Transitioning From Growth to Income for Retirement


May 28, 2015
originally published on

If you’re age 50 or older and are like most investors, you’re investing largely in mutual funds through an employer-sponsored retirement plan. If you have a brokerage account, you’re probably choosing funds rather than individual stocks.

Investors who have a little more knowledge will often assess the balance of their holdings and the ratings of the funds they own. They may subscribe to newsletters or visit financial sites that provide guidance and recommend stocks and funds.

So much of that guidance, however, is focused on growth — the potential for price appreciation as investments increase in value. The only way to turn investment growth into cash is to sell the investment. As investors get closer to retirement, though, they want to know more about how much income their portfolios are earning — that is, how much cash their holdings are actually generating. Growth may be high, but income may be quite low.

So what is an investor to do? Ride the hills and valleys of the market and hope for the best from a growth standpoint? Or take steps to lock in more certainty about income?

Making the transition from growth-focused investing to income is often challenging. Investors comfortable with stock funds may have a hard time adjusting to the notion that a mix of securities might better achieve their income goals.

To choose the strategy that’s best for you, it’s important to understand some income-related financial terms and definitions.


To explain yield, I often use the analogy of a house rental. Say you rent a house to a tenant. The rent you collect, minus your expenses, is your yield — that is, the income from the property. The rent by itself is not the value of the property. The property value can rise or fall independent of the rent you receive. You realize a gain or loss on the property only when you sell the house. In the interim, you can take deductions against income on your taxes.

Stocks pay dividends, bonds pay interest, and these payments are made on specific dates, often several times a year. Divide the annual amount of payments by the value of the stock or bond to determine the effective rate at which it pays income. That is yield.


Dividends are paid by common and preferred stocks, usually on a quarterly or semiannual basis. Preferred stocks are a type of fixed-income instrument, with a guaranteed dividend. Common stocks are the more typical equity issues; their dividends aren’t guaranteed, although they have greater potential for growth.


Interest accrues and is paid on debt instruments such as certificates of deposit and bonds. The bond owner receives interest, usually twice a year, in the form of a “coupon” payment. (Bond funds usually distribute interest monthly.) Investors get their principal back when they redeem the CD or bond.

Capital gain distributions

Capital gains are the fruits of growth — money made by selling an investment for more than you paid for it. Mutual funds declare and distribute capital gains from the sale of investments within the fund. These distributions are typically not guaranteed.

Other income sources

Annuities produce regular, guaranteed payments that are usually a mix of income and a return of capital. Depending on the annuity, there may be a guarantee of lifetime income.

Covered calls are an additional source of revenue for people who own a portfolio of common stocks. Engaging in a call strategy requires an in-depth conversation with your financial advisor to review your risk tolerance and the tax implications for realized gains.

What income sources are right for you?

Well-diversified investors may be using a mixture of all these strategies to produce the annual income they need from their accounts. The actual allocation of weight among strategies may depend on the risk tolerance of the investor, as well as the amount available to invest. All of these decisions are made in the context of an investor’s need for liquidity — the ability to convert investments to cash. Investors who are already retired are normally advised to keep a percentage of assets in cash to have available for emergency needs. This lets them avoid “fire sale” events should markets turn down.

Planning ahead

A discussion with a financial planner can help you identify the income sources that make the most sense for your retirement. Tax issues should also be considered, as larger withdrawals from IRA and 401(k)-type accounts can affect your tax rates. Having tax-free Roth IRAs can help as well.

This information is not intended to be a substitute for individualized tax or legal advice. Please consult your tax or legal advisor as appropriate regarding your specific situation.

Mars, Venus and the Shared Wallet, Women and Money

Women and men differ fundamentally in their approaches to investing and finances. What studies show.

Why would 27% of women in households earning more than $200K fear ending up broke, homeless and as a bag lady, in their later years?

While advising couples, I have noticed that men and women often have very different approaches to investment decisions and managing risk. Curious to learn more, I researched available studies to learn more about the scope of these differences and why they occur.

The findings were in some cases very surprising. However they almost universally validated my anecdotal evidence that women tend to be more conservative than are men, when making decisions about finances and investments.

These tendencies occur for a number of reasons. The studies have shown that more women than ever are supporting households as a primary breadwinner, and that women are living for longer periods of time. Female headed households are also more likely to include extended family members, including children, and older parents. Decisions about allocating a paycheck may need to support several people.

Married women were also found to be very interested in finances; but less likely to be taking the initiative in a conversation with professionals about household finances or investing. They were found to be very concerned about their financial security. Most surprising to me, personally, was a finding that 27% women in households earning more than $200,000 a year had a deep seated fear of ending up broke, homeless and as a bag lady later in life.*

Among married women, most were far likelier to discuss a purchase of more than $360 with their husbands prior to making it. By comparison, the husbands surveyed were not likely to involve their spouses in a purchase decision unless the amount exceeded $1200!

There are many implications of these studies. One of the first takeaways for me is that it is important for women, if they are not already well informed and assertive, to delve into household finances and to share in decisions about them. Women should choose professionals – whether they are CPAs, tax preparers or financial advisors – with whom they can collaborate, rather than be patronized.

Also, women in significant relationships should understand that their voices should be heard on money topics. It is important for couples to work toward ease in communications about money, an often difficult subject. In community property states, salaries and retirement assets are considered to be marital property. It is logical that both spouses work together on decisions about these assets rather than assigning more control to the one who earns more.

One way women can be made to feel more comfortable about investment decisions and saving for retirement is to engage in planning. The studies found that women who plan had a higher level of confidence about achieving their eventual goals, and more awareness of the resources and milestones necessary to attain them. These women also felt more comfortable with assuming some risk to attain the desired outcome.

Estate planning can also be important, to help women feel reassured that they will have sufficient resources for their later years. The process of creating a will or trust can identify issues for funding legacy goals, as well as the needs of a surviving spouse. Estate planning can also direct the outcome of “instant estates” created, when an untimely death of a parent or both parents triggers life insurance payouts for children. Estate planning may serve as a reality check on levels of current spending, which may not allow for sufficient accumulation toward retirement.

Recently, I spent a morning talking with women about life planning, and estate planning. Even people who don’t self identify as rich realized that if both parents were to die, leaving the insurance payouts of a group life insurance plan for children, that the parents’ estates could suddenly be substantial. Informed choices of when to start Social Security benefits and to coordinate benefits with those of a spouse can provide life-changing results.

If you would like to learn more or to read more about these studies, to assess where you may be with some of these decision points, I can send you some links. You can also consider attending my panel discussion tomorrow in Mill Valley. Link is below. I would also be happy to engage you in an important planning discussion, toward taking more control over your finances, and life goals.

The bottom line is that life circumstances can significantly affect risk tolerance and assumptions regardless of gender. Rather than totally avoid risk, we need to ask ourselves how much we might tolerate to reach a desired goal.

*Allianz Life, 2012

**Research studies by: Allianz Life, 2012; Sullivan Trust Study, BNY Mellon, Jan. 2011; Spectrem Group, Oct. 26, 2011, Experian, 2014; and Family Wealth Advisors Council, 2012.

***Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

“Yours, Mine, Ours:” Keeping Assets Separate During Marriage

Relationships start with romance, but can erupt into anger if a couple doesn’t work on intimacy on the money level.  As a trained mediator and financial planner, I have seen the potholes that people blunder into on this subject even when love dodges other obstacles.

If you are planning for a marriage in a community property state like California, it’s important to set expectations and discuss community property, that is, the basics. It is also important to decide how to commingle your net worth to build your life together as a couple. You may decide to keep certain assets separate, and you may negotiate with each other tradeoffs relative to these decisions.

After a marriage, you may decide to formalize agreements concerning separate property such as inheritances. There are agreements you can create with the aid of an attorney, who may be specialized in family law, estate planning, or real estate, as appropriate.


Community property

The doctrine of community property is defined by state statutes. In states where it applies, both a husband and wife are responsible for the expenses of the family and for the education of children including stepchildren.  The law deals entirely with property, and sources of income, and sets a fiduciary standard of care for each of the spouses when managing community assets.

Ironically, couples may or may not have sources of income that are separate property but if they file married jointly under the federal tax code, they may each be liable for the taxes levied on separate assets or activities. For instance, there could be business income coming from a pass through business entity, such as an S-Corporation. Even if a pre-nuptial agreement defined the business as a separate asset, the business income may be marital property, and the taxes associated with it a shared debt obligation to the US government.

Separate property

First a definition:  Separate property can be anything you owned before marriage or included in a prenuptial agreement that was explicitly defined, and agreed to by your spouse. In California, your spouse should have been counseled by an attorney to grant fully informed consent. Assets that arrive during the marriage can remain separate if they fall into certain categories, like gifts and inheritances, and can retain that status if kept separate.  That is, they cannot be commingled with community assets.

The muddle in the middle

During the course of a marriage it is common for spouses to draw upon separate property to finance aspects of their lives together.  For instance, a wife’s trust account might be partially collateralized by a bank to help lower the amount of down payment necessary on a house. The wife cannot remove her trust account from the bank without forcing a refinancing of the loan. The asset is still titled in the name of her trust but the account is encumbered for the good of the community. This arrangement may actually violate the terms of her trust, said one estate planning attorney, because the wife has fiduciary responsibility to protect assets for the trust’s named heirs.

Or, in another example, income received from a separate asset such as an inheritance or a personal injury claim is used to finance ongoing living expenses. The dividends may be deposited to a family checking account. This may or may not create a claim for community property later.

Salaries and wages are always considered to be community property.  Couples may trade off community assets for other things if they negotiate a prenuptial or post-nuptial contract for this purpose.  Couples may agree to economic restitution should they ever split if, for instance, one partner must make a career sacrifice for another, resulting in a salary cut.

State statutes may override some of these agreements and judges may overturn agreements if they are not in the best interest of children, or are a violation of codes. Also, as I stated previously, in California, spouses must each obtain separate legal counsel when signing prenuptial or post-nuptial agreements.

For better and for worse

Commingled assets may present no problem when couples stay together. However, couples who fight about money or who transition into a divorce may discover the unwelcome realities of separating assets that are no longer solely his or hers, but that are now shared.

This new reality is not necessarily bad. Life as a couple for the parties involved is usually more satisfying than life as single individuals. Marriage is an economic relationship as well as a romantic one. The challenge to partners is to find the right balance, and to be able to talk comfortably about the resources necessary to sustain a couple’s economic life, together.

Financial planning can help achieve this level of détente. Having a third party mediate the discussion can clear the air for a difficult but necessary conversation.

Getting advice

To learn more about protecting assets for children of a previous marriage, or if you are contemplating divorce, consult with an attorney. Getting advice is even more important if one of the spouses :

–owns a business prior to marriage that may become subject to control issues or necessitate sale after his or her passing;

–has substantial separate property, either before marriage or that is inherited or otherwise acquired during the marriage;

–has had issues getting his or her spouse to properly manage community debt, including credit cards and small business administration loans;

–wants to refinance a house previously owned before marriage, and /or wishes to keep its ownership separate during marriage.

Family law attorney Sarah Davis of San Francisco suggested that spouses discuss use of separate money to benefit their life as a couple.  “This is especially true  if either one of the spouses expects to eventually be reimbursed for the loan or use of the money, ” she said.  She advises couples, “Discuss how accounts will be kept.

“Spouses have fiduciary duties to one another.  If one spouse has a business, he or she will need to balance accounting for the business with accounting to his or her spouse for the business funds and payouts.”

The big takeaway here is that it’s always a good idea to seek professional legal advice before acting before acting upon any assumptions of what constitutes separate vs. marital property.

*This information is not intended to be a substitute for specific individualized tax and legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

Want to pay less down for a home? Check out the new guidelines.

Newer, low down payment options help more borrowers qualify for home loans. 

Mortgage interest deductions remain an important tax-sheltering strategy.

As a financial planner, I work collaboratively with many professionals in my community. One very valuable professional to know is a mortgage banker.  Consumer purchases or refinancing of a home usually represent the largest expenditures people may make in a lifetime. Recently, banks began to relax the amount required of consumers for down payments.

That said, responsible borrowers should make sure that the amount to be paid monthly stays within recommended guidelines.  For instance, the amount represented for a monthly mortgage, insurance and property tax payment should be represent no more than 38% of gross monthly income.  If the payment exceeds this ratio, the borrower may be at risk for a cash crunch should unexpected events occur.

Consumer research done by Fannie Mae*, shows that many people have problems mustering the initial money needed for the down payment and closing costs.     This is because 44% of first time buyers think they need 20% for the down payment, according to Fannie Mae.

The larger down payment lowers the monthly mortgage payment, and of course, represents less risk for the lender and borrower. Even so, responsible borrowers may now be able to make less of a down payment.

Mortgage banker Rosette Pollock of Greenbrae, California, said buyers wanting to invest less than 20 percent down can explore several new options.  For instance, she said, Fannie Mae has announced a 3% down payment choice for an owner-occupied home.  Under this program, the maximum loan amount is $417,000.  The 3% down payment can come from the borrower’s own saved funds or a gift from an eligible source.

In exchange for putting less than 20% down, the borrower would incur a monthly mortgage insurance payment which protects the lender in case of default.   Depending on the borrower’s adjusted gross monthly income, the mortgage insurance cost may be tax deductible. Borrowers should consult their tax accountant for additional information.   Find more information on the IRS website @

Yet another program, available from the Federal Housing Administration (FHA), requires only a 3.5% down payment for property purchased in selected areas including Marin. The loan may be made up to a maximum amount of $625,500 depending on the county.  FHA would also ask for a one-time upfront mortgage insurance premium, and a monthly mortgage insurance payment.   FHA recently announced it is lowering the monthly mortgage insurance amount.  “On a $500,000 loan, this new announcement will save a home buyer $2,500 a year,” Pollock said.

A private program, also available in Marin County, asks for only 5% down on a purchase up to $658,421 with no monthly mortgage insurance, Pollock added.  “The borrower cannot own any other residential property and the property would need to be located in an eligible census tract,” she said. “Otherwise there is a restriction on income, with the maximum modified gross income income allowed being $135,493.”

If the property is located in an eligible census tract, the borrower’s income can exceed $135,493.  Additionally, reduced interest rates are available.  Pollock said there are currently 13 eligible census tracts in Marin (San Rafael has 4 tracts, Novato has 4 tracts, Ross Valley has 2 tracts, and Southeast Marin, Bolinas, and Northwest Marin all have 1 eligible tract).  If you live or want to buy outside of these areas, check with your local mortgage banker for other eligible census tracts. Census tracts cross zip codes, so to determine whether a property is eligible, enter the address on this link: .

If the borrower buys a home or even refinances in one of the tracts, he or she receives a discount off the rate for the private program mentioned by Pollock.  Unlike for other programs, there is no monthly mortgage insurance on the home which helps lower the monthly payment.   Borrowers do need to qualify based on income, assets, and credit in all cases (no short sales for the past 4 years).  The  maximum debt to income ratio is 38% for a borrower’s income divided by the new mortgage payment (principal, interest, taxes, insurance, and HOA** if applicable).   The ratio for borrowers’ income divided by the new mortgage payment + all other liabilities must not exceed 44%.

Still other lending options exist for a home buyer who can make a 10% down payment.  Lenders may offer financing up to $1,500,000 and with 15% down payment.  This would permit a qualified borrower can purchase a $2,000,000 home.


Whether owning this much equity in a home makes sense for you, personally, is a discussion to have with your financial planner and tax advisor. If you live in an area outside California, check with your mortgage banker to see what programs may be available for you.

Having a mortgage can lower your income tax bill, and create a more stable, positive experience in living in a community. However, if your short term plans – in the next 5-7 years – involve a relocation or retirement, purchase of a home may not be right for you. Check your assumptions of equity growth, taxation benefits and cash flow with a trusted professional.


California residents can ask Rosette to provide them additional information by emailing her at  For financial planning advice feel free to contact me for an appointment at

*=Federal National Mortgage Association
**= Homeowners Association Dues
*Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

Making Sure Your Gifts Will Be Appreciated

Depending on the cultural or family context, an outright gift of
cash can create misunderstanding.

Ever had the experience of giving a cherished gift, only to notice confusion on the part of the recipient?

If you are giving to someone of a different culture, their customs and culture may misinterpret for instance a gift of cash as crass or as a violation of a cultural norm.present handoff

In many areas of California, and in the US, families bridge racial, religious and language differences in the local populations. In business circles, especially in big cities where many cultures and contexts come together, an innocent gift may inadvertently create a cultural misunderstanding.

Of course, people who travel internationally for the holidays may be more attuned to these differences in customs around gift giving. But even those people who have lived abroad for some time can get an unexpected reaction should they forget local customs in a social setting.

In the spirit of the holidays, I thought I would offer a quickie list of do’s and don’ts when making gifts across cultural divides. Givers should gain, in that their gifts will be even more appreciated once the recipient realizes the thought that went into the selection.


In many western countries, Christianity may be the dominant religion. However in inviting people to holiday gatherings, don’t assume that everyone shares your beliefs. This issue sometimes comes up in families within the USA as well, if members have married people of other faiths. In these situations, it may be better to create some neutrality around the event, either in choice of day, décor, or festivities, or in honoring several customs or faiths at the same event. Depending on the cultural context, it may be wiser to give a gift to children, for instance, on another day than the religious holiday.

Cultural contexts

Gifts of money are not well received in certain cultures, especially if the recipient perceives himself or herself of a superior social rank. For instance, most people in the US would not give a boss a gift of money. A bottle of wine, yes, but not a gift card or money. However people living or from the Middle East may be also offended by a gift of money. But this norm varies too. In Jewish families a gift of Hannukah “gelt,” that is, chocolate money coins, is perfectly okay and fun for children. In Chinese cultures, red envelopes stuffed with cash are exchanged among family members and between bosses and employees. The amounts inside may be nominal such as $1, to bring luck for the coming year; or they may be a significant gift.

When visiting the homes of a host or hostess who originated from another county, you might also think about their expectations of guests. For instance, guests may or may not be expected to bring a gift to dinner, such as flowers or a dessert, or a small gift from their home countries. When in Mexico, for instance, or socializing with people from this country, you might bring white flowers, as they are considered uplifting. However when visiting a Japanese family, white might be a taboo color, symbolic of death.   For other cultures, other colors have these connotations. It pays to do a little research.


The overstuffed bear in a big box under a Christmas tree may attract the attention of the little ones. But the bear may come and go in just a year or too while a gift of college savings can grow over many years, and make a tangible difference in the life of your child or grandchild. Don’t hand over an envelope with cash if this is your goal. Do open a college savings 529 account or transfer shares of stock into a custodial account for a child.

The College Board reported that average college costs in 2012-2014 were $8655 for in state public colleges, $21707 for out of state public colleges and $29056 for private colleges. These numbers are growing an estimated 7 percent every year. Parents particularly may appreciate that you are helping teach their children to save a portion of their incomes for the many years ahead.

Having college savings available after high school graduation is a wonderful blessing, because the alternatives are quite burdensome. Rising interests rates make student debt increasingly unattractive despite tax deductions available for interest. And uncertain equity valuations in homes make it unwise for parents to finance college using home loans.

Looking ahead

Gift exchanges are a fun and wonderful way of celebrating families and friendships. Following a few rules of etiquette makes the gift even more pleasurable for the recipient.

*Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

Lower the Risk in Your Portfolio

Diversification can help reduce the variance you may see in your month to month portfolio valuations.

If you are an average investor, any one month’s downturn might have you second guessing whether your investment plan is still on track. You may even consider selling positions, as you look to regain confidence in the future direction of your portfolios.

Market downturns do happen, as the nature of the equity markets is to oscillate.  Normal volatility for a portfolio can be said to lie somewhere in the range of average fluctuations for stock and bond indexes.  If your holdings include both stocks and bonds then you would measure volatility against the same weights of the relevant indexes.

On any one day, the market might swing a few percentage points while bonds might oscillate relatively less.  On days or in times of enhanced volatility, the market fluctuations may move beyond their normal range, that is, beyond one standard deviation.

Before judging whether your own portfolio is too sensitive to market changes, meriting a reset, you might first examine historic rates of fluctuation for various indexes. You can then judge whether you should lower your weight in stocks or risky holdings, to lower the rate of change of a portfolio with closer tendency to a mean.

Fourth quarter is a great time to take stock of your risk profile as we near the year’s end. You may want to recalibrate, to subtract some risk from your holdings as you look for more reward on the upside.  Having losses to deduct in a taxable portfolio may actually be a good thing if you are netting losses to reduce taxable gains for this year’s tax filing. This is especially important for investors in higher tax brackets, as rates of taxation for gains have climbed upward.

However, in identifying candidates to sell it is also important to consider the relative role of various assets in a portfolio. Ideally, you don’t want all holdings going up at the same time; neither do you want them going down at the same time. This would be perfect correlation. By maintaining some uncorrelated assets, holdings that actually complement one another, you can lower the overall volatility as measured by standard deviation.

Turning back to the subject of volatility, I’ll use an example drawn from six years of data, comparing a large household consumer products company stock with the S&P 500 index, and a corporate bond index.  The table below shows that the household products stock, considered to be a consumer staple, is much less reactive than the general S&P 500 index.  The corporate bond index is much less reactive than either of the stock indexes.

Reactiveness is measured by standard deviations, that is the amount of movement around the average returns expected for these holdings.  Returns fall along a bell curve, with 95% of curves being within an expected range of one or two standard deviations. The larger swings would be isolated experiences, in less common years such as 2008.

Don’t focus too deeply on lowering your volatility, without thinking about the return that you will need to achieve your goals.  Equities on the average return more growth than do bonds. Unless you have accumulated significant assets already, you may be forced to consider some market volatility to reach your goals. Market returns can help grow your assets over time using to supplement your cash infusions.

Including some non-correlated assets can help reduce average volatility by introducing different rhythms to market fluctuation. Non-correlated assets may include additions of real estate (REITS), precious metals, foreign currency indexes, market neutral funds or muni bonds into a portfolio mix.  It’s important to consider these assets in your portfolio mix if you are noticing too much swing in any given month or interval.

So what is “average” volatility? One large banking institution published statistics this year stating that US Large Cap stocks can move 16% up or down in any one year; while muni bonds may only move 4% in the same period. Emerging market stocks and indexes might move as much as 25% up or down in a single year. Commodities can be almost as volatile.* For this reason some of these assets should be used only in small measure, to remain within a moderate risk tolerance range.

Putting together the right balance of assets to lower volatility demands careful consideration of these statistical realities.  If any one stock is throwing the whole portfolio out of balance, it might be a signal to harvest it.  Should you find you are increasingly less tolerant of the outliers consider taking less risk going forward.  This is a great discussion to have with a financial planner who can help you balance risk and reward as you save toward goals.

**J.P. Morgan correlations and volatility study, 9/30/2014.
*Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

What to Ask Parents About Their Wills or Trusts

First, know where the safe deposit box is located!
Second, know whether you are an executor!

Adult children of elderly parents often know little about their parents’ trusts until their parents pass away. It’s only then that they discover problems that bedevil settlement of their parents’ estates.

Or they discover missing clauses or sections in the trust during their parents’ lifetime, when it’s clear that their parents no longer are of sound mind. Then it may be too late to take action without an expensive court process.

As a financial planner, I frequently hear the stories of good intentions gone wrong, after mom or dad has passed away. In one case, a woman’s elderly mother had left an IRA account to the woman’s brother. Unfortunately the brother predeceased the mother and the beneficiary on the account was never changed. The trust never mentioned the IRA, so did not have jurisdiction. As a result, the woman, n

ow her mother’s executor, will probably have to ask a probate court to grant her the assets.

Mom never shared the trust with her adult daughter before she passed away. Otherwise, this problem could have been fixed before it became an issue.

More complex cases may involve bypass trusts. These are trusts originally intended to take advantage of the federal estate tax exclusion thresholds. If a spouse predeceased his wife or her husband, then his or her assets were put into the “bypass” trust for the eventual distribution to children at a later date. The surviving spouse is able to derive income from the assets during his or her lifetime.

If the bypass trust was truly intended to protect assets for children, however, additional clauses in the trust may have been inserted, or should be inserted, to accomplish this purpose. Otherwise the surviving spouse may be able to encumber the account – using a reverse mortgage on the deceased spouses’ home equity portion – or totally drain the account, as he or she wished. The latter example is more of an issue in blended family situations.

If you are an adult child, and will be the eventual executor of a parent’s estate, it would be wise to ask questions in advance that will save you trouble and heartache later. If you can work with parents while they are alive you can review their trusts with your own attorney to see what actions may be needed now to help later. In this way, you will know in advance where important documents are kept; whether beneficiary designations on accounts match those indicated by wills or trust documents, and whether in the event of incapacity of your parent, there is a means for directing finances while your parent is in care.

Ron Kamins, an estate planning attorney in San Rafael, suggested some of the following questions when approaching elderly parents. You might preface the inquiry with an explanatory statement, such as, “Mom, (or dad), I want to be able to care for you later the way you would want. I am concerned that I do not know enough about your wishes, should you take ill or pass away. I have some questions that I need to ask, as I will probably have a role in taking care of you and arranging your care.”

1)    Am I an executor of your trust? If not, then who is the executor?

2)    Where are the original copies of your trust or will documents kept?

3)    When were they last amended or reviewed?

4)    Is there a living will, covering your last wishes for health care? For your religious preferences, for a service after death? For burial?

5)    Is there a bypass trust? If so, you might want to ask your attorney if this is still needed, because of changes in the federal estate tax law.

6)    If you – dad (or mom) has remarried after another parent passes, ask him or her, “Do you want your part of the estate in the bypass trust protected for yourself or other heirs? Or do you want to take care of the your new spouse first?”

7)    Do you have separate property in your trust, vs. marital or community property? Explain the difference, if necessary. For definitions, see

8)    If there is a family business, ask your parent how will succession be handled. Could an outsider inadvertently obtain control, should shares pass to a non family member after the death of your mother or father?

Answers to these questions, Kamins said, will probably lead to further investigation of what may be necessary going forward. If your parent has inadequate finances, you may be needing to plan for his or her care to come from your budget, and those of siblings. It pays to learn about a problem in advance, before it becomes a problem.


*Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

Finding Gold in Your Social Security Nugget

Drawing income later usually boosts payouts

For many Americans, Social Security still constitutes an important part of their retirement income plans, for security in retirement. Yet few people know how to optimize these benefits to obtain the highest payout.

There are many variables that come into play when computing benefits. I recently hosted a seminar on this topic with an expert from AXA Equitable Life.

Following are some of the tips we shared, at the meeting.

Keep in mind that individual situations can vary greatly. For cases involving coordination of benefits with disability payments, for instance, it is wise to consult with a local Social Security office.

Maximum Benefit

Social Security is a government benefit intended to provide income that you cannot outlive. Currently, it is inflation- adjusted, and does provide survivorship benefits. The maximum benefit for 2013 was $2,533 monthly. If we assume a 3% adjustment for inflation every year, the potential payout over a 30 year period of this sum could be as much as $1.5 million.

How It’s Computed

The Social Security Administration bases is payout formulas based on the highest 35 earning years, and indexes earnings to inflation. This formula results in an Average Indexed Monthly Earnings figure, which is used to compute the actual benefit to be paid. You can check on your expected benefit at the website, using the online calculator.

Living on Social Security

The Social Security program was never meant to totally replace one’s working wages. Rather it was created as a supplemental source of retirement income, at a time when many American workers still received pensions from employers. Currently, 401K plans rather than pensions are more often offered to employees, meaning that employees themselves must decide how much to save for retirement. There is a higher risk, therefore, that people will underestimate the amount necessary to save, to finance retirement over as many as 30 years or longer.

Maximizing Benefits

People who can wait until 65 or as late as 70 can increase their rate of payout greatly over people who begin benefits earlier. For instance, someone starting benefits at age 70 can receive almost 130% more as a monthly payout.

If you or someone you know has already started benefits, you can still restart the payout at a later age, to increase the monthly amount. You would request form SSA 521 from the Social Security Administration to do so. Stopping benefits may mean repayment of benefits already received.

People who work while taking benefits lose $1 for every $2 earned, if they are not yet 65 years of age. They also increase the taxation of the benefit, which is not fully tax protected over a base amount to begin with.

Special Situations

A spouse can receive half of a primary work’s benefits. Spouses can get the higher of their own benefit or the spousal benefit. Former spouses may be entitled to spousal benefits but they must have been married for at least 10 years, and not have remarried.

In the event of death, surviving spouses must be at least 60 years old to claim, if in good health, or at least 50 years old to claim, if disabled. You must also be married for at least 9 months prior to the spouse’s death. There may be exceptions for accidents.

Marital Strategies

Women statistically live 5 to6 years longer than men, according to the US Bureau of Census, 2000. Some couples decide to maximize the wife’s survivor’s benefit, if Social Security income is needed earlier than 62 or 65, by starting a payout only for the woman, not her husband. This assumes that the woman earned less in average wages than did her husband.

The husband, in the intervening years, could decide to take 50% of his wife’s benefit, until such time as he claims his own. The second Social Security pension based on the husband’s income could be started by the husband at age 66 or 70. Should he predecease the wife, she would receive a higher survivorship benefit than she would have if his benefit had started first instead. Breakeven on these strategies is usually achieved by ages 79-80.

Waiting on the husband’s higher benefit could further augment the amount received monthly. There is a reality here, as the majority of women aged 75-84 are widows.


Most Americans are aware that the Social Security Trust Fund is in danger of going bust. If the current rate of payout continues, along with current rates of collections, the trust fund would be exhausted in 2036. To avoid a complete cut in benefits , Congress may slash benefits by as much as 25% prior to this date. Solutions have been discussed but none are in the immediate offing.

Shared Wisdom

Complementary income is needed to supplement Social Security. For some people this may mean dividends and interest from a mix of stocks, bonds, mutual funds, and annuities. For other less fortunate people it may be continued employment, even if part time.

Social Security is just one source of income in a comprehensive retirement income plan. Other investments are needed.  Keep in mind that withdrawals from tax deferred accounts are fully taxable. A tax strategy can help maximize income using tax free Roth IRA or muni bond accounts.  Annuities can provide partial tax protection along with income guarantees.

I am happy to help. Let me know if you would like a copy of our slides, from the Social Security presentation.

*Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

Find and Save An Extra $400 in Your Monthly Budget

Hidden Treasure in Your Household Budget, Where to Find It

It is often recurring expenses that can be better managed to achieve
savings goals.

Month by month, I meet with clients seeking a golden goose. That is, the one investment that will make their retirement dreams come true.  Just as important to investment choices, however, is the process by which we accumulate savings, to invest.

Buying a single high growth stock or fund for a Roth IRA account may seem just the thing. The trick is to first accumulate the cash to fund the account that will make the purchase. And, of course, allowing for normal market volatility, investors need to make a number of purchase in different investments, to diversify the risk.

So how to get there? Here are some tips based on my years of sleuthing personal budgets for the extra cash. Check out some of these ideas, to free up your own $400 monthly or more. You may not have to clip monthly supermarket coupons to get there.

Automated payments

Check carefully though your monthly bank and credit card statements, for any subscription type expenditures related to possibly unnecessary services. These might include membership charges for a one time visit to a website, insurance for identity theft protection, product warranties, job loss insurance, and upgrades or renewals for installed software. Unchecked, these can add up to hundreds of dollars a year in silent fees deducted from your accounts.


Insuring your life, as well as auto and home is most usually very necessary. However, insurance is also one of the biggest ticket items in a household budget after mortgages, and property tax, or rent. It pays to shop around.   For instance, when shopping for life insurance, check first with companies that issue life insurance and annuities as their primary product lines. These companies may offer a lower premium cost than those that insure primarily personal and real property. If your health has improved, or if you can lose 10 pounds and reapply for consideration, consider checking around for a new quote. By the way, carry your own life insurance in addition to that offered by employers. You want to be covered while between jobs, such as when you change employers or are unexpectedly laid off.

If you have no dependents and no one depends on you for income or to share in paying for jointly incurred debt, then the life insurance may be optional. Remember, your estate will still be liable for your debt when you pass away. The life insurance proceeds can pay this off.

Mental health expenditures

Almost every budget that I review has what I call ‘mental health’ type expenditures. These might be as simple as a daily coffee latte or as complex as a $200 or more monthly purchase of new software, photography or outdoors equipment, or payments to a house cleaner.  Couples sometimes allot each other their share of these types of expenditures. Problems arise if the incoming cash flow cannot support all of these outflows or if new goals can’t be funded without trimming some of this discretionary expense back.

That said, a certain amount of ‘mental health’ spend is wise to maintain a healthy relationship, in a couple, and to release frustrations in a positive way. I work with my clients to cut or substitute less costly releases for life’s tensions.

Utility bills

Winter electric and gas bills can be particularly vexing, as they can upset the best laid plans for a monthly budget. Check over your historic electric and power usage to see what patterns emerge. Consider changing over to water or electricity saving appliances to cut consumption. In water rationed areas you might even explore possibilities for recycling greywater, if local health authorities make this option available to you. The average washing machine can use 40 gallons or more in doing one load of clothes. A high efficiency machine can ratchet this usage down to 12 gallons, and less power to do the same load. Once cooled, washwater can be pumped into ornamental areas of your garden or irrigate certain types of edible crops. Special detergent is required. Check with your local water department or see for more details.

Food expenditures

For most families and couples, the weekly trip to the supermarket has been supplanted by weekly trips to 2 or 3 markets, including the local Farmers Market stalls. Without careful meal planning, food purchases can outpace actual consumption, resulting in a lot of food waste. Added to expenditures for meals out, a food budget can easily balloon in a busy month, particularly when families are juggling two careers and childrens’ after school activities. There are no quick fixes for this problem other than one old standby, the food budget cookie jar. In this scenario, food purchases would be budgeted and paid for with cash. The cash available is in the cookie jar. When there is no more money, you know you have exceeded the budget for food. This is not a suggestion necessarily to sacrifice eating for the remainder of the month. Rather, it is an exercise in heightening awareness of what you are actually spending so you can make some intelligent choices about what to cut back. Or how to buy what you need without incurring spoilage.


To better control spending, it’s important to map what you currently do. There are great interactive templates for this purposed available on the Internet. I can share one such template with you, which came from, published by the American Institute of CPAs. Using such a template will not only show you how much you spend for any routine item, but also allow you to compute ratios, to see what percentage of your current budget may be spent on variable vs. fixed costs, and what percentage may be devoted to routine costs like food, housing, insurance, and vehicle expenses.

Ideally your PITI ratio, that is, your ratio of principal, interest, taxes and insurance to gross income, would be 28 percent or less. Your total debt payments to income ratio would be less than 36 percent. If you exceed these ratios, it’s time to review whether to carry a car loan or whether to simply buy a car outright, perhaps an older model that is less costly to insure. It also pays to review your general use of credit cards to cover non emergency expenses. Ideally, you would minimize the use of such cards, because of the interest liability their use incurs.


Using all of these tips combined should help you find extra cash to devote to your savings goals. Consider building up your emergency savings to avoid use of credit cards. If you haven’t already started a Roth IRA for yourself or your spouse, or a college savings fund for your child, consider repurposing your new found treasure to fund these goals. I am always available to help you reboot to make your dreams happen, hopefully faster. Your overarching goal should be to fund retirement and for this, you will need to set aside 10-20% typically of what you earn throughout your lifetime.  This assumes that you retire at age 65, and start saving no later than your 40s. If you are already older then the percentage to be saved can be much higher.

By the way, the ability to save is an essential life skill. Pass these tips on to others.

*Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

My Spouse Has Died, Now What?

Whether Expected or Totally a Surprise, Death Disrupts Family Finances

Checklists Can Help, As Can Trusted Friends and Family Members

The call came unexpectedly as of course they do. A friend was on the phone. She had just found her husband, in bed, deceased.  He had been home alone with a bad cold.

The rest of the story is also unexpected. She and I were just 31. Her husband was 42. Married just two years, they already had a child and some bank accounts. She asked me to help with funeral arrangements, and helping her through the start of a lifelong process of coping.

What we discovered together has stayed with me for years.  In working with my friend, I learned how difficult finances can be after a sudden death of a spouse.  Particularly when few things were set up the way they should be.

I share this story, because I want to help my clients prepare for the

unexpected twists and turns of life.  As well as deal with death when it unfortunately comes.

You’re both healthy, how to plan

Consider carefully how to title bank and savings accounts. And make sure that beneficiary information is current. Keep wills and trusts handy and up to date. Make sure that you carry enough insurance to replace your lost income or that of your spouse for a number of years.

In my friend’s situation, she and I quickly learned that there was no will or trust established by her husband. And that all accounts were titled in his name only, with no payable on death provision.  Two of his three life insurance contracts named his mother, not his wife and child, as his beneficiaries. Credit cards were in his name only.

The only immediate access to cash that she had in the few days after his death came from the payoff of the single life contract naming her as the beneficiary. We learned she would have to file court motions regarding the rest of his accounts.  This was the case though the accounts were funded with salary earnings, a marital asset.  However, once the dust settled, she sat down with a financial advisor to budget, and to carefully conserve her assets for herself and her child.  She also established her own will, and retitled accounts to pay on death for the benefit of her daughter.

Should your spouse die

In the immediate hours and days following the death of a loved one, don’t make any drastic financial decisions. Ask a trusted friend or family member to help make the necessary decisions around a funeral, and nothing more.  Contact your trusted legal and financial professionals when you are ready to discuss next steps.   This call may need to be made sooner, rather than later, if you have minor children.  Don’t let unsolicited strangers into your life to discuss financial matters during this time, if ever.

Here is a brief checklist of other financial matters you will need to attend to:

  • Obtain at least 10 originals of the death certificate. You will need to give them to financial institutions and to insurance companies, to access joint accounts or those titled as payable on death to you, the beneficiary.
  • Make a list of important bills, and a schedule of paying them.  Share them if necessary with whoever is helping you administer your spouse’s estate.
  • Notify mortgage companies and banks.
  • Close credit cards issued in the name of your deceased spouse.
  • Cancel the driver’s license of your deceased spouse.  Identify theft problems may arise if the license is not cancelled.
  • Notify the nearby Social Security office, to either stop benefits already being paid or to qualify for increased personal benefits and a one time payment of $255 to the survivor.
  • Cancel Medicare payments for the deceased spouse.
  • Notify the employer, if your spouse was working. You may qualify for death benefits.
  • Stop health insurance payments for the deceased spouse.
  • Notify life insurance companies.
  • Terminate auto coverage in name of deceased spouse. You may also choose to sell the extra car.
  • Finally, send thank you notes to well wishers.  And take care of yourself.  Be kind to yourself during this time.

Within a year after your loss, you will need to file a last tax return for your spouse or a marital return reporting his or her income for the portion of the year he or she was still alive.  You should also engage in some financial planning to carefully review finances and decisions for the future.

Use your financial professionals as buffers for the people who will surely approach you during this transition to propose possibly unwise decisions.  These may include choices to pay off or to sell your home; to lend money to relatives or children; to purchase expensive new investment products; or to relocate out of state.

In the case of my friend, her careful work with a financial advisor allowed her to fund an Ivy League education for her daughter 16 years later.  We were all very proud.

*Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.