Financial Awakenings

What's Your Reason for Watching "The Apprentice"?

My favorite TV show theme song is The Apprentice’s “Money, Money, Money.” On rare occasions I have even been known to join my five-year old son, Davin, in jiving to it. Being the entrepreneur that I am, I enjoy watching the show to see the creativity and management decisions made by the contestants as they are given their various challenges.

A recent survey by Pew Research Center, reported by USA Today, suggests that many younger Americans watch shows like The Apprentice for a different reason. It feeds their dreams of becoming rich and famous.

Now, I have no problem with someone desiring to be rich or famous. Youthful dreams are important. Still, having a dream that requires a lot of money, as many do, is completely different from having a dream that’s limited to having a lot of money.

The Pew survey found that 81% of those aged 18 to 25 have a number-one goal of being rich. The second most important life goal for 51% of the respondents was to become famous.

The interesting twist is that today’s youth don’t seem to want to become famous as entertainers, writers, actors, etc. Instead, they want to become famous for being themselves, as modeled by many of the winners of reality shows.

A 2005 survey done by Higher Education Research Institute reported similar results, with 75% of college freshmen saying it was “very important” or “essential” to be rich. In 1967, only 42% said being rich was essential. It’s not surprising to note that, in 1967, 86% of college freshmen said it was “very important” or “essential” to “develop a meaningful philosophy of life.” In 2005, only 45% said the same.

The fact that eight out of ten young adults want nothing more in life than to be rich is troubling to me. I was under an illusion that the young people of today were actually more altruistic than when I was a teenager.

It is some comfort to realize that my own views on wealth and riches have changed over the years. Had I been one of those freshmen polled in 1967, I would been among those saying that being rich was essential.

Thirty years later, I see things differently. First, “rich” is relative and elusive. I’ve discovered that once a person earns more than $50,000 a year, rich is more a condition of the mind than the net worth statement.

Second, in my career I’ve worked with some very rich people and some very famous people. They have helped me see that being rich or famous offers its own unique challenges. I’ve truly come to value the previously unappreciated benefits of being upper middle class and unknown. One of those benefits is that I can be loved and accepted for who I am, rather than what I have or what I could potentially do for someone else. The rich and famous don’t have that luxury.

I wrote this on a plane, bound for a meeting in Florida. Sitting next to me was a 63-year-old retired CPA, a man well acquainted with money matters during his career. He told me what a privilege it was for him and his wife to live in the same town with their grandchildren. He summed it up by saying, “It doesn’t get any better in life than having good relationships with family and friends. That’s really what life is all about.”

If today’s 18-25 year olds are polled again when they are 63, I’m guessing at least 81% of them will agree. The older we get, the more we come to realize that it’s not about the money.

The Inside Scoop on Westhills Village - July 25th 11 AM MDT

Westhills Village is one of the most popular retirement communities in the Upper Midwest. On July 25, you can find out why and learn whether becoming a resident of Westhills makes sense for you. Patsy True from Westhills will be our guest and cover all of the costs and coverages associated with becoming a resident. Find out if Westhills Village is an alternative to maintaining an expensive long term care policy, how you can deduct your intial membership fee, and more.

Make your reservation today to attend this informative workshop, open only to KFG clients. If you can't attend in person, the workshop will be broadcast live via our webinar capabilities. It will also be recorded and available 24/7 on the KFG Client Only section of this website.

The workshop will be held on July 25 at 11 AM MDT.  You can register online now by clicking here or calling 605-343-1400.

Unraveling The Mysteries of Long Term Care Insurance - July 25th - 1 PM MDT

Are you confused about long term health care?  You won't be after July 25, if you attend this hard-hitting workshop. Mark Joneson, CFP, will answer questions like:

• When is LTC necessary and when is it not? 
• Will the policy really pay? 
• What are the chances of ending up in an assisted living center or nursing home? 
• What is the average length of stay?
• Do I buy a policy with an unlimited term or narrow the coverage to two years?

Make your reservation today to attend this informative workshop, open only to KFG clients. If you can't attend in person, the workshop will be broadcast live via our webinar capabilities. It will also be recorded and available 24/7 on the KFG Client Only section of this website. 

The workshop will be held on July 25 at 1 PM MDT. You can register online now by clicking here or calling 605-343-1400.

Your Golden Years - A Pipe Dream?

CLICK HERE TO LISTEN TO RICK'S COLUMN: Download a_pipe_dream.mp3

When it comes to retirement, average Americans are suffering a major case of denial. Here's the difference between the dream and the reality:

• Dream: Two-thirds are relatively confident they will have enough money saved to provide for a comfortable retirement.
• Reality: The average American approaching retirement has saved a paltry $50,000. Fewer than 25% of those turning 65 have more than $250,000 in retirement plans.
• Dream: Most believe they can retire comfortably on half their current income.
• Reality: Two-thirds of retirees say that they need 70 percent or more of pre-retirement income to make ends meet.
• Dream: Two-thirds say they will have enough income in retirement to equal or exceed their pre-retirement years.
• Reality: The same two-thirds have not calculated how much money they need to have saved to generate enough income to equal their current standard of living.
• Dream: The majority of Americans believe they will live for 30 years in retirement.
• Reality: For most, retirement savings will run out in seven years.

This information came from the 16th Annual Retirement Confidence Survey of 1,200 individuals, done last January by the Employee Benefit Research Institute and Mathew Greenwald & Associates.

Financial planners know that providing adequately for retirement means having an amount equal to at least 15 times your projected annual retirement income. They also know it's foolish to think you will live on much less than your current pre-retirement income. A couple with a joint income of $50,000 a year, then, will need to have saved $750,000 by retirement age in order to replace that income for another 30 years.

There's more bad news. Additional research done by EBRI indicates that a person who is currently 55 years old will need to save an additional $210,000, just to pay for out-of-pocket medical costs and supplemental Medicare insurance premiums. That's a very scary number when you consider that 90% of Americans haven't even saved over $200,000 for all retirement expenses.

Adding the $210,000 needed for medical costs to the $750,000 needed for retirement income, we get a retirement need of almost $1,000,000. And that's in today's dollars.

What can average Americans—those who have only saved about $50,000—do to avoid a retirement disaster? Probably not much. Many boomers are quickly approaching retirement and have almost run out of time to turn their plight around.

The first step will be to come out of denial and take action. That is far easier said than done. Most people are just not ready to hear the truth and take the painful steps necessary to cut back their lifestyle today so they can have enough tomorrow.

The second step is to run, not walk, to a financial advisor to get a calculation of how much money you need to save to replace your income.

The third step is to scale back your current standard of living until you can fully fund what you need to save for retirement. For most people, this isn't going to be a walk in the park. It may mean taking drastic measures like downsizing your home, your car, and your lifestyle in general.

Because it will be painful, only a small percentage of Americans will be willing to do what is needed. Here is where the advice of a financial planner can be invaluable, especially if you can find one who uses the integrated approach described in my co-authored book, Conscious Finance. This can help you understand why you've been unable to save in the first place.

Above all, if you are among the majority who are ill-prepared for retirement, it's time to begin doing something different. This is one area where you definitely want to be above average.

Dr. Gordon's "Dirty Dozen"

CLICK HERE TO LISTEN TO RICK'S COLUMN: Download the_dirty_dozen.mp3

Part of my job as a financial planner is to help clients change behaviors that aren't serving them well. I've tried to do that in many ways. Some work, and some don't.

The late Thomas Gordon, author of Parent Effectiveness Training and Leader Effectiveness Training, created a list of common methods we use to try to influence one another. Most of these are so ineffective that Ted Klontz, Ph.D. renamed them Gordon's "dirty dozen." They are:

1. Ordering, directing, commanding. Nike ads notwithstanding, "Just do it!" isn't a very good motivator. Neither (as most parents have learned) is "Don't do that!"

2. Warning or threatening. "You're asking for trouble if you keep doing that." All this usually does is dare listeners to prove you wrong by continuing exactly what they are doing.

3. Giving advice, making suggestions, providing solutions. "If I were you, I would . . ." "Why don't you do this?" It can be helpful to offer new information about options someone may not have considered. Going beyond that and telling them what they "should" do is usurping their power to make their own choices.

4. Persuading with logic, arguing, lecturing. This is the one I have the most trouble with and that I still find myself doing unconsciously. I’ve learned that when someone can't seem to make a decision, quite often the problem is more emotional than logical. The person simply can't take in a logical argument until he or she has dealt with the emotion that is blocking the decision.

5. Moralizing, preaching, telling them their duty. To understand why this doesn't work, just think about how you react when someone tells you what you "should" do. Motivation by guilt is manipulation, not leadership.

6. Judging, criticizing, disagreeing, blaming. Telling people they are wrong, selfish, or caused their own problem doesn't help them change; it merely makes them feel stupid or defensive.

7. Agreeing, approving, praising. It might seem odd that this is considered a negative motivator. Yet it can be. One reason this doesn't work is that it tends to take away the person's power to decide whether his actions or decisions are the right ones for him. It also can be received as condescending.

8. Shaming, ridiculing, name-calling. This method is not much different from number six, except that it is bad manners as well as poor communication.

9. Interpreting, analyzing. From the outside, you aren't in a position to know what someone really means or what the real problem might be. You might offer possibilities for the person to consider, but phrasing them as conclusions or judgments is not helpful.

10. Reassuring, sympathizing, consoling. Again, it may seem odd that this approach is not helpful. Yet telling people, "Things aren't really that bad," or "You'll be fine," can minimize what they are going through. It also can encourage them to feel like victims and thus discourage them from actively seeking solutions to their difficulties.

11. Questioning, probing. The word "Why?" seldom helps people change. If they knew why they were doing what they were doing, they could probably take steps to do something different.

12. Withdrawing, humoring, distracting, changing the subject. This approach merely helps someone avoid or postpone a problem.

After reading this, your response may be similar to my first reaction to Dr. Gordon's work. “So what’s left?” The answer truly is, “not much.” His approach was based on a simple but powerful concept—effective listening. When people feel heard, they are often quite capable of talking their way through to their own solutions.

I have found Dr. Gordon's work extremely valuable. For more information about his approach, you might check out www.gordontraining.com.

The Difference Between Dreams and Schemes

Click to listen to Rick's weekly Column: Download dreams_and_schemes.mp3

Is your financial planner’s job to help you do what you want to do—or to talk you out of it?  The short answer to that question is, “Yes.” Or possibly, “It depends.”

As I’ve written before, probably often enough so people are tired of reading it, if you consult a fee-only financial planner you are a client rather than a customer. The planner’s loyalty and fiduciary responsibility is to you rather than to a company selling investments, and the planner’s job is to act in your best interest.

There are two aspects to that responsibility. One is to find ways to help you do what you want to do. The second is to steer you away from actions that would jeopardize your financial success or security. In doing both of those, however, a wise planner will be careful not to let his or her own biases and beliefs get in the way of your goals.

Suppose you and your spouse came to me with your long-held dream of living on a piece of land out in the country. You want the privacy, the views, the chance to have horses, and the peace and quiet. You realize that buying some land and building your dream house on it will be a major project. You’ve decided you can do it if you use half of the money you have saved for retirement. That will pay for about half the cost of the property and building, which means you can comfortably afford a mortgage on the rest. You also figure that the value of the property will increase enough over the years to make it an asset rather than a liability by the time you retire.

Personally, I’d like living in the country about as much as I’d like eating cheap frozen dinners every day. I’d hate the commuting, the need to plow my own driveway, and the chances of being snowed in for days with no electricity. I like to see horses at the rodeo, but I have no desire whatsoever to own one. For me, a place in the country would be a nightmare rather than a dream.

As your financial planner, though, I’d better keep those prejudices out of your affairs. Certainly, it would be my job to make sure you looked at this plan carefully before you leaped into it. I would have an obligation to give you my educated opinion about whether the property would actually increase in value or whether you were using overly optimistic figures. It would be my job to help you examine your idea with the cold, clear light of reality. Unless that examination found some major fallacies in your plan, though, I would be violating my responsibility to act in your best interest if I tried to talk you out of doing what you wanted to do.

On the other hand, if you came to me wanting to use half of your investment portfolio to buy stock in a new company drilling for oil in Antarctica, I would be violating my responsibility if I helped you do it. Letting you put your assets into such a high-risk scheme would clearly not be in your best interests, no matter how excited you were about the idea.

When you seek the advice of a financial planner, you are looking for just that—trained, professional advice. You don’t want someone who will passively stand by while you walk off a financial cliff. Neither do you want someone who tries to make you conform to his or her ideals instead of helping you work toward your own dreams.

How Much Happiness is in Your Financial Plan?

CLICK HERE TO LISTEN TO RICK'S COLUMN: Download happines_and_money.mp3

A Wall Street Journal article on March 18, 2006, highlighted the work of several researchers, all attempting to quantify what produces happiness. It was of interest to me, since I view financial planning as helping clients use their resources to bring greater peace and joy into their lives. Here were some of the findings:

The primary happiness indicator of senior citizens is not their income, but their level of physical activity. Not even the security of a big retirement account will make you happy if you aren’t healthy enough to do things you enjoy. Edward McCauley, a kinesiology professor at the University of Illinois, found that "sedentary seniors get happier after embarking on exercise programs: five years later, self-esteem and confidence remained higher." The more often grandma visits the gym, the happier she is going to be.

You are more likely to be happy if you are a Republican, earn over $100,000 a year, and attend religious services. This was the finding of a survey of 3,015 Americans completed by Paul Taylor of the Pew Research Center. Don't look for the DNC to cite this in the upcoming elections.

But maybe this isn't the real story. A survey reported in Time magazine in January 2005 found there is no significant increase in happiness for those Americans earning over $50,000. This would seem to contradict Mr. Taylor’s findings. However, the Time survey said nothing about the participants’ political or religious affiliations. Maybe the real story here is that it takes an extra $50,000 a year for a religious Republican to be as happy as a non-religious Independent or Democrat who earns $50,000.

Dreaming about what you want to buy is far more satisfying than owning it. Internalizing this principle could save everyone a lot of money. Brian Knutson, professor of psychology and neuroscience at Stanford University, studied the differences in oxygen flow in the brain as subjects first anticipated receiving something and when they actually owned it. He found that people get more happiness from the anticipation of a purchase than the actual ownership of the item. Don't look for the retail sector to embrace this principle any time soon.

If you have a bad marriage, are single, or are not having a lot of sex, you need to earn an extra $100,000 a year to be as happy as someone who is in a great marriage. David Blanchflower, a Dartmouth College economics professor, surveyed thousands of people in 35 different countries in a quest to put a dollar value on a good relationship. He found a solid relationship was worth $100,000. Interestingly, the couple who has sex once a month needs to be earning $50,000 more a year to equal the happiness level of those couples having sex once a week. Blanchflower is working with divorce lawyers who are interested in using his research in attempting to quantify "loss of happiness" and "loss of sex" damages in a failed marriage. That is something to watch!

Based on these studies, and the finding from our research on happiness and money done at the Klontz-Kahler Institute, the best financial plan would provide for the following factors:

· An annual income of $50,000

· A healthy, monogamous relationship with couple vacations, retreats, counseling, etc.

· A weekly support group of some type: church attendance, 12-Step group, etc.

· Daily meditation or prayer

· High level of physical activity

· Less focus on procuring items and more focus on renting, borrowing, and buying pre-owned.

If your financial plan doesn't have these items in it, maybe it's time to take a serious look at what really will bring you happiness.

Financial Independence--Expanding Your Choices

LISTEN TO RICK'S COLUMN WEEKLY:  Download financial_independence.mp3

In last week’s column, I talked about defining retirement as doing what you want to do, when you want to do it, with the people you want to be with. When you define it that way, “retirement” becomes something you can begin to do long before you reach what we think of as retirement age.

As a follow-up to that idea, here’s a question for you. What would you be if you were financially independent?

Notice, I did not ask you what you would do or what you would buy, but what you would “be”. How would you spend your time? How would you like to like to “show up” in the world?

Would you choose to have a job? If so, what would that job be? Would you earn money (even though you didn’t need any money) or volunteer your time? Would you focus on being with your family or friends? How would that time you spend with them look?

You could spend your time being in the moment, just having fun. What does having fun look like to you? It might be anything: sleeping late, watching old movies on television, hiking, playing golf, traveling—the list is endless.

You might decide to change jobs. You might go back to school to work toward a career in a completely new field. You might get involved in local politics or volunteer at a charity you support. Maybe you’d spend time on hobbies you’ve always wanted to try or take classes in anything from fly-fishing to flying just because they interested you.

With your new wealth, you might hire someone to do basic chores like house cleaning or yard work, to free you to be what you really wanted. For example, perhaps hiring someone else to do tasks you don’t like would free you to spend more time being healthy and in good physical condition. You might find a personal trainer to help you develop a health and fitness routine.

You may want to be more spiritual, spending more time in study, meditation, prayer, involved in your church, or at spiritual retreats. Maybe you’d spend your time learning how to be a better spouse or a better friend. The range of choices is vast; think about what you’d put on your own list.

If you read last week’s column, you probably know what’s coming next. How might you incorporate some of those choices into your life now, even though you are not financially independent?

If you’re working at a job you dislike or one that doesn’t interest you any more, changing careers is certainly an option. People do it all the time. I’m not suggesting you go in tomorrow morning and tell your boss you’re quitting. But you can start working on a plan to make that career move in the next six months, year, or even five years.

If your wish list includes things like spending more time with family, volunteering, or running for city council, maybe it’s time to take a closer look at your priorities. Are they supported by the ways you spend your time now? Maybe you still belong to an organization that no longer interests you. Maybe you spend your weekends keeping up your house and yard to someone else’s standards. Consider what you might give up or get rid of instead of just squeezing more commitments into an already crowded schedule.

One of the biggest advantages of being financially independent is that it expands your choices. Consider turning that around. Start with expanding your choices, and you may just be able to live more richly and independently.

Why Wait for Retirement?

CLICK HERE TO LISTEN TO RICK'S WEEKLY COLUMN: Download why_wait_for_retirement.mp3

When you think of the word “retirement,” what is the first thought that comes to mind?

Here are some typical responses to that question: To some, it means that you no longer work at a job you've tolerated or even hated. It is what you do after you gave the same company 20, 30, or even 40 years of service and then quit at age 65. It is that period in your life after you receive your gold watch and your pension, and you no longer work.

In my parents’ generation, retirement often meant the age at which you were forced to stop working whether you loved your job, were exceptional at it, or hated it. That age was usually 65, but for some professions it was (and still is for pilots) age 60. For others, retirement means “quitting” or doing nothing, patiently waiting for the end of life.

Some baby boomers will tell you that retirement is a non-event because they don't ever plan to retire. That attitude is probably a good thing, based on the fact that the boomers haven't saved for retirement any better than their parents did, and, unlike their parents, won't be able to count on social security and Medicare to bail them out.

I have another definition of retirement. I define it as the period in your life when you get to do what you want to do, when you want to do it, with the people you want to be with. By that definition, I am retired, my kids are retired (and will probably come out of retirement at around age 14) and my wife is anxiously awaiting retirement (probably around the time the kids go to college).

So it probably makes sense to you that retirement is a word I am struggling to eliminate from my vocabulary. I say struggling, because for a financial planner, it's a tough word to eliminate. We constantly refer to “retirement plans,” “retirement projections,” and “retirement age.”

In the place of retirement, I am attempting to use words like financial independence, authenticity, and integrity. If retirement means doing what I want, when I want, with whom I want, to me we are talking about a life that is lived authentically and in integrity. When my kids ask me what those two big words mean I tell them, “It is when your insides match your outsides.” Granted, that’s a bit simplistic, but easy enough for a five-year old and a nine-year-old to understand.

Age has nothing to do with having a job that gets you out of bed happily in the morning and leaves you wondering what part of it is work and what part is play. By that definition, it took me until age 50 to “retire.” Julie just “retired” at age 34, when she accepted a position with my firm as a junior financial planner. Dee, our company cook, is happily “retired” fixing gourmet meals for our clients. How do I know they are retired? It isn't because they aren't receiving paychecks. It is because both of them love what they are doing so much, it doesn't feel like work to them.

If retirement means doing a job you love, then why not start making plans to “retire” as soon as possible? Think about what it would mean for you to do what you want, when and with whom you choose. Then start thinking about how you could incorporate more of that into the life you live now. When you define it this way, the idea of “retirement” becomes joyful and fulfilling. It can be a beginning rather than an end.

Great Food! Oh, and the Workshop was Good, Too

From Kathleen Fox, co-author of Conscious Finance

I participated in the Feb. 22 Wealth Builders workshop, and I'm glad I did. That’s not just because of the food, either, though the breakfast alone was worth showing up for.

After we had enjoyed Dee’s wonderful culinary creations, we settled in with second cups or tea or coffee to listen to attorney Tom Simmons tell us about South Dakota’s new laws on Domestic Asset Protection Trusts. This is a complex topic that could have been drier than yesterday’s scones without clotted cream. However, he did an excellent job of presenting it clearly and making it interesting.

During the second half of the workshop, Rick and Laura Longville led us through some written exercises on life aspirations and goals. I’ve done these before, but going through them again was valuable and gave me some new and useful insights. This process is one of those things we should all probably do annually. When somebody will guide you through it and feed you well at the same time, that’s too good an opportunity to pass up.

This workshop is being offered again on March 29, over lunch rather than breakfast.  If you have a chance to participate, it would be well worth your time.