Category Archives for Retirement Planning

Decision Making: Finance by Design

By GARDNER SHERRILL |Investor’s Column

March 3, 2015

Decision Making:  Finance by Design


Busy vs Productive

In the age of information you would expect that we would be great at analyzing problems and making good choices. Unfortunately many studies suggest the contrary. As we get into 2015 and pursue our goals there are some considerations I feel can help you make the most of this year. Continue reading

Financial Planning Lesson from the Winchestor Mystery House

Paladin 5 star award

Published October 20, 2014 @paladinregistry.com

Oliver Winchester manufactured the Winchester repeater also known as the “Gun that won the West” in 1834. When he died in 1880, he left the company and his fortune to his son William who died of Tuberculosis shortly thereafter and left an income of $1,000/day, roughly $22,000/day in today’s dollars, to his wife Sarah. Sarah moved to San Jose, CA. and began construction of what is now known as the Winchester Mystery house. Continue reading

Retirement Strategies and the Maginot Line

Published Shoreline Financial Articles

By GARDNER SHERRILL |Investor’s Column

July 8, 2014

After World War I, France still needed to protect its borders, but it was outnumbered. Its birthrate was down since the war, and Germany had almost twice the people. So France built the Maginot Line, and with it, a lesson in how planning for the future based on what’s worked in the past can lead to unforeseen consequences.

André Maginot, a World War 1 veteran, was the French Minister of Defense at the time. France ran defense in World War I somewhat successfully, so Maginot decided to do it again. He embedded 3 billion francs worth of artillery casemates, machine guns, tanks, and cement into the earth along the borders between Germany and Italy. Machines could rise out of the ground, shoot 360°, and lower back into place. Electric power. Diesel redundancy. Even underground trains. The Maginot Line was two hundred miles of engineered brilliance.

France assumed future wars would continue to use trenches and defensive tactics of the past. They were wrong. With new tactics based on speed and maneuverability called “Blitzkrieg”, the Germans went around the Maginot line. They attacked through Belgium and bombed the Maginot Line from the air. It took nine years for the French to build the Maginot Line, but only five days to for the Germans to defeat it.

As you transition from saving for retirement to taking distributions in retirement most people recognize they need to modify their balance sheet (see Winchester Mystery House) and their investment strategy. Today’s retiree faces a more challenging task of meeting longer time horizons, increasing health care costs, and less predictable income. With a blitzkrieg of new challenges, addressing risk through a tolerance questionnaire and by simply adjusting your equity weighting accordingly could become your Maginot Line.

An important distinction for each retiree is understanding those sources of income that are fixed such as social security and pension income from those that are variable such as portfolio distributions. The ratio of covered expenses to savings combined with the strength of your personal financial statement can help dictate how flexible you can be in order to prudently pursue your goals.

Those with a more constrained coverage ratio or seeking a more thoughtful approach should consider goals based planning to pursue their objectives. A goals based plan does not rely on “risk tolerance,” market forecasts and timing, or rules of thumb for planning as these methods may be unreliable.

Instead, a goals-based planner evaluates your household earning potential (human capital), savings (financial capital), and your other resources (social capital). Then the planner looks at your current and expected future income and expenses, and your household risk exposures, which are much broader than the market risk an investment plan considers with its mix of stocks and bonds, but which can significantly impact your ability reach your goals.

Things will change as they inevitably do and rather than monitor just past performance a forward looking process can help determine when future markets would trigger a potential problem or opportunity. The lesson of the Maginot Line is that we need toactively think through and manage the risks that threaten your lifestyle and could stop you from reaching your goals.

No bull

Gardner Sherrill, CFP, MBA, is an independent financial advisor with Sherrill Wealth Management. To learn more visit www.sherrillwealth.com. The opinions expressed in this material do not necessarily reflect the views of LPL Financial and are not intended to provide specific advice or recommendations for any individual. Securities and advisory services offered through LPL Financial a registered investment advisor. Member FINRA/SIPC.

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7 Financial Risks

Iceberg

There are 7 basic financial risks that many people face in their lives.

1) Dying too early can create economic problems for your survivors and beneficiaries as they may depend on your sources of income to make ends meet.

2) Incapacity & Disability are an often overlooked area which can devastate wealth whether by loss of income and / or by liquidation of assets to pay for healthcare costs.

3) Living too Long places a burden on your portfolio assets especially if you no longer work. If your portfolio assets can’t grow at the rate of inflation and produce your income needs you will start to deplete your wealth. Healthcare care costs can continue to climb and put pressure on your reserves.

4) Portfolio Risk (too much or too little) can damage a portfolio’s ability to recover and cause at best a reduction in lifestyle and at worst a complete loss of assets.

5) Legal Entanglements can be created by death, divorce, creditors, litigation and the like.

6) Improper Tax Planning whether it be by bad advice or lack of advice can cause you to overpay and in some cases be penalized for not making proper elections.

7) Opportunity Cost of managing each of the above risks in silos can cause various plans to work at best innefficently and at worst at cross purposes to each other. Coordinated financial planning can help establish priorities and goals and help ensure that all collaborators are singing from the same sheet of music.