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Last week, a new client came to see us to discuss the possibilities of her cutting back on her professional work schedule and transitioning toward full retirement.Although an analysis may show that her savings and Social Security income are sufficient to achieve her objectives, there would be a few uncomfortable options if there were severe shortfalls, mostly because she is almost at her retirement age.

Earlier this month, Northwestern Mutual published new research and data that indicates most American adults are (rightly) concerned about their prospects for attaining the retirement they would like. In the study, fully ¾ of those surveyed are at least “somewhat concerned” about affording their envisioned lifestyle and two-thirds believe they will likely outlive their retirement savings.

Additionally, the study emphasized several disturbing conclusions, based on the data gathered:

1) 21% of Americans have no retirement savings whatsoever.

2) 33% of those aged 54 – 72 (the Baby Boomers) have less than $25,000 in savings.

3) Half of American adults “have taken no steps to prepare for the likelihood that they could outlive their savings”.

These findings are even more troubling when one considers the following real-time issues that many retirees will face in the future:

1) While small steps are being taken to shore up the Social Security income system, senior healthcare (Medicare) and poverty-based medical assistance (Medicaid) programs are woefully underfunded and the situation is expected to get worse.

2) Most government and municipal pension plans are severely underfunded.Corporate pensions are becoming a benefit of the past and roughly 40% of major corporate pension plans are less than 80% funded (2017).

3) Medical costs and health insurance premiums continue to escalate at a rate higher than aggregate inflation levels, a rate only exceeded by rising college costs.

4) Long-term (custodial) care insurance premiums are almost unaffordable by many households for both senior spouses and the prospects for needed such care in one’s last years are increasing as people continue to live longer.

What this means is that no one should be waiting until their sixties or age 70 to figure out where they stand regarding affording their retirement.Even having a rough idea of how much in savings will be needed alongside Social Security to finance an expected retirement lifestyle is better than no plan at all.Whether or not you retain a professional to guide you through this process or you use the myriad of online retirement tools to create your own plan, now that we’re well into another year, start now to prepare.Don’t be like the 50% that haven’t a clue about their financial future.

Over the years, we’ve periodically fielded questions from clients asking whether purchasing one or more time-share units in vacation destinations is a good idea. The locations range from Florida to Newport to Arizona, various Caribbean Islands and Mexico. (During the Crash of 2008, we also received several panic calls asking how to unload units that had lost over 50% of market value, but I’ll get to that shortly.)

So let’s assume you’re on vacation (say, somewhere sunny, warm, with sand, surf and umbrella-garnished drinks at your elbow) and the thought – or sales pitch – comes along; “Why don’t we invest in a time-share here?” Naturally, this seems like a great idea. You’d have a nice vacation spot to come back to each year without the hassle of finding accommodations, there’s no upkeep to worry about, you can potentially trade locations with other owners, and it’s a nice ego-polish to say at a social event, “Yep, I have a time-share in ‘fill-in-most-impressive-tropical-destination’” to friends, associates and the opposite gender.

Financially though, there’s more to it. First is the up-front price which, depending upon the location, might be anywhere from several thousand dollars to $25,000 or more. Then there are the annual fees. Yes, even if you don’t use your time-share in a particular year and similar to a membership fee. And that’s not including the “special assessments” which are apportioned amongst all unit holders if a major project has to be completed on the building you own a piece of.

Many get sold on the potential ‘profit’ feature of time-share ownership. Sadly, the statistics bear out a different story. Timeshares are often hard to sell, mostly because there may be a massive oversupply in the area. This is what occurred to many owners after the real-estate crash in 2007-2008. We still remember some clients asking whether we could offer any advice on how they could unload their ‘underwater’ vacation condos or time-share units, especially to save them the annual fees they were paying. And to add to their woes, many found out from their tax advisors that the IRS doesn’t allow a capital loss deduction on selling a time share below the purchase price, as with other investments and real estate.

So as an investment, unless you happen upon an unusual situation, (and this would not be those offered by sales companies who offer free stuff to get you to hear the pre-hard-sell presentation), a time-share may not be the best idea. Otherwise, here are few tips:

1) Think of the idea as a lifestyle purchase, not an investment. If you really like the vacation spot and think you’ll be there each year without fail, then buying may not be a bad idea.

2) Don’t buy on impulse. Take some time to percolate on the idea.

3) Look before you buy. And I mean physically-look, not just online, as you would a house.

4) Crunch numbers. Pencil out the costs of purchase and fees over 10, 15 or 20 years against renting. How much are you really saving?

5) Try for a unit that will make you part of an owner’s association. Having an association group banding together for disputes with management can often be helpful.

Cybersecurity is becoming more important in the world of personal finance. In fact, so important that securities regulators have been cracking down on investment companies of all sizes to ensure that client data and private information is secure and protected from hackers. Despite all of this scrutiny, hackers still manage to get through banks and financial institution systems. (Remember the Equifax hack last year?) So it’s vitally important to protect their finances from cyber-attacks. Here are some tips and strategies.

1) Passwords – Obviously an important area. Don’t be lazy with selection of your passwords. Be creative with your passwords. Don’t use your name or family members’ names, and no birthdays. Most cyber-experts recommend using both upper and low case letters, random and multiple numbers, and include symbols, such as ‘&’, ‘@’, ‘$’. Some financial institutions can even provide you with a device that changes the last several numbers of your password each time you access your account. (Our client account access passwords are over 15 characters long!). Change your passwords every 6-8 months for all your accounts.

2) Consider implementing a “two-step” verification for your bank and investment accounts. This strategy often requires a first-step user name and password, then a code sent by the institution to your mobile phone or other device to enter for the second step of access.

3) Don’t store your passwords on your browser.

4) Try to not let your credit cards get out of sight when you use them, even in restaurants. This can help prevent dishonest workers from copying the information on your credit cards to use later. Also, set up a notification process with card issuers to notify you by email or text when they detect unusual activity.

5) Store and carry your credit cards in a metal casing to prevent sophisticated data thieves from copying your card info using scanning devices.

6) Avoid checking your bank, credit, investment and other accounts via public Wifi, such as in café’s, restaurants or other public places. Data thieves can often copy your access info while on the same Wifi system.

7) Update your computer with anti-virus software regularly and always install updates when notified. Be sure to back up your data onto a secure storage system. Consider installing a firewall on your home WiF to prevent hacking of your home computer. Scan your computers for viruses regularly.

8) Be sure to use personal passwords to lock your smartphone and other devices. If these are lost or stolen, your info won’t be as easy to access.9) Finally, lock your credit reports with the three major credit agencies; Equifax, Experian and TransUnion. Doing so may not prevent hacks of your current accounts, but it could prevent a thief from opening a new credit account in your name without your knowledge and ruining your credit status.

The extra measures we all should take to protect our finances are unfortunate, but critical in this new reality of cyber-data and electronic information storage. It may be a hassle to continually have to update and monitor your cybersecurity measures, but speak with someone whose information has been hacked – it’s worth it.

Up to now, we’ve been reluctant to comment publically about so-called crypto-currencies, however, there has been so much media coverage on the exponentially-rising prices of these over the past few weeks that the need to weigh in is now acute. We’ve also witnessed a flurry of cryptocurrency-related events over the past weeks, including; 1) many questions on this topic posed by the advisor-audience recently at an investment conference we attended, 2) online advertisements for Bitcoin investing courses, Bitcoin IRA’s and even former pole-dancers now promoting themselves as “Bitcoin experts”, (we’re not kidding!), 3) inquiries from people who had little idea of how cryptocurrencies work, 4) “Bitcoin futures” began trading on the Chicago Board of Exchange this past Monday, and finally, 5) recent Securities and Exchange Commission (SEC) warnings on the extreme risks in crypto-currencies. So we’d like to make some observations, even if this article prevents just one reader from making a huge financial mistake.The concepts of digital currencies, block-chain databases, & protocol development are extremely complex and for those who aren’t computer professionals, the explanations can be head-spinning. The most simplistic example of how Bitcoin may work in cyberspace is that of a county fair, where an attendee exchanges fiat currency (dollars) for tokens (Bitcoin) that can be used to purchase goods and services with the financial ecosystem of the fair (the cyberspace of protocols and “smart-contract” platforms). The tokens are not (generally) useable or exchangeable outside this specific environment, but only within this cyber-system are they deemed useful and a unit of value.

For most now, the appeal of Bitcoin does not seem to be its utility as a general currency (which, by its current volatility, lack of regulation and lack of economic sponsorship, makes it impractical), but by its ‘trade-ability’ as some type of asset-class. Apart from a relatively few entities that accept Bitcoin as a unit of value in the fiat world, its chief appeal is, for now, something that can be bought using fiat currency and sold at a future date for a (hopefully) higher price back into real-world currency, which can be then spent normally. (After taxes are paid on any gains, of course).

As fervent proponents exclaim, Bitcoin may have the potential one day to become more than just a tradeable item. For now, we can’t help thinking about similar investment reasoning made by the dot.com enthusiasts and day-traders of the late 1990’s or the real estate flippers of the mid 2000’s. Today’s justification sounds all-too similar to the past kind of mania that ensnared the unknowing and unwary, most who were looking for supposed quick and easy profits. The technology may indeed one day be practical, useful and a part of our society, just as the Internet and smartphones have become over time. For now, however, I caution against getting swept up in the fervor. Just like early dot.com companies such as AOL, Yahoo and others in the 1990’s, this sector of technology is still quite young and developing. You’d be wise to hold onto your cash until the eventual maturation and shake-out occurs. Would-be buyers beware.

Being the primary medium of exchange for a civilized culture, money can exert strange and sometimes complex influences on people, causing them to exhibit unexpected changes in behavior and attitudes. Nowhere is this more evident than in the case of so-called “sudden wealth” due to inheritance, a large elevation in work income, or in rare circumstances, being the winner in a large lottery. And it’s not only the lucky recipient that’s affected; often it’s the people around the recipient as well.

All of this came to mind last week when a client called to discuss a predicament she was facing due to a rather large inheritance. In this, our client’s wealthy father passed away recently and bequeathed large annual sums to her that will allow her to enjoy a comfortable lifestyle for the rest of her days; a lifestyle that will markedly improve upon her currently modest circumstances.

Her new issue is with certain friends and family members, especially with family members who weren’t included in the inheritance and feel somewhat short-changed. These individuals are treating her differently as well as suggesting “sharing” would be a moral road she should take. And others in her life have approached her for financial assistance for various causes, charities, etc., apparently feeling my client has the means to also share her good fortune with many others and the world-at-large.

Sudden wealth can solve many financial problems, such as debt repayment, bettering one’s lifestyle and spending choices, realizing life-long dreams and even affording the means to help others with their goals, such as sending children to good colleges or relieving parents or others of their financial burdens. It can also bring unwanted and unlooked-for issues such as relationship problems with those who are not as well-off, losing a sense of purpose or direction in day-to-day life, and new financial anxiety of how to preserve this situation for the future in a sensible manner. It also brings new choices perhaps about how and whether to share this wealth, either with those close to them or for favorite causes and charities.

It may sound simplistic, but a sudden, unexpected windfall requires the same type (or more) of forethought, careful consideration and planning expected for those in more modest circumstances. For those who don’t (young superstars in entertainment and sports come to mind), even large amounts of money can be spent unmindfully or given away unchecked until there’s nothing left. There’s nothing wrong with helping others and charitable, but do so in a disciplined and mindful way.It is estimated that hundreds of billions of dollars of inherited money will be passing from the current elderly generation to the so-called Baby Boomer generation over the next decade or so. If you are on the lucky end of this transfer trend, be sure to receive your windfall with a sensible and thoughtful plan in mind. If anything, most recipients will want their new wealth to go toward good (and multiple) uses. Having a plan and goals in place will help ensure this occurs in a sensible and prudent manner.

Famed investor Warren Buffett once stated that “margin of safety” are the three most important words for investing. By this, Buffett sought to illustrate the idea that If you make your investment too close to the line (or the proverbial edge of the roadway cliff),of succeeding or not, the risk of falling off might be more than you realize. Buffett was naturally referring to margins of safety with investing, but the concept also applies to many areas of personal finance. Having such buffers in your financial plan is prudent and can help avoid that “one thing” in life that sets you back in a big way.

For most people, everyday spending is often the first danger area. Too many consumers are living paycheck to paycheck. The personal finance site “MarketWatch” reported earlier this year that 19% of American households had zero- nothing – nada in emergency savings and 31% of households have less than $500 to pay for things like car repairs, home emergencies, medical co-pays and deductibles, living expenses in case of a job loss, etc. When difficulty strikes in your life, having that cash cushion can be like a warm blanket on a cold winter night, despite the fact that cash doesn’t earn much nowadays.

Similarly, another problem area is credit card debt. Now that we’re three quarters of the way through the year, take a look at your credit card statements for the past 9 months. If your balance(s) are creeping up, you might consider some serious spending changes, especially since we’re not even into the holiday season yet. A steadily increasing credit balance may mean you have no margin of safety in your income versus spending habits.

Retirement planning is another area where retirees and pre-retirees might employ some margin of safety concepts. There are many assumed variables that go into a retirement income analysis, including investment return, inflation and tax rates. I’ve seen some reports where average rates of return seem a little high, (considering market valuations, potential interest rate increases and moderate economic growth for the US). In fact, some of these results haven’t factored in the “What Could Go Wrong?” factor into the analysis. Banking on all being well in the financial world in the next decade or two could be hazardous – if history is any guide. Having your retirement income needs based upon all-is rosy scenarios may not be a wise idea.

Permanent insurance policy projections (for those policies that build cash-value) could be another problem area if the policy owner is expecting to tap the cash value for retirement purposes. Oftentimes, projections of return are a bit optimistic and purchasers forget to look closely at the “non-guaranteed” heading on these projections. Similarly public and private pension overseers could use a bit of margin-of-safety thinking when considering how underfunded their pension plans are and the rate of return they’re using in their assumptions. As many observers have pointed out, overly optimistic return projections are just kicking the can down the road for hard choices that ought to be made to keep the plan whole for the future.

In summary, safety “buffers” are prudent and worth having in all areas of your finances.

According to recent studies by the Insured Retirement Institute and GoBankingRates.com on how the ‘Baby Boomer’ generation (those born in the years 1946 – 1964) is prepared for retirement, 30% of this US demographic have no retirement savings whatsoever, 26% have less than $50,000 saved and a full 74% have insufficient retirement funds to sustain their accustomed lifestyle in retirement to supplement Social Security income. These sobering statistics suggest that retirement income planning will be critical for this generation to attain as much “financial efficiency” as possible from their limited resources.

Over the past two decades, both academics and professionals in the financial planning community have sought to refine retirement income planning methods to help retirees and their advisors better forecast what finances may be required to fulfill retirement goals. Differing research often results in debate about how much in retirement savings may actually be required (answering the proverbial “What’s my retirement number?” question) and unfortunately, with changing paradigms to the retirement income landscape, (including pension underfunding or elimination, rising medical costs, increased average longevity, etc.), finding accurate planning tools seems to be a never-ending moving target.

Over the past years, two findings on retiree spending habits have emerged from statistical research that may help the Baby Boomer retirement dilemma. Since the 1970’s, the prevalent view of retirement was that of stable spending at 70-80% of pre-retirement lifestyle. In fact, much of today’s financial planning software still utilizes this stable spending as a core component. By the 1990’s, the concept of William Bergen’s 4% rule took hold, suggesting that retirees must incorporate inflationary increases into their planning. Thus, the static flat pension payout was not sufficient to carry the retiree through decades of retirement life.

Later, author Michael Stein suggested that most retirees actually go through three general phases of spending; the “Go-Go” years (age 65-75), the “Slow-Go” years (age 75-85) and “No-Go” years (age 85-95). As you can imagine, the early years are generally more active with more spent on travel and leisure, whereas in the late years, spending habits change and often decrease over time. This concept of “age-bands” was further refined by researcher and author, Somnath Basu, who suggested that retirement income analysis should not only include age-band spending, but also break down spending into categories, then assign changes in spending levels through each age band to reflect statistically-supported changes on what a typical retiree spends during each phase of retirement.

As an example, Basu broke down retiree spending into four segments; basic living expenses, taxes, leisure and medical. In the first band (age 65-75), leisure spending may be elevated to 50% more than in the second band (age 75-85) and perhaps 25% in the last band of life. In contrast, during the early retirement years, medical expenses may be much less than in the last third of life, and therefore some adjustment for that category in the spending analysis may reflect more realistic eventual outcomes.

Unfortunately, little of today’s financial planning software utilizing these interesting tweaks, so pre-retirees and their advisors may have to create their own adjustments to incorporate age-banding and spending category changes. For now, it’s worthwhile to still consider such retirement spending changes for your own financial future.

In just a couple of weeks on October 1st, families with college-bound students will be able to submit the Free Application for Federal Student Aid (FAFSA) to determine eligibility for college financial aid for the 2018-2019 academic year. For this application, families will be using their financial data from their filed 2016 tax return.

A relatively new feature of the online FAFSA submission process is the Data Retrieval Tool (DRT). This function allows a user to link the FAFSA application with their filed tax return on the IRS database and automatically populate answers for income and tax questions. The DRT also alerts the colleges that the information has been auto-entered by the IRS link, thereby eliminating the need to later “verify” FAFSA data. Last year, however, the DRT was suspended over security problems.

This year, (as a solution to security concerns), the DRT will no longer display the data that is entered onto the FAFSA application. Instead, entries will just read “Data entered by the IRS”. In addition, the Student Aid Report will also not list the submitted data. This may not seem like a problem, but there is actually a potential issue. By not displaying the actual data, parents and students are literally submitting a “blind application” and will be unable to make corrections themselves once the FAFSA is submitted. The only way a change could be made is with the financial aid office of each college where the student has submitted an admissions application. Considering that parental income is often the largest factor in calculating a family’s Estimated Family Contribution (EFC), it is critical to ensure the income information is accurate. Many times, parents are shocked at how high their EFC is. Not knowing what went into the resulting figure can elevate stress levels and add to the work of the financial aid and college process.

To solve this issue, parents should consider filling in the FAFSA application question-by-question and not using the DRT for the initial submission. Of course, this will entail some extra work and understanding of making the correct entries on the application instead of the convenient DRT function. Once done and submitted, parents would receive their initial EFC and should also then print the Student Aid Report (SAR). Then, after the initial submission, parents can turn-on the DRT function and check to be sure their initial submission was accurate. Parents can also wait until the final college choice is made and then re-submit the FAFSA using the DRT so the chosen college can verify the FAFSA information. Of course, differences in the original submission and the DRT version may trigger an amendment to the aid award, but if applicants are careful in their submission, amendments may not happen. Using the DRT may not be a good idea if parents’ present income situation is materially different than in 2016. In this case, completing the FAFSA without the DRT at all and submitting supporting material (copies of tax returns, W-2 forms, etc) may be the best strategy.

For those who are unsure about filling out the FAFSA themselves, the Rhode Island Student Loan Authority’s College Planning Center is a good resource for RI families. Contact them at www.RISLA.com.

In today’s cyber-everything world, having your financial identity compromised or stolen can be one of the most frightening and troublesome experiences you’ll have in your lifetime. Although with some prudence, the likelihood of financial ruin is low, as anyone who has lived through it will tell you, even having someone get access to one of your credit card numbers can be a hassle that seems to never end. With recent cyber-hacks to retailers and financial institution consumer databases, the risk of your highly-sensitive information being compromised (such as your birthdate and Social Security number) only seems to loom larger.

While credit card companies and banks can limit the damage to having your debit or credit cards stolen (as long as you quickly report the theft), protecting yourself from thieves who gain access to your Social Security number, address and birthdate could be much more complicated. One preventative strategy is to have your credit reports “frozen”, thereby preventing anyone from opening new credit accounts under your name without your knowledge. Many people wouldn’t realize such accounts are opened under their name until they check their credit report or if they actually applied for a new account and found out their credit rating is compromised.

A credit freeze is accomplished by contacting each of the three credit reporting companies; Equifax, Experian and TransUnion, to request a credit freeze. Based on RI State law, there may be a small fee ($10) to add, lift or remove a credit freeze with any of the credit agencies. Seniors and those who have already been victimized by identity theft generally are not charged for these services though. A security freeze remains on your credit file until you remove it or choose to lift it temporarily when applying for credit or credit-dependent services.

On Friday, September 8^th, Equifax disclosed a massive cyber-hack of their database, potentially compromising the sensitive financial information of 143 million Americans. Equifax has provided a link for you to check if your information may have been affected and will also provide one year of free credit monitoring/emergency notification for such consumers. We recommend everyone go this link https://www.equifaxsecurity2017.com/potential-impact to check their own status, utilize the free monitoring offer if they are affected, and consider “freezing” their credit as a further security measure.

To freeze your report, you will need to provide each agency with your name, address, date of birth, Social Security number and other personal information. Once the freeze is in effect, each agency will give you a Personal Identification Number (PIN) which will need to be kept secret and secured by you. If you even need to lift or suspend the credit freeze (again with each of the agencies), you’ll need these PIN’s to unlock your report (such as when you do legitimately apply for credit or open a credit account, apply for a mortgage, etc.). In addition, you’ll need to provide each agency with a dedicated phone number for them to contact you for verification when an inquiry is made about your credit. Some additional tips:

1) Although a credit freeze helps prevent new accounts from being opened, it cannot prevent thieves from stealing using existing accounts. So it pays to continue to monitor your credit report and current credit accounts for fraudulent transactions.

2) The credit freeze does not prevent current creditors from accessing your credit reports. It also does not prevent you from accessing your own credit at any time.

3) Credit freezes are individual, so if you freeze your accounts, your spouse must also freeze theirs.

4) A credit freeze does not impact or hurt your credit score.

For more information, go to the websites of any of three credit reporting agencies above for more information and assistance.