Objective information about financial planning, investments, and retirement plans

American’s Attitudes About Their Money


Americans have varying attitudes about their money. The infographic below sheds light on our attitutudes about our finances across various demographic lines including age and income level.

Please take a look and see how your attitudes about your finances compare.

It’s never too late to get started on your financial plan.  Its never to late to move forward and to take the actions needed to get your financial situation on track whether you need to prepare for retirement or beef up your emergency fund.

Please contact me with any questions you may have or with any thoughts or suggestions about anything you’ve read here at The Chicago Financial Planner.

personal finance
Source: Masters-in-Accounting.org


Financial Planning Steps for the rest of 2015


Labor Day is here and the college football season started with our local Big 10 team Northwestern scoring an upset win over a ranked Stanford team. Next weekend is the first full weekend of NFL football with my Green Bay Packers visiting Soldier Field where they should continue their winning streak over the hapless Bears.

With a bit less than a third of 2015 left there are a number of financial planning steps you should be taking between now and the end of the year. Frankly I wrote a similar piece at this time last year Eight Financial To Do Items for the Rest of 2014 and I would encourage you to check this piece out as these eight items are just as applicable in 2015. The eight items (for those who prefer the Cliff Notes version) are:

While all eight of these items are critical financial planning steps to be tended to or at least reviewed this year or in any year, the environment in the financial markets has changed from this time a year ago.

August and so far early September has proven to be a rough patch for the stock market with much volatility and pronounced drops from highs reached earlier in 2015. The financial press is filled with stories about what to do and this has become a major event for the cable financial news stations.

In this context here are a few thoughts regarding some financial planning steps for the rest of 2015.

Get a financial plan in place or update your current one 

To me a comprehensive financial plan is the basis of an investment strategy and frankly all else in your financial life. If you have a plan in place, revisit it. If you don’t this is a great time to find a qualified fee-only financial planner and have one done.

Where are you in terms of financial goals like retirement and saving for your children’s college education? Do you have an estate plan in place?

With the markets taking a breather this is a good time to see where you are and what it will take to get you where you want to be financially. An investment strategy is an outgrowth of your financial plan and this plan is something to fall back on in times of market turmoil like the present.

Review your investments and your strategy 

How has the recent market decline impacted your asset allocation? Does your portfolio need to be rebalanced? Is your asset allocation consistent with your goals, risk tolerance and time horizon as outlined in your financial plan?

While I don’t advocate making wholesale changes to your portfolio based on some temporary stock market volatility it is always appropriate to do a periodic review of your overall portfolio, your asset allocation and the individual holdings in your accounts. These include mutual funds, ETFs, individual stocks and bonds and so forth.

The recent weakness in the markets may have created some opportunities for year-end tax loss harvesting in your taxable accounts. This refers to selling shares that show a loss to realize taxable losses. If you want to do this but also want to continue to own these or similar investments be sure to consult with a financial or tax advisor who understands the wash-sale rules.

More likely you have many investments that have appreciated nicely and these represent and excellent vehicle to make charitable contributions. Not only do you receive a tax deduction for the value of the gift, but you eliminate the tax liability for any capital gains on the holdings. 

Review your 401(k) 

The current situation in the stock market is a good time to check your account and rebalance your holdings if needed. Better yet if your plan offers it sign up for automatic rebalancing so you don’t have to worry about this.

Fall open enrollment is often the time when companies roll out any changes to the plan in terms of the investments offered, the company match or other aspects of the plan. Additionally most plans were required to issue annual disclosures by the end of August so be sure to review yours to see where the investments offered are compared to their benchmark indexes and how much they are costing you.

Lastly check to see how much you are contributing to your plan. If you are not tracking toward the maximum salary deferrals of $18,000 or $24,000 (for those who will be 50 or over at any point in 2015), try to increase your contributions for the rest of 2015.


Labor Day is here and summer is unofficially over. Use the remainder of 2015 to tackle these issues and to get your financial situation where it needs to be.

Please contact me with any thoughts or suggestions about anything you’ve read here at The Chicago Financial Planner.

Check out Carl Richards’ (The Behavior Gap) excellent book The One Page Financial Plan. Carl is a financial advisor and NY Times contributor. This is an easy read and offers some good ideas in approaching the financial planning process. 

Reader Question: Do I Really Need a Financial Advisor?


This question came from a reader who is around 60, works for a major corporation and has retirement assets in neighborhood of $1 million.  He indicated he is looking to either retire or be able to retire in the near future.  His question was in response to my recent request for story ideas and I appreciate this suggestion.  I will address this question largely from the perspective of this person’s situation as this is the type of client I am quite familiar with.

Do I really need a financial advisor? 

Do I really need a financial advisor? The only answer of course is that it depends.  There are many factors to consider.  Let’s take a look at a few of them.

How comfortable are you managing your own investments and financial planning issues? 

This is one of the main factors to consider.  The reader raised the point that the typical fees for ongoing advice on a portfolio of his size would likely be $8,000-$10,000 per year and wondered if the fee is worth it.

Certainly there is the issue of managing his portfolio.  It sounds like he has a significant 401(k) plan balance.  This will involve a decision whether to leave that money at his soon to be former employer or roll it to an IRA.  Beyond this decision is the issue of managing his investments on an ongoing basis.  And taking it a step further the fee level mentioned previously should include ongoing comprehensive financial planning advice not just investment advice.

Since it is likely that his 401(k) contains company stock (based upon who he works for) he has the option of electing the Net Unrealized Appreciation (NUA) treatment of this stock as opposed to rolling the dollars over to an IRA. This is a tactic that can save a lot in taxes but is a bit complex.

Can you be objective in making financial decisions? 

The value of having someone look at your finances with a detached third-party perspective is valuable.  During the 2008-09 stock market down turn did you panic and sell some or all of your stock holdings at or near the bottom of the market?  Perhaps a financial advisor could have talked you off of the ledge.

I’ve seen many investors who could not take a loss on an investment and move on.  They want to at least break-even.  Sometimes taking a loss and redeploying that money elsewhere is the better decision for your portfolio.

Can you sell your winners when needed and rebalance your portfolio back to your target allocation when needed?

Do you enjoy managing your own investments and finances?

This is important.  If don’t enjoy doing this yourself will you spend the time needed not only to monitor your investments but also to stay current with the knowledge needed to do this effectively?

In the case of this reader I suggested he consider whether this is something that he wanted to be doing in retirement.

What happens if you die or become incapacitated?

This is an issue for anyone.  Often in this age bracket a client who is married may have a spouse who is not comfortable managing the family finances.  If the client who is interested and capable in this area dies or becomes incapacitated who will help the spouse who is now thrust into this unwanted role?

Not an all or nothing decision

Certainly if you are comfortable (and capable) of being your own financial advisor at retirement or any stage of life you should do it.  This is not an irreversible decision nor is there anything that says you can’t get help as needed.

For example you might hire a financial planner to help you do a financial plan and an overall review of your situation.  You might then do most of the day to day work and engage their services for a periodic review.  There are also financial planners who work on an hourly as needed basis for specific issues.

Whatever decision that you do make, try to be as objective as possible.  Have you done a good job with this in the past?  Will the benefits of the advice outweigh the fees involved?  Are you capable of doing this? 

Please feel free to contact me with your questions, comments and suggestions for future topics you’d like to see covered here at The Chicago Financial Planner.

7 Tips to Become a 401(k) Millionaire


According to Fidelity, the average balance of 401(k) plan participants grew to a record high of $91,300 at the end of 2014.  This data is from plans using the Fidelity platform.

According to Fidelity about 72,000 participants had a balance of $1 million which is about double the number at the end of 2012 and about 5 times the number at the end of 2008.  What their secret?  Here are 7 tips to become a 401(k) millionaire or to at least maximize the value of your 401(k) account.

Be consistent and persistent 

Investing in your 401(k) plan is more of a marathon than a sprint.  Maintain and increase your salary deferrals in good markets and bad.

Contribute enough 

In an ideal world every 401(k) investor would max out their annual salary deferrals to their plan which are currently $18,000 and $24,000 for those who are 50 or over.  If you are just turning 50 this year or if you are older be sure to take advantage of the $6,000 catch-up contribution that is available to you.  Even if you plan limits the amount that you can contribute because of testing or other issues this catch-up amount is not impacted.  It is also not automatic so be sure to let your plan administrator know that you want to contribute at that level. 

According to the Fidelity study the average contribution rate for those with a $1 million balance was 16 percent, while the average contribution across all 401(k) investors they surveyed was about 8 percent.  The 16 percent contribution rate translated to a bit over $21,000 for the millionaire group.

As I’ve said in past 401(k) posts on this site it is important to contribute as much as you can.  If you can only afford to defer 3 percent this year, that’s a start.  Next year try to hit 4 percent or more.  As a general rule it is a good goal to contribute at least enough to earn the full matching if your employer offers one.

Take appropriate risks 

As with any sort of investment account be sure that you are investing in accordance with your financial plan, your age and your risk tolerance.  I can’t tell you how many times I’ve seen lists of plan participants and see participants in their 20s with all or a large percentage of their account in the plan’s money market or stable value option.

Your account can’t grow if you don’t take some risk.  

Don’t assume Target Date Funds are the answer 

Target Date Funds are big business for the mutual fund companies offering them.  They also represent a “safe harbor” from liability for your employer.  I’m not saying they are a bad option but I’m also not saying they are the best option for you.

I like TDFs for younger investors say those in their 20s who may not have other investments outside of the plan.  The TDF offers an instant diversified portfolio for them.

Once you’ve been working for a while you should have some outside investments.  By the time you are say in your 40s you should consider a more tailored portfolio that fits you overall situation.

Additionally Target Date Funds all have a glide path into retirement.  They are all a bit different, you need to understand if the glide path offered by the TDF family in your plan is right for you. 

Invest during a long bull market 

This is a bit sarcastic but the bull market for stocks that started in March of 2009 is in part why we’ve seen a surge in 401(k) millionaires and in 401(k) balances in general.  The equity allocations of 401(k) portfolios have driven the values higher.

The flip side are those who swore off stocks at the depths of the 2008-2009 market downturn have missed one of the better opportunities in history to increase their 401(k) balance and their overall retirement nest egg.

Don’t fumble the ball before crossing the goal line 

We’ve all seen those “hotdogs” running for a sure touchdown only to spike the ball in celebration before crossing the goal line.

The 401(k) equivalent of this is to just let your account run in a bull market like this one and not rebalance it back to your target allocation.  If your target is 60 percent in stocks and it’s grown to 80 percent in equities due to the run up of the past few years you might well be a 401(k) millionaire.

It is just as likely that you may become a former 401(k) millionaire if you don’t rebalance.  The stock market has a funny way of punishing investors who are too aggressive or who don’t manage their investments.

Pay attention to those old 401(k) accounts 

Whether becoming a 401(k) millionaire in your current 401(k) account or combined across several accounts the points mentioned above still apply.  In addition it is important to be proactive with your 401(k) account when you leave a job.  Whether you roll the account over to an IRA, leave it in the old plan or roll it to a new employer’s plan if allowed do something, make a decision.  Leaving an old 401(k) account unattended is wasting this money and can be a huge detriment to your retirement savings efforts.

The Bottom Line 

Whether or not you actually amass $1 million in your 401(k) or not the goal is to maximize the amount accumulated there for retirement.  The steps outlined above can help you to do this.  Are you ready to start down the path of becoming a 401(k) millionaire?

Please feel free to contact me with your questions. 

Check out an online service like Personal Capital  to manage all of your accounts all in one place.  Please check out our Resources page for more tools and services that you might find useful.

7 Reasons to Avoid 401(k) Loans


One of the features of many 401(k) plans is the ability for participants to take a loan against their balance.  There are rules governing what the loans can be used for, the number of loans that can be outstanding at one time, and the percentage of your account balance that can be borrowed.  Additionally there is a time limit by which these loans need to be repaid.

It is the decision of the organization sponsoring the plan whether or not to allow loans and also as to what they can be used for.  Typical reasons allowed are for college expenses for your children, medical expenses, the purchase of a home, or to prevent eviction from your home.

The flexibility offered by allowing loans is often touted as one of the good features of the 401(k).  However taking a loan from your 401(k) also carries some downsides.  Here are 7 reasons to avoid 401(k) loans.  

Leaving your job triggers repayment 

If you leave your job with an outstanding loan against your 401(k) account the balance can become due and payable immediately.  This applies whether you leave your job voluntarily or involuntarily via some sort of termination.  While your regularly scheduled repayments are deducted from your paycheck, you will need to come up with the funds to repay the loan upon leaving your job or it will become a taxable distribution.  Additionally if you are under 59 ½ a 10% penalty might also apply.

Opportunity costs in a rising market

While loan repayments do carry an interest component which you essentially pay to yourself, the interest rate might be much lower than what you might have earned on your investments in the plan during a rising stock market.  Obviously this will depend upon the market conditions and how you would have invested the money.  This can lead to a lower balance at retirement resulting in a lower standard of living or possibly necessitating that you work longer than you had planned.

There are fees involved 

There are often fees for loan origination, administration, and maintenance which you will be responsible for paying.

Interest is not tax deductible 

Even if the purpose of the loan is to purchase your principal residence interest on 401(k) loans is not tax-deductible.

No flexibility in the repayment terms 

The loan payments are taken from your paycheck which all things being equal will reduce the amount of money you bring home each pay period.  If you run into financial difficulty you cannot change the terms of the loan repayment.

You might be tempted to reduce your 401(k) deferrals 

The fact that you now have to repay the loan from your paycheck might cause you to reduce the amount you are saving for retirement via your salary deferral to the plan.

You will have less at retirement 

A loan against your 401(k) plan will result in lower nest egg at retirement.  Given the difficulty many in the United States already have in accumulating a sufficient amount for retirement this only adds to the problem.

You should especially avoid 401(k) loans if:

  • You are near retirement
  • You feel that your job security is in jeopardy
  • You are planning to leave your job in the near future
  • You are already behind in saving for retirement
  • You have other sources to obtain the money you need
  • You feel that repaying the loan will be financial hardship 

Look life happens and sometimes taking a loan from your 401(k) plan can’t be avoided.  The economy has been tough for many over the past few years.  However if at all possible avoid taking a 401(k) loan and rather let that money grow for your retirement.  Down the road you will be glad you did.

Please feel free to contact me with your questions. 

Check out an online service like Personal Capital to manage all of your accounts all in one place.  Also check out our Resources page for more tools and services that you might find useful.

8 Year-End Financial Planning Tips for 2014


When I thought about this post I looked back at a post written about a year ago cleverly titled 7 Year-End 2013 Financial Planning Tips.  The year-end 2014 version isn’t radically different but it’s also not the same either.

Here are 8 year-end financial planning tips for 2014 that you might consider:

Consider appreciated investments for charitable giving 

This was a good idea last year and in fact always has been.  Many organizations have the capability to accept shares of individual stocks, ETFs, mutual funds, closed-end funds and other investment vehicles.  The advantage to you as the donor is that you receive a charitable deduction equal to the fair market value of the security on the date of the completed transfer to the charity.  Additionally you will not owe any tax on the gains in the investment unlike if you were to sell it.

This does not work with investments showing a loss since purchase and of course is not applicable for investments held in tax-deferred accounts such as an IRA.  I suggest consulting with a financial or tax advisor here.

Match gains and losses in your portfolio 

With the stock market having another solid year, though not nearly as good as 2013 was, year-end represents a good time to go through the taxable portion of your investment portfolio to review your gains and losses.  This is a sub-set of the rebalancing process discussed below.

Note to the extent that recognized capital losses exceed your recognized gains you can deduct an extra $3,000.  Additional losses can be carried over.  This is another case where you will want to consult a tax or financial advisor as this can get a bit complex.

Rebalance your portfolio 

With several stock market indexes at or near record highs again you could find yourself with a higher allocation to stocks across your portfolio than your financial plan calls for.  This is exposing your portfolio to more risk than anticipated.  While many of the pundits are calling for continued stock market gains through 2015, they just could be wrong.

When rebalancing take a look at all investment accounts including your 401(k), any IRAs, taxable accounts, etc.  Look at all of your investments as a consolidated portfolio.  While you are at it this is a good time to check on any changes to the lineup in your company retirement plan.  Many companies use the fall open enrollment event to also roll out changes to the 401(k) plan.

Start a self-employed retirement plan 

There are a number of retirement plan options for the self-employed.  Some such as a Solo 401(k) and pension plan require that you have the plan established prior to the end of the year if you want to make a contribution for 2014.  You work too hard not fund a retirement for yourself.

Take your required minimum distributions

If you are one of the many people who need to take a required minimum distribution from a retirement plan account prior to the end of the year you really need to get on this now.  The penalties for failing to take the distribution are steep and you will still owe the applicable income taxes on the amount of the distribution.

Use caution when buying mutual funds in taxable accounts 

This is always good advice around this time of year, but is especially important this year with many funds making large distributions.  Many mutual funds declare distributions near year-end.  You want to be careful to wait until after the date of record to buy into a fund in your taxable account in order to avoid receiving a taxable distribution based on a few days of fund ownership.  The better path, if possible, is to wait to buy the fund after the distribution has been made.  This is not an issue in a tax-deferred account such as an IRA.

Have a family financial meeting 

With many families getting together for the holidays this is a great time to hold a family financial meeting.  It is especially important for adult children and their parents to be on the same page regarding issues such as the location of the parent’s important documents like their wills and what would happen in the event of a long-term care situationWhile life events will happen, preparation and communication among family members before such an event can make dealing with any situation a bit easier. 

Get a financial plan in place 

What better time of year to get your arms around your financial situation?  If you have a financial plan in place review it and perhaps meet with your advisor to make any needed revisions.  If you don’t have one then find a qualified fee-only financial advisor to help you.  Just like any journey, achieving your financial goals requires a roadmap.  Why start the journey without one?

If you are more of a do-it-yourselfer, check out an online service like Personal Capitalor purchase the latest version of Quicken.

These are just a few year-end financial planning tips.  Everyone’s situation is different and this could dictate other year-end financial priorities for you.

The end of the year is a busy time with the holidays, parties, family get-togethers, and the like.  Make sure that your finances are in shape for the end of the year and beyond.  

Family Financial Conversations


Family financial conversations dealing with retirement, estate planning, elder care issues and other important financial matters between parents and adult children can be difficult at best.  A recent article by Fidelity highlighted some of the key issues involved.

According to Fidelity:

“In life and money, timing is often everything. And that’s particularly true when it comes to sensitive family discussions about retirement security, eldercare, and estate planning.

According to Fidelity’s latest Intra-Family Generational Finance study,1 three-fourths of parents and their adult children agree it’s important to have frank conversations on such topics, but almost two-thirds (64%) can’t agree on when. While parents would prefer to wait until after retirement, their children want the conversations to take place well before their parents retire or experience health issues.” 

“These discussions aren’t always easy, but there can be real emotional and financial consequences when they don’t happen or lack sufficient depth,” says John Sweeney, executive vice president of retirement and investing strategies at Fidelity. “It’s absolutely critical that families come together to sort through important matters related to such things as retirement preparedness, caregiving responsibilities, estate planning, and the tax implications of an inheritance.”

Suggestions for successful family financial conversations


How to have key family discussions

While these steps suggested in the Fidelity piece are no guarantee of a successful dialog, I think you will agree these steps offer a solid framework for these often difficult conversations.

PREP for family financial conversations

 The Fidelity piece offered this outline (their PREP plan) to break the ice and get these family meetings going: 

Make family meetings on retirement issues easier

While every family and every family’s situation is different, this is a good framework from which to start.

What’s at stake?

These conversations can be difficult because there is a lot at stake.

  • How will your parents provide for their retirement?
  • Where will the money come from in the event of a Long-Term Care situation?
  • Who will take over your parent’s financial affairs in the event they become unable to do so?
  • What are your parent’s wishes in terms of a myriad of issues including disposition of their assets upon their death, burial, staying in their home, etc.? 

Besides these issues a lack of communication and planning can be costly to the family in terms of taxes and other issues in terms of transferring your parent’s wealth to the next generation.  While this might sound like it only pertains to the very wealthy this is not the case.

At the end of the day what is really at stake is the opportunity for parents to communicate their financial wishes to their adult children and for the children to help their parents make these desires come true.

There is nothing easy about discussing these issues and having these family financial conversations.  But any difficulties that might exist will be dwarfed by the potential guilt and regret felt by both parents and children later on if this dialog does not occur.

Please check out our Book Store for books on financial planning, retirement, and related topics as well as any Amazon shopping needs you may have (or just click on the link below).  The Chicago Financial Planner is a participant in the Amazon Services LLC Associates Program, an affiliate advertising program designed to provide a means for sites to earn advertising fees by advertising and linking to Amazon.com.  If you click on my Amazon.com links and buy anything, even something other than the product advertised, I earn a small fee, yet you don’t pay any extra.