Are You Financially Playing More Offense or More Defense?

Take any sport and consider playing strategies and defense always seems to win in the end. Let’s take the NBA Playoffs for example. The highest scoring player of a game is held in high esteem, even paid the most money on the team. Crowds cheer when points are posted on the scoreboard. The high scorer gets to do the team interview at the end of game. But nobody posts defensive plays, no system keeps track of how many STOPS a player makes so the opponent cannot score, so why not? I believe the answer is the player that puts up big points is what sells tickets!

Now reference your 401(k) funds: are you on the offense, trying to score the best rate-of-return? Or, maybe you are playing defense and trying not to lose any money? A simple way to find out is to ask yourself, “Am I going for the best return I can get?” If so, you are on the offense. But history of all sports and all battles in war shows that a good defense wins most of the time, so why aren’t we all playing defense? I believe that defensive savings and investing isn’t as exciting as trying to get a higher rate of return, and doesn’t “sell tickets” so to speak.

So think of your mutual fund manager: Doesn’t he or she emphasize investments that have posted larger rates-of- returns to get you attention? If that is what you want, the best return, you buy into this, meaning you become the “sale.”

Defense definitely wins more games than offense. With a strong defense you shut down a hot offense, that is why you win most often. So when you invest your money, why not switch away from the mentality of always trying  to get the highest returns and play defense? Try playing defense with a small portion of your investment money. Go for the solid, never-lose investments so you don’t lose big and have to gain back better-than-average returns, especially if you have no time left in the “game” to recoup such losses.

Can you imagine how much more money you would have if you just had the money back that has been lost? I’m guessing it’s a huge number! Please consider going on defense with your investments and keep track of what happens. You may find that defense wins most often, just like in any sport. For more help on this subject email me:

How to Avoid Putting “Needs” Money at Risk as You Approach Retirement

As you prepare for retirement, you will undoubtedly want to accumulate the maximum amount of money and you will be tempted to use high-risk investments to do so.  Your reasoning is you have many years before you will need this retirement income, so even if the market were to drop substantially you have time for the market to return to higher and higher gains.  But this simply isn’t so.

The problem with this thinking is that things will be different as you approach the final ten years before retirement and just because another 10 to 15 years of work seems like a long time to you, it isn’t a long time in terms of the market. If it takes a downturn, 10 years will not be enough time to recoup losses.

To combat the temptation to take unnecessary risks as you get older, I caution you to change from an “accumulation” way of thinking to a “conservation of assets” way of thinking a good 10 years before you plan to retire.  It can be hard to change to a conservative way of thinking when you have been in the accumulation stage for so long — in my experience people work and save and put money at risk to get the highest possible return, all the while checking the market weekly for 40 years as they form a habit of watching. But this habit keeps people from changing as they grow older.

For example, if you see the leaves on trees drop and snow on the ground, you prepare for winter.  But old habits of investing in high-growth assets don’t show you strong enough signs like “snow on the ground” so you keep on doing the same thing you have done for years. But winter for some of us is coming, so now be the time to prepare for it by switching from accumulating money to beginning to conserve it.

Here is a graph that represents enough money to fulfill your basic needs at retirement.  Once these are covered with investments that are safe, then  “wants” money to put at risk to keep ahead of inflation on the “needs” money and provide income much later in retirement.

Wants are just that, WANTS, not must haves. If you continue to stay fully invested in market-risk assets with all of your money as you approach and enter retirement age, chances are the downturns will destroy your ability provide the needs you will have for your entire life.   

It’s always wise to change investing habits with the seasons of your life.  Be alert and put it on the calendar so you change the way you invest and save your money about 10 years before retirement. Pulling out some of the crop by harvesting the seed and storing it away to protect it is always safer than continuing to harvest and replant all of your seed every year. Doing so puts everything you’ve worked so hard for at terrible risk. Okay, so you won’t make as much if you harvest some of the crop and put it away for safe keeping as  you would if you kept reinvesting, but do you want to take those kinds of chances this late in the game? I don’t.

Make sure NEEDS are taken care of so you know how much assets you have left to fulfill WANTS, then take chances with that money.  Contact me with comments or questions:

Tax Risks You Must Consider on Your Retirement


In the last few posts, I have been discussing the five risks to your retirement, which include inflation, market risk, loss of control, and income depletion. The last risk, taxes, have the biggest impact on your retirement but is one that many people don’t realize is affecting their retirement as much as it is.

First, consider that you have the ability to defer taxes by depositing money into a 401(k) or similar account.  If you were fortunate to accumulate $320,000 at retirement, you will have to subtract taxes on that amount at the time you start to withdraw.  When people are sold the idea of contributing to a 401(k), the deferred taxes benefit is always what is touted, extolling the virtues of not having to pay taxes now, but later in retirement, when supposedly you will be in a “lower tax bracket” (big misnomer here).

To understand what this tax burden really looks like, let’s use the analogy of a farmer planting a crop.  When a farmer plants seeds, they multiply and grow and eventually produce a crop, which is worth many times more in value and volume than the original seed. A 401(k) fund is like the crop:  you pay taxes on the end result or the harvest, meaning you pay taxes on everything you contributed, everything your employer contributed, and all the interest that fund has earned over theSeed your lifetime. But if you had your money in a tax-free annuity or a Roth IRA for example, you would pay the taxes up front, on the seed so to speak, and not on the larger amount later in retirement. So the question is, “Do you want to pay tax on the seed, or on the crop?” The answer is obvious, yet so many would rather put off paying taxes now and pay more money later than look at other alternatives that will keep their tax burden down.  

Okay, now let’s suppose you retire and shortly after that you die.  Using the spousal rollover, no tax is due until the second spouse dies.  Then the remaining amount of money goes to the children.  They appreciate the money, but now they have to pay a much higher tax as they add this inheritance to their earned income.  Therefore, the counsel to invest aggressively in a 401(k) or IRA because you’ll supposedly be in a lower tax bracket at retirement is WRONG!  Go to any CPA and ask what amount of tax their retired clients pay on their income.  They will tell you the amount is huge because they no longer have dependents, interest deductions on their paid off house, etc. No deductions equals higher taxes!

Why doesn’t anyone tell people that taxes will be the biggest draw-down of all during retirement?  At retirement you don’t have the benefit of many deductions, but you always have market risk, inflation, and the threat of outliving your money to deal with, plus taxes are going higher all the time.  And don’t forget that you must now pay tax on a portion of your Social Security income as well.  I have found that more tax is paid after retirement than before on most clients I have worked with.

You must consider these chain of events:  

  1. When you get to retirement and have an amount of money accumulated, say $320,000, you think you can live on $40,000 a year.  
  2. You decide to pull out the $40,000 from your 401(k) but then realize you will be out of money in eight years if you continue to do this.
  3.  You don’t plan to be dead in eight years and start to worry about outliving your money.  Plus you realize you now have to include your Social Security benefits as you prepare your taxes because 401(k) income forces Social Security to be included for tax purposes.   This averages around $5,000 per year in taxes! 

Here is another tax concern.  At 70.5 years of age, you must start taking out your deferred taxable income or pay a 50 percent penalty and ordinary tax on that portion.  The IRS can’t just keep waiting to receive your deferred taxes, after all, they want to be paid, so you are forced to withdraw whether you like it or not.  

There are better options than just dumping all your money in a tax-deferred retirement account. Contact me today for a no obligation consultation:

Clearing Up “Fuzzy Math” Used by Investment Market


QUESTION:  What is the average rate of return when you make 100 percent on your money year-one, but then lose 50 percent in year two?  

ANSWER:  The investment industry will tell you 25 percent.  

Wall Street has been using what I call this “fuzzy” math for at least 80 years!  If you were to attend an annual meeting with your 401(k) investment adviser, they always use this fuzzy math to prove to you by numbers what you have averaged.  These advisers will repeat, over and over again, that the average return in the market has been 11.9 percent over the last 40 years. Mathematically this is correct, this is how the numbers play out when you calculate them for yourself, which I have done. However, when you place your money in that stream of returns, you must take into consideration both the ups and downs. When y0u do, you will see that you will net 3.8 percent cash-on-cash. Go ahead, I urge you, to do the calculations for yourself and prove this out.  If you feel like you have been lied to, join the club. While the math is correct that they use to advertise their products, this isn’t really how the money follows along.

Fuzzy math is deceptive because it does not tell the whole story.  The argument for investing in the market is to keep ahead of inflation because you will “average” 11.9 percent, but there are so many other things to take into consideration besides this sparkly 11.9 percent figure.   You need to be aware that placing your savings into the market is not always what you think it is. To learn more about honest methods for really putting money in motion to make a whole bunch more, contact me:


Why Dollar Cost Averaging is Dangerous in Retirement

We are all told, repeatedly, that over time the market will gain about 11 percent average annual yield.  This is not true when you follow the money you invest year-to-year.  If you do track, you will find the cash result is only 3.8 percent because you must overcome downturns in the market.  

To counteract concerns over these losses, investment advisers will say, “when the market goes down, just keep buying lower-priced shares so that your average purchase price is less, which helps post bigger gains when the market goes back up.” This is called “Dollar Cost Averaging.”

Now let’s apply this suggestion to a person aged 72 who is taking money out of retirement savings to live on.  If the market drops, then taking money out means you will run out of money quicker.  When withdrawing, you can’t make up for losses when the market takes a downturn because you aren’t purchasing lower-priced shares in hopes of making more money later on those cheaper stocks — your purchasing days are over, for heaven’s sake at that age! You’re trying to live on what you’ve already purchased and invested prior to this and are withdrawing money, not putting more in!  Thus, dollar cost averaging does not make sense for retirees.

I therefore suggest that while you may use dollar cost averaging during the accumulation phase of your life, you must not when you retire!  Preserving your money and distributing it takes entirely different methods.  Don’t poke holes in your retirement bucket by going with the advice given to the herd. Contact me for alternative solutions that make sense for the stage of life in which you are currently living:

Why It’s Good to be Rich

I love the article by Jonathan Clements that appeared in the Wall Street Journal in 2005 called “Why It’s Good to be Rich” because it underscores the power of having surplus money, something you must experience to truly understand. A person in debt will never understand the idea that a little bit of surplus money can multiply quickly in your  hand.

Clements article outlines 25 financial benefits that people with fat wallets are able to enjoy and the ways in which those benefits create additional wealth. Here are some of those benefits:

  • You can pay off your credit-card balances each month, avoiding high interest costs.
  • You will always have enough money to take advantage of tax-favored accounts like Roth IRAs.
  • Your fat investment portfolio helps you feel rich so you don’t need to prove your wealth by purchasing new cars and designer clothing on credit.
  • Your accounts are big enough that you won’t get hit with annoying bank fees, annual IRA fees, and account-maintenance fees like those with smaller balances must pay.
  • Your high FICO score and superb credit history ensure that you can always get a loan and qualify for no-fee credit cards.
  • You can drop term life insurance because you’ll have so much money that your spouse and kids won’t need insurance; you can invest the premiums in cash-producing ventures instead.
  • You won’t have to buy long-term care insurance, saving thousands of dollars in premiums for something you may not even need; if you do end up going to a nursing home, you can pay your own care facility or home-healthcare costs instead.
  • You can sleep better at night because you don’t have to worry about how you’re going to pay the bills or whether your investments will see you through retirement.
  • Your financial prudence provides a good example for your children, so they grow up to be financially independent and less likely to need bailing out from you.
  • You won’t ever be forced to sell your home and move into an apartment after you retire, or worse, in with your kids.
  • You can avoid playing silly financial games such as buying lottery tickets in hope of “getting rich quick.”
  • You always have the cash on hand to seize lucrative financial opportunities whenever they present themselves.
  • You have enough money to travel the world or engage in philanthropic ventures that will provide you priceless experiences you would nave have been able to have otherwise.

More Leverage Ideas to Help Your Money Make More for You

In my last post, 5 Ways to Make More Money You Probably Never Thought About, I noted how wealthy people use their money and resources to make more money for them, rather than squandering them or sitting on them. In this post I wanted to give you some additional ways in which you can get your existing money and financial resources to do more than one thing at a time for you.

  1. Apply savings to debt. Rather than “parking” money in passbook savings that will make very little interest, why not deposit that money in a HELOC (home equity line of credit)? This puts the saved interest expense in your pocket (which is usually always going to be more than what you’d earn in passbook savings) while still keeping that money available for those emergency and emotional spending events that are sure to happen.
  2. Turn a non-producing (or low-producing) asset into a high-producing asset. Money that you have deposited into a 401(k) or IRA, for example, is sitting their earning a modest amount of interest, or it may even be losing money, so it’s probably not wise to put all your long-term savings into such “stagnant” programs. Investing some of your money into real estate or equipment that can be leased out is a better way to get your assets to produce more money for you.
  3. Spread out your investments. Consider various investment options based on how they are taxed, risk risk level, capital appreciation, and so forth.
  4. Increase your return on investment. While it’s important for people with large debt loads and little savings to be quite conservative early on with their savings habits, as you get spending and debt more under control you will see a little cash accumulate. When this occurs it is foolish to leave the money in a low-return program such as a CD. Consider, instead, what savings should be converted to higher yielding investment plans.
  5. Examine ways you can make your current investments more valuable. Like I mentioned in my last post, can you convert real estate space into rental income Do you need to study the market and trade investments in more lucrative fields? Can you use the equity in your current real estate to purchase additional properties to begin a “rolling” real estate investment?

More ideas in coming posts. Hope these are some you will take into real consideration as they could be resources you already have that you are not using to their full potential.

What Are You Doing that Transfers Wealth Away from You?

Most so-called financial “experts” are constantly harping on playing the stock market, getting a better rate of return, etc. But I have found that being obsessed with returns is really missing the mark in terms of building true wealth, on ANY income.

I think for most people, when they stop the transfer of money away from them, they will be so much better off than just trying to get a better gain on that money.  In other words, it is not about a rate of return, it’s all about stopping the transfers.

Here is a list of things that take your hard-earned money away from you:
  • Over-spending
  • Bad debt (including a long-term mortgage for a house you live in)
  • Purchasing too many consumables
  • Bad investments
  • Family issues
  • Inflation
  • Taxation
  • Becoming disabled
  • Litigation, or law suites
  • Bad health
  • Market risk
  • Theft, or fraud
  • Financial disorganization
  • Trusting others with your money instead of yourself
  • Lack of knowledge
  • Unemployment

There are so many ways that you can be relieved of your money.  Does this list remind you of some times you have lost money?  My point is that if you review this list and make necessary changes with those things on the list that you do control (I would start with over-spending and debt first), you can avoid many of the reasons you transfer wealth away from you.  This is ultimately way more important than to constantly worry about how much you earn at our job or how the market is doing.

Why You Can Never Get Ahead Financially…

Based on U.S. Census data, workers in the average household will earn $52,000 annually and make approximately $2 million over their lifetime.  Of course if you are a CPA, you will earn double that or more.  A trial attorney will make over $12,000,000 in their lifetime.  But I want to look at averages to make a point: that most people do not process their money efficiently, regardless of how much they make! 

Census data also shows that at retirement, the average household will have less than $60,000 in total assets including their home.  How is it possible to make $2 million in a lifetime and barely have $60,000 left to show for it? And why are 92 percent of all retired people totally dependent on Social Security income? 


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Refer to this picture of a funnel and I will answer the question of why most people can’t seem to manage they income and payouts.  First, we make $2 million in a lifetime.   The first thing that happens are taxes are taken out.  Second, we have to live, so we buy food, clothing, other living expenses.  Third, we pay our debts, a mortgage, car payments, credit cards.  After all of these obligations are paid, historically as a nation, we are finally able to save 2 to 3 percent.  This example shows that the average person does make a lot of money over a lifetime, but that a great portion of it goes to taxes, living expenses, and debts.

After a lifetime of working, what we hope to end up with is a nice little “nest egg,” or a large amount of our earnings set aside in the form of savings.  But let’s take a look at what happens to our “nest egg” after we have managed to put some money into it.

Several events can drain off a substantial portion of our savings.  For example, we could make bad investments, or the economy could experience inflation.  Perhaps we get laid off from our job, experience sickness, or we feel the effects of technological changes.  We might go through a divorce.   Fifty-two percent of the people in our nation are divorced.  This can be very financially challenging, let alone emotionally challenging. Impulse spending draws off another substantial portion. Twenty-five to 50 percent of all purchases are unplanned.  More taxes, job lay-offs, technology changes, and any or all of these types of events could occur over a life time.  So it is little wonder that we find it hard to get ahead and keep our “nest egg.”

Money Mastery is all about how to stop this inefficient processing of money.  It will show you how to systematically stop the transfer of your money away from you and get it back under your control.  It will also show you how to maximize the amount of money you will have at retirement, and get out of all debt, your mortgage included, within 10 years or less.  

For more information about how you should really be managing your money (contrary to what all the so-called financial “experts” are telling you), contact me today:

The Value of Knowing the Rules of the Financial Games You Play…

Knowing the rules is pretty important if you want to have any chance of coming out a winner in the game of life and this is especially true when it comes to finances.

I’d like to use the following as an example of why knowing the rules is so important if you plan to get control of your money and learn how to make more for the future:

Let’s say you gather up your family one Saturday afternoon to play a professional football game with the New England Patriots.  Let’s remember that they are the National Champions…of course they are very good, very big and very talented.  What is your chance of winning a game against such a team?   Zero to none, is my prediction! You get to be the quarterback but you have no experience whatsoever. You don’t necessarily have any muscles and you really don’t have any experience.  Your equipment is haphazard and poor, but nevertheless you are going to play.  In terms of financial games this is no different than you going up against Wells Fargo Bank, for example or any other experienced financial institution.

The game starts and for some reason a miracle occurs and your team is doing well.  Your team is ahead two touchdowns as you break for halftime.  The Patriots are livid.  Your team is making a mockery out of them.  They are going to make adjustments in the third quarter and decide they get to change the rules of the game and not even tell you!  The Patriots have 55 players earning on average $3 million each. Their players all played high school and college football — they have experience that is extremely impressive. And then of all things, they get to change the rules without telling you and the referees have to do whatever the Patriots ask them to. Again I ask, what is your chance of winning? Zshutterstock_248620027ERO.

Here is your problem when working with big banks, financial investment advisers, credit card companies, mutual fund brokers, foreign exchanges, and the like.  They have years of experience, attorneys, tax CPA’s and millions of clients to practice on. They have the resources, know-how, and backing to compete in a very complex arena and come out the winners.

Here is my suggestion:  Take the time to study your financial decisions.  Learn the backdrop, the rules, and ask questions.  Keep a journal, and regardless of what is said, test everything. Leave no stone unturned. You must know, for yourself, the information you need that will help you make the best financial decisions. While you don’t need to know everything, you do need to be aware of the rules behind the financial games YOU are personally playing. Take the time to read your credit card contracts, mortgage documents, 401(k) and bank statements, etc. It will take time but you must be willing to put forth this kind of effort, or you are just giving your money away.

Another trick is to thoroughly check out your financial decision and then pretend you made the investment, began using the credit card, took the insurance policy or whatever, then see what might happen. If it checked out, you are better prepared for next time.  If it fails, well then, what have you learned?  Plus you still have your money to invest again.  Here is a wise but ironic axiom from a smart money manager, “The deal of a lifetime only comes along once a week.”  Most financial decisions are not one-and-done.  Almost always are decisions on a continual need basis.  Don’t be fooled by those trying to sell you financial products who claim that there will ever only be one deal such as they are offering. This isn’t so. There will always be lots of good opportunities for those who take the time to examine the opportunity, to learn the rules surrounding it, and even have other professionals take a look at it and be sure it’s sound.

Here are basic steps to help you prepare to make good financial decisions in the future:

  1. Get out of all consumer debt, NOW.  This is possible only when you create a Spending Plan and  begin tracking your spending according to that plan. When you do so, you will find extra income that you did not know you were wasting. This can be incorporated into a Debt Plan that will accelerate debt payoff RAPIDLY.
  2. Create surplus. Once consumer debt is eliminated, you can more rapidly create a cash surplus and start saving up for the future.
  3. Make decisions on paper, meaning only on paper and don’t use real money for a short time. When your ideas are working with regularity, then use real money.
  4. Record successes and failures.  Always start with a written game plan, whether it is trying to control your spending, or getting our of debt, or learning how to make more money. Nothing stays the same for very long so you will need to refer to your plans at least monthly and keep a journal and refer back to it often to see where you have made errors. It has been said that those who don’t know history are more than likely doomed to repeat it.

To learn more about creating a Spending Plan, Debt Plan, and Retirement Plan that will actually help you understand the rules you are playing and come out a winner, even against large financial institutions, contact me today.