How Long to Keep Financial Records

By Steve Davis, CERTIFIED FINANCIAL PLANNER ™

A client recently called me looking for guidance on how long to keep her financial records. Until this point, she used what I call the Hotel California method of record keeping. You’ll remember the famous Eagles song concludes with the lyrics, “You can checkout anytime you want, but you can never leave.” For my client, once a paper was filed, it could never leave its manila folder stuffed inside a desk drawer. As a result, her filing cabinets were bursting at the seams with bank statements, receipts, bills and other “important papers.” So, if your recent tax return is still sitting atop your desk because there’s no more room in your filing cabinets, this article is for you.

Keys to Success

Knowing what records to keep can sometimes be as easy as knowing why you need to keep them. In general, paperwork is kept for death, taxes and proof of ownership. For example, your wills and life insurance policies are filed so they can be found when you’re no longer around. Tax returns and supporting documents are kept in case you’re ever audited by the IRS. Receipts and warranties for big purchase items should be filed until you can no longer return or exchange the item, or until the warranty expires.

So if your filing cabinets are chocker-block full, here are some general guidelines for how long you should keep your documents.


What to Keep Forever

• In Case of Emergency File (a list of where your important papers, files and passwords can be located, along with the names of whom to call for more information).

• Birth Certificates, Marriage Licenses, Adoption Papers, Divorce Decrees, Death Certificates

• Wills, Trusts, Power of Attorney, Health Care Proxy, Gift Tax Returns, Estate Planning Documents

• Record of Paid Mortgages, Student Loans, Car Loans, etc.

• Record of nondeductible traditional IRA contributions or conversions to Roth IRAs (IRS Form 8606)



What to Keep While Active

• Insurance Policies (life, disability, homeowners, long-term care, etc)

• Annual Investment Statements (you can toss the monthly and quarterly ones)

• Records of Pension Plan

• Deed to your home, Stock Certificates, Title to your car

• Receipts and Warranties for major purchases

• Home Improvement Records (for calculating the gain or loss when home is sold)

• Contracts

• Passport



What to Keep for 7 Years

• Tax Returns and supporting documents (some CPAs counsel to keep these forever). See Publication 552 for IRS recordkeeping guidelines (www.IRS.gov)

• Bank Statements, Cancelled Checks, Check Registers



What to Keep for 3 Years

• Household Bills

• Credit Card Statements

• Paycheck Stubs (keep just your year-end stub if you worked for the same employer all year)



What to Keep for 1 Month

• ATM Receipts (until reconciled with monthly bank statement)

• Sales Receipts (until reconciled with credit card statements, or for warranty)



Protect Yourself by Shredding

Now that you’ve identified what is important to keep and what is just taking up space, you’re ready to purge the stuff that has no importance. Before sending these papers to the trash, remember to protect yourself from identity theft by shredding everything that has your social security number or account information. A great way to do this is by supporting the non-profit Mansfield Shredding Center on Main Street in downtown Mansfield. Since 2008, Mansfield Shredding has been providing secure, confidential and compliant document destruction to Mansfield and surrounding communities, while also creating jobs for disabled adults.


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The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.




This article was written by Steve Davis and appeared in the column "Talking with Davis about Money Matters" found at http://mansfield-ma.patch.com/articles/how-long-to-keep-financial-records

A Letter to Clients and Friends about the 1st Quarter of 2011

By Steve Davis, CFP ®


 
Dear Clients and Friends: 
You’ve most likely just received your investment statements and will be pleased to see that the markets have come a long way since 2008. In this letter, I will provide a brief recap of the first quarter, along with my thoughts about the importance of expecting the unexpected. Finally, I will encourage you to contact me to schedule a time to review your portfolios and discuss any changes to your financial plans.

First Quarter Review 

Following a strong end to 2010, the U.S. stock market, as measured by the S&P 500 Index, continued its march higher to begin 2011 with a gain of 5.9% in the first quarter. The Index’s first quarter gain was its best first quarter since 1998 and the third best first quarter of the past 20 years. Bonds hit some speed bumps in the first quarter, but a middle-of-the road return in the low-to-mid single digits by year-end still seems likely.

For stocks, it was a relatively smooth ride, higher in the first six weeks of the year through mid-February when the Index peaked at 1344, a gain of nearly 7%. March saw a setback and the earthquake and tsunami in Japan on March 11 took a dreadful toll on human life. The scope of the tragedy and its final impact on the economy may not be fully known for some time.

Learning to live with uncertainty 
Market analysts spend many thousands of hours each year looking at stock and bond fundamentals, economic forecasts and company earnings, among a cast of other data. Presently, solid consumer spending, a resilient global economy, healthy manufacturing data and better-than-expected earnings bode well for investors. But, even with enough time and data, the analysts can’t anticipate exactly how the markets will perform.

What can’t be anticipated are developments that are by their nature unpredictable. We’ve had several of these events in the past year:

• Last April’s volcanic eruption in Iceland that caused the shut-down of 100,000 transatlantic flights, and cost the airlines $2 billion 1
• Last year’s explosion of the Deepwater Horizon oil rig that resulted in dramatically higher oil prices
• Recent street protests in Egypt and other countries that resulted in changes of leadership, and direct military action in Libya
• And, of course, the earthquake, tsunami and nuclear-reactor crises in Japan.

 In light of episodes like these, investors need to take away two key lessons:

  

Lesson One:
Expect the unexpected. The only way to deal with uncertainty and manage the impact of unforeseen events is to build strict risk controls into portfolios, similar to those used by the most sophisticated pension funds. While the risk of one-time incidents can't be eliminated, through diversification and risk management we can try to limit the damage when negative events occur—whether they be massive frauds such as Enron, sudden bankruptcies like Lehman Brothers, volcanic eruptions, oil rig explosions, or earthquakes.

By creating diversified portfolios, we help reduce risk to your investments. Different asset classes like stocks, bonds and cash equivalent investments don’t usually act in the same way at the same time. Investing in different geographical areas means that you aren’t subject to the same political events or natural disasters which may affect companies differently. While diversifying doesn’t eliminate risk it can help reduce the effects of volatility.

Next, your portfolios need to be rebalanced back to the target asset allocation, and some of the positions that have outperformed might be trimmed to stay within risk control limits. Some investors find this very difficult—after all, you're selling exactly those investments that have done the best. But remember, the objective is to buy low and sell high. Plus, it's the only way to stay truly diversified and control the risk that accompanies overexposure to any one stock, industry sector, or geographic region. And it's also the only way to get some protection from things that simply can't be anticipated.

Lesson Two:
Avoid overconfidence. Over short and mid-term time periods, rebalancing means that there will always be someone who's made a big bet that has paid off and who is doing better than you as a result. Rebalancing your portfolio as described above eliminates big bets and will seldom give you bragging rights on the golf course. Investors who take the big-bet approach typically have a high degree of confidence in their investments; after all, if you're absolutely certain about a company or industry, why bother to diversify? On the other hand, research by the University of Chicago's Richard Thaler has demonstrated that overconfidence is among the most costly traits an investor can have.

Look no further than the many employees in Silicon Valley during the tech boom. They were 100% confident about the future of their firms and often had all of their retirement accounts invested in the companies they worked for as a result. These investors saw sterling results for a while—right up until the tech bubble collapsed.

Mark Twain once said,

"It ain't what you don't know that gets you into trouble. It's what you know for sure that just ain't so."

 In other words, the sources of trouble aren't the things we've identified as question marks and causes for concern. Rather, what causes portfolios to crater are the things that we're absolutely positive about right until unanticipated occurrences catch us by surprise.

We've always had unexpected events and always will. And despite these unforeseen events, economies have grown, companies have prospered, and stock markets have generated positive returns. The key to benefiting from this long-term growth has been to diversify so that no single event can create permanent damage to your portfolio.

I believe that we will work through the recent events and that investors with a balanced approach and a long-term view will be well rewarded. The approach to risk management I've described may not be fun or sexy in the short term, but all the evidence at hand suggests that over time it will serve you well, getting you to your goals with the least amount of stress and distress along the way.

Let’s talk  
Please give me a call to schedule a meeting to review your accounts. Should you have any questions in the meantime on your portfolio, the contents of this note, or any other issue, please give me a call. I'd be happy to deal with your questions on the phone or at our next meeting.

As always, thank you for the opportunity to work together.

1  "Airlines' Losses Top $2 Billion from Eruptions," Washington Post, 16 April 2010

What, The Boomers Are Retiring?

By Steve Davis, CERTIFIED FINANCIAL PLANNER ™



The first Baby Boomer turned 65 this year

The last time I visited my parents in Florida, we were missing one ingredient needed for that night’s dinner. I offered to take a “quick” run to the store to pick it up. Well, if you’ve ever gone grocery shopping there, you’ll know that there is no such thing as a quick run to the store. You see, the people there don’t work anymore and have all the time in the world -- I got back just in time for dessert. Okay, I may be exaggerating but you get the point; there are a lot of retirees in Southern Florida. Believe it or not, it won’t be long before the whole country has the same proportion of “seniors” as Florida does today. Can you believe that the first of the baby boomer generation turned 65 years old on January 1 of this year? It’s true. And for the next 19 years, ten thousand boomers a day will reach that milestone. I was born in 1963 and that means that I’m among the last of the Baby Boomers. By the time I reach retirement age it is estimated that nearly 20 percent of the US population will be age 65 or older.

Turning Retirement Savings into Retirement Income

Retirement presents a unique financial challenge for many of us because at one point we will all stop working either by choice, or by circumstance (health, layoffs, etc). When retirement finally arrives, it will become necessary to turn our savings into a reliable source of income to replace the paychecks we once earned. It sounds simple enough, but there is one major risk that threatens to ruin retirement and cause retirees to lose their independence and become dependent on their children.

Risk: Living longer than your money lasts. When the first of the baby boomers were born in 1946, the average life expectancy in the United States was 67 years old. Today, life expectancy is at record highs and a couple retiring at age 65 has a 50 percent chance of seeing one spouse live to age 92. Think about it; that’s almost 30 years without a paycheck!

When my grandfather retired from the phone company, Ma Bell paid him a life-time income that increased each year with the cost of living. When Gramps died in 1995, his retirement check was more than the paycheck he earned working 40 hours per week. Sadly, companies can’t afford that anymore. Take a look at General Motors, for example. Today, GM’s 70,000 workers have to earn enough profits to pay pension and health benefits to approximately 688,000 GM retirees. It’s no wonder that only about 15 percent of private sector employees now retire with pensions. By comparison, 89 of the largest 100 US companies offered a traditional pension plan in 1985.

Creating a 5-step Retirement Income Plan

Making your money last as long as you do can be a daunting challenge, but with planning, you may find reassurance that you’re headed in the right direction. Here are 5 steps that offer the potential to help you turn your hard earned savings into an income that will last for decades to come.

Step 1: Create a realistic budget. Identify your income needs and determine which expenses are essential must-haves, and which could be considered discretionary spending.

Step 2: Identify your sources of future retirement income. Review all the income and assets you have to fund your retirement. Work with your advisor or conduct your own research to determine the best time to begin taking your Social Security and company pension benefits (if any).

Step 3: Compare your income and expenses. This is a critical step. Here you want to match your most predictable income sources against your essential expenses and determine whether there is a gap between the two. If you realize that your essential expenses are not sufficiently covered by reliable income, then you’ll likely need a source of sustainable lifetime income to fill the gap. Income annuities, bond ladders and a variety of other financial products have been designed for such purposes. Fund your discretionary expenses with other financial assets like your IRAs and taxable accounts. Remember, however, there is no one-size-fits-all strategy so it’s a good idea to work with a professional to evaluate your options carefully.

Step 4: Allocate your investment portfolio to meet growth needs. During a thirty-year retirement, prices will likely be rising. So, even if your essential expenses are covered by a lifetime income, it will still be necessary to invest for growth. Remember that 1968 Ford Mustang the cool kids drove around campus? It cost $2,500. In 1981, that same Mustang cost $6,500, and today a base model Mustang goes for $26,500. At several points during retirement, you’ll likely need to replace your car and who knows how much it will cost then. Choose investments while taking into account such factors as your age, risk appetite and time-horizon.

Step 5: Monitor your plan. Work with your advisor regularly so you can adjust your plan as you age, as your life changes and as your retirement evolves over the years.

See you at the checkout line

Finally, let’s look for each other at the grocery store where we can chat about the grandchildren. We’ll be there before you know it!

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The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.



This article was written by Steve Davis and appeared in the column "Talking with Davis about Money Matters" found at http://mansfield-ma.patch.com/articles/what-the-boomers-are-retiring

Is it time to reevaluate your approach to investing?

By Steve Davis, CFP®


If you are like many investors out there, you may be watching key financial markets from a distance, still unsettled by the downturn of several years ago and left wondering about your investment strategy. This is not the moment to be passive—now is a great time to assess your situation, explore the current landscape, and make sure you’re capitalizing on available opportunities so they don’t pass you by.


Here's a brief video, which illustrates today’s investment environment.  The video was produced by LPL Financial, and I invite you to check it out.



Click above to watch the video



After you watch the video, contact me to discuss your situation, adjust your financial strategy, and put a plan into action that is right for you.