What We Can Learn About Estate Planning From Prince

Despite having an estimated net worth of about $250 Million, it has been widely reported that Prince died without a will. In other words, Prince did not make it clear legally who should inherit his considerable wealth and valuable stuff when he died. As a result, who ultimately receives his money will be tied up in court for years and years.

Now, in his defense, he may have had the same fear my wife jokes about. Maybe he thought if he wrote a will it would pave the way to his death. “You can take me now, everything is taken care of.”

Estate planning, determining who should get your money and possessions and who should take care of your minor children, isn’t a pleasant topic. So, think about it as a kind and loving gesture to those potentially left behind when something happens to you. Because, even without Prince’s wealth, dying without a complete estate plan causes turmoil to your loved ones when they are already grieving over your loss. Don’t make it worse on them.

So, here is what you should consider before getting legal help with your estate plan:

Probate: I start with probate because this is what you want to avoid as much as possible because a long, drawn out probate process – the legal process of settling debts and transferring property to your heirs – costs money and takes time. The probate process can be made easier with some simple steps. Primarily, titling your property – your money and your stuff – so that it automatically transfers outside of your will is preferable to transferring property through a will, when possible. Your 1978 Camaro is probably best left to your brother through your will. Your retirement account, however, is best transferred to your spouse or children by naming them as beneficiaries.

Who takes care of your children?: For Lisa and me, this was probably the most emotional decision we made during our estate planning process. If something happens to both of us at the same time, my brother and sister-in-law would be the legal guardians of our son. Our daughter is older than 18 so, legally, she would be on her own. Choosing the right people involves asking several questions: are they capable, are they willing and, of course, are you confident they will raise your children the way you want them raised?

For those with children with special needs, this discussion is even more critical as they may require assistance and income for the rest of their lives.

Where do you want your money to go when you die?: This is definitely a conversation worth having before you run to the attorney’s office to start drafting documents. Should it all go to your children? If your children are grown, should some go to them and the remaining amount go to your favorite charity?

Designating Beneficiaries: Much of your financial assets can be transferred automatically, outside of probate and outside your will. Take some time to make sure you have designated beneficiaries on the following: workplace retirement accounts like your 401(k) or 403(b), IRA’s, life insurance, other investment accounts, pensions, etc. This will simplify the process for your loved ones greatly.

Your Will: As I noted earlier, not all property can be transferred via a beneficiary designation, some will transfer through your will. Non-financial assets such as your cars, art, collectibles, your baseball card collection, will transfer through your will. The more you can transfer in a way other than your will, the less hassle and expense there will be for your heirs.

Trusts: Lisa and I established trusts for both the kids if something happens to both of us at the same time. That way our son’s guardian has assets and instructions on how to take care of him financially. Our daughter would also have assets to take care of her and instructions appropriate for her circumstances. Trusts are also good tools for distributing your assets and avoiding, or shortening, the probate process. In simple terms, the assets you designate would move to the appropriate trusts upon your death. It isn’t uncommon to think of a trust as something only very wealthy people have, but it is a common and effective tool for transferring property in a simple and direct manner.

There are a myriad of types of trusts that will have to wait for a blog post in the future.

The estate planning process can be quite simple or quite complicated, depending on your personal circumstances and needs, but it is important. This post merely scratches the surface of the important topics you should consider as you begin to plan. For more help, a comprehensive financial planning firm – hey, I know one – often helps their clients prepare their thoughts for the attorney who will actually complete the legal documents necessary to carry out their wishes.

The Stock Market is Volatile This Year: My Concerns

I love it when we’re about to experience a weather “event” – and when did a snowstorm become a snow “event”? What does that even mean? But, I digress. It’s fun to watch the competing weather forecasters on local TV: which one takes his jacket off first, which one rolls up his sleeves first, when does she announce she’ll be in the studio all night just for us? And, don’t forget, run to Kroger and get all the bread and milk your arms can carry!

During 2018 the stock market has ignited the same kind of breathless commentary from the financial press. Rising inflation, a potential impending trade war with China and others, and potential military conflicts with North Korea, Syria and Russia have sent the stock market rolling like the Banshee at King’s Island. 2017 saw the market at its most docile in more than 50 years. In fact, during the year the S&P 500 didn’t move 2% – up or down – in a day even once. This year? The market has already moved more than 2% in a day seven times! Similarly, last year the market moved at least 1% only 8 times. We’ve seen that 24 times already this year. But, even after enough head-jolting to make an astronaut sick, the S&P 500 is only down a little more than 1% for the year. Yawn.

So, why am I concerned?

Because the last 9 years has essentially been a steadily-climbing Bull market with few ups and downs and I’m not sure people are emotionally prepared for when a Bear market arrives. Notice I say when, not if. Nor are many of them invested properly to blunt the effects of a market collapse.

Let’s face it, if you’re in your early 40’s you probably didn’t really feel the impact of the 2008 market collapse of 40% because you probably didn’t have that much invested then. So, it’s natural to assume that this investing thing is really quite easy. You automatically save through your workplace retirement plan – a 401(k) or a 403(b) – and watch it grow each quarter. Hey, I’m good at this!

Similarly, if you’re in your late 50’s or early 60’s and contemplating retirement, you probably do remember the 2008 collapse but now a decline of your savings of 40% might materially change your retirement plans. Are you invested properly for that?

Here is why this matters:

To use a round number, if you have $100,000 invested in funds that move with the stock market, a decline of 10% will reduce your investments by $10,000 to $90,000. However, after that happens the market must increase by 11.1% to get back to your original $100,000 – a 10% increase, or $9,000, won’t do it. Ergo, in the long run one will be better off if their portfolio doesn’t experience the full swings of the market but, instead, charts a smoother path.

So, what to do:

1. Diversify your portfolio. I know, you saw this coming. But, hear me out. You might be surprised to learn that many people believe diversification means having funds in different accounts. Their thinking may be that if their IRA declines, their 401(k) might not. That’s not diversification. Your portfolio is comprised of all your investment assets, wherever they may be held. True diversification, then, means holding some in mutual funds that invest in companies within the stock market and others in investments separate from the market, such as bonds.

Now, this is more difficult than it sounds. While your ultimate goal is to invest in some funds that zig when the market zags, how much should you put in each? Some experts believe that 70% of a portfolio’s performance depends on this asset allocation – how much is invested in stock funds versus bond funds, real estate, or international funds. At Moneywatch, we spend a lot of time analyzing the funds we recommend and how correlated they are to each other.

Overall, how your portfolio is constructed depends on your age, circumstances and personal goals and should support your financial plan.

2. Review your portfolio periodically and rebalance if necessary. Review the performance of your individual investments at least annually and compare their performance to their benchmarks. Don’t just select them once and forget them. Then, look at your entire portfolio again as a whole to evaluate whether each asset class – stock mutual funds, bond funds, etc. – is invested as a share of your portfolio the way you intend. As valuations fluctuate this asset allocation tends to get out of whack and you may be taking on too much risk when the market climbs or not enough when it has declined.

3. Finally, don’t panic or overreact. The financial media live for market volatility because it gives them something to talk about. Sell this or buy that is their equivalent of telling you to buy bread and milk. If your portfolio is properly structured to support your financial plan then it’s also built to weather the inevitable storms. If that’s the case, blow off CNBC and watch Homeland, much more entertaining anyway.

If you haven’t really looked at your portfolio as a whole – all your investment accounts – now is a good time to do that. You never know when that extra bread and milk will help you through the storm.


My Favorite Lexington Charities and Why We Give

I often tell my kids the best way to make yourself feel better when you’re down is to do something nice for someone else. It may be counter-intuitive, but it really works. Feeling sorry for yourself when you’ve had a bad day – or bad week – only makes you feel sorrier for yourself. Doing something nice for someone else, however, even as small as holding a door or complimenting someone on their appearance, can help you snap out of your funk.

From a financial planning perspective, saving and investing for our financial freedom is important but so is the personal satisfaction of helping others along the way. Webster defines altruism as “unselfish regard for or devotion to the welfare of others.” I don’t think that really captures the full value of charitable giving, though. Let’s face it, we humans are communal animals who would find life intolerable without others. So, any act of kindness isn’t “unselfish” but, rather, quite selfish because we derive great joy by doing something nice for others. The fact that helping others also helps us doesn’t diminish the act, it’s what makes communities work.

So, the two following organizations are special to me, here are their stories:

YMCA of Central Kentucky:

Did you know no one is ever turned away from the Y because they can’t pay? The Y’s Annual Giving Campaign raises over $500,000 each year to help children attend summer camp or take swim lessons if their families can’t afford it. Membership dues don’t pay for this, only dollars raised from this campaign. This is what makes the Y something much more than “swim and gym” and what makes it so special.

At the High Street Y a woman came to our board meeting a couple years ago to thank us for the support she received for providing swimming lessons for her autistic son. She told us that people with autism are naturally drawn to rivers or swimming pools because of the calming effect of the water and, as a result, drowning is one of the leading causes of death among autistic people. She lived in constant fear that she would be separated from her son and he would flee to an unsafe situation, but she couldn’t afford swim lessons for him without help. Now, I don’t know about you, but my memory of swim lessons is an experience filled with cold water, fear and sensory overload – not a good combination for an autistic person. She described her son’s swim lessons at the Y, however, as a soothing exercise where the instructor met her son where he was and helped him learn at his pace. Now, she said, not only does she no longer live in fear for her son’s safety, but he loves swimming.

You may contribute to the Y Annual Giving Campaign here:


God’s Pantry Food Bank:

You may be surprised to learn this, as I was, that in Fayette County approximately 50,000 people are considered to be “food insecure.” Of those, approximately 11,750 are children. What is food insecurity? The USDA defines it as “consistent access to adequate food is limited by a lack of money and other resources at times during the year.” I don’t know about you, but I find it astounding that 50,000 people in Lexington, Kentucky struggle to put food on the table. And I know for a fact that those almost 12,000 kids will have difficulty learning if they are hungry.

In 1955, a woman named Mim Hunt began distributing food out of her basement to those in need of assistance. That initial effort grew and grew and became what we today know as God’s Pantry Food Bank. Today, over 121,000 meals per DAY are provided to people in need across 50 central and eastern Kentucky counties. The Food Bank has a network of more than 300 partner agencies, including food pantries, soup kitchens and shelters, who can order what they need through an online ordering system so they may deliver it to all corners of this huge territory.

This year God’s Pantry will distribute over 25 million meals. While roughly half of the cost to make this happen comes from USDA commodities – essentially food from the federal government – donated food will amount to over $15 Million and contributions from people like you and me will total over $3 Million.

If you’d like to join me, $40 will pay for 320 meals for hungry children; $70 will pay for 560 meals for struggling seniors, $150 will provide 1200 meals at an abuse shelter and $500 will provide 4,000 meals for families struggling with job loss. Contributing online is easy here: https://give.godspantry.org/give.now.

My advice? Find a cause you believe in and donate your time, talent and treasure. It’s a selfish act, but you’re worth it.


In Your 50’s or 60’s and Approaching Retirement? Some Common Questions

As you might expect, it is quite common for people to visit us at Moneywatch as they are in their 50’s and 60’s and can, maybe for the first time, actually envision a time when they will be retired. Although they, correctly, have a myriad of financial questions that I will describe later, the question WE ask THEM is – What’s your grand plan? Meaning, you have plenty of life left, how do you plan on living it?

We ask that question for two reasons:

1) Transitioning to retirement can be psychologically and emotionally difficult and we want to make sure our clients have thought this through. That may sound hilarious to someone in their 30’s working 10 hours a day and longing for some time off but work is important: it helps provide purpose to our lives, it proves to us that we’re needed and it gives us someplace to go each morning and have meaningful interactions with our peers. For some people, losing all of that overnight is like hitting a brick wall. So, we help our clients think through their transition even before we create a financial plan that will allow them to enjoy their remaining working years knowing what their options are.

2) As you might expect, your financial plan must support whatever personal plans you’ve made. For instance, if you want to sell your house and buy a boat to sail around the world, you must be able to financially make that happen. (We’re still waiting for someone to bring us that grand plan, by the way) More conventionally, if you plan not to work at all, can you afford it?

Here are some common financial questions we hear from clients:

How much do I need to retire?

Simply put, a financial plan will help you determine what amount of savings – in your work retirement plan plus any other investments – you need to have to cover your expenses from retirement through the rest of your life. A plan will help answer this question. For a rough estimate, if you took 5% of your savings each year for income, would it cover your expenses?

Am I invested properly for this stage of my life?

The glide path into retirement is an important one as we try to balance the dual needs of continued growth with the preservation of your investment assets. So, we often manage the investments of clients within a few years of retirement much differently than younger clients. No one wants to have to delay their plans because they weren’t prepared for a downturn in the stock market right before their retirement party.

How do I turn my savings into income at the right time?

Transitioning properly from being a “saver” into being a “spender” can be an emotional one but, more important, requires a plan to convert those savings to income when you need it. We determine which accounts – work retirement account, IRA, Roth IRA, taxable investment account – as well as which investments within those accounts to draw from. And we work to minimize tax consequences at the same time.

When should I take Social Security?

Your overall financial plan will consider when you will need income, your current health and other factors to help determine the best age at which to start taking Social Security to maximize the amount you will receive through the rest of your life.

How can I best support my favorite charity?

It’s a lot more fulfilling to see the impact of your largesse on your favorite charity when you are still living, right? Your financial plan will help you determine how much to support your cause now and possibly how much to include for them in your estate when you’re gone. Proper estate planning, as we help you partner with an attorney who specializes in wills and trusts, can be an important – and fun – part of your retirement plan.

The approach to retirement can be terribly exciting and daunting all at the same time. We seek to provide peace of mind so our clients can enjoy their remaining working years knowing what their options are. If they want to quit their job to pursue other passions, they can do it with confidence. They will know how much income they can comfortably take, and how much money they can give away if they want to.

Fee-Only Versus Fee-Based Financial Planners: What’s the Difference?

Simply put, fee-only financial planners – like Moneywatch Advisors – are compensated by the clients they serve, no one else. As a result, their loyalty is to their clients and only their clients. Fee-based financial planners charge you and then are often paid a commission from a 3rd party company to sell you their products, too. So, where is their loyalty?

“Fee-only financial planners are registered investment advisors with a fiduciary responsibility to act in their clients’ best interest. They do not accept any fees or compensation based on product sales. Fee-only advisors have fewer inherent conflicts of interest, and they generally provide more comprehensive advice”, wrote David John Marotta in Forbes Magazine. Moneywatch is a FEE-ONLY financial planning firm that is required, by law, to provide advice to our clients that is always in THEIR best interest.

The whole fee-only versus fee-based debate is admittedly confusing and has been the subject of some debate in the last year or two as the U.S. Department of Labor issued a new fiduciary rule that requires that “brokers act in the best interest of their clients in their retirement accounts.” (The rule applied to stock brokers because they don’t act under that standard now) Amazingly, a lot of firms objected to that. I don’t know about you, but if someone I hired to help me refused to act in my best interest, I would tell them to pound sand and head for the door.

In fact, Jason Zweig of the Wall Street Journal wrote 19 questions to ask your financial planner/advisor and the 1st question was, “Are you always a fiduciary and will you state that in writing?” His correct answer is “Yes”, the same answer that Moneywatch provides to that question. His 2nd question was “Does anybody else ever pay you to advise me and, if so, do you earn more to recommend certain products or services?” This time he suggests the correct answer should be “No”.  Again, the same answer Moneywatch provides to that question.

“The stakes are so high in investing that you should consider fee-only planners. They’ll give you a fixed price up front for their services, regardless of the product they recommend. You won’t have to worry about conflict of interest”, wrote Clark Howard, the consumer expert and nationally syndicated radio show host.

When Bob Bova started Moneywatch Advisors in 1980 he was among the very first in the country to try a new approach to wealth advising – provide clients the help and advice that is in their best interest, not the advisor’s best interest. What a concept! Back then, the industry was dominated by stockbrokers and insurance salespeople, mostly men, that were paid by commission. In other words, they were paid when they sold you a stock or an annuity – regardless of whether that product would actually help you achieve your financial goals. Bob’s approach was vastly different. Coming from the world of stockbrokers, he knew there was a better way. So, Moneywatch was born with an objective to align the firm’s interests with those of the client – a fee-only financial planning firm.

In an effort to explain the difference, I will confess a minor transgression. As you probably know, my wife and I were clients of Moneywatch for 25 years before I joined the firm. However, several years ago I thought I’d take a little cash and see if I could do even better for myself than Moneywatch was doing.  (Please don’t tell them) So, I took about $30,000 to a local firm that does not act as a fiduciary and invested some the way I wanted and some the way they recommended. The result: middling, at best. Over four years I earned a little less than 4% annually. Meh. My biggest complaint, however, is that I still don’t have a clue how much I paid them. Why? They don’t ever put their fees on their statements. More important, were they getting paid by someone else to recommend an investment to me? Who knows?

Now, this is a reputable firm and my contact is a good, honest person. They aren’t broken, their model is.

How Do We Keep Our Schools Safe?

This week’s post will not contain any advice on financial planning or investments or how much to save to achieve financial freedom. Today, I take a break from that to discuss what may be the most important issue in America today: keeping our children safe while in school. I was recently appointed to the District Safety Advisory Council organized by Fayette County Superintendent Manny Caulk. This Council is charged with “developing specific and actionable recommendations” on ways to make our schools safer. We had our first meeting on March 1 and will submit our recommendations no later than the first week of April, so this is designed to be a crisp process.

Now, I am a product of 1970’s-era schools where my biggest fears at school were being ambushed with snowballs by Jimmy Horne and Mark Velicer, the terrifying prospect that Heidi Moisenko might actually speak to me, or that Mike Zack’s mom might put cow tongue in his lunch again. Fast forward to today, and you don’t need me to describe our fears as parents of children in school.

Dr. Caulk recently summarized the urgency of this issue in an email to Fayette County Public Schools families with the following:

Our community is hurting. And since our schools are a reflection of the community we serve, our schools are hurting too. In the span of six hours last month, three teenagers died of gunshot wounds in Lexington. And in the span of nine days this month, students from three of our high schools – Frederick Douglass, Henry Clay and Paul Laurence Dunbar – have been arrested for serious crimes involving guns and the safety of our campuses.

This is unacceptable and, as a parent and father, I share your frustration.

There is nothing more important to me than ensuring the safety of our students, staff and campuses. As your superintendent, I take seriously our responsibility to care for your children while they are in our schools and send them safely home at the end of the day. I fully understand the sacred trust you place in us when you send your children to school. Students cannot be successful when they don’t feel safe. And I will not tolerate anything that interferes with our children’s ability to learn at high levels and fulfill their unlimited potential.

The Council heard or is scheduled to hear the following presentations for our background and to stimulate discussion:

o March 1 — State and national best practices, at Paul Laurence Dunbar
o March 8 — Juvenile justice and crime, at Tates Creek
o March 15 — Mental health, at Bryan Station
o March 20 — Social media, at Lafayette
o March 22 — Discussion of recommendations, at Frederick Douglass
o March 29 — Discussion of recommendations, at Henry Clay

I will be the very first to admit that I don’t have all the answers. In fact, I’m quite certain I don’t even know all the questions. There are students dealing with issues in this community that, quite candidly, are unfathomable to me. Our schools have to help students that don’t get enough food, don’t speak English well, have little to no supervision at home, who don’t stay in the same place more than a few days at a time, are influenced by gangs and on and on. And, now, of course, we need our schools to take an even more active role in policing our schools for guns and for protecting those students who feel the need to have a weapon as well as those students who could be innocently harmed by those weapons. And then, and only then, can our schools begin to teach our kids.

This Council needs your input, ideas and suggestions. While there are several ways to make it more difficult for weapons to make it into our schools, there are tradeoffs with every single one of them. Understanding what kind of environment the people of this community want for their kids is vital as we prioritize options.

Please give us your ideas by emailing advisorycouncil@fayette.kyschools.us no later than March 20. Suggestions are being compiled there to ensure the Council has an opportunity to review all of them. You can also learn more about the Council here: https://www.fcps.net/domain/8953.

Thank you.

How Am I Doing Financially?

I get asked all the time by both clients and prospective clients – how am I doing? Personally, I like Chris Rock’s line on relative wealth: “If Bill Gates woke up with Oprah’s money, he’d jump out the window.” Perspective is an amazing thing.

It’s tempting to benchmark yourself against what “experts” say we should have at each age milestone. For instance, a commonly quoted rule of thumb is “At age 30, you should have 1 times your annual salary saved for your retirement.” The flaw with this is obvious: all of our circumstances are different. Maybe you have saved 1 times your salary by age 30 but your current circumstances don’t allow you to save more right now. Maybe you are a good saver but you are invested incorrectly and your money won’t grow at the rate you need it to.

That’s why we always encourage personal benchmarking. Compare your current situation with where you want to be – now and in the future. So, I usually answer the question, how am I doing, with a quick checklist of items to consider:

Your net worth: Just like establishing a weight loss goal, the first step is determining what you weigh now. In financial terms, your weight is your net worth, calculated as your total assets minus your liabilities (debt). Debt can be a real drag on people’s ability to save for their financial freedom, particularly young people with student loan debt. By using the one-size-fits-all rule of thumb above, you may have 1 times your current salary as an asset but, if your debt outweighs that, you may not be making the progress you should toward your financial goals.

Current cash flow: Examining your monthly and annual expenses can be an arduous, and eye-opening, task but it is a vital step toward evaluating your current situation. First, are you living within your means – spending less than you earn?

What are your financial goals? Would you like to retire at 65, 67? Or, do you dream of changing careers at age 50? Have you saved for your kids’ educations? After determining where you are currently – your current financial weight, if you will – the next step is to determine where you are going. A good financial plan will help you determine how much investment assets you will need to generate enough income to support you after you stop working and throughout your lifetime, specific to your goals.

What is the amount of your savings? While one’s net worth is instructive to your overall financial health, the current amount of your savings, and how it is invested, is an important measurement toward your end goal. But, only relative to your own personal goal, not your neighbor’s.

How much are you saving now? How much investment assets – savings – you require to meet your goals will determine how much you need to save each year to get there. Parkinson’s Law says that “work expands to fill the time allotted for completion.” (Anyone who has ever watched the Kentucky General Assembly at work understands this to the core) The financial version of this law says that “expenses will fill the amount of income available.” Let’s face it, if we have it to spend, we will. That’s why we always encourage clients to Pay Yourself First. Put the amount you need to save to meet your goals in your workplace retirement accounts or some other investment vehicle, and live on what’s remaining. You won’t miss what you never saw.

So, want a real answer to the question “how am I doing?” Rather than compare yourself to an arbitrary benchmark, compare yourself now to where you want to be.