Most people are not financially forward thinking however. And not for lack of want or ability either. Firstly, there are simply too many issues, too many options, too many investment vehicles, too many tax laws for an average person to easily wrap their heads around the all of it. Secondly, people have their own lives to attend to—they’re working professionals, with their own aspirations, own families, own priorities—and I understand that; but this makes it impeccably difficult for the average individual to find time to get financially savvy.
Occasionally, buzzing around in our peer groups, we hear this motivating, ever popular riff, declaring that the best person to be looking after one’s finances is one’s OWN SELF, but how much & how often can we seriously manage on our own? And particularly with small business owners, the financial matrix gets so expansive, even Keanu Reeves struggles with it! Understanding the complicated financial world is a full-time job in and of itself, believe me. And by that, I mean such people need to constantly be educated on the new and ever-changing products, and how to routinely maneuver the volatile, yet profitable domestic & international markets. The question is not so much, how do I provide for myself today? No, it’s not simply, how do I afford a home and find ways to spend comfortably…? But rather, how do I get the most bang for every buck that comes through my fingers? And, of course, why is this even important?
I will say one thing, for my friends out there who are keeping basic tabs on their finances, if even just a little bit. There is an old adage in the industry, “the worst financial plan implemented, is better than the best financial plan sitting on the shelf…” In short, a little attention to your finances, goes a long way.
But at the same time, it might be possible that, with professional help, one just might find small ways, or better, macro- ways to improve his/her financial situation—that is to say, re-structuring certain products to work more interrelatedly for maximum reward—for achieving the ambitious dreams one sets out for themselves! (e.g., international travel, or retiring at 55yrs of age, or providing $40k of annual retirement income, or investing in children’s college tuition early, or starting a partnership or passing on a business, etc). I might be getting ahead of myself… I just mean to say, when you’re working with someone to flush out all the goals you’re trying to accomplish, all the facts in your financial situation, and all the available options in the industry, you can discover for yourself if there’s reason to make changes in your investments, or ways of getting that small business dream of yours off the ground once and for all. And if there’s no reason to make changes, at least you have the peace of mind you’re doing a good job, or know who to turn to if your situation drastically changes. Ok… well, that service is the nature of my job, so I’ll get off my soap box. :)
Let’s understand more clearly the world that we’re in. Two generations ago, getting older was easy, financially speaking. You worked hard, thirty years or more at the SAME company; You knew retirement would come at the age of 60-65 years old and you could count on two streams of retirement income: your pension & your social security check. And with a life expectancy of 72 years, those two streams provided convincingly sufficient retirement income for your 7 remaining years of life. However, since the late 80’s, the financial landscape has grown TOO broad, TOO complex to be fully grasped as a part-time hobby… Defined Benefit plans are dropping like flies from employee packages across the country and, with the 1978 rise of the 401k plan and as we celebrate the tenth year of the Roth IRA (Individual Retirement Account), the burden of ensuring the longevity of one’s accumulated retirement assets has officially fallen on the shoulders of the … yep, you guessed it! The individual.
Partly, this is due to the successful advertisement campaign of the 401k, persuading the public to assume responsibility for manicuring their own retirement—hey!, you’ll get better returns with a 401k! You’ll get to put money away tax-free, grow tax-deferred, and we’ll even throw in a dollar-for-dollar employer match!!—meanwhile, in effect, allowing employer accountability to slink into the shadows, no longer having to provide a pension for the life of their employees’ retirement years, and only having to match TODAY’s dollars with whatever few dollars the average employee manages to put away(!). And guess what, when you cash in that 401k, who knows what the U.S. income tax rate will be (currently 35%), but you better believe you’ll be in the highest tax bracket of your life, and you better believe the government is gonna come taxing for its money! So, what of the American dream? The one where you work hard your whole life, and the working economy to follow will take care of YOU in your bygone years. Well, I said this predicament of ours is “partly” the fault of the 401k, but that’s only because the 401k has developed almost out of necessity…
Social Securities and Pensions were great when people worked until they were 65, and died 7 years later. The Baby Boomer generation, however, is an unmistakable anomaly. They are the wealthiest, healthiest generation the world has ever seen! These people are 80 million strong in the US alone, retiring at 50, and living for another 40 years! I read something that says Baby Boomers own 80% of the wealth in the UK, buy 80% of the top range cars, 80% of the cruises and 50% of skin care products. And to boot, the first baby-boomer applied for U.S. Social Security THIS year! When new factors like early retirement and increased average life expectancy hit the stage, this certainly multiplies the dynamic of the situation greatly—with ramifications for the rest of us. When Baby-Boomers were working to supply Social Security for their parents, there were 11 workers in the economy per every retiree. When the BB’s retire, there will be fewer than 4 workers per retiree. And when you configure increased long-term care costs ($6k-$8k per month), and the rise of inflation (e.g., every year is ~3% inflation, which weakens the dollar by half every 15 yrs), I am beginning to see an entire culture of Americans who completely underestimate the inevitable cost of Life. Supplemental retirement strategies are needed, and meanwhile, no company wants to get stuck paying a salary for the full life of these death-defiant baby-boomers!
Well, I’m worried. And I don’t think I’m alone. The unthinkable happens every year to folks we know, folks in our very own neighborhoods and in our very own families. Divorce, losing one’s job, long term care expenses, increased college tuition costs, or worse… debilitating accidents, premature illness, denied insurance claims, the list goes on. And who’s expected to pay for this stuff? The individual. The individual every time. What is the devastating effect this has on a family? This begs the question of how resilient does a family have to be? Or better still, what really is “Financial Independence”???
Maybe the finance sector will become more comprehensible, more user-friendly 20-30 years from now, when U.S. legislature grows more accommodating to the people, becomes more sociable, and retirement & health programs become more guaranteed like Canada, or all the Scandinavian countries or even Great Britain; but as for today, people are liable to be left in the dust if they don’t seek the appropriate counsel for… asset allocation and diversification! That’s the name of the game folks— where to put what money, and for how long? And as individuals, most people spend more time each year planning their vacation, than financially planning the next 30 years of their life… I mean, even if a person takes home $30k per year, every year for a lifetime, that’s well over $1.5 million dollars coming through their fingertips—-who wouldn’t want to make the most of each dollar??? I mean, that’s a lot of “dream” power…
Philosophically, I’ve put myself in a position to be of existential service. And I really believe that. I’ve always wanted to ask the hard questions—the whys, the what ifs, the hows. It’s my full time job to be in “the know” about the finance industry, and one I will continue to take very seriously…mostly cuz it ain’t that easy! All of us in the industry should admit we could never know everything about every product. At my company alone, each advisor wears three hats: (a) Securities Broker/Dealer, (b) Investment Banker, © Insurance Agent. We can offer products across the whole financial board, shopping products from hundreds of different companies, as if we were a black market financial hustler— though we fancy ourselves more like a “one-stop shop solutions provider.” With each knew client I make, I’m guaranteed to learn something new!—because no two financial situations are the same… And that excites me. Keeps the job interesting.
You have to remember that every manufacturer in the market is out to make a profit. That’s the nature of a capitalist economy. Overhead is the bottom line, so to speak. The means for production are privately owned and operated for profit, and at the ever-growing demand to its public stockholders. Whether that manufacturer produces health or life insurance, mutual funds, municipal bonds, or variable annuities, it has an obligation to push its product. And each company, depending on their corner of the industry, employs a different strategy to allocate their profits, often at the expense and certainly to the dislike of the consumer (e.g., profits go to enormous paychecks of CEOs and CFOs and GMs and SVP’s and RVPs etc, etc, etc.). So here’s an easy conundrum. At what point is a representative of a ‘said’ manufacturer limited by the company he works for, limited by the fact that s/he can sell only their own products?? And when is a service of this kind, a detriment to the best interest of the consumer?
Hence the push in the industry for companies like mine to advertise their independence. That is, the ability to help ordinary folks manage their finances while remaining at a safe, almost objective distance from the manufacturing side of things. To make my point more clear, you won’t find North Star Insurance; you won’t find North Star Mutual Funds or Brokerage Accounts… All you’ll find is North Star service. We’re paid on service. Nothing more. We have no product to push—we’re just master manueverers in a never-ending and forever-unfolding market place. It’s a beautiful thing, to relish above the choppy waters below, diving in where we please to catch the best fish for our clients. A consultant sells by educating. And a consultant educates by listening, and asking questions, and rolling up his sleeves to begin shopping for solutions. I know that the best thing I can do as a financial consultant is admit the limits of my expertise, and make sure that I am fully supported by senior associates, with more a specialized understanding, who care about my clients and my development.
I’m willing to bet that when many people hear “finances,” they immediately think one of three things: Stocks, 401k, or Credit Card debt. But the list goes on—savings accounts, mutual funds, bonds, certificates of deposit, Treasury bills, stocks, dividends, traditional IRAs, educational IRA, Roth IRAs, profit sharing, SEP’s, TSA’s, ESA’s, Keogh Plans, 529 Plans, 457 Plans, whole life insurance, universal life insurance, variable life insurance, REIT’s, UGMA’s and UTMA’s and on and on and on…. The best thing I’ve done for myself is to accept the struggle of trying to wrap my head around the all of it. And yeah, I get paid. There are fees and commissions built into ALL of these products, and someone receives the piddly 1-3% off your premium payments no matter what. I figure, if its gonna be an unavoidable expense, it might as well be me out there trying to help my family and friends mitigate this tangled financial web, ya know?
To answer your question, is this about dreams or money games?, the answer is: Dreams. Without question. But nearly every dream pays its homage to start-up cost. And what’s more, in this country, our bureaucrats and lobbyists have a special habit of muddling up our ability to travel the yellowbrick road to the fairytale. For today’s market, its wise to find a financial sherpa you can trust.
Posted by bell at December 2, 2007 02:51 PM | TrackBack