MONEY behavioral finance

A Financial Planner’s Most Important Job Isn’t What You Think It Is

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Helping people who are panicking about money is more important than a particular plan or a piece of investing advice.

In the past few years, many of us in the financial planning profession have been coming to terms with a difficult truth: Our clients’ long-term financial success is based less on the structure of their portfolios than it is on their ability to adapt their behaviors to changing economic times.

An increasing number of financial planners are awakening to the fact that our primary business is not producing financial plans or giving investment advice, but rather caring for and transforming the financial and emotional well-being of our clients. And at the very foundation of financial and emotional well-being lies one’s behavior.

I’ve come to understand this over my own three decades as a financial planner, so I was pleased to see the topic of investor behavior featured at a national gathering of the National Association of Personal Financial Advisors in Salt Lake City last May. One of the speakers was Nick Murray, a personal financial adviser, columnist, and author.

“The dominant determinants of long-term, real-life, investment returns are not market behavior, but investment behavior,” Murray told us. “Put all your charts and graphs away and come out into the real world of behavior.”

This made me recall similar advice from a 2009 Financial Planning Association retreat, when Dr. Somnath Basu said, “Start shaking the dust off your psychology books from your college days. This is where [the financial planning profession] is going next.”

Most advisers will agree that, while meticulously constructed investment portfolios have a high probability of withstanding almost any economic storm, none of them can withstand the fatal blow of an owner who panics and sells out.

This is where financial advisers’ behavioral skills can often pay for themselves. Murray, who calls financial planners “behavior modifiers,” reminded us that we are “the antidote to panic.”

Murray said most advisers will try everything they can do to keep a client from turning a temporary decline into a permanent loss of capital. He wasn’t optimistic, however, that the natural tendency of investors to sell low and buy high will stop anytime soon.

His final advice was blunt. “Think of your clients who had beautifully designed and executed investment portfolios that would have carried them through three decades of retirement, who started calling you in 2008 wanting to junk it and go to cash. How many of these people have called you since then and tried to do it again?”

I myself could think of several.

“How many times have they gone out on the ledge and tried to jump, and how many times have you pulled them back in?” Murray asked.

By now I could see heads all over the room nodding.

Then he delivered a memorable line: “I am telling you as a friend, stop wasting your time on these people.” The heads stopped nodding. “Save your goodness and your talents for those who will accept help from you.”

I have certainly learned, often the hard way, that helping people who aren’t ready to change is futile. Yet I disagree to some extent with this part of Murray’s advice. If clients have gone out on the ledge more than once, but have called me and accepted my help in pulling them back in, then together we have succeeded in modifying their behavior.

This is a far different scenario from that of a panicked client who refuses help by ignoring a planner’s advice. If planners see our role as “antidotes to panic,” we need to realize that, for some clients, the antidote may have to be administered more than once.

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Rick Kahler, ChFC, is president of Kahler Financial Group, a fee-only financial planning firm. His work and research regarding the integration of financial planning and psychology has been featured or cited in scores of broadcast media, periodicals and books. He is a co-author of four books on financial planning and therapy. He is a faculty member at Golden Gate University and the president of the Financial Therapy Association.

MONEY Kids and Money

Teach Your Kids Financial Values…Via Cellphone

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A child's first smartphone can be a tool for teaching about budgeting, the value of work, and other important concepts.

After I have helped clients prioritize their financial goals, they commonly ask me a followup question: How do we teach these values to the next generation?

Start early, I tell them. And use a smartphone.

Let me explain. For many children nowadays, a smartphone will be their first valuable possession. They start asking begging for one when they’re around 8 or 10 years old, depending upon how many of their friends already have one.

We don’t know what impact early adoption of technology will have on our children once they become adults. As a financial coach, I see that parents are overwhelmed. New technologies are available every year, making parents feel like Maggie Smith’s Dowager Countess character on Downton Abbey: “First electricity, now telephones. Sometimes I feel as if I were living in an H.G. Wells novel.”

The purchase of a child’s first smartphone is an ideal opportunity for parents to pass on their values to children. I encourage active discussions between parents and children about the family’s intent for the phone, many of which may be reflected in the values below.

Open communication: From the beginning, outline the consequences if a child dodges her parents’ calls or ignores their texts. Talk about how this cellphone is meant to keep the family connected, not just to fuel her social life.

Hierarchy: Parents can exercise their authority through a variety of smartphone parental controls.

  • Check-in at tuck-in: Parents enforce this by keeping the charger in their room or in the kitchen. The cellphone needs to be in that spot when the child goes to bed, thereby preventing distractions from the phone and friends during sleeping hours. One client who uses this system was surprised when her daughter handed her the phone before she left for a sleepover: “I guess I need to check this in,” she said. Success!
  • Geolocation: If a parent would like the security of knowing a child arrived at a destination safely, or technological proof that a kid is being truthful, they can track the phone’s location with an app such as Life360.
  • Setting limits on texting/minutes/data: Some carriers offer this feature with unlimited family plans. Or parents can take the more rudimentary route below.

Wise resource management: What messages do we communicate when we give a kid this unlimited resource without requiring any payment from them? How do we engender a strong work ethic? One way is to subscribe to a plan that charges by the minute or unit. You won’t save money, but your child will learn to budget her resources. You can buy a TracFone, give her a monthly allotment of minutes, and explain she has to buy her own if she surpasses the allowance.

Work orientation: Taking this line of thinking a bit farther, if a child uses up her monthly allotment on a pay-as-you-go plan, she now has a choice. Either she stops talking — which could backfire if she can’t check in with parents — or she finds a way to get more minutes. TracFone minutes can be purchased anywhere at increments as small as $10, so it’s easy for a child to get more minutes if she’s willing to earn the money. Or alternatively, she can ask for minutes as gifts for holidays and birthdays. Either way, the child will need to become resourceful, and it’s never too early to exercise that muscle.

Predictability: Americans love to control our environment. In the financial realm, that often takes the form predictable expenses. In the past, roaming charges could exponentially increase your bill if you weren’t careful. These days, data usage (used for streaming video, sharing photos, or downloading apps when a phone isn’t on a wi-fi connection) is the variable that can quickly escalate the monthly total. Take these variances into account to select a plan that works best for your family, and make sure everyone understands the plan’s overage policies to avoid nasty surprises when the bill arrives.

In sum, a smartphone is an opportunity to teach a child about what really matters. Technology is just like money: It is simply a tool to make us more effective in the important stuff. But children are especially likely to subvert that understanding, mistaking technology or money as the end goal in life. So it is worth the time to guide their consumer choices, and their values, while they are still at home.

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Candice McGarvey, CFP, is the Chief Story Changer of Her Dollars Financial Coaching. By working with women to increase their financial wellness, she brings clients through financial transitions. Via conversations that feel more like a coffee date than a meeting, her process improves a client’s financial strength and peace.

MONEY financial advice

Advisers Are Trying to Sound Less Like Robots

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Some impressive-sounding financial-industry buzzwords simply turn people off, according to research with high-net-worth investors.

Advisers are rethinking the words they use with clients to avoid off-putting terms that can sound a little less than human.

For example, the term “risk tolerance” is giving way to “comfort level.” “Financial freedom” is also passé, especially after the 2008-2009 financial crisis. Now, it’s better to use “financial security.”

Thank Invesco for the impetus. In 2007, the investment giant’s consulting arm hired maslansky + partners, a global marketing strategist to do for Invesco’s wholesaling business and ultimately, the financial services industry, what maslansky once did for conservative politicians. It was maslansky’s co-founder, Dr. Frank Luntz, who morphed the phrase “estate tax” into a more unappealing “death tax.”

Maslansky’s trademark: “It’s not what you say, it’s what they hear.”

The ongoing initiative by Invesco and maslansky involves recruiting mass affluent and high-net worth investors with assets of at least $250,000 to test how they perceive advisers’ messages.

Participants watch a spiel by an actor who plays an adviser and turn dials up or down according to how positively or negatively they feel about the message they hear. An audience observes the investors’ reactions real time.

“We find there are definitely words to use and words to lose,” said Scott West, who heads Invesco Consulting.

Invesco, which manages $790 billion, and maslansky are now focusing on the language of alternative investments. Preliminary findings show that advisers should describe alternatives in terms of “goals-based strategies” rather than “risk-based strategies,” said David Saylor, executive director of Invesco Consulting.

Investors who took part in the focus group were not motivated to learn about new investments so they could “lose less” money. But the dials jumped in response to presentations that led with how alternative investments could help clients’ attain their personal goals while minimizing losses, Saylor said.

Buzz about the benefits of humanizing sales pitches has drawn interest from other firms. Portfolio management firm Loring Ward first tapped maslansky’s expertise in 2012.

That is when Steve Atkinson, the firm’s head of adviser relations, first saw how negatively investors perceived advisers’ pitches. It felt like “a slap in the face,” Atkinson said. Advisers tended to use too much jargon, such as “volatility” and “small cap.” They also occasionally boasted too much about methods and past successes, including “Nobel Prize-winning research.”

Don Hershberger, president of Paramount Wealth Management in Jackson, Mich., immediately hired a consultant to redesign his firm’s website after sitting in on a focus group organized by Loring Ward and maslansky in 2012. The firm replaced offending jargon with a feel-good message to clients about family.

Client feedback showed the change resonated, Hershberger said. Now he is always careful to emphasize only clients’ needs and feelings — not the intricacies of specific investments — in conversations with clients and in the main messages on his website,

“We had to confirm that they were hearing what we wanted to say to them,” Hershberger said.

 

MONEY Financial Planning

Millennials Are Mooches…and Other Money Myths

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Kevin Dodge—Getty Images

Here are three financial stereotypes that just don't ring true to one experienced planner.

There are plenty of stereotypes about how certain people behave around money — stereotypes I’ve often seen contradicted in my experience as a financial planner. Let me debunk some of these money myths for you.

Myth One: All millennials are mooches.

The 30-year-old client came in for the first time. She asked a question that, if you were to listen to the financial media, no one has ever asks. “Can I pay off the student loans my parents took out for me without any tax consequences?”

Say what? Young people sending money to their parents?

I’ve never heard that mentioned in my almost 20 years in the industry. According to the myth, millennials are unemployed and live rent-free in the basement, while expecting their parents to pay for pricey destination weddings.

My sensitivity to what I hear in the media on this issue started when, to prepare people’s taxes, I started asking clients if they had lent anyone money who hadn’t paid them back.

That’s when I started hearing it. “Hasn’t paid me back? Will never pay me back? Yeah, that’s my Dad.” It’s not common response, but I heard it several times a year.

In fact, I’ve heard about just as many parents trying to mooch off their kids as the opposite. My conclusion: If you have more money than other people in your family, there is a small chance you’ll deal with a mooch — um, I mean, a relative with boundary or entitlement issues.

Myth Two: Women care more about spending money than investing. Men care more about investing than spending.

Perhaps this was true once upon a time. In my practice, however, I regularly see women who are more interested in money, saving, and investing than their husband. Conversely, I see men who love to spend — sometimes more than they know is wise — and enjoy the finest in life.

Recent research shows that while men might score better on a pop quiz about interest rates and bond prices, men and women show no difference in investing and spending behavior.

Myth Three: Financial advisers work only with rich patriarchs.

When I first started in financial planning, I sat next to an established planner at dinner. He described his ideal client: “Men over sixty who have made a lot of money who just want to make sure their families are taken care of.”

“Oh, “ I said, “you work with patriarchs!”

We laughed at my joke. However, in my male-dominated industry, I dare say this is the ideal client of a lot of advisers. I call the pursuit of these clients “Searching for Victor Newman,” after the ultra-rich paterfamilias who drives his family nuts on The Young and the Restless.

Working in the industry has assured me that patriarchy is on the wane. I’ve only had one client who said that “taking care of his family” was what he aspired to, and I’ve talked to hundreds of people about their goals and values.

My experience is that both men and women want to make sure that their kids and partners are taken care of both financially and emotionally. They work on the project together.

This bias gives consumers the impression that advisers only want to help Victor Newmans. Here are three organizations that help both advisers who aren’t hunting for that client and consumers who want to meet them:

And my answer to the client in the fortunate position of paying back her parents? After consulting with an attorney on her specific situation, I told her to go ahead.

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Bridget Sullivan Mermel helps clients throughout the country with her comprehensive fee-only financial planning firm based in Chicago. She’s the author of the upcoming book More Money, More Meaning. Both a certified public accountant and a certified financial planner, she specializes in helping clients lower their tax burden with tax-smart investing.

MONEY mutual funds

Why Mutual Fund Managers Are Having a Bad Year

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iStock

Eighty-five percent of stock-pickers at large-cap funds are trailing their benchmark indexes — likely their worst performance in three decades.

Stock-picking fund managers are testing their investors’ patience with some of the worst investment returns in decades.

With bad bets on financial shares, missed opportunities in technology stocks and too much cash on the sidelines, roughly 85% of active large-cap stock funds have lagged their benchmark indexes through Nov. 25 this year, according to an analysis by Lipper, a Thomson Reuters research unit. It is likely their worst comparative showing in 30 years, Lipper said.

Some long-term advocates of active management may be turned off by the results, especially considering the funds’ higher fees. Through Oct. 31, index stock funds and exchange traded funds have pulled in $206.2 billion in net deposits.

Actively managed funds, a much larger universe, took in a much smaller $35.6 billion, sharply down from the $162 billion taken in during 2013, their first year of net inflows since 2007.

Jeff Tjornehoj, head of Lipper Americas Research, said investors will have to decide if they have the stomach to stick with active funds in hopes of better results in the future.

“A year like this sorts out what kind of investor you are,” he said.

Even long-time standout managers like Bill Nygren of the $17.8 billion Oakmark Fund and Jason Subotky of the $14.2 billion Yacktman Fund are lagging, at a time when advisers are growing more focused on fees.

The Oakmark fund, which is up 11.8% this year through Nov. 25, charges 0.95% of assets in annual fees, compared with 0.09% for the SPDR S&P 500 exchange traded fund, which mimics the S&P 500 and is up almost 14% this year, according to Morningstar. The Yacktman fund is up 10.2% over the same period and charges 0.74% of assets in annual fees.

The pay-for-active-performance camp argues that talented managers are worth paying for and will beat the market over investment cycles.

Rob Brown, chief investment strategist for United Capital, which has $11 billion under management and keeps about two thirds of its mutual fund holdings in active funds, estimates that good managers can add an extra 1% to returns over time compared with an index-only strategy.

Indeed, the top active managers have delivered. For example, $10,000 invested in the Yacktman Fund on Nov. 23, 2004, would have been worth $27,844 on Nov. 25 of this year; the same amount invested in the S&P 500 would be worth $21,649, according to Lipper.

Even so, active funds as a group tend to lag broad market indexes, though this year’s underperformance is extreme. In the rout of 2008, when the S&P 500 fell 38%, more than half of the active large cap stock funds had declines that were greater than those of their benchmarks, Lipper found. The last time when more than half of active large cap stock managers beat their index was 2009, when the S&P 500 was up 26%. That year, 55% of these managers beat their benchmarks.

Unusually Bad Bets

In 2014, some recurring bad market bets were made by various active managers. Holding too much cash was one.

Yacktman’s Subotky said high stock prices made him skeptical of buying new shares, leaving him with 17% of the fund’s holdings in cash while share prices have continued to rise. He cautioned investors to have patience.

“Our goal is never to capture every last drop of a roaring bull market,” Subotky said

Oakmark’s Nygren cited his light weighting of hot Apple shares and heavy holdings of underperforming financials, but said his record should be judged over time. “Very short-term performance comparisons, good or bad, may bear little resemblance to long term results,” he said.

Shares of Apple, the world’s most valuable publicly traded company, are up 48% year to date. As of Sept. 30, Apple stock made up 1.75% of Oakmark’s assets, compared with 3.69% of the SPDR S&P 500 ETF.

Investors added $3.9 billion to Nygren’s fund through Nov. 19, Lipper said.

Still, some managers risk losing their faithful.

“We have been very much believers in active management, but a number of our active managers have let us down this year, and we are rethinking our strategy,” said Martin Hopkins, president of an investment management firm in Annapolis, Md. that has $4 million in the Yacktman Fund.

Derek Holman of EP Wealth Advisors, in Torrance, Calif., which manages about $1.8 billion, said his firm recently moved $130 million from a pair of active large cap funds into ETFs, saying it would save clients about $650,000 in fees per year.

Holman said his firm still uses active funds for areas like small-cap investing, but it is getting harder for fund managers to gain special insights about large companies.

For those managers, he said, “it’s getting harder to stand out.”

MONEY Financial Planning

3 Questions That Will Put Your Finances — and Life — on the Right Track

Backpacker on mountain trail
Backpacker on mountain trail Getty Images

Financial planning guru George Kinder has a powerful tool for helping people set priorities for their money...and their lives. Here it is.

Few things seem more diametrically opposed than managing money and spiritual enlightenment. But not everyone sees it that way. Some very influential people in the financial advisory community have dedicated their lives to helping advisers assist clients deal with the more personal elements in personal finance.

Consider George Kinder, the Harvard-trained economist-turned-philosopher-turned-CPA. He managed to evolve his tax practice into a comprehensive financial advisory offering, with supporting methodology, while on the successful path to becoming a Buddhist teacher based in Cambridge, Mass. and Hana, Hawaii.

Within the advisory community, Kinder is almost universally known as the “father of life planning.” To many advisers, his work is the seminal, much-needed missing link between life and money. He originally articulated his views in his book, The Seven Stages of Money Maturity. Many more advisers, however, envision Kinder playing the ukulele on a magic carpet — just a little too “out there” for mainstream consumption and practical application. Having moved from the camp of skeptics to the camp of adherents myself, I invite you to consider what could become one of the most valued tools in a financial planning practice: George Kinder’s Three Questions.

Most advisers believe it’s vital to know a client’s answer to the following two questions: “What are your goals in life?” and “What are your values?” Unfortunately, most financial planners simply ask them verbatim. The responses they receive to those starkly boilerplate questions are largely generic. Clients answer with what they think they’re supposed to say, not with a measured evaluation of what’s actually most important to them. Kinder takes a different route, beginning with his first of three questions.

Question One: I want you to imagine that you are financially secure, that you have enough money to take care of your needs, now and in the future. The question is, how would you live your life? What would you do with the money? Would you change anything? Let yourself go. Don’t hold back your dreams. Describe a life that is complete, that is richly yours.

If Kinder lost you at “Let yourself go,” go back and refocus on the first part of the question. Better yet, simply answer the question yourself. What you’ll likely find in your answer is a more complete, genuine, and interesting response to our traditional question, “What are your goals in life?” You see — there’s a method at work here.

The second question goes deeper.

Question Two: This time, you visit your doctor who tells you that you have five to ten years left to live. The good part is that you won’t ever feel sick. The bad news is that you will have no notice of the moment of your death. What will you do in the time you have remaining to live? Will you change your life, and how will you do it?

The first time I read this question, I approached it entirely too literally. Most clients, I retorted internally, can’t just decide (or afford) to live life as though they knew they were going to die within the next 10 years! But again, the point of this query is to evoke a better answer to the question, “What are your most deeply held values?” Here you’ll receive a lot of answers about family, relationships and bucket-list items.

Another purpose of question two is to prepare you for the third question.

Question Three: This time, your doctor shocks you with the news that you have only one day left to live. Notice what feelings arise as you confront your very real mortality. Ask yourself: What dreams will be left unfulfilled? What do I wish I had finished or had been? What do I wish I had done? What did I miss?

If a client really engages with this third question, you’ll now get beyond superficial answers and start to learn about what really drives this person in front of you. You’ll discover what makes them unique, what they long for, and what should likely be reflected in your planning to avoid making more recommendations that will only fall on deaf ears.

I have seen numerous advisers employ Kinder’s Three Questions and vastly improve their insight into a client’s values and goals. For fully dedicated Kinderites, this is just the beginning. There’s an entire planning methodology found in his book on practice management and in his courses.

George Kinder has provided some much-needed yang to the financial industry’s yin. For your practice, for your clients — and even for you — his Three Questions should be informative. And who knows? They may be transformative too.

Consumers can get a free, self-guided version of Kinder’s EVOKE life planning process — including the Three Questions and other exercises — at LifePlanningForYou.com.

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Financial planner, speaker, and author Tim Maurer is a wealth adviser at Buckingham Asset Management and the director of personal finance for the BAM Alliance. A certified financial planner practitioner working with individuals, families and organizations, he also educates at private events and via TV, radio, print, and online media. “Personal finance is more personal than it is finance” is the central theme that drives his writing and speaking.

MONEY exchange-traded funds

Why Index Funds Are Like Cheap TVs at Walmart

"Why are you window shopping?" Sale inside sign on store window
jaminwell—Getty Images

You can get a great deal on exchange-traded funds tracking large stock indexes. But watch out for the extra spending that can pile up.

Every industry has its loss leaders, and the investment world is no different. The theory is that you will go to the store for the $12 turkey and stick around to buy dressing, cranberries, juice, pies and two kinds of potatoes.

In the investment world, the role of the cheap turkey is played by broad stock index exchange traded funds. While investment firms say they make money on even low-fee funds, their profit margins on these products have been narrowing.

There’s been a bidding war among issuers of exchange traded funds that mimic large stock indexes like the Standard & Poor’s 500 or the Wilshire 5000 stock index. Companies including Blackrock, Vanguard, and Charles Schwab have been competing to offer investors the lowest cost shares possible on these products. Right now, Schwab — which will begin offering pre-mixed portfolios of ultra-low-cost ETFs early in 2015 — is winning.

Their theory? You’ll come in the door for the index ETF and stay for the more expensive funds, the alternative investments, the retirement advice.

“We believe we will keep that client for a long time,” said John Sturiale, senior vice president of product management for Charles Schwab Investment Management.

Investors, of course, are free to come in and buy the cheap TV and nothing more. Here are some points to consider if you want to squeeze the most out of low-cost exchange traded funds.

A few points don’t matter, but a lot of points do.

“Over the long term, cost is one of the biggest determinants of portfolio performance,” said Michael Rawson, a Morningstar analyst.

If you have a TD Ameritrade brokerage account, you can buy the Vanguard Total Stock Market Index Fund ETF for no cost beyond annual expenses of 0.05% of your assets in the fund. At Schwab, you can buy the Schwab U.S. Broad Market ETF for an annual expense of 0.04%. That 0.01 percentage point difference is negligible.

But compare that low-cost index fund with an actively managed fund carrying 1.3% in expenses. Invest $50,000 at the long-term stock market average return of 10% and you’ll end up with $859,477 after 30 years of having that 0.05% deducted annually. Pay 1.3% a year in expenses instead (not unusual for a high-profile actively managed mutual fund) and you’ll end up with $589,203. You’ll have given up $270,274 in fees, according to calculations performed at Buyupside.com.

Don’t pay for advice you don’t need.

The latest trend in investment advice is to charge clients roughly 1% of all of their assets to come up with a broad and diversified portfolio — with index funds at their core. Why not just buy your own core of index funds and exchange traded funds directly, and then get advice on the trickier parts of your portfolio? Or pay an adviser a onetime fee to develop a mostly index portfolio that you can buy on your own?

You won’t give up performance.

High-priced actively managed large stock funds as a group do not typically beat their indexes over time. Even those star managers who do outperform almost never do so year after year after year.

Build a broad portfolio.

Not every category of investment lends itself to low-cost indexing. You may do better with a seasoned stock picker if you’re taking aim at small-growth stocks, for example. But you can make the core of your plan a diversified and cheap portfolio of ETFs at any of the aforementioned companies, and save your fees for those extras that will really add value — the gravy, if you will.

MONEY year-end moves

3 Smart Year-End Moves for Retirement Savers of All Ages

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Getty Images

To give your long-term financial security a boost, take one of these steps before December 31.

It’s year-end, and retirement savers of all ages need to check their to-do lists. Here are some suggestions for current retirees, near-retirees, and younger savers just getting started.

Already Retired: Take Your Distribution

Unfortunately, the “deferred” part of tax-deferred retirement accounts doesn’t last forever. Required minimum distributions (RMDs) must be taken from individual retirement accounts (IRAs) starting in the year you turn 70 1/2 and from 401(k)s at the same age, unless you’re still working for the employer that sponsors the plan.

Fidelity Investments reports that nearly 68% of the company’s IRA account holders who needed to take RMDs for tax year 2014 hadn’t done it as of late October.

It’s important to get this right: Failure to take the correct distribution results in an onerous 50% tax—plus interest—on any required withdrawals you fail to take.

RMDs must be calculated for each account you own by dividing the prior Dec. 31 balance with a life expectancy factor (found in IRS Publication 590). Your account provider may calculate RMDs for you, but the final responsibility is yours. FINRA, the financial services self-regulatory agency, offers a calculator, and the IRS has worksheets to help calculate RMDs.

Take care of RMDs ahead of the year-end rush, advises Joshua Kadish, partner in planning firm RPG Life Transition Specialists in Riverwoods, Ill. “We try to do it by Dec. 1 for all of our clients—if you push it beyond that, the financial institutions are all overwhelmed with year-end paperwork and they’re getting backed up.”

Near-Retired: Consider a Roth

Vanguard reports that 20% of its investors who take an RMD reinvest the funds in a taxable account—in other words, they didn’t need the money. If you fall into this category, consider converting some of your tax-deferred assets to a Roth IRA. No RMDs are required on Roth accounts, which can be beneficial in managing your tax liability in retirement.

You’ll owe income tax on converted funds in the year of conversion. That runs against conventional planning wisdom, which calls for deferring taxes as long as possible. But it’s a strategy that can make sense in certain situations, says Maria Bruno, senior investment analyst in Vanguard’s Investment Counseling & Research group.

“Many retirees find that their income may be lower in the early years of retirement—either because they haven’t filed yet for Social Security, or perhaps one spouse has retired and the other is still working. Doing a conversion that goes to the top of your current tax bracket is something worth considering.”

Bruno suggests a series of partial conversions over time that don’t bump you into a higher marginal bracket. Also, if you’re not retired, check to see if your workplace 401(k) plan offers a Roth option, and consider moving part of your annual contribution there.

Young Savers: Start Early, Bump It Up Annually

“Time is on my side,” sang the Rolling Stones, and it’s true for young savers. Getting an early start is the single best thing you can do for yourself, even if you can’t contribute much right now.

Let the magic of compound returns help you over the years. A study done by Vanguard a couple years ago found that an investor who starts at age 25 with a moderate investment allocation and contributes 6% of salary will finish with 34% more in her account than the same investor who starts at 35—and 64% more than an investor who starts at 45.

Try to increase the amount every year. A recent Charles Schwab survey found that 43% of plan participants haven’t increased their 401(k) contributions in the past two years. Kadish suggests a year-end tally of what you spent during the year and how much you saved. “It’s not what people like to do—but you have a full year under your belt, so it’s a good opportunity to look at where your money went. Could you get more efficient in some area, and save more?”

If you’re a mega-saver already, note that the limit on employee contributions for 401(k) accounts rises to $18,000 next year from $17,500; the catch-up contribution for people age 50 and over rises to $6,000 from $5,500. The IRA limit is unchanged at $5,500, and catch-up contributions stay at $1,000.

MONEY Financial Planning

Why a Safe Space Makes for Better Financial Plans

mugs of hot chocolate with marshmallows
Barbara Stellmach—Getty Images/Flickr Open

To really help their clients, financial planners need to create an environment -- both physical and conversational -- that's comfortable and reassuring.

Nicole walked up the driveway wearing flip-flops. It was that kind of day.

We held our meeting outside in the garden — one of the perks of my having a home office. I’ve heard repeatedly how meeting outside takes away the stress of difficult financial conversations, and sometimes even goes so far as to make them a delight.

When Nicole had first hired me, she was blunt. “I’m blowing through my trust fund, and it’s going to run out,” she said. “I need you to help me learn how to make it last, but don’t put me on a cold-turkey budget because that is going to backfire.”

At this and other meetings, we explored the narrative of her life. Part of what we uncovered was that her job was a bad fit. She needed a change, something where she made a difference and where she could get outside instead of working indoors at a desk all day.

I’ve come to appreciate over the years how a big part of what I do is hold the space for conversations like ones I had with Nicole — conversations about issues people know they need to face, but ones that are oh-so-easy to postpone.

When I say “holding the space,” I mean that I’m creating an atmosphere in which people can feel safe. Part of that is designing the physical space to create a more relaxed atmosphere. At my home office, my clients leave their shoes at the door, come into my kitchen as I prepare tea for them, and then they choose where we sit — inside (at the dining table or in the living room) or outside (on the porch or in the garden.) I’ve seen similarly relaxing physical environments in commercial office spaces, where the ‘conference room’ looks more like an inviting living room and the financial planner’s dog greets clients with his welcoming, wagging tail.

While the physical space sets the tone, it’s the conversation that follows which is most important. Holding the space means people feel they can move through whatever they need to move through, knowing that they’re not going to be judged by me. It’s where clients state what’s holding them back from doing what they know they need to do. It means that I name what I see, and sometimes that means saying out loud what isn’t being said. It’s asking evocative questions to understand more deeply. It’s where couples can talk to one another about money. When a client has a decision to make, I identify trade-offs and give equal weight to the non-financial component. We brainstorm what it’ll take to get them one step closer to being where they want to be. And we pause to look back and celebrate all the steps forward.

This story had a nice, happy ending for Nicole. And it was rewarding to me, too. When Nicole talked about just how unhappy she was with her work, I worked up a five-year transitional cash flow plan which provided her time to explore and find a more suitable job while she also made gradual lifestyle changes.

She no longer felt guilty or alarmed when spending her trust fund because she saw how she was using it intentionally, while also taking concrete steps to use less of it over time. She committed to the process, finding meaningful work along the way, and reaching the place where the remainder of her inheritance truly became long-term money.

My experience with Nicole taught me how much I enjoy working with her demographic: Young people, overwhelmed by money, who want to do something meaningful with their lives and want to use their money to help them achieve that goal. And it’s by holding the space for these conversations that, together, we accomplish just that.

MONEY Financial Planning

How Families Can Talk About Money Over Thanksgiving

Family Thanksgiving dinner
Lisa Peardon—Getty Images

Holiday get-togethers are a great time for extended family members to discuss topics like estate planning and eldercare. Here's how to get started.

While most Americans are focused on turkey dinners and Black Friday sales, some financial advisers look to Thanksgiving as a good time for families to bond in an unlikely way: by talking about money.

The holiday spirit and together-time can make it easier for families to discuss important financial matters such as parents’ wills, how family money is managed, retirement plans, charity and eldercare issues, advisers say.

While most parents and adult children believe these discussions are important, few actually have them, according to a study conducted last spring by Fidelity Investments. Family members may avoid broaching these sensitive subjects for fear of offending each other.

That is where advisers can shine.

“When you help different generations communicate and cooperate on topics that may keep them up at night, it bonds them as a family,” says Doug Liptak, an Atlanta-based adviser who facilitates family meetings for his clients. It can also help the adviser gain the next generation’s trust.

Advisers can encourage their clients to call family meetings. They can also offer to facilitate those meetings or suggest useful tips to families that would rather meet privately.

Talking Turkey

Family meetings should not be held over the holiday table after everyone has had a few drinks, but at another convenient time.

“That may mean in the living room the next afternoon, over dinner at a fun restaurant, or at a ski lodge,” says Morristown, N.J.-based adviser Stewart Massey, who has vacationed with clients’ families to help them hold such mini-summits.

It is critical to have an agenda “and be as transparent as possible,” he says. Discussion points should be written out and distributed to family members a few weeks ahead to avoid surprises. Massey also suggests asking clients which topics are taboo.

Liptak likes to meet one-on-one with family members before the meeting. If you can get to know the personalities and viewpoints of each family member and make everyone feel included and understood, you will be more effective, he says.

“You might have two siblings who are terrible with or ambivalent about money, while the youngest is financially savvy, but you can’t give one person more say,” says Liptak.

It also helps to get everyone motivated if the adviser brings in the client’s children or other family members ahead of time to teach them about money management topics, like how to invest, says Karen Ramsey, founder of RamseyInvesting.com, a Web-based advisory service.

Sometimes the clients are the adult children who are afraid to ask how the parents are set up financially or where documents are, she says.

Ramsey says advisers can help by letting clients and their families know that a little discomfort may come with the territory. She will say, and encourages her clients to say: “There’s something we need to talk about and we’ll all be a little uncomfortable, but it’s okay.”

The adviser can kick off a family meeting by asking leading questions, such as “What one thing would you like to accomplish as a family in 2015?” says Liptak. Then the adviser can take notes and continue to facilitate the discussion by making sure everyone gets heard and pulling out prepared charts and data when necessary.

Massey suggests families build some fun around the meetings. His clients often schedule them around the holidays and in the summer, often tucked into a vacation or weekend retreat. It is a good practice to have them regularly, like board meetings, he says.

And if the family has never had a meeting before?

“Don’t start with the heavy stuff,” says Liptak. “It’s a good time to focus on giving and generosity, like charities the family can contribute to.

“You can collaborate on an agenda for later for the bigger issues.”

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