From CFP Board's Consumer Advocate, Eleanor Blayney, CFP^®

On Sunday, October 30th, I ran the Marine Corps Marathon in Washington, DC.

Call it a “runner’s high,” or chalk it up to trying to distract myself from my painful feet, but I spent much of those five-plus hours in deep philosophical thought. I thought about the courage of our military, as I studied the faces and dates of too-short lives emblazoned on the backs of so many runners. I thought about the dedication of the spectators, who not only waited for several chilly hours to catch a 10-second view of their runner, but also propelled 19,999 other runners to the finish with their motivating and humorous signs. My favorite: “26.2 miles? Because 26.3 would just be crazy!!”

Inevitably, I also thought about my work as a CFP^® professional. I’ve always enjoyed helping clients help themselves when it comes to financial security, but last Sunday, I found myself needing my own advice. I realized that getting through a marathon is not all that different from successfully navigating the long-distance journey we call life. So here’s what Eleanor the financial planner told Eleanor the runner, as together we paced through the 26.2 (but not 26.3!) miles.

Long-term goals are important, but so, too, are the shorter-term goals.
There are times when the long-term goal – be it finishing a marathon or getting that retirement account adequately funded – just seems too distant or too overwhelming. I certainly felt that way at mile 18, and so, I expect, do younger adults trying to pay off debt and raise a family, or older Americans watching their stalled 401(k) balances in a stagnant economy. At times like these, it may be best to focus on more manageable short-term goals: getting the highest interest rate debt paid off, working for a year or two longer than you planned, keeping up the pace to the next water stop. Short-term progress has a way of accumulating into long-term success.

Expect, and plan for, setbacks.
From my vantage as a marathoner, these setbacks appeared as training injuries (bad knee, followed by sciatic pain), blistered feet on marathon day, and the potential for terrible weather. I prepared for these by extending my training to include downtime, carrying moleskin on my run, and not trying to be a hero. I told myself if it rained or snowed on race day (as it had the day before), I would wait till next year and try again. These same precautions, in the context of financial planning, translate to: starting your financial planning early, even before you think you need it; getting all the appropriate insurance coverage for your assets and income; and being prepared to revise your goals and strategies in the face of adverse circumstances.

Success is all about budgeting.
Only in a never-land of infinite energy and limitless resources is it possible to ignore the necessity of budgeting. For the rest of us – runners, couch potatoes, employees, retirees – we have to pay attention to the basic physics of what comes in and what goes out. If outflow exceeds inflow for too long a period, you will hit the proverbial wall. For the marathoner, this happens when she starts the course too fast, or fails to take in enough hydration and calories along the way. For those hoping one day to retire, or educate their kids, or leave a financial legacy, this happens when they spend everything as soon as they get it, or worse, spend it ahead of getting it. It’s extremely difficult, if not impossible, to recover from these situations. Unfortunately, no one was offering me an energy advance at mile 20, just as there are few commercial loans to help out-of-pocket retirees make it to the end of their lives.

It wasn’t until the finish of my run that I discovered the most powerful similarity of all between marathoning and financial planning: once you have done it, you’ll feel like a million dollars! Do the financial part, and you may in fact someday have that million dollars. It all begins with that first intentional step.

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Financial Planning for Your Life Now

Tuning Out Negative Economic News Can Help You Boost Your Financial Confidence

Certified Financial Planner Board of Standards Consumer Advocate Eleanor Blayney, CFP^® observes that a fixation on negative information is causing people to quit spending on critical goods meant to replace superannuated products, and such spending is essential to an economic rebound. She suggests a series of steps to improve investors' outlook and help them take charge of their financial future, starting with tuning out bad news. "Just because you've heard the negative news about economic growth four times from different sources does not mean that it is four times as bad," Blayney says. She also recommends making a fresh start, using the current value of your home, your 401(k), your savings, and your brokerage accounts as a foundation. Blayney advises portfolio diversification oriented around high-quality investments, and living within your means. She also says that "just spending time with a child--observing their energy, curiosity, sense of wonder and imagination--inspires hope for a better future." Learning new skills with the goal of expanding your career prospects is another strategy Blayney suggests, while charitable contributions--either money or time--to someone less fortunate "usually puts our own financial difficulties in perspective." She additionally urges putting together a financial plan, preferably with a professional. "It's not a matter of whistling in the economic dark, but actually taking concrete steps to illuminate the course forward," according to Blayney. "Confidence that you are on the right path is the first, most important step toward financial security."

Expert Advice to Help You Decide How to Buy Stocks With Your Spouse

When it comes to purchasing stocks jointly, most married couples opt for joint tenants with rights of survivorship (JTWROS), in which any holdings owned automatically pass to the surviving spouse when the other spouse passes away, notes Certified Financial Planner Board of Standards Consumer Advocate Eleanor Blayney, CFP^®. When holding stock or any other asset as joint tenants in common (JTIC), each person can select who inherits his or her portion, and that share goes to the recipient designated by a will. Blayney lists several reasons for establishing ownership in this manner, including the fact that holding assets as JTWROS would make the assets more susceptible to creditors. Furthermore, the JTIC protocol offers more estate planning flexibility, although that is only really relevant to couples subject to estate taxes. Blayney says she is seeing more couples with a preference that their spouses not automatically inherit all their holdings. For instance, if both partners have offspring from previous marriages, they may each want to pass on their share of some joint assets to their own children. For couples with specific plans for dividing up their estate, Blayney suggests holding assets as JTIC so they can specify who inherits them in their will. One also could keep separate accounts, but it may be less costly in the case of a brokerage account to place all assets in a single account, as this adds up to fewer management and transaction fees. Blayney also observes that "over time those accounts are going to look very different" if the couple has chosen different investments, which could make funding a joint retirement more complex.

Change Your Thinking to Adapt to the Economy's 'New Normal'

The economy is taking much longer to fully recover than most people expected, and new thinking is needed for this “new normal.” The old thinking said one should buy and hold investments, but that no longer works--from Jan. 1, 2000, to today, the S&P’s capital loss is as much as 25 percent, and investing in formerly so-called safe companies like Eastman Kodak, Enron, and Lehman Brothers would have resulted in the highest losses. Another old assumption that no longer holds is that bonds are a safe haven. Interest rates have been slowly declining on bonds since 1981, and now that they cannot go any lower, bond values will decrease as interest rates rise. Thinking on dividends has changed too--many financial experts are now advising clients to move investments into dividend-paying stocks and mutual funds so investors can receive some income until the market improves. Keeping a financial plan set in stone is another old concept that is now outdated. "Revisit your financial plan to see how five to seven years of what I call 'market melancholy' will affect your plans," says Lynn Ballou, CFP^®. "Then revise them for tougher times than you might have originally expected to experience. Be honest about your findings. For example: Do you need to work longer? Take a part-time job during your early retirement years? Cut back on travel? Be less generous with your kids? Face the truths and implement appropriate change." Some other traditional beliefs that no longer hold water are that annuities are a bad investment, that one should wait to take funds out of a 401(k) until age 70.5, that investing in purely U.S. securities is the best route, that one should hold out for the ideal job rather than taking a lower-skilled one, and that alternative investments like real estate or commodities will protect one from market swings.

Use Asset Losses to Offset Your Taxes Owed

Tax-loss harvesting is a strategy individuals can put into practice immediately to reduce their tax obligation, according to Kurt Elmhorst, CFP^®. If used properly, tax-loss harvesting can be simple and effective. First, an individual should look at their most recent statement. Is there a stock, mutual fund, or other asset that is worth less now than when it was purchased? Is it in a non-qualified account, meaning that it is a non-retirement account? If so, the investor may be able to take a bite out of the Internal Revenue Service (IRS) for once by selling the asset and "realizing" the loss. A loss is not realized until an asset is sold. If the asset has been held for longer than one year, it is a long-term loss. According to the IRS Web site, this loss can be used to offset long-term gains in three different ways: It can be matched up with realized gains from the current year; if there are more losses during the current year than gains to match them up with, the investor may be able to use $3,000 of the additional losses to offset income; and if there are still realized losses after carrying out steps one and two, the IRS allows a Loss Carry Forward. This means an investor can carry forward the unused loss on the current tax return to subsequent tax years to use in the same manner. Financial advisers do not dispense tax advice, but according to the Certified Financial Planner Board of Standards, advisers should be able to recognize various circumstances and refer clients to appropriate experts and then work together as a team to meet goals.

Opting Out of Your 401(k) May Make Sense if Certain Conditions Are Met

Some financial experts say opting out of a 401(k) sometimes makes sense. If there is no company match, says expert Charles Buck, CFP^®, investors may be better off with a Roth IRA, if they qualify. He says a Roth IRA at a brokerage will offer greater investment options, many with more attractive fees. Also, for young investors who may be saving for a home, a Roth IRA allows savers to withdraw their principal, free of penalty, Buck says. Other experts say poor investment choices, or high expenses, can be a good reason to opt out of a 401(k) plan. The best 401(k) plans charge employees as little as 10 basis points, says expert Mike Alfred. There are also plans with steep insurance costs that can run as high as 9 percent, he says, meaning a worker might lose hundreds of thousands of dollars in savings over their working career when compared to a lower cost plan. "In cases where all-in fees get that high, it's hard to argue with an adviser's assertion that the participant might be better served to invest elsewhere," he notes.

Financial Planning for Your Retirement

Shore up Your Retirement Nest Egg by Working Longer, Delaying Social Security

Experts offer sound retirement advice for workers, who increasingly believe they will run out of money at some point after they stop working. One thing workers can do is to wait until they are 70 before they receive Social Security benefits. Waiting allows workers to increase their monthly Social Security benefits by 8 percent a year from the time they are first eligible for full benefits until they turn 70. Certified Financial Planner Board of Standards Consumer Advocate Eleanor Blayney, CFP^® says everyone should consider delaying Social Security payments if possible since they are not going to get a guaranteed 8 percent rate of return anywhere else. In addition to delaying Social Security, those who are on the verge of retirement may want to consider working longer to increase their savings. Another strategy is to take smaller withdrawals from investment accounts after retirement. Financial expert Gregg S. Fisher, CFP^® says retirees should take only 3 percent rather than 4 percent from their investment accounts each year to make the money last longer.

Take Control of Your Retirement Savings Vehicles

Roger Wohlner, CFP^® explains in this article some 401(k) investing tips for individuals at any stage of life. First, diversify and allocate assets in accordance with retirement goals and appetite for risk. Next, take full advantage of any company match, since this is essentially free money, and for most investors it is wise to invest at least this much in the plan. If opting out of the employer's retirement plan or reducing the contribution amount, be sure to save as much as possible in another vehicle such as an IRA. Fourth, if investing in a retirement plan that is lackluster, try to select the best handful of funds in that plan and focus contributions there. Do not depend solely on the 401(k) for all post-retirement income. Sixth, before opting for the plan's target-date fund, be sure to understand the benefits and drawbacks of this option. And finally, do not overindulge on company stock if that is a plan investment option. Wohlner says an employee who believes his company's plan could be improved should talk to the plan's administrator. "Your 401(k) plan is likely your biggest retirement savings vehicle," he says. "Take control and make it work for you."

In 2012, the Government Will Let You Increase Certain Retirement Plan Contributions

The Internal Revenue Service (IRS) recently announced that employees can make a pre-tax contribution of $17,000 to their 401(k) plan in 2012, up from $16,500 this year. For workers age 50 and up, the catch-up amount remains unchanged at $5,500, with pre-tax contributions maxing out at $22,500 annually. "Anyone who can afford to up their contribution should," says Angela Thomson, CFP^®. "The reality is retirement is more expensive than most project, and we have serious flaws with the social security system." The increase marks the first time since 2009 that the IRS has raised the contribution ceiling. The new rule applies to 401(k)s, 403(b)s, the majority of 457 plans, and the federal government’s Thrift Savings Plan.

Hiring a CERTIFIED FINANCIAL PLANNER™ Professional

Hiring a CERTIFIED FINANCIAL PLANNER™ Professional Can Help You Get Your Financial House in Order

A June 2011 survey from the Certified Financial Planner Board of Standards Inc. discovered that although most Americans say they have a financial plan, few of them have written it down. Hiring a financial adviser is a step in the right direction. However, with so many financial advisers to choose from, it is often difficult to find the right one. But it is essential to carefully do one’s homework and find an adviser who fits. One thing to realize is that advisers are doing their homework on potential clients as well, examining bank statements, pay stubs, outstanding debts, and investments to determine whether they can help. Asking questions is important, but not basic, general ones. Asking an adviser’s rate of return, for example, is not going to be very helpful because returns fluctuate based on the client, the economy, and many other factors, according to Wayne Copelin, CFP^®. Interviewing an advisor is often like a first date, says Roseanne Rogé, CFP^®, in that it is often clear within the first few minutes if the relationship will work. It is also important to remember that “too good to be true” usually is. If an adviser promises pie-in-the-sky returns, this should bring up a red flag. It is also important to understand that financial advisers are mostly unregulated and anyone can call themselves a financial planner. Look for reputable credentials, such as CFP^® certification, that indicate they are competent to work with the public.

Financial Planning for Women

Women: There Are Steps You Can Take Right Now to Build a Secure Retirement

Women live longer than men and tend to have lower salaries and more time away from the workforce, so it is important for them to plan ahead to ensure a comfortable retirement, writes Kim DeVoss, CFP^®. The first step is to put as much money as possible into a retirement plan, increasing contributions every time salary increases. It is also a good idea to determine how large Social Security checks will be, which can be found out by contacting the Social Security Administration, and to find out what legal arrangements have been made with regard to wills, trusts, and beneficiary designations. Working with a CERTIFIED FINANCIAL PLANNER™ professional will help to identify and quantify retirement planning goals and get the right investment mix to achieve those goals. And finally, it is important to stay informed about one’s savings, investments, and retirement plans.

Financial Planning for Your Children

Don't Let Life Get in the Way of Saving for Your Children's Education

Experts say it is important for parents to carefully examine their finances to develop a college savings plan for their children as well as achieve their own life goals. For instance, people who own a car should not trade it in for a new model too soon, especially if they have just recently finished making payments, says Jeanne Gibson Sullivan, CFP^®. She advises keeping the car well beyond the length of the loan. Similarly, Sullivan says families should be careful when it comes to major vacations. She says, "It's a balancing act. Really think what the priorities are" during decision-making. Parents can also be more aware of their finances by setting aside an hour every week to monitor their spending, which is easier if the focus is on smaller chunks. Parents should automatically deposit a fixed amount each month into a savings account separate from their regular home budget account. Furthermore, parents should give themselves an allowance and abide by it, and save up the money if they want something special, similar to how children are taught. People also tend to be more aware of their spending when they use cash, so it may be worthwhile to stop using credit cards for a week to see if this approach is effective.

Educate Yourself About Your Child's 529 College Savings Plan

There are several things parents should keep in mind if they are saving for their children's college education through 529 plans. Parents should keep in mind that there are aged-based 529 college savings plans that move to more conservative investment strategies as the child grows older. One benefit of these plans is that they eliminate the need for parents to change how the money is invested as time goes on. Age-based plans usually come in conservative, moderate, or aggressive options to reflect the ability of the investor to tolerate risk. Parents should be sure to look into how their money will be specifically invested with each of these options before choosing a plan and making a contribution. Finally, parents should be sure they know how they can use the savings they have amassed in a 529 account once their child is ready to begin college. The money can used to pay any costs that are required by the college or university, though the funds cannot be used to pay living expenses.

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