

'Women Have a Pervasive Anxiety About Money' Says CFP Board's Consumer Advocate, Eleanor Blayney, CFP®
InvestmentNews (12/12/10) Nason, Deborah

The Sudden Money Institute has launched a 12-month program that aims to help women deal with the impact that major life changes – such as divorce, marriage, and illness – can have on their finances. The program, which is called Women, Meaning, and Money, is offered in 15 locations across the country. Participants take part in monthly meetings that touch on topics such as putting together a team of advisers, assessing financial relationships with family members, and developing a culminating action plan. Anja Luesink, CFP®, says the program aims to help women "understand and … feel more in control" and to "create the next phase where they want to go." Certified Financial Planner Board of Standards Consumer Advocate Eleanor Blayney, CFP®, notes that women "are always in some sort of transition," and are constantly worried about money. Meanwhile, Kathy Roth, CFP®, says that "women in transition need time and focus." She adds that it can be difficult for women in the midst of major transitions to focus on what they can control and what they cannot, given the fact they are exposed to a large amount of media on a daily basis and because they are dealing with many personal and financial-related emotions.


CFP Board's Consumer Advocate, Eleanor Blayney, CFP®, Suggests Ways to Stay 'Sane and Solvent' During the Holiday Season
Sacramento Bee (CA) (12/12/10) Buck, Claudia

For many parents buying holiday gifts for children and grandkids, 'tis the season for excess – and stress. "Especially given what we're all facing with the economy, the gift-giving process can be extraordinarily stressful, difficult, and expensive for parents," says Certified Financial Planner Board of Standards Consumer Advocate Eleanor Blayney, CFP®. Blayney, who is also a parent and grandparent, offers some suggestions for staying "sane and solvent" while making the season special for kids. Parents can shop by gift type to spend more effectively and less impulsively; one gift can be bought in categories such as most-wanted, fun, practical, educational, or totally unexpected. Parents can create a book of coupons for privileges--such as staying up an hour past bedtime or getting to make a special dessert – that a child can use at any time. Parents can give time that can lead to lasting memories, such as an invitation to tea, tickets to a show or sporting event, or regular dates to explore the city. Also, parents can help their children understand the concept of giving and receiving gifts by having them work within a budget and create handmade gifts.


Couple's Security in Retirement Boosted by Preparing for Healthcare Expenses Now
New Jersey Star-Ledger (NJ) (12/12/10) Mueller, Karin P.

The biggest concern for most individuals – including Bill and Mara, both in their early 50s – approaching retirement is how they will finance the rising cost of healthcare, says Jody D'Agostini, CFP®. Healthcare expenses can grow to nearly 25 percent of one's overall expenses later in life, so to ensure these costs are taken into consideration, D'Agostini says that on top of the expected 3 percent inflation for most expenses, she calculates medical inflation at 5 percent. Bill and Mara "will have the ability to obtain COBRA for 18 months upon termination from employment, but then will have to find individual coverage for seven or eight years until Medicare is available for each of them," she says. "At this point, they will need to find a supplemental plan to Medicare coverage as well." Long-term care coverage is another consideration as close to 66 percent of all individuals will require some form of long-term care after retirement, D'Agostini adds. Nursing homes can run as high as $85,000 a year and assisted living facilities more than $50,000 annually, a major expense to take on, even for households with substantial assets. D'Agostini says individuals should think about purchasing policies while they are still young, rates are affordable, and they are still in good health and insurable.


Unmarried Couples Must Take Extra Care to Protect Their Assets
Wall Street Journal (12/12/10) Dagher, Veronica

Financial planners are likely to work more with unmarried couples in the years to come as the number of unmarried couples living together continues to grow. Devin Pope, CFP®, says unmarried couples should consider buying and financing big-ticket items such as cars separately because a joint purchase or a loan would complicate matters if the partners were to break up. A third party such as a lawyer is usually not involved when an unmarried couple splits, and the lack of legal structure is also a reason why many unmarried couples choose to separate their retirement savings. Jon Robertson, CFP®, warns that an unmarried couple managing retirement savings as one big pot in order to take advantage of the strengths and weaknesses of the investment options of their plans could face problems if they break up and one partner is left with significant losses. A judge would split the 401(k) assets of couples going through a divorce, but unmarried couples typically do not have that recourse. Your financial planner should play "quarterback" for you and make sure you are working with a certified public accountant and estate-planning attorney, says Barrett Porter, CFP®. Unmarried couples do not have the same legal protections and advantages as married couples, and a misstep on big purchases, retirement planning, taxes, and estate planning can be disastrous. "I've seen several situations where the surviving partner was left homeless and destitute because the couple didn't do the proper planning," says Wendy Hartmann, a Los Angeles-based tax and estate-planning attorney.


Boost Your Nest Egg: 11 Retirement Resolutions for the New Year
U.S. News & World Report (12/13/10) Brandon, Emily

Nest eggs have grown over the past year, but most people still are not saving enough to sustain a 30-year retirement. Taking advantage of tax breaks is one New Year's resolutions that will help you better prepare for retirement. "Every dollar you put away for retirement, you are getting a gift from the government in the form of a tax deduction," says Jeff Feldman, CFP®. Mark Gilbert, CFP®, says people should save enough to get the 401(k) match offered by their employer. "If you can gradually increase your contributions by 1 or 2 percent at a time, that will pay off in a big way," adds Judith McNary, CFP®. You also should consider pre-paying the tax on some of your savings by using a Roth account, and seeking lower-cost investments. You should avoid retirement account penalties that come with an early withdrawal, estimate your retirement expenses, and determine how much you can expect from Social Security. Moreover, don't inflate your lifestyle; eliminate as many costs as possible as you prepare to leave the workforce; and determine what you want to do next, such as travel, hobbies, or volunteer work.


Save on Your Taxes by Making the Right Year-End Investment Decisions
Des Moines Register (IA) (12/12/10) Mokosak, Frank

By investing in capital assets, a taxpayer can time the recognition of some income and potentially get lower tax rates than from ordinary income, writes Frank Mokosak, CFP®. You can choose when to sell assets to take advantage of lower rates, for example waiting until January if you expect to be in a lower tax bracket the following year. Another strategy is to shift the tax burden to others through gifting, or convert some ordinary income to long-term capital gain income, as capital gains and losses are taxed at a top rate of 15 percent compared to the top income tax rate of 35 percent. If capital losses for the year exceed capital gains, it is a good idea to sell capital gain property before the end of the year, and if gains exceed losses, one should sell property with built-in losses to offset the gains. If a property has been held for nearly twelve months, it is best to wait until the full twelve months have passed so that the asset can be converted to a lower long-term capital gains rate. When selecting investments, you should choose those that are most likely to produce income, such as interest, or those such as qualifying dividends that have lower tax rates.


Should You Give Your Children a Down Payment?
Money Magazine (12/03/10) Gengler, Amanda

More young home buyers are relying on their parents to purchase their first home. Young adults are looking to take advantage of low home prices and mortgage rates, but no-money-down loans are no longer available. According to the National Association of Realtors, 36 percent of first-time buyers over the past year received help with their down payment from family or friends, typically parents. Ken and Denise Holick recently helped their 26-year-old daughter, Katie, purchase a $107,000 condo by providing a $9,700 gift to cover a 3.5 percent down payment, Federal Housing Administration loan fees, and closing costs. "We figured now, when she'd have a reasonable chance of finding something she could afford, was the right time to help," says Ken. However, parents who want to give their child some assistance in purchasing a home first should make sure they are on track to reach their retirement goals. Then they will need to decide whether to give money, extend a loan, or cosign the mortgage.


Widowhood, Greater Longevity Put Women's Retirement at Risk
CBS MoneyWatch (12/10/10) Vernon, Steve

Short shrift is being paid to women's retirement planning needs, according to a new report from the Society of Actuaries. Planning horizons are considered to be too short, with 90 percent of women in or approaching retirement not planning for life after 65. In addition, there is a greater likelihood that women will outlive their assets compared to men, because women's life expectancy is longer. Men tend to marry younger women, so women should prepare for widowhood, given their greater longevity. Eighty-five percent of women over age 85 are widows, while just 45 percent of men over age 85 are widowers. Yet only 17 percent of female retirees and 27 percent of female pre-retirees said they would be worse off if their husband died, when in fact most widows have significantly lower income after their husband passes on. There is a greater probability that women will have chronic disability in their later years and require either a paid caregiver or care in a long-term care facility. Moreover, women have a greater need to plan for medical expenses, as retirement incomes are generally lower for women than for men, while women are less likely than men to have medical insurance from their employer. Planning for retirement is essential, according to Patti Houlihan, CFP®. Planning practices women should do include mapping a planning horizon by estimating how long they might live; determining the best time to start one's Social Security benefits; generating retirement income that lasts through the rest of one's life through the use of IRAs, 401(k) accounts, and retirement savings; devising a strategy for covering long-term care costs; taking care of oneself to reduce the likelihood of contracting chronic, expensive ailments in later years, and avoiding costly long-term care; considering employment in later years; and squeezing every dollar out of one's living expenses.


Good News for Retirees: Taking Advantage of a New Tax Deal
SmartMoney (12/10/10) Hill, Catey

Though it may not compensate for this year's Social Security freeze, retirees who are taking distributions from their retirement accounts may now have a chance to hit back. With the proffered extension of the Bush-era tax cuts, retirees could have two more years to take advantage of the lower tax rates and set aside years of lower-tax income for the future. Many financial planners project tax rates – on income, at least, if not on capital gains – will rise after 2013. To experience the current low rates before they increase, first make sure the withdrawals are coming from the most tax-efficient accounts, which in this case would be a traditional IRA and 401(k). Then, to stretch that tax benefit further, consider withdrawing extra funds from those tax-deferred accounts, and investing it right back into the markets, in a Roth IRA or a partially converted traditional IRA. Because investments in a Roth accumulate tax-free, making that conversion now locks in lower income tax rates on the initial amount, and no capital gains taxes on any additional growth, explains David M. Hill, CFP®. Other perks: the tax onus for a Roth IRA conversion can be divided between 2011 and 2012, and there is no age limit for the Roth IRA, so anyone can do the conversion. This strategy is not airtight, though, planners say. Since withdrawals from traditional IRAs and 401(k)s are considered income by the Internal Revenue Service, taking larger distributions from these accounts can move someone into a higher tax bracket, or, in some cases, trigger the alternative minimum tax. Regardless of strategy, the critical thing, advisors agree, is that bigger withdrawals should not lead to greater spending if that could threaten one's long-term financial security.


Investing Your Payroll Tax Cut Windfall Is a Smart Move
Smart Money (12/08/10)

Working taxpayers can expect a small, temporary raise if Congress enacts the payroll tax reduction included in the recent tax agreement. If the extra cash is placed into a 401(k) or traditional IRA, it could save $560 in taxes for someone in the 35 percent tax bracket. Contributing to a Roth IRA would also save on taxes because experts generally agree that taxes will increase after 2012, meaning that today’s after-tax dollars are "cheaper" than they will be in the years to come. The extra money could also be used to offset expected increases in healthcare costs, for which many U.S. families have not yet budgeted. Employees are projected to pay about 15 percent more next year for deductibles and co-pays. The one-year paycheck increase could allow a married couple to set aside as much as $3,500 of their take-home pay, which could help cover cost increases related to healthcare, says David Peterson, CFP®.


CFP Board CEO Comments on Investors' Target-Date Funds
New York Times (12/03/10) Siegel Bernard, Tara

Investors have moved toward target-date funds, hoping that their more conservative style would protect them from market risk. But when the stock markets plunged, it was obvious that some funds were better at protecting investors than others. Additionally, there was a variety of performances among funds with the same target date; and most surprising was the fact that some 2010 funds lost more money than the Standard & Poor's 500 Index. The Department of Labor noticed these losses, and has proposed a new rule that would require companies with retirement plans to include a better description of the funds. This follows a set of rules proposed by the Securities and Exchange Commission (SEC). The Labor Department's changes will require employers to provide information on how the fund's asset allocation will change over time, and when it will be most conservative. The new rules will also require employers to explain what a particular target date means. The new descriptions must also explain the fund's general investment objective, risks, and main strategy, as well as the type of investments held inside the fund. Fees and expenses must also be disclosed. The rule also requires a blunt statement of the funds' risks, saying there is no guarantee that the fund will provide enough retirement income. These changes will be for the better, but it depends on how thorough and clear they are. Some financial planners have suggested offering different types of target date, including 2010 conservative, 2010 moderate, and 2010 aggressive. While these suggestions from the Labor Department, SEC, and financial planners are useful, others think the disclosures need to go further. “Target-date funds are not the simple investment solutions investors believe them to be,” says Certified Financial Planner Board of Standards CEO Kevin Keller. “We remain concerned that the names of the target-date funds are materially misleading to investors because some funds are managed in ways that are inconsistent with investors’ reasonable expectations created by the names of the funds.” The SEC is currently reviewing comments on the rules and will be developing a recommendation.


CFP Board Offers Advice on Financial Self-Defense
Monterey County Herald (CA) (12/02/10) Petersen, Kenneth

When a popular, wealthy, and by all appearances successful acquaintance asked Mary if she would invest with him and allow him to be her financial advisor, she did not hesitate to write a check for $100,000. She began receiving statements from him saying her money had been invested, but two years later she discovered these statements were false and that the adviser had been using her money to support his well-to-do lifestyle. When Johnny's mother passed away, he visited the nearby funeral home to make her funeral arrangements. A financial planner met him there with paperwork to transfer his mother's investments to the bank he represents. Later, Johnny found out the investor not only transferred the investments, but sold them without his consent. George, an elderly widower, asked his banker for a lower rate on his CD. He left with an annuity that could not be surrendered for more than 10 years without a steep fee. George was completely unaware that his new investment functioned differently than his old one. These tales, along with numerous others, are based on true stories of investor fraud as recounted in the Certified Financial Planner Board of Standards' "Consumer Guide to Financial Self-Defense." Unfortunately, even savvy investors can and do get lured in – some might say "Madoffed" – by scam artists. The guide alerts consumers to warning signs that mark behaviors often associated with fraudulent or unethical practices. At the back of the guide, there is a common-sense list of steps to prevent financial abuse. The list includes actions for you to take, such as trust but verify; make sure regular statements are coming from independent third parties; and do not make checks for the purchase of an investment payable to the individual adviser.


Choosing a CERTIFIED FINANCIAL PLANNER™ Professional Can Help You Avoid Being 'Madoffed'
U.S. News & World Report (12/15/10) Campbell, Kelly

Every investor should take steps to avoid scammers such as Bernie Madoff and other unscrupulous "financial salesmen." First, investors should perform a background check on any potential advisors, possibly through the Web sites of the Securities and Exchange Commission or FINRA, to look for infractions on the advisor's record. Second, investors should consider an advisor's designations, since impostors usually do not bother to obtain certifications or designations. The CERTIFIED FINANCIAL PLANNER™ professional designation is among the most reputable; this designation has a continuing education requirement and an ethics provision. A CERTIFIED FINANCIAL PLANNER™ professional designation also demonstrates an advisor's commitment to excellence. The third and most important step involves the custody of assets, with the rule that the custodian should always be separate from the advisor so that the advisor is not holding the money. Fourth, investors should maintain common sense, and remember that if something is too good to be true, it probably is.

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