Archives for May 30, 2018

One of the accepted forms of extravagance in our society is a lavish wedding. You can see this in the rule that the dollar value of your wedding gift should “cover your plate” or, in other words, be equivalent to the cost of the food and booze you consume at the event.

The underlying attitude here is that it’s our duty to underwrite expensive weddings by chipping in with a gift that recognizes the financial burden carried by the happy couple and possibly their families.

Just in time for wedding season comes a welcome dismissal of this rule.

In a post on the Two Cents blog, etiquette expert Lizzie Post (great-great-granddaughter of Emily Post) is quoted as saying that a wedding present should always be within your personal budget. “You decide that based on your connection to the person getting married, your own gift-giving style, desire and generosity in that moment and what’s feasible for you to do,” Ms. Post says.

The risk in giving within your budget is that you’ll look cheap. The blog post on Two Cents has a good response to this: “If your friends are really worried that you didn’t spend enough on a gift—well, they’re probably not great friends anyway.”

A survey done last year found that Canadians on average believe that $147 is the right amount for a wedding present. One in 10 people in the survey thought they should spend less.

Summertime, and the living is easy – unless you’re a parent of young children, trying to find and afford ways to occupy them during the long break. If you have a baby in day care, the center is likely to be open year-round, so you’re all set. Otherwise, the lack of school can create a big gap in your child’s schedule during the summer. And you’ll need to fill it with supervision and activities, the costs of which can add up fast.

“Those summer months, even though it is only a few weeks in the grand scheme of things, can make a significant difference in how much your cost of care is for the year,” says Kerri Swope, vice president of Care.com HomePay, the online child care resource’s tax, human resources and payroll business. “So it’s worth taking a step back and doing some homework to figure out what your budget is and the best balance for your family.”

First, you want to determine what your summer child care needs are. That means plotting out your own schedule and how much time (and energy) you have to spend with your kids. If you’re working, personal finance expert Cameron Huddleston, life and money columnist for GoBankingRates.com, recommends talking to your employer about tweaking your schedule for the summer months. Perhaps you could work from home for at least part of the week or shift your hours in another way that could ease your burden. “They might say no, but it’s worth a shot,” Huddleston says.

Keep in mind, though, that working from home is not a full replacement for child care. You still have to work, after all. But it can give you more flexibility with when you work. For example, Huddleston notes that if you’re not on a strict deadline or timetable, you can wake up early before the kids or go to sleep after the kids (or both) to get work done. Then, you’ll be free to focus on your kids during the day. “Work around your kids’ schedule,” she says. “You might be able to pull it off and get away without paying for as much child care.”

You also need to think about your budget and how to make your needs fit into it. You may need to cut back your spending in other areas in order to afford more of what you need for your kids. Or you may need to adjust your plans if you simply don’t have enough to afford all the activities you might want to do with them. For example, a few weeks of sleepaway camp might be too pricey, but maybe paying for just one or two weeks is affordable. Or maybe going with day camp is less expensive than the overnight option. Whatever the case, you need to plan ahead. “If you’re going into summer blindly without having any idea of how much you can afford to spend, you’re going to wind up spending way too much because there are so many temptations in the summer,” Huddleston says.

Ideally, you’ll have baked summer costs into your overall financial plan for the whole year and years to come. “To prepare for summer expenses, I recommend that parents budget for year-round care of children,” says Deborah Meyer, financial planner and owner of financial planning firm WorthyNest in Saint Charles, Missouri. “If both parents work outside the home, that means budgeting for day care, summer camp, before and after school care and private schooling costs, if applicable. All families should also have a line item specifically for kids’ activities – regardless of the season.”

Once you know your needs and your budget, you have to figure out how to reconcile the two and consider all your options. In terms of child care, you may find the number of available providers in your area grows in the summer months, what with college students returning home for the summer, teens looking for gigs and some teachers wanting to take on extra work. Indeed, Care.com sees a spike in activity from providers as summer approaches. In May 2016 (the most recent data available), the number of postings jumped 36 percent compared with the rest of the year.

So definitely shop around. Along with searching sites such as Care.com, as well as UrbanSitter and Sittercity, you can tap your digital village. Many areas have Facebook pages, Meetup groups and other social media networks specifically for families to help each other and share this kind of information. Also try talking to other local parents and neighbors for leads. You might even find families in a situation similar to yours that you can work with, by either sharing a nanny or babysitter who is willing to take on multiple kids at once or by helping each other sans professionals. “You can do a child care share,” Huddleston says. “Perhaps one day of the week, you can watch some of the neighborhood kids, and the next day, another parent can watch some of the neighborhood kids.”

Going with a pro, prices can vary greatly depending on the providers’ level of experience and what you’re asking them to do. On average, across the nation during the summer, rates for a nanny fall between $14 and $15 an hour. To find what you can expect to pay in your area, try Care.com’s babysitting calculator.

Aside from, or on top of, care, you have to factor in costs for activities, too. You’ll find plenty of summer camp options nationwide, whether sleepaway or day camp, catering to all kinds of interests, from sports to space and band to dance. There are even camps focused on teaching personal finance. And the range of prices is just as wide: from less than $100 to more than $1,500 a week, according to the American Camp Association. “You can look for low- or even no-cost options through public libraries, your school system and your parks and recreation departments,” Huddleston says.

Those resources can help with other activities at little to no cost, too. You can also head back to those social media groups, as well as local papers and magazines, for other ideas of what to do with your kids on a budget. In many areas, you can find free concerts, movies, festivals and other events. “The great thing about summer is that, even though you’re tempted to spend on so many activities, like going to a water park or amusement park, there are so many free activities,” Huddleston says. “You can definitely keep your kids occupied without spending much money.”

Most investors know that selecting the best asset allocation is critical to building a good nest egg in the decades leading up to retirement.

But the game changes after that. A stock-laden portfolio designed for growth may be too risky when there’s less time to wait out downturns and no fresh money going in. And the safe-looking alternative of switching to short-term bonds and cash could backfire if inflation takes a toll in a long retirement.

Financial advisors say investors need to rethink their strategy in and near retirement. The trick is to leave a cushion for things that can’t be nailed down, like how long the investor will live, how high inflation will go and what medical expenses may come up.

“Asset accumulation pre-retirement is a different strategy than income-generation post retirement,” says Len Hayduchok, CEO of Dedicated Financial Services in Hamilton, New Jersey.

“At retirement the portfolio is overall less risky, but it should have [risky assets like stocks] if an individual is expecting to live more than 10 years.”

Starting about five years before retirement, the investor should start making the portfolio retirement-ready, says Robert Johnson, principal at the Fed Policy Investment Research Group in Charlottesville, Virginia.

“The appropriate asset allocation for individuals changes as you approach and are just in retirement,” he says, noting that most investors are wise to minimize risk by reducing stock holdings in the last few years before retiring.

“The five years prior to retirement can be considered the retirement red zone,” he says. “And, just as a football team can’t afford to turn the ball over and fail to score points when inside the opponent’s 20-yard line, the retirement investor can’t afford a big downturn in the retirement red zone.”

Building up bonds and cash can make the portfolio safer, and a person without wages might be wise to have a bigger rainy-day fund than in the working years. But a sound plan takes more than that, and it’s possible to be too safe as well. So here are a few key points to remember:

Inflation matters. Investors in or near retirement today are old enough to remember the double-digit inflation of the late 1970s and early ’80s. Of course, wage increases were part of that, so people in their working years muddled through.

But retirees obviously cannot count on wage gains, and a jump in prices could do a lot of damage to a portfolio designed to emphasize only income. Even low inflation can double prices over 20 or 30 years.

Investment plans typically assume a steady level of inflation such as the long-term average of 3 percent a year for the consumer price index. But that figure is calculated with thousands of goods and services that don’t reflect any individual’s actual spending.

In the real world, an individual’s personal inflation rate could be higher if there will be a lot of spending on things that go up at a faster rate, like health care and college costs.

Because of this danger, experts say investors should leave part of the portfolio in growth-oriented holdings like stocks, though generally less than in the earlier decades of building a nest egg.

It may be surprising to many investors, but lots of target-date funds, which contain a mix of stocks and bonds automatically adjusted over time, keep half the holdings in stock funds, even for investors in their 70s.

Though stocks are riskier than bonds and cash, stock gains have historically beaten inflation over time. And many stocks pay dividends.

Spending is not steady. While the typical plan means to produce a given income that will stay the same, or perhaps go up with the chosen inflation rate, younger retirees may spend heavily on travel but not health care, while older ones will do the opposite.

One old rule of thumb said stock allocations should equal 100 minus the investor’s age, with the rest in bonds and a small cash fund. Many experts consider that too simplistic these days given the unevenness of retirement spending.

“We believe your asset allocation should be based on your cash needs and tolerance for risk, not your age,” says Greg Sullivan, president and CEO of Sullivan Bruyette Speros & Blayney, a planning and portfolio management firm in McLean, Virginia.

“How much income do you need from your portfolio to meet your lifestyle cash needs? We like to create an eight-year cash needs buffer in low-risk assets and invest the rest of the portfolio in long- term growth assets, such as U.S. stocks,” Sullivan says.

He prefers that ordinary living expenses be covered by bond interest and stock dividends, if possible, but warns against buying long-term bonds today because they could lose value if rising interest rates make newer, better- paying bonds more appealing.

Key to the strategy is to avoid having to raise cash by selling assets when prices are low. Money that will be needed in the next five years should therefore not go into stocks, Sullivan says. But stocks generally rack up gains over five-year periods, even if they plunge in the meantime.

If the portfolio has enough in other types of assets, holdings like safe government bond funds can be sold to replenish the cash fund from time to time. That way, the stock holdings should not have to be tapped at an inopportune time, like during a market dip, and can be left to weather the downturns.

Be liquid. Though much of the portfolio may be allocated to long-term holdings, it pays to rely on assets that can be sold easily to make changes or generate cash.

“We are not concerned whether the needed growth comes from dividends, capital gains or outright appreciation,” says Eric Nager, advisor at Southern Capital Services in Daphne, Alabama. “As long as clients are taking a sustainable draw from an overall asset base that is, on average, growing faster than their draw, they are in effect giving themselves raises to combat the rising cost of living.”

To stay liquid, he likes managed funds and exchange-traded funds in the five major asset classes: cash, bonds, stocks, commodities, and real estate.

Broaden your horizons, but not too wide. Though investors tend to think in terms of stocks and bonds, other assets can be helpful too.

Johnson suggests looking into buying a longevity annuity, which pays a steady income for life after the policy owner reaches a certain age, like 85. Inexpensive if purchased 20 or 30 years before the payments start, these offer generous payouts and insure against living longer than expected.

With this safety net, the investor can spend more freely before the annuity income kicks in, or can take a little more risk in investments.

“Having the peace of mind that a longevity annuity provides [allows one to] invest more aggressively and earn higher returns,” Johnson says.

Many American workers dream of punching out for the final time, packing their suitcase, hopping on a plane and permanently relocating to a new city or even state in retirement.

What those retirees probably don’t anticipate are the variables and unexpected costs that inevitably come with moving: housing costs, taxes, insurance and access to quality medical care. Then there are the intangibles: Does the community offer the amenities I’m looking for — a mix of interesting dining options, for example — and will I fit in politically, socially and culturally?

So what should retirees do? Uproot themselves and hope they can roll with the punches, fit in and assume they planned and invested enough to deal with the costs? Here’s an unusual, but practical, suggestion: Take a trial run.

A trial run that involves the following four steps will give you the opportunity to create an authentic experience and better understand, on a temporary basis, what it would feel like to be part of the community where you think you want to retire:

1. Rent a House

Most people probably would agree that they wouldn’t permanently relocate to a new place sight unseen, regardless of whether they’re retired or still working. But in order to get the full experience, integrate yourself in the community and get a true feel for what life would be like, find a house — not a hotel or bed and breakfast — to stay in for as long as time permits.

By being in a house for several weeks, you’re forced to do the types of things you would if you lived in the community permanently: go to the grocery store, interact with residents, find different restaurants, that sort of thing. You also are “playing house” and will see things you wouldn’t otherwise experience in a hotel (such as how much upkeep a similarly-sized house would require or what a homeowner association’s fees will get you).

It’s not feasible for some people to take weeks or even months to live in another location, though, especially if they haven’t officially retired. In that case, you can accomplish this goal by spending a week or two living (or vacationing) in the community. The key is to be in the neighborhood, not in a hotel or resort.

There are many online resources where you can find rental properties to help get the full immersion experience of living in the community in the most authentic way possible.

2. Subscribe to Local Media and Join Community Facebook Pages

Signing up to read a local paper or magazine or to be member of a local Facebook community is something you can do either while you’re living in the community or back home in your soon-to-be previous residence.

The publications cover communities from a hyperlocal angle. And these days, there are active Facebook groups for almost every community in the United States. Join one or more and pay attention to what people are discussing. The actual residents are your best source of intelligence about the goings-on in your community.

By joining local Facebook groups and reading community news coverage, you’ll gain an intimate knowledge of the area’s makeup, social scene, key players, crime rate and other issues — things you might not otherwise learn until after moving.

3. Establish a Relationship With a Real Estate Agent

It’s natural to think about retaining a real estate agent when you’re ready to purchase a home in your new community. Undergoing this process before the time comes to permanently relocate, however, has some serious advantages. The agent has ample time to learn about you, your family and your needs and will be more valuable to you down the road if he or she knows you better.

If you’ve already joined the Facebook page, you can crowdsource for agent recommendations. People usually are more than happy to share the names of people with whom they’ve had positive experiences.

When you’re temporarily living in the community, the agent can accompany you as you casually tour open houses and set up showings. You will be able to evaluate different locations, sizes of homes and layouts without feeling pressured to make a quick decision.

The agent can also give you a better chance of nabbing a place if you wind up finding a location or neighborhood you love. Rather than hearing about it through the grapevine or on the internet, you’ll have someone on the ground who can be an advocate for you, even if you’re thousands of miles away.

Certainly, some agents won’t want to put in a lot of time if they think it won’t result in a sale for many years. But if you survey enough, you’ll probably find someone who is willing to work with you over the long haul.

4. Rinse and Repeat

If possible, start the trial period as early as possible, even if you have years to go before retirement. When you’re still working, use some of your vacation days to spend time in the community and mimic the retirement experience.

Better still, make multiple trips during various parts of the year to rent in different areas of the community. That way, you’ll be able to make an informed decision about whether permanently relocating there in retirement is something that makes sense for you and your family.

Multiple visits also will give you a better chance at befriending people who may one day become your neighbors and community peers.

Retirement itself is an adjustment period. Temporarily establishing a residence in a community, immersing yourself in the lifestyle and mimicking the type of routine you’ll have in retirement can ease the transition and eventually help you feel confident that you’ll retire in the best, happiest way possible.