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AARP Article

Dealing With Credit Card and Time-Share Companies

Financial expert Jane Bryant Quinn answers readers’ questions

Q: My husband died this year. Our credit cards are jointly held. Do I have to contact the card companies to have his name taken off the account?

A: You’re named on the cards, so you’re still entitled to use them. But yes, tell the issuers. They’ll find out anyway, during routine checks of Social Security numbers. Your husband is listed as “deceased.” As a result, any account with his name on it will no longer receive a credit score, says John Ulzheimer of CreditSesame.com. By law, lenders are not supposed to pull the credit of a surviving spouse unless there’s evidence of inability or unwillingness to pay, says Gerri Detweiler of Credit.com. Some of them will simply ship you a new card. But others will make you reapply, based on your own income. If they think it’s insufficient, they can raise the card’s interest rate or even refuse to reissue it. To me, that flies in the face of the spirit of a law intended to protect spouses. But what’s new about that?

Q: How do I get rid of a time-share I no longer need and can’t afford?

A: Unwanted time-shares are a glut on the market. Most of them have little or no resale value. Here’s great advice from Brian Rogers of the Timeshare Users Group (TUG):

1. Lower the price of your share to $1 and list it on TUG, Craigslist, eBay and similar sites. To attract buyers, offer to pay the closing costs and perhaps a year of maintenance fees.

2. Write (don’t call) your time-share’s homeowners association, asking it to take the property back. It might, if you give good reasons (poor health, don’t travel anymore, retired and can’t afford the fees). You might have to write several times.

3. Don’t get sucked in by a middleman who promises — for a mere $2,000 to $5,000 — to help you donate the time-share to charity and deduct its “value” on your tax return. Taking a big write-off for a property that can sell for only $1 amounts to fraud.

(Originally published in The AARP Monthly Bulletin.)

AARP Article

‘The Talk’: Your Kids and Your Money

Families should keep all members in the loop, financial planners say

What should you tell your adult children about your money? That’s a question all of us confront. Some people think it’s none of the children’s business. A few tell all. Most of us are probably somewhere in the middle, revealing some things and reserving others, depending on our own feelings about money and whether the facts might cause anyone distress.

I put the disclosure question to members of the National Association of Personal Financial Advisors, who are all fee-only financial planners. They lean strongly toward having “the talk.”

Start by telling the children where to find your will, health care directive, financial records and any life insurance policies (small policies sometimes get lost). If the will leaves them uneven shares, explain your decision. Often, the children will understand. If you can’t bring yourself to discuss their shares in person, at least leave a thoughtful, explanatory letter so that the siblings won’t start blaming each other for secretly currying your favor. Tell them, too, if one of your children has power of attorney or is the executor of your will. “They should hear this from the parents,” says Marc Roland of Dean Roland Russell Family Wealth Management in San Diego. “If they learn only after your death, they might think that Mom and Dad loved one kid over another.”

You might not want to tell your children exactly what you’re worth, in case your assets get depleted later in life. The kids shouldn’t be planning on an inheritance they might not get. On the other hand, upfront disclosure about your intentions can help prevent one sibling’s dishonesty in handling family assets, if that’s a risk, says Daniel Johnson of Parsec Financial Wealth Management in Asheville, N.C.

It becomes more important to talk to the children as you get older. You might become ill or incapacitated and need help with your finances. Children also might wonder, and worry, about whether you have enough income and savings to last for life. If so, it’s a kindness to let them know that you’ll be OK. If not … well, it’s hard to face this yourself, let alone discuss it with a child, says Rob O’Dell of Wheaton Wealth Partners in Naples, Fla. But the sooner they learn about the problem, the better.

In any situation, “the talk” lets you put your wishes into words that your children will understand, says Dan Fitzgerald of Aequus Wealth Management Resources in Chicago. It can even result in useful changes to your plan. I’ve had personal experience with improving a financial decision because my kids were in the loop. Families manage better when you leave no big surprises behind.

(Originally published in The AARP Monthly Bulletin.)

AARP Article

Making Sound End of Life Decisions

A living will and health care proxy can be crucial for you and your loved ones

Most of us have probably said to a relative or friend, “If I’m in a coma and living on tubes, just pull the plug.” But decision-making toward the end of life isn’t that simple. Maybe another few days might bring you around — how long should your family wait? Often, the medical issue isn’t even the “plug.” What if you have advanced Alzheimer’s and a doctor says you need triple-bypass heart surgery? Would you want your children to say yes or no?

If you’re of sound mind when difficult medical questions arise, you can deal with them yourself. You’re always in charge of your own treatment.

But if you’re in a mental haze, even if only temporarily, someone will have to make decisions on your behalf. That “someone” will be glad for all the advance guidance you can give.

Good medical planning starts with a conversation, among family or friends, to help you clarify your thinking about care. How far do you want any treatments to go, and what minimal quality of life are you willing to accept? Free workbooks are now available online to help with the process, says Charles Sabatino, head of the American Bar Association’s Commission on Law and Aging. A few to try: the Conversation Starter Kit, developed by the columnist Ellen Goodman; End-of-Life Decisions from Caring Connections, a national hospice organization; the ABA’s comprehensive Consumer’s Toolkit for Health Care Advance Planning; and AARP’s Caregiving Resource Center.

To turn your preferences into a legal document, set them down in a properly witnessed living will (a type of advance directive). Your doctors are supposed to act in accordance with what you’ve said. AARP provides state-specific forms at aarp.org/advancedirectives. Caring Connections also provides the forms, as does the American Bar Association. In many states, forms can also be found on the website of the attorney general.

Read any online forms carefully. Some deal mainly with the “easy” questions, such as whether you want treatment ended if you’re being kept alive mechanically. The better forms leave space for expressing your personal values. For example, what kinds of handicaps are you willing to live with? Would you want surgery if there’s a high risk of brain damage? Are you okay with life in a nursing home?

It’s especially helpful to say whether you’d want to be fed intravenously if your conditional is terminal. Medically, the answer may be “no.” Dying people lose their ability to process nutrients, according to the National Hospice and Palliative Care Organization. Even providing water might add to discomfort by creating bloat. Well-meaning relatives need to know these things.

If you want to try everything that might keep you alive, it’s also important to say so. Doctors generally won’t provide treatment they think is futile but will go the last mile if that is your written wish and your family insists.

A living will is just the start. You also need to appoint someone as your health care proxy, to stand up for your wishes and make medical decisions that your will doesn’t cover. If you have no close family members, choose a trustworthy friend. You also should sign what’s known as a HIPAA release, giving your advocate access to your medical records.

You need to be especially careful in your planning if you have a degenerative disease, says Martin Shenkman, an attorney in Paramus, N.J., and author of Estate Planning for People with a Chronic Condition or Disability. Living will forms should be modified to include such things as experimental treatments outside the United States, if you want them. Breathing tubes might be fine if they help you maintain an acceptable life at home.

As the disease progresses, your choices might change, which you should also indicate in your living will. Be sure that your health care advocate has a deep understanding of your disease. He or she should live nearby, in case you have an attack and quick decisions are called for.

Religious people should talk with their family about anything in the will that might contravene their beliefs, Shenkman says. For example, some faiths expect doctors to take heroic measures that you might not want, or prohibit organ donation even if it helps advance research into your disease. Warn your family if you’re taking these steps, and be sure that your health care advocate is on your side.

Most end-of-life decisions are made peaceably, without living wills being invoked, says elder-care attorney Gregory French of Cincinnati. They’re invaluable, however, if siblings fight about “what Mom would want” (and the doctors duck).

When you make a regular will for your heirs, your attorney may provide his or her own versions of a living will and health care proxy. Modify them to suit your situation, then sign. As a last act, it’s a classy one.

(Originally published in The AARP Monthly Bulletin.)

AARP Article

Is Marriage a Good Financial Move for Older Couples?

It’s not as clear as you might think

Thousands of same-sex couples flocked to say “I do” as soon as their right to marry became the law of the land. Thousands of others, however, considered their options, yawned and stayed home. The case for marriage isn’t as solid as it often sounds, especially for older couples of any sex. Sometimes it pays to live together in unwedded bliss.

Those who tie the knot summon traditional values and romance — flowers, rings and a whale of a party. Financially, marriage provides access to state and federal spousal and survivor benefits, including Social Security. You’ll get Medicare if you didn’t qualify on your own. Spouses have a right to inherit if their mate dies without a will (but surely, nobody reading this column lacks a will!). You can generally make medical decisions for each other even though you neglected to sign an official health care proxy. You get better tax benefits when inheriting an individual retirement account and might even save some money by filing a joint income-tax return.

Sometimes, however, marriage comes at a cost. Widows and widowers of public employees who receive a pension might lose it if they remarry. That’s also true of certain veterans benefits. Before marrying, check your plan’s rules, taking nothing for granted. If you’re collecting survivor benefits on a late spouse’s Social Security account, you’ll lose them if you remarry before you reach 60 (50 if disabled). You can keep them if you remarry at a later age, but you might become eligible for better benefits on your new spouse’s account at age 62 or older. Ask Social Security what your options are and which choice will produce the higher check.

You don’t have to walk down the aisle to get many of the protections of marriage. A “living together” agreement, legally signed and notarized, provides for the division of property if you break up. A will can provide a partner with financial support. You can designate your partner as your health care advocate, if that’s your choice. Marriage might not even improve your financial security if you both have adequate pensions and Social Security earnings. In some cases, filing jointly might drive your tax bill up.

Here’s another reason not to marry: In many states, spouses are responsible for each other’s medical bills — potentially including bills for long-term care. These laws generally trump any prenuptial agreement. So how is your beloved’s health? Does he or she have long-term care insurance? Unless one of you lost a previous spouse after a long illness, these potential expenses probably aren’t on your radar screen.

State Medicaid programs cover most or all of the nursing-home expenses for people of modest incomes and assets. The spouse who is well keeps the house, car and a certain amount of income and other assets, but might have to surrender property of higher value to help pay the bills. A live-in partner would not be liable but would lose the use of the ill partner’s income and assets, including possibly the home. Meet with an elder-care attorney to see what your options are. To find one locally, try the National Academy of Elder Law Attorneys.

In relationships, feelings ultimately rule. Marriage confers social approval and a sense of security. Living together reflects the trust built up over many companionable years. But it is best to know how that choice affects your finances.

(Originally published in The AARP Monthly Bulletin.)

AARP Article

Risky Pension Bets

You might be making one if you take a lump sum early

Would you rather have a monthly pension guaranteed for life or a lump sum of money now? Before I address that question, let me say that you’re lucky if you have the choice. Private pensions are on the way out, even among old-line companies. In older age, there’s nothing more comfortable than a check in the mail every month.

Normally, you’re not offered the choice of a pension or lump sum until you retire. Rising numbers of companies, however, are extending this offer to former employees who haven’t taken their vested pensions yet. They want to shift the burden of retirement investing over to you.

In fact, they’d like to get rid of you in the next 12 months.

That’s because the size of your pension or lump sum depends, in part, on how long the people in your age group are expected to live. Currently, pension plans are using outdated life expectancy tables. Starting in 2017, however, they’ll have to use newer tables, which show that people are living longer. That will require them to pay you more. Hence the rush.

If you take a lump sum in place of a lifetime monthly pension, you’re making at least one of three risky bets.

Bet 1: You are betting that you can provide yourself (and your spouse) with a guaranteed monthly income for life that’s at least as high as you’d get from your pension. To check this, go to a website such as immediateannuities.com, which shows you what insurance company annuities pay. Enter the lump sum you’re being offered, your age and when you want the payments to start, then choose the type of annuity you want. Compare that payment with your vested monthly pension amount. Odds are, the pension will pay you substantially more, especially if you’re a woman, says Tony Webb, senior economist at the Center for Retirement Research at Boston College.

Bet 2: That your life span will be shorter than average. The lump sum is intended to last your expected lifetime, not your actual lifetime. If you live longer, you’ll need extra money in reserve.

Bet 3: That you can invest the lump sum in stocks and bonds and earn even more than the pension will pay. To check this, look at the “interest rate” in the fine print of your lump sum offer. (If it’s not there, ask the company for it.) Your investments have to grow by at least that percentage annually, after fees, to equal a pension that covers an average lifetime and much more, if you live longer than that.

Lump sums make sense if you’re terminally ill, if you have so much in other savings that you’ll never have to worry about running out of money or if the amount is small. To avoid taxes, roll the money into an individual retirement account.

But to assure yourself of an income for life, without taking stock market risk, pensions are hard to beat.

If the lump sum offer confuses you or leaves you anxious, don’t take it, says Ari Jacobs, senior retirement solutions leader at the benefits consultant Aon Hewitt. “You’ll be in the same spot you were before.”

For more information, go to pensionrights.org. In the search box, type in “Should you take your pension as a lump sum?”

(Originally published in The AARP Monthly Bulletin.)

AARP Article

Personal Financial Planning 101

How to take those first steps in dealing with your money issues

How do you learn about personal finance? This question came from a reader tussling with money issues that were new to her. You can pay the bills and manage a checking account for years without ever having to confront planning and investment issues.

From a distance, those issues look mysterious, even impenetrable. Anyone with math anxiety shies away. But personal finance is not — not! — about math. If it were, I’d be in a different line of work. I’m terrible even at arithmetic (embarrassing but true).

Successful personal planning depends on old-fashioned common sense. That means listing your priorities in life and using super-simple financial strategies to get you there. You don’t even have to think about investing your savings until you’ve figured out the basics. And forget about the complex stuff, like variable annuities. You never, ever have to consider an investment that’s complex. Believe me, it will cost too much and won’t accomplish what the salesperson says. I have relied almost entirely on bank accounts and the low-cost mutual funds called index funds — and I’ve done just fine, thank you very much.

To get started on your financial plan, get your records together. Create separate files for bank statements; insurance policies; the latest reports from your mutual fund company or brokerage firm; statements from your pension, annuity or retirement plan; records of any other source of income you receive; and a list of your debts.

People who have been single for a long time usually have a handle on their money. The problems arise when you’re married and your spouse has always managed the money. Sit down with him (sadly, it’s almost always a him) and go through the files one by one. He can tell you what he’s been up to. If you have consumer debt, what’s the plan for paying it off? How has he been investing the retirement savings, and why? If your spouse isn’t organized himself, now is the time to find out. You especially need to know how much income you’ll have from Social Security and savings if he dies first, and what kind of lifestyle it will support. If he has life insurance, check the annual statement to learn how long the policy will last (not all insurance lasts for life).

If you’re widowed, you can leave his arrangements in place while you figure out what you want to do. While you’re learning, put any life insurance proceeds in the bank. For higher interest rates, check online banks such as Ally and Synchrony, both FDIC insured.

While you’re at it, find out where your money goes. If you don’t have a working budget already, go over your bank statements and bills to see how much money is coming in and going out. This will take time, but without this information it’s not possible to plan. If too much money is going out, well, you know what to do.

(Originally published in The AARP Monthly Bulletin.)

AARP Article

Plan Ahead for Continuing Care

Don’t wait to have the talk about living arrangements in your later years

Where will I live when I start to need help with the daily business of living? I don’t want to wait for my children to open “the conversation,” in carefully casual tones. (“Ahem, Mom, we were wondering …”) I want to start that conversation myself. Their input will influence me, but I want the decision to be mine.

As do we all. But we can blunder into decisions simply by doing nothing. Most of us want to “age in place” with occasional side trips to other nice places. That works fine as long as we can take care of ourselves. When we can’t, however, we’ll start depending on someone else. That’s the decision I’m thinking about. Who will be there to help, and what can I do, in advance, to ease the transition? I don’t want to be stubborn about aging in place if it’s going to create caregiving problems for my children (not to mention medical risks for me).

If you don’t have children, or have children you can’t depend on, the question becomes even more important. Kindly neighbors running errands isn’t a permanent solution.

People hoping to stay in their homes should look at the floor plan as if they were already using a walker. You might have to add a bedroom downstairs with a bathroom whose door can accommodate a wheelchair. A pretty front porch will become a trap if there’s nowhere to build a ramp to the sidewalk. If you don’t want to renovate, perhaps you should simplify — sell the house now and buy a condominium in the same community, to stay close to your friends and social activities.

Whether in a house or a condo, you might eventually need caregiving services, if a spouse or child isn’t constantly available. You’ll also need someone you trust to supervise home-care aides — to be sure they’re always doing right by you. Who is that likely to be? This shouldn’t be a snap decision made under duress. The whole family should plan.

Some older people expect to move in with an adult child. If you have a house to sell, consider using the proceeds to put an addition on the child’s home, to provide each of you with some privacy.

Setting an example

My own parents set an example for me. In their 70s and in reasonably good health, they decided to sell their house and move to a lovely apartment in a continuing care retirement community (CCRC). These communities may provide housekeeping, laundry, meals in a common dining room, fitness centers, new friendships, entertainment and activities. They’re also safe places to live. If you start to fail physically, there’s help with bathing, dressing, medications and so on. A skilled-nursing unit cares for the bedridden or those who develop dementia.

CCRCs relieve adult children of the minutiae of parent care, which is a special gift to kids who live far away. They’re also a serious financial commitment. You usually pay an entry fee — the median currently stands at $211,625, according to the National Investment Center for the Seniors Housing & Care Industry in Annapolis, Md. (Half the CCRCs charge more and half charge less.) Median monthly charges run $2,825.

Costs vary

The cost depends on the particular property and type of contract you choose. Some contracts cover all your health and living expenses. Others provide residential services but charge extra for health care. For checklists on how to evaluate CCRCs, go to the AARP Caregiving Resource Center and CARF.org, the website of CARF International, which accredits these communities. On the CARF site, type “financial performance” into the search box to read the organization’s “Consumer Guide to Understanding Financial Performance & Reporting in CCRCs.” There have been some bankruptcies among CCRCs, so get audited reports for your lawyer or accountant to read.

For people who stay in their homes until the last possible minute, the best option might become a residence for assisted living. There, you live as independently as possible but can get help with basic physical needs such as dressing and bathing. Like CCRCs, they usually provide activities and a social life. There might be a nursing-home wing attached. You can find a directory of local facilities at Assisted Living Federation of America.

The key is to plan ahead. What can you afford? What’s a reasonable way to live? Today I’m OK, but tomorrow? I want to be prepared.

(Originally published in The AARP Monthly Bulletin.)

AARP Article

When to Pay Off Your Mortgage

A low-interest home loan may be worth keeping — or not

My husband and I paid off our mortgage years ago. We planned to burn it while toasting our achievement with champagne. But we couldn’t get our bank to produce a burnable piece of paper. It filed a document with the county, releasing its claim on our home, and that was that.

Burn the mortgage? What kind of 1950s world had we been living in?

Today, some financial planners say that homeowners shouldn’t prepay, even if they can. Interest rates are so low, they say, you can get richer by keeping the loan and investing spare money somewhere else. Fixed 30-year mortgage rates average 4.2 percent, at this writing, and the interest is tax-deductible. Five-year adjustable-rate mortgages run around 3.1 percent. Long-term investors in stock-owning mutual funds hope to earn far greater returns.

Mortgage debt has become much more of a worry than it used to be for people in middle and older age. More than half of the households headed by someone age 55 to 64 carried debt secured by their homes in 2010, according to the Federal Reserve’s latest Survey of Consumer Finances. That’s up 45 percent over the past two decades. Among those 65 to 74, almost 41 percent carried home loans — up 87 percent. Monthly payments get harder to make after your paycheck stops.

So what’s the best decision? Use any spare money to reduce your mortgage debt? Or use it to bulk up your savings, in hopes of retiring with more spendable wealth? The best choice depends on your circumstances. Here are some guidelines to help you decide:

If you’re carrying credit card debt, pay that off first. It saves you much more money than prepaying your mortgage, and interest on consumer debt isn’t tax-deductible.

If you’re working, add your extra dollars to tax-favored retirement accounts such as IRAs or 401(k)s. Traditional accounts give you a current tax deduction, with earnings tax-deferred. Roth accounts let you accumulate your gains tax-free. And you can invest that money for long-term growth. Consider mortgage prepayments only after you’ve reached the maximum retirement contribution.

Don’t prepay your mortgage with a lump sum of money taken out of an individual retirement account or 401(k). You’ll owe income taxes on it, if you hold a traditional account. Withdrawing a large amount not only depletes your savings but might even bounce you into a higher tax bracket. You’d also lose the opportunity for those precious retirement savings to grow tax-deferred.

Don’t leave yourself house-rich but cash-poor. At retirement, you want to be certain that you’ll have enough income to cover your monthly bills. It’s nice to be free of a mortgage when your paycheck stops, but not if you’re so squeezed that you worry about having enough money for food and fuel.

If you sell your house for a substantial profit and downsize, consider buying the new place for cash. Provided, of course, that you have enough cash left over to live on comfortably. If needed, you can usually tap this home equity at a later date by getting a reverse mortgage. Reverse mortgages provide current income and don’t have to be repaid until the last surviving homeowner dies or the house is sold.

Once you’ve paid off any consumer debt and funded your retirement account, it can make financial sense to invest extra savings in the market. But only if you’re going to put a substantial amount of that money into stock-owning mutual funds. Historically, stock funds with dividends reinvested have done much better than the 4.5 percent you might be paying on your mortgage loans. You’ll probably come out ahead.

It’s another story, however, if you’re keeping those savings in certificates of deposit, or in high-quality taxable bonds or bond mutual funds. At today’s interest rates, prepaying the mortgage looks like a better deal.

Prepayments on a 4.5 percent loan give you a 4.5 percent return, guaranteed. (The return on any debt repayment always equals the interest rate.) After-tax yields on quality bonds and CDs are lower than 4.5 percent. Bond fund yields are lower, too. If interest rates rise, you can stop your mortgage prepayments and switch back to bonds.

Finally, here’s the one argument in favor of mortgage prepayments that might trump everything else: gaining peace of mind. There’s nothing like owning your own home, free and clear.

(Originally published in The AARP Monthly Bulletin.)

AARP Article

What a Financial Adviser’s Credentials Mean

Not all designations are the same — or a sign of quality

The invitation comes by mail or phone, or maybe via a poster in the community center. You’re invited to a free “financial survival” seminar, run by someone who claims to specialize in retirement issues. Scrumptious lunch will be served. But what kind of expertise do these advisers actually have?

Most likely, they boast an alphabet soup of credentials — something like CEPC (for certified elder planning consultant) or perhaps CSP or ASP (chartered or accredited senior planner). Unfortunately, the vast majority of these designations are primarily marketing tools with little or no training behind them. The adviser might have purchased the title at the price of a weekend workshop. The designation might even be self-awarded. A study last year by the Consumer Financial Protection Bureau found more than 50 senior specialist titles on the market — a few requiring a year or two of hard work, the rest not much more than pieces of paper. “Alphabet soup does not necessarily make a good senior planner,” says Deena Katz, cofounder of the Florida-based wealth management firm Evensky & Katz and associate professor of financial planning at Texas Tech University.

Advisers go for these titles because they project an image of knowledge and impartiality. Often, however, they mark someone peddling a high-commission product who may be misleading you about the costs and risks. Variable and fixed-indexed annuities are the “senior” investments most likely to be mis-sold, according to a 2012 survey of financial planners.

When looking for retirement advice, you don’t need a “senior specialist” at all. You can get the answers you need from a certified financial planner (CFP) who trains in all aspects of financial counsel. Ideally, you want a fee-only CFP, who sells no products and charges only for advice. Another good set of initials is RIA — registered investment adviser.

A few of the senior designations do have rigorous academic work behind them, says Wade Pfau, a professor of retirement income at the American College in Bryn Mawr, Pa., which trains financial professionals. He thinks you can feel comfortable if your adviser’s business card says that he or she is a certified retirement counselor (CRC), retirement income certified professional (RICP) or retirement management analyst (RMA). You’re also good with a chartered advisor for senior living (CASL), whose focus includes broader issues such as health care and estate planning. The College for Financial Planning, which originated the CFP, offers the mark chartered retirement planning counselor (CRPC).

Even these titles, however, are frosting on the cake. You should be fine with a fee-only CFP. Any additional designations just deepen the knowledge that he or she has already acquired.

More than half the states have a law on the books restricting the use of self-serving or misleading senior designations. But the CFPB study found them largely ineffective. Consumers don’t understand the various designations, many of which sound alike. There’s no central information spot, no rating system for designations and little attention paid to the investment claims dished out with lunch.

You can find bare-bones information on many of these credentials, including the mere “paper” ones, on the website of the Financial Industry Regulatory Authority; type “professional designations” into the search box. FINRA doesn’t evaluate their quality but gives you some minimal information.

Here are three things to check:

  • Is the program accredited by a national or regional nonprofit agency? This isn’t a guarantee of expertise but helps you make the first cut. Many “accredited” designations get their rating only from the organization that promotes them.
  • Is genuine academic work required, with many hours of classwork? A designation that you can “earn” in a weekend implies a level of knowledge that the adviser simply doesn’t have.
  • Do the advisers have to pass a real test to get the title? That means an in-person, proctored, closed-book exam of considerable length. It doesn’t count if the adviser takes the test online with reference materials at hand. Many designations require no testing at all.

You probably don’t know it, but salespeople have a contemptuous name for people who attend their free lunches and fail to buy their products. They call you a “plate licker.” I say, lick the plate and run. On the way out, you can award the “adviser” a designation of your own: BS.

(Originally appeared in The AARP Monthly Bulletin.)

AARP Article

Securing Income for Life

A bucket investment strategy may help savings last longer

We all know — or think we know — that the older we get, the more our money should be kept safe. We gradually hold less in stocks and more in bonds.

But is your caution risking your future? Yes, says Michael Kitces, director of research for the Pinnacle Advisory Group in Columbia, Md. On average, we’re living longer and not earning much on quality bonds and bank CDs, he says. If we huddle around investments that cannot grow, the risk rises that we’ll run out of money.

What if we reversed the conventional rule and gradually held more money in stocks, rather than less, after we retired?

When I first heard that idea, I said, “Nuts. High risk.” But as I read the new research, I changed my mind. It’s actually an approach that could make your retirement savings last longer and, potentially, leave more for heirs.

Lower your risk

Think of it as a “three-bucket” strategy, Kitces says.

In one bucket you hold cash to help cover expenses for the current year. That’s grocery money. Keep enough to pay bills not covered by other income, such as Social Security, a pension or part-time work.

In the second bucket, you own short- and intermediate-term bond mutual funds, with dividends reinvested. You gradually add to your bonds during your preretirement and immediate post retirement years. By age 60 or 65, these first two buckets might hold 70 percent of your retirement investments. Every year, you take money from the bond bucket to replenish your cash. If interest rates rise, you’ll be using your dividends to buy higher-rate bonds, which will partly offset your market losses. (Prices of existing bonds fall when interest rates rise.)

The remaining 30 percent of your money goes into the third bucket, invested in mutual funds that own U.S. and international stocks. You don’t expect to touch these stock funds for 10 to 15 years.

As time passes and you sell bond shares to pay your expenses, that bucket shrinks. The percentage of savings that you hold in stocks will gradually rise. You won’t have to sell when the market drops. In fact, your dividends will be buying you more stocks on the cheap. By the time your bond bucket runs low, your bucket of stocks will have grown in value, maybe by a lot. That’s money for your later years.

When withdrawing cash from your bond funds, follow the 4 percent rule for making money last for life. Start with an amount equal to 4 percent a year of all your savings (counting both stocks and bonds) and raise it by the inflation rate in each subsequent year. For example, say you have $100,000 — $70,000 in bonds, $30,000 in stocks. Your first withdrawal would be $4,000, and would rise from there. (If you take more than 4 percent, your savings might run out too soon.)

If your investments are mainly in a 401(k) or individual retirement account, it’s easy to switch between stocks and bonds. If not, you’ll have to consider taxes when you make a change or use new savings to bring the stock or bond bucket to the right size.

What makes this three-bucket strategy low-risk? First, your bonds secure your grocery money for at least 15 years. Second, if the market crashes when you first retire, you have only a modest amount in stocks and can afford to wait for a recovery. (People who sold after the 2008 crash came to regret it.)

Focus on growth

Wyatt Lee, portfolio manager for the mutual fund group T. Rowe Price, agrees that relying on “safe” investments won’t work. “You need a substantial amount of equities to maintain your income for life,” he says. Assuming a 30-year retirement, you’d spend half your money in the first 15 years and half in the second 15 years. The later money should be invested for growth.

Lee takes a more familiar approach — reduce your exposure to stocks as you age. But he starts out high. At age 65, he advises a stock fund allocation of 55 percent. Your 4 percent withdrawals would come from both stocks and bonds. At 75, you’d still have 42 percent in stocks. If a bear market hit just when you retired, you’d take a larger loss than with Kitces’ approach. You’d gain it back but might be more tempted to sell.

Follow Kitces or Lee. Either way, you can’t give up on stocks.

(Originally published by The AARP Monthly Bulletin.)