Kitces.com - Advancing Knowledge in Financial Planning

Worried About Spending? Focus On What REALLY Matters! (And It’s Not The Small Stuff!)

December 1, 2010 06:18 pm 10 Comments CATEGORY: General Planning

Social Image Average Consumer Annual Expenditure

The personal finance space has no shortage of tips to managing your spending, from bag lunches in lieu of eating out at work to home-brewed coffee instead of the morning Starbucks routine. Yet the reality seems to be that in so many situations, we dig ourselves a tremendous spending hole because of our big purchases, and then worry tremendously about the small stuff trying to make up the difference. If you really want to change your financial reality for the better, though, it's the big stuff you really need to focus on - where you live, and what you drive.

In-Plan Roth 401(k) Rollover Conversion Guidance Issued by IRS

November 30, 2010 03:38 pm 4 Comments CATEGORY: Taxes

The Small Business Jobs Act of 2010, passed earlier this year on September 27th, opened up the possibility of completing an in-plan Roth conversion rollover from a 401(k) or 403(b) to a Roth 401(k) or Roth 403(b). However, the rules are not quite as simple and flexible as typical Roth conversions, due to the fact that the account is still first and foremost a qualified employer retirement plan. Fortunately, the IRS has issued guidance to help individuals understand the details of the new rules - which is fortunate, because there are some significant differences that could otherwise catch clients (and their planners) unaware!

Secular Bull and Bear Market Cycles – Planning Implications

November 29, 2010 06:31 pm 1 Comment CATEGORY: Investments

Although financial planners often rely on long-term averages when making capital market assumptions - whether to design a portfolio or create a retirement plan - there is a growing body of research that makes it clear: not all starting points are the same. Even over time horizons as long as 20-30 years or more, investing in high valuation environments tends to lead to below-average returns (and a notable dearth of results significantly above average), and the reverse is true if valuation is low when the investor begins. While many have written about the investment implications of market valuation, my interest is broader - how would it change our financial planning recommendations, beyond just the portfolio composition?

Key to Financial WellBeing: Money Helps, But It Depends How You Spend It

November 26, 2010 05:39 pm 1 Comment CATEGORY: General Planning

As sayings go, money can't buy love, and the love of money is the root of all evil. They also say that money can't buy happiness, but some interesting recent research shows that actually, financial wealth levels really do affect happiness. However, it only helps if you spend it on the "right" things, and act up front to head off your irrationality.
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What Are The Assumptions That REALLY Drive Your Client’s Plan?

November 24, 2010 04:26 pm 2 Comments CATEGORY: General Planning

Any form of long-term projection is built on the back of assumptions. In the case of a retirement plan, there are several key factors, including portfolio composition (and assumed growth rates), inflation rates, savings, retirement spending, time horizon until retirement, and the duration of retirement. Yet the reality is that not all of these assumptions have equal impact; some are far more dramatic drivers of plan results than others, and which are most important varies by the client situation. In other words, there are assumptions, and there are ASSUMPTIONS! Have you ever examined the sensitivity of your client's financial plan to the assumptions they're using, so you can determine which factors are the most important to focus upon?

Clients Won’t Trust (A Plan) If They Can’t Take It For A Test Drive

November 23, 2010 03:50 pm 6 Comments CATEGORY: General Planning

In today's skeptical and cynical world, we believe little that we read or are told until we have a chance to try it for ourselves. The car looks great in the magazine, but we have to take it for a test drive. The TV is supposed to be great, but we want to see how the image looks on the screen in the store before we buy. Yet as planners when we deliver financial plans to our clients, we don't just fail to give them a test drive; we actually make it onerous to even try!