The High Cost of Weddings: 4 Consequences to Newlyweds

By Steve Davis, CERTIFIED FINANCIAL PLANNER ™



My wife and I have four children – all boys – and I used to joke that this was a strategic financial planning decision because it meant that we wouldn’t need to pay for any wedding expenses in the future.

The short-lived Kardashian celebrity wedding covered by the E! Network was said to have cost $10 million. And TLC’s “Say Yes to the Dress” routinely shows brides and their parents forking out tens of thousands of dollars for a dress. According to Bride Magazine, the average cost of a wedding in 2010 was $26,501. Sure, that’s chump change next to the Kardashian debacle, but seriously, 26 grand? Are you kidding me? These days the average cost of a wedding almost makes a year at Northeastern University affordable.


Running of the Brides at Filene's Basement


The news gets worse for frugal brides: just last week Filene’s Basement filed for bankruptcy protection. For years, Filene’s advertised an annual bridal sale where dresses sold for $249 to $649 – a huge markdown from full retail prices of $900 to $9,000. Now that the 102-year-old retailer is closing its doors, their annual “Running of the Brides” event is a thing of the past.

The cost of dresses, photographers, caterers, flowers and honeymoon all add up.  So what kind of impact does this sort of expense have on newlyweds? Here are four consequences:

1. Debt.
Some couples start their marriage deeply in debt. Sure, it’s not unusual for most twenty-somethings to have school loans to pay back, but adding debt to pay for an expensive wedding compounds the problem and often strains a couple’s resources and adds stress to a young marriage.

Couples can avoid wedding debt by listing what they really want and identifying what they can do without. Learning to prioritize is a key financial skill for couples to develop. What is more important... to have a down payment on a house or a big wedding with a costly open bar? If you can afford both, great! If not, make some concessions: invite fewer people, change the venue, use a DJ rather than a band. In all cases, couples should make a budget and avoid wedding debt by putting money aside. The old wedding custom of “something borrowed something blue” wasn’t referring to bank or credit card debt.


2. Lost Opportunity.
The biggest cost of a wedding isn’t the actual dollar spent on the event itself. It’s all the money you could have accumulated if it were saved instead. Economists call this “Opportunity Cost”. Here’s a hypothetical example using a 25-year old bride who invites fewer people to her wedding and consequently cuts her wedding expenses by $10,000. If she saves that $10,000 over her working life of 40-years, her savings could grow to more than $70,000 assuming a five percent interest rate. Some would say that the true cost of inviting the extra guests wasn’t $10,000, but $70,000.

3. Obligation to Dom and Dad.
I often advise parents that they should not create a retirement problem down the road by trying to solve a wedding funding problem for one of their kids today. According to wedding planners, the tradition of having the bride’s parents pay for everything is slowing fading away. Why? Because newlyweds realize that if mom and dad can’t afford to pay for their own retirement, they’re going to have to have to invite mom and dad to live with them, or pay for their assisted living.


4. Crime?
Here’s a weird story. Earlier this year, police say that one Pennsylvania couple resorted to crime in order to pay for their wedding. April Carter, 24, and Joseph Russell, 23, allegedly stripped more than $7,000 worth of copper wire from 18 utility poles and then sold it to a salvage company. PennPower officials inspected the area and found that transformer ground wires had been cut. Surely there are better ways to plan and pay for a wedding than resorting to theft! I can’t imagine that spending a honeymoon in the clink would be much fun either…

Does the Stock Market Have You Worried?

Buy Low; Borrow Low.

By Steve Davis, CERTIFIED FINANCIAL PLANNER ™

The huge swings in the stock market last week may seem all too familiar. Perhaps you’re worried about a repeat of the 2008 financial crisis. Before you dump your holdings and run for cover, consider this surprising fact. According to the Employee Benefit Research Group, most retirement plan account balances have bounced back to pre-2008 levels. Account balances didn't recover entirely from the strength of the market -- those automatic paycheck deductions helped a lot too. Investors who cashed out and remained on the sidelines missed out on the profitable years since the crash. Still, the roller-coaster volatility we have experienced recently with the Dow dropping 600 points one day and rallying back 500 points the next is enough to cause some participants to consider getting out of their plans all together. For many people, this could be a big mistake.


Buy Low: Legendary investor Warren Buffett once counseled, "Be brave when others are afraid, and afraid when others are brave." If you want to heed Buffett’s advice, the best time to buy low is when everyone else is scared. It is their collective fear and the group-think selling that drives stocks to deeply-oversold bargain prices. History has shown that the rallies coming out of these oversold positions often occur quickly and are highly profitable.

Don’t you just love a bargain? I was recently shopping at the Borders book store at Mansfield Crossing. Activity was brisk and I can’t begin to tell you how many customers were leaving the store with stacks and stacks of books, all purchased on sale. Often times when we read about the Dow Jones Industrial Average dropping, or watch the TV news anchors emotionally-charged segments about Wall Street, we worry and think that these market corrections are always a bad thing. If you’re young and have many years before retirement, however, market drops can be a very good thing indeed. When else can you purchase your mutual funds on sale?

Another consequence of the turmoil in the stock market is plunging interest rates. Last Tuesday, the US Federal Reserve pledged to keep interest rates at an “exceptionally low level” until the middle of 2013. This news could be a boon for families looking to buy or refinance their homes.

Borrow Low: "There’s a huge increase in mortgage applications," said Jerry Maguire, Senior Mortgage Advisor at Province Mortgage Associates, a local mortgage lender. With rates on conventional 30-year fixed-rate mortgages falling near, and in a few cases below, the 4 percent level, homeowners locally have been rushing to refinance in recent weeks. You’ve probably heard the old rule of thumb that says it only makes sense to refinance your mortgage if the new interest rate is at least two percentage points lower than your current one. “Not true” says Maguire. “Many people worry about their adjustable rate mortgages resetting at higher rates in the future. Even if you can’t lower your monthly payment by refinancing, many families can benefit by exchanging the uncertainty of a floating rate loan for the certainty of a fixed one.” Additionally, today’s low rates may allow some families to reduce the term of their mortgages from 30-years to just 15 or twenty years and potentially save thousands in interest costs.



Of course, everyone’s situation is different. As a financial advisor with more than twenty years experience, I’ve been down this road before. I understand that the number one question on the mind of most investors is, “What should I do now?” The answer to this question is the same for everyone: Talk with your advisor.

Oh, and if you’re worried that this is 2008 all over again? It’s not; there are major differences between then and now. Yes the equity markets have experienced recent losses, but today’s economic growth, while weak, is still positive. The banks in the United States are in much better shape than when the housing market collapsed. And corporations are producing solid earnings even in a weak economy. As an investor, I find that reassuring.


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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/does-the-stock-market-have-you-worried





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

Financial Independence Day

By Steve Davis, CERTIFIED FINANCIAL PLANNER ™


MANSFIELD, MA:  We recently had a friend from New Zealand staying with us for a few days. One of my sons jokingly asked him, “Andrew, do they have the 4th of July in New Zealand?” He was quick to catch on and replied, “Of course they do, but they don’t celebrate Independence Day.”

Corey Shea Memorial Flagpole, Mansfield, MA

Today, Americans are observing Independence Day. Most of us have been looking forward to this long-weekend because we’re able to enjoy a day off from work and spend our free time with friends and family. And just as we look forward to the 4th of July weekend, most of us look forward to celebrating another type of Independence Day – Financial Independence Day. This, of course, is not a single day free from work, but a period in our lives when we no longer need to work ever again because our expenses are met by unearned income.

While this is a laudable goal, it won’t be achieved by all. Some people work their whole life, while others retire early. Some people retire and live comfortably, while others are dependent on children and friends. Here are three tips to help you achieve financial freedom:

Spend less than you earn.
If you’re looking for a good book to read on the beach during this summer’s vacation, check out the 1996 bestseller, The Millionaire Next Door. While this book is now 15-years old, its message is timeless. Authors Thomas J. Stanley and William D. Danko explain that one of the keys to success is to live within your means. This can be accomplished by earning more – OR – spending less. The theme of the book is that society’s concept of a millionaire is wrong; most actual millionaires live a very simple lifestyle. In general, they are frugal and value achieving financial independence more than displaying high social status. In other words, they don’t try to keep up with the Jones’. After all, the Jones’ may be in debt up to their eyeballs!

Feed your 401k.
One of the most important things you can do to hasten your own Financial Independence Day is to continually save and invest for retirement. Take full advantage of your company’s 401k plan. If your company matches your 401k contributions, be sure to at least contribute the amount they will match; it’s like getting free money! Remember too that the government offers tax advantages to these types of qualified retirement plans. Most contributions are made with pre-tax dollars which means you pay less in taxes. Furthermore, your earnings have the potential to grow on a tax-deferred basis. This means your nest egg may grow quicker because you’re not paying taxes on the account until you begin to take distributions, typically at retirement.

Prepare for emergencies.
If you suddenly discover your home needs a new roof, or if a major appliance or car breaks down, will you have the money available to pay for it? Create an emergency reserve. The amount of your emergency reserve may vary according to the flexibility of your budget and your comfort zone. Bear in mind that this is the money that will see you through financial storms while you maintain a long-term strategy working toward financial independence. Your emergency reserve is not intended to cover all possible risks. For complete protection, get medical insurance, long-term disability insurance and fire protection for your home. Even policies with a large deductible can help if a crisis comes up. You can't avoid emergencies, but living without these types of insurance is an invitation to financial ruin.
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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/financial-independence-day


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

3 Reasons to Hire a Financial Advisor

By Steve Davis, CERTIFIED FINANCIAL PLANNER ™


Ah, spring has sprung! The flowers and trees are budding, the birds are chirping and the loud, incessant drone of lawnmowers reverberates throughout the neighborhoods of Mansfield.

As a young teenager, I remember the great sense of satisfaction I experienced when my dad taught me how to cut the grass. I pulled the starter cord and got the lawnmower running all by myself. I pushed the mower in straight-lines in such a way that even Joe Mooney -- the long-time groundskeeper at Fenway -- would be proud. What joy and fun! That is, until dad asked me to cut the lawn the following week. Like most boys, I found cutting the lawn was fun the first time. But after that? Not so much. It became a terrible chore.

Today, I still cut my own grass. I have grown to like the activity. I enjoy being outside. I like walking around my yard. And I still get a sense of satisfaction when the job is done and the green carpet of grass looks nicely manicured. Some folks, however hate cutting the lawn and consequently hire someone to do it instead. Why? There are lots of good reasons:

• You’re too busy
• You don’t have the health, skills or tools
• You would prefer to spend your weekends doing something more fun


Interestingly, these are some of the very same reasons why people hire financial advisors. As a CERTIFIED FINANCIAL PLANNER™, I can confidently tell you that financial planning is not brain surgery or rocket science. In fact, I believe that most people are capable of managing their own money. The internet, TV and radio talk-shows offer no shortage of financial tools, calculators, research and education. But if you don’t have the time, interest or inclination to focus on your finances, you should seek professional help.

Here are three warning signs that it is time for you to hire a financial advisor:

1. Procrastination: You know you should fund your IRA, buy that additional life insurance, or open a 529 college plan, but you just never get around to it. Let’s face it, we all have too many other things to do, or at least that’s what we tell ourselves. If you know you should develop a retirement plan, but find yourself rearranging your sock drawer instead, it’s time to hire an advisor. Or, if your daughter is five and you’ve been telling yourself since the day she was born that you’ll open that college savings plan, it’s time. A good financial advisor will call you to make sure you don’t miss the IRA deadline, forget to send in your insurance paperwork, or fund your daughter’s college savings plan.

2. Disinterest: If the money section of your newspaper never gets read or if your eyes roll in the back of your head when the subject of the economy or finance comes up in conversation, then it’s probably time to get help. If you don’t know the difference between a Roth and a Traditional IRA, or if you think a 401k is a very long running race, it’s time. There is so much information floating around that if you’re really not interested in investments, insurance, taxation and the like, you’ll probably struggle educating yourself on these important matters. One of the great values of a financial advisor is having someone to tell you what you need to know.

3. Lack of Time: A famous Greek philosopher once said, “Time is the most valuable thing a man can spend”. (1)  Just like the golfer who prefers to hire a lawn company to cut his grass so he spend his time on the golf course each Saturday, some folks prefer to hire a financial advisor so that when they get home from work they can relax, spend time with their family and know that their finances aren’t being neglected. Many people know they could handle their own finances, but either can’t take the time, or don’t want to take the time to do so. If you’re struggling to balance work and family time and find that your financial and retirement goals are being ignored, it’s time to get help.


Don't Let Your Lawn (or Finances) Go to Seed

It’s one thing to let the lawn go and find it overgrown. It’s another thing all together to let your finances go and discover too late that your financial affairs have suffered as a result.



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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/three-reasons-to-hire-a-financial-advisor 



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


(1) Theophrastus: “Father of Botany” and student of Aristotle.

Strapped for Cash?

By Steve Davis, CERTIFIED FINANCIAL PLANNER ™   


At some point in our lives, most of us have felt a little strapped for cash. Perhaps we suffered a job loss or unexpected medical expense. But maybe we just overspent and are afraid to admit how much we really owe on credit cards. Or possibly, we’ve decided it’s high time to replace the ‘89 Ford Aerostar that has 200,000 miles and probably just as many Cheerios stuck between the kid’s seat cushions.

The days of using our homes as a piggy bank to bail us out are all but over. Before approving home equity loans, lenders today require better credit scores, more home equity and higher income than they have in the past. So where are Americans turning to finance college, upgrade their kitchens and get the debt collectors off their backs? Their retirement plans.

Last month a survey released by Bankrate 1 shows that nearly one-fifth of full-time workers have dipped into their retirement accounts to cover a financial emergency in the past 12 months. According to the survey, 19 percent of Americans have either borrowed or withdrawn funds from their retirement savings.

Robbing Your Retirement: Early Withdrawal from your IRA or 401k plan

When times are tough, making early withdrawals from your retirement funds can seem like a quick source of cash. It is. But it can be an extremely expensive source of quick cash and should really only be considered in cases of emergency. Remember, we’re talking about your retirement plan, not your Aruba vacation plan! So before you withdraw money from your retirement account consider the following traps:

Withdrawal Trap 1:Taxes and Penalties. Money inside your deductible IRA or 401k plan has never been taxed. Your contributions were made with pre-tax dollars and you’ve never had to pay taxes on interest, capital gains or dividends either. But, once you take money out of the plan, it will be time to pay the piper. When you withdraw money, you’ll pay taxes based on your current tax bracket – and the withdrawal might even cause you to jump into a higher bracket. If you’re younger than 59 ½ and take a distribution, you may be subject to an additional tax of 10%. Here’s an example highlighting the consequences of withdrawal.

Withdrawal Trap 2: Less Money for Future Growth. Obviously, when you withdraw a dollar, you have one less dollar available at retirement. But more than this, that dollar is no longer earning interest so your account won’t have the opportunity to grow as quickly because your portfolio (and consequently your earnings) will be smaller. You can never replace the missed earning opportunities.

A Better Option: Borrow using a 401k Loan

Sometimes when you’re really strapped for cash and must get money from somewhere, a loan from your 401k plan can be a good idea because it’s a convenient and low-cost source for cash. In general, you can borrow one-half of your plan balance up to $50,000. You’ll have up to 5-years to pay it back and the interest you pay doesn’t go to a bank, but back into your own account. If you do take a loan from your 401k, don’t borrow more than you absolutely need, and be sure to repay the loan as quickly as possible because when you pay the money back over a short period of time, is usually has little impact on your saving progress.

401k Loan Trap: Risk of Termination. Know that if you leave your employer, most plans will require you to pay-off the loan within 60 days. And if you’re unable to do so, the entire outstanding balance will be seen as a withdrawal and you’ll be taxed and penalized, accordingly.


The Best Option: Create an Emergency Fund

Most experts agree that you should keep between three and six months worth of your living expenses set aside in an emergency fund. Not only will this help should you experience a sudden loss of income, but it will also ease the burden of smaller emergencies such as repairing the brakes on your car. If you currently don’t have one, make it a priority. Open a savings account at your bank and set up automatic deposits where you contribute an affordable amount each month. While this approach won’t help you if you’re strapped for cash now, it will give you peace of mind and provide a financial safety net for the future.


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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/strapped-for-cash

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


1 www.bankrate.com/finance/consumer-index/april-2011-retirement-savings


2 This example assumes all contributions to the account were tax deductible and contributions and earnings grew tax deferred. This example is for illustrative purposes only.

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

Honey, I lost my 401k (and other big mistakes)

By Steve Davis, CFP®

It has been a long winter in New England, but we’ve just moved the clocks ahead and soon spring will be here. The storms are over, the snow has melted and now it’s time to clean up the yard. I recently found a winter hat that had gone missing after the first snow storm of the year. It was in my backyard for months, but we couldn’t find it because the grass has been covered with a blanket of snow since Christmas. The old adage, “out of sight, out of mind” certainly held true because after a week or so I sort of forgot about that hat and resorted to wearing another one we had in the closet.

Lost Accounts:

It is amazing how many people have misplaced 401k accounts. You might think it inconceivable that someone would “lose” the information about an investment worth thousands of dollars, but it is not all that uncommon. For frequent job changers, trying to keep up with the paperwork on several different orphan 401k accounts can be an administrative nightmare. Losing track sometimes happens after a move when the mail forwarding order expires, or after a name change following marriage or divorce.

At other times, the account information is lost when a former employer declares bankruptcy or when the owner of a small company dies and the company closes its doors. Trustees have a fiduciary liability to distribute the plan’s assets, but sometimes this doesn’t occur, especially when the trustee is a former employee who is no longer being paid. The good news is that retirement funds invested in 401k plans belong to the employee, not the employer, so even when a company files bankruptcy or ceases operations, plan participants are protected. Because assets continue to be invested, amounts that can be reclaimed are sometimes substantial. If you think you or a family member may have money in an abandoned plan, search the Department of Labor’s database. http://www.askebsa.dol.gov/AbandonedPlanSearch/

Beneficiary Blunders:

The 401k Beneficiary Form kept in the Human Resource Department of your old company is often more important than the will or trust that was carefully crafted by your attorney. That’s because a will or trust has virtually no effect on how your retirement account assets are distributed to your heirs. Instead, 401k (and IRA) accounts are transferred according to the provisions listed on your beneficiary form. And all too often these forms are hastily filled out during company enrollment meetings and are never given a second thought. Here are four of the biggest Beneficiary blunders:

Mistake #1: You, your heirs or your old employer can’t find the form. In a recent ruling, the US Supreme Court made it clear that without a proper beneficiary form you are stuck with the default provisions of your company’s plan. Don’t take it on faith that the form you filled out a dozen years ago is still filed correctly at your old company. If the form is lost, it doesn’t matter if your will, divorce decree or other legal documents provide different instructions. When the default provisions say your account should be paid to your estate, that’s what will happen even if this action results in thousands of dollars in extra taxes or probate costs.

Mistake #2: The form is filled out incorrectly or is out-0f-date. Sometimes what seems like a simple oversight can accidently disinherit those you want to favor. A million dollar mistake occurred in 2001 after Anne Friedman died of a heart attack and her entire pension of almost $1 million went to her estranged sister rather than her loving husband of twenty years. This travesty happened because the beneficiary form on file was completed years before Ann and her husband met in 1978. The form had been forgotten by all except the sister who refused to give up her new found wealth. Similar tragedies can occur when adult children die before their parents. In cases like this, 401k proceeds usually skip the family of the deceased beneficiary and are instead shared only by the surviving children.

Mistake #3: Listing a minor as beneficiary. When a minor child inherits a 401k directly, a court-appointed legal guardian must be named to administer the funds on the child’s behalf. If this happens, your family will get tied up in the court system with all the cost and aggravation that involves – and with outsiders making decisions that impact your family’s welfare.

Mistake #4: Not naming a contingent beneficiary. If your primary beneficiary isn’t around to collect your 401k, and you haven’t named a secondary beneficiary, the Probate Court will likely liquidate your account in a lump sum and force the immediate payment of substantial federal and state taxes. This simple oversight robs your children and grandchildren of the opportunity to stretch your distributions –and the tax bite—over their lifetimes. Stretching the distributions like this allows the investments to continue to grow tax deferred and may result in substantially greater inheritances.

A Spring Cleaning Reminder:

Don’t make the same mistake I made when my hat was forgotten once out of sight. Instead, when you grab your rake and begin to clean your yard this spring, remember that you may have some old 401k plans that need tidying up too. If you have old 401k accounts, consider rolling that money over to your own consolidated IRA.

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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/honey-i-lost-my-401k-and-other-big-mistakes-2

Word Pictures: Imagining Your Financial Future

By Steve Davis, CFP®


One of my sons is a high school senior and last Friday my wife and I took him on a college tour. Years ago, during those cold and rainy spring days at the Otis Street Little League fields, I thought this day would never come. My folks used to warn, “They grow up so fast”, but I imagined myself stuck at the ball fields forever. With four boys playing back-to-back games, some of those days never seemed to end. But time marches on.

When we arrived at the Massachusetts College of Art in downtown Boston, the first thing our tour director did was lead us to the top floor of the library where we enjoyed spectacular views of the city. She pointed out the other nearby schools, the world-famous museums, and even the Citgo sign above Fenway Park. From there, our group proceeded to visit the different studios, lecture halls, and dorms on campus. Our guide that day was a painting major and perhaps it was this background that allowed her to use her words to so perfectly paint for us the college experience. In our minds, we could see perfectly what school would be like at Mass Art. In a way, the students in our group were transported to the future where they could see what the next four years of their lives would be like.

There is a lesson in all of this. When it comes to achieving financial goals like funding a child’s college education or retiring at age 65, picturing the life of your dreams can be a wonderful motivator. Whatever your aspirations for the future, the only way to achieve the vision of how you’ll spend the years ahead is to commit to a plan that can take you there.

Dreaming and Discovery

How you envision the rest of your life might involve traveling the world or pursuing a career you postponed to raise a family. Maybe you picture spending more time with your family or volunteering at local charities. The point is, everyone’s dreams for the future are unique and there is no one-size fits all financial plan. Taking the time to imagine and articulate your hopes and fears is probably the most important first step. Often times a professional financial advisor can help facilitate this conversation, but some folks are able to do this well on their own. The key is to discover and visualize your ultimate financial goals. Here’s why: If you want something badly enough you’ll make small sacrifices now in order to acquire what you really want later.

I have a client who graduated from college with many thousands of dollars in student loans. This debt created a huge burden that resulted in a lot of financial difficulties during the early years of her marriage. For this client, funding her children’s education was hugely important. She didn’t want her kids to struggle the way she had. This tangible desire to create a college fund made it easier for her to pass up expensive vacations and the like because these would have prevented her from reaching her goal.

 

Roadmaps and Directions

Of course, a vision without action is just a dream. Once you know your financial destination, the next step is to create a roadmap that will take you there.

Bruce Springsteen once sang, “Take a right at the light, keep going straight until night, and then boy, you’re on your own.” While this makes for great rock lyrics, it is lousy financial advice. Instead, it is best to have precise turn-by-turn directions that will help you navigate the twists and turns of life. Create specific and measurable goals and understand which ones can be accomplished in less than a year, which ones will take three to five years to achieve, and which ones are truly long-term in nature. As you accomplish the short term goals, you’ll build momentum to carry on toward achieving longer term objectives.

Just as there are many routes that will take you to the same destination, there are many financial tools, investments and tax strategies that will help you work toward your life’s dreams. If you don’t have the time, interest or inclination to research this on your own, a financial advisor can provide meaningful guidance at this stage.

Over the course of your lifetime, your goals and circumstances may change. There may be detours along the way. Flexibility and planning for contingencies is critical here because just when you make plans, life gets in the way. Events small or large can change everything. Getting laid off or changing jobs can result in the loss of anticipated retirement benefits. Losing your health could force an early retirement. Caring for aging parents may have never been on your radar. The best financial plans are the ones that can adapt for the unexpected, anticipate change and adjust over time.

Enjoy the Journey

My children are growing up and before I know it, they’ll all be off to college. Yes, time marches on. It seemed like just yesterday when I was in college. I once had a professor who said, “It is good to have an end to journey toward; but it is the journey that matters, in the end.”

As a dad, I wouldn’t change anything; not even those long days at the Otis Street fields when my back was sore, my hands were cold and my shoes were covered in dust and dirt. One of the greatest benefits to taking the time to envision and plan your future is that it gives you the ability to live in the present and focus your time and attention on those things that matter most.
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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/word-pictures-imaging-your-financial-aid-future