Should Investing Be Fun?


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Jim Lorenzen, CFP®, AIF®

“If you think investing is fun, you’re doing something wrong.”                                                – Warren Buffett

I’ll never forget visiting with a nice couple who was seeking advice on planning and investing.  All of a sudden one of them piped-up and said, “I really like trading; it’s fun, and I’ve been pretty good at it.”

When I asked how they did during the market meltdown, I was told they broke even.  I guess they were  like everyone you know who just returned from Las Vegas.

I guess there must  be a lot of people who do, considering all the active trading commercials you see on television, despite all the educational resources available that debunk it’s effectiveness on a consistent basis.  If Warren Buffett won’t do it, why should I?

One colleague tells his clients that pain in a strong indicator of good investing.  In other words, if a potential buy feels right, it’s probably best to hold off.

Studies seem to prove reveal that the human mind is often disconnected from reality.   If their feelings toward an activity are positive, they are naturally moved to judging the risk as low.  This explains why so many tend to buy when the market’s good and sell when it goes down.  Not surprisingly, a whole new field of behavioral finance has emerged that explains how we can think we’re being logical even as we do illogical things:

Data mining:  We tend to look for patterns that validate our beliefs.

Recency bias:  If stocks fall, we expect it will continue.  When they go up, we think that will continue, as well.  The most recent events are more important than an event that happened three months – or years – ago.

Confirmation bias:  When stocks go down, our belief is confirmed that stocks are high risk and low reward – which is why so many move to cash until the market comes back (buying high).

Herd effect:  While many investors believe they’re contrarians, research shows the human animal is more likely to follow the herd. – because we believe the herd is led by experts.

The fact is there are many other risks out there, often ignored by those trying to build their retirement asset base.  I even recorded a webinar about why many retirement plans are doomed to failure.  The important note is sometimes lost:  Those who begin early – and do it right – virtually always outperform those who do it wrong until they’re 65 and worried.

When it comes to trading, maybe Warren Buffett just might know something our nice couple didn’t.


6a017c332c5ecb970b01a3fd0c994a970b-320wiJim Lorenzen, CFP®, AIF®

Virtually all insurance companies will be using the newer 2012 mortality tables in 2016.  Why is that important?  The answer is simple:  The difference in payouts is significant when our lives are measured by the new tables!

According to the new tables to be used in 2016, the male life expectancy is now 88.5 years versus 85.4 years under the old tables.  This 3.1 years represents over 37 months of additional income that will have to be generated from an annuity.  For this reason, you can expect to see ALL companies that offer guaranteed income riders and annuities to lower their roll up rates and/or their income payments.

How much lower will the payments be?  That depends on who you ask, but many believe the payouts will be about 10% lower.  That means if the payout rate for a particular age would have been 5.5%, the new payout rate could be under 5%!



Jim Lorenzen, CFP®, AIF®

Believe it or not, over the years I’ve had many new clients come to their first planning meeting having already made bad, and often irrevocable, choices on their own – yes, even prior to planning; and, I’m sure I’m not the only financial planner who’s seen this.   Most often, the mistakes are made in Social Security claiming elections, often based on pre-conceived internal bias and no calculations; but, sometimes the decisions involved their 401(k) plans.

According to Cerulli Associates, rollovers from 401(k)s and other retirement plans will cause IRA assets to reach $12 trillion by 2020.

According to retirement expert, Ed Slott, who also happens to be a practicing CPA, it’s worth understanding that every time IRA or 401(k) money is touched, it’s a gamble for those who don’t know what they’re doing.  He says it’s like an eggshell – break it, and it’s over.

Here’s something few people really get:  If you make a mistake on the rollover, it’s possible you could lose the IRA entirely!   Boom!  It’s irrevocable.

A number of years ago, I wrote a report,  Six Best and Worst IRA Rollover Decisions,  and  one of the mistakes I mentioned was in not recognizing you probably shouldn’t do a rollover at all!

Why?  First, you have to understand what a rollover is – as the well as the difference between a rollover and an custodian-to-custodian transfer.  A rollover happens when money has been withdrawn from a 401(k) and deposited into an IRA.  When that happens, the client is required to do the necessary withholding, pay the tax and wait for a refund the following year.  A transfer of the account directly between custodians avoids that problem; but, there’s a potentially bigger one.

Example:  If a rollover has been previously rolled over in the past 12 months, the entire account now becomes taxable, and there’s no fix to correct the error.   Someone with a $500,000 or $1 million (or any other size) IRA could be in for a big shock.  Taxes will be due at their new rate – this withdrawal likely puts them in a new bracket – and the money left is no longer tax-deferred!

A direct transfer would have avoided this problem.

Keep Up with New Rules

A lot of seniors have CDs and IRAs at banks.  Last year, you could do one rollover per year for each of your IRA accounts.  No more.  Now, the law is one rollover per year for ALL IRA accounts – and that includes Roth IRAs.  Two rollovers means that one of them will be no good.

Inherited IRAs

Here’s where mistakes can, and do, happen far too often; because the rules are different – and stiffer.

Did you know a non-spouse beneficiary can NOT do a rollover?  A child who inherits a parent’s IRA must be careful.  Often , because the child wants to access the money right away, an attorney  will put the child’s name on it.  When that happens, that’s the end of the account.  It just became a taxable distribution.  It should have been set up as a properly titled and inherited IRA.   Putting the money into the beneficiary’s IRA is a terrible mistake.

 Beneficiary Designation

Too often, problems happen because people fill-out the beneficiary forms and forget them – never reviewing them.  Failure to do this only puts off the day when siblings get “lawyered-up”  because  the investor didn’t understand the true meaning of the distribution designations.

There’s more to know, of course; but, hopefully this will get you thinking… and doing your homework before making mistakes that can’t be changed.   Working with a professional who’s been down the path before can’t hurt, either.




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Even though women live longer than men, yet 80% take their Social Security at age 62 when it provides the least benefit!   That choice also reduces their cost-of-living increases because they started with a smaller income.  When you compound the lost income over a lifetime, it’s a bunch of bucks.

There’s a hidden whammy in there, too.  It’s often the woman that becomes the irreplaceable caregiver.  When they have children, many reduce their schedule and income resulting in fewer Social Security credits.  They’re also the ones who often leave the workforce to care for disabled or elderly parents.

According to a recent study, women were found to be short of retirement goals to a much greater degree than men.  The math indicates they need to save 26% more just to get even!

Maybe the question shouldn’t be whether you want to get rich.  Maybe it should be whether you’d rather have a guarantee that you’d never be poor!

Much retirement planning is flawed.  If you’d like to learn why, you might enjoy this webinar I created some time ago.


Big Changes in Social Security Claiming

Jim Lorenzen, CFP®, AIF®

Debt DespairThe Bipartisan Budget Act of 2015, passed by Congress and signed into law by President Obama on October 30, 2015, will dramatically impact two Social Security claiming strategies: restricted application benefits and voluntary suspension benefits.

Passed in order to eliminate unintended loopholes in Social Security verbiage, Section 831(a) and 831(b) of the Bipartisan Budget Act of 2015 effectively make dramatic changes to restricted application benefits and voluntary suspension benefits.  These benefits, partnered with file-and-suspend claims, allowed retirees to earn an additional $35,000 to $60,000 over the course of their retirement and can make a significant difference in retirees’ future retirement income.

Section 831(a): Restricted application

Up to now restricted applications allow those people who are full retirement age (FRA), to file a restricted application on their spouse’s record, allowing them to collect half of their spouse’s payment, while their own benefits continue to accumulate.  That was then.  No longer.

After April 30, when a retiree files, they will receive the highest benefit they are entitled to and will not have the flexibility of choosing between receiving benefits based upon their own record or their spouse’s record.   This means once a retiree reaches full retirement age (FRA), s/he will solely receive the highest benefit available to them.   So now, in order to receive delayed retirement credits, they will simply have to wait to file for benefits.  This is a concept is known as “deemed filing,” and was previously  applicable only for those who had not yet reached FRA, but will now apply to those reaching FRA and beyond.

There’s more.

Retirees can no longer elect to use a restricted application to draw upon spousal benefits while their benefits continue to grow.

The restricted application strategy for only spousal benefits, with ability to switch to their own benefits after they’ve accumulated further, will now be an option only for those people born January 1, 1954 or earlier. As long as a retiree is 62 by December 31, 2015, they can utilize restricted applications. However, if they don’t fall into this category, they will have to consider other options.

831(b): Voluntary suspension or “file and suspend”

Voluntary suspensions allow the lower-earning spouse, spouse A, to draw benefits based upon spouse B’s record while spouse B’s record is suspended. This allows spouse B’s benefits to grow by 8 percent until age 70.   No more.

Under the new law, spouse A will no longer be able to receive benefits on spouse B’s record while it is suspended, and conversely, if spouse A files for benefits and suspends, he/she will not be able to receive benefits on anyone else’s work record.   In short, if a retiree suspends their benefits, he or she cannot draw off of anyone else’s record and no one will be able to draw off of his or hers.

That’s not all.  The law effectively eliminates the ability of individuals to request a retroactive lump sum for all benefits between the date of filing and the date of suspension.   Up to now, retirees could “file and suspend”, and then elect for a lump sum of the benefits that would have been paid if the record had not been suspended until age 70 – an especially attractive feature for those people who have had poor health and would benefit from enjoying the present value of their money, rather than receiving it over the course of many years (in the form of the 8 percent higher valued payment).

Under the new law, people who have reached FRA and suspend benefits within the first 180 days of enactment of the new law will be able to take advantage of the old “file-and-suspend” rules.  Those filing more than 180 days after enactment of the bill will not, and will have to utilize alternative Social Security strategies.

Who do these changes affect?

These changes primarily affect married couples, but do in fact have some implications for those filing as single and divorced.

  • Single people will no longer be able to file-and-suspend at FRA, and then collect a retroactive lump sum. They will now have to take the highest benefit available to them at the time of filing.
  • Divorced persons will now be able to draw off their ex-spouse’s account only for “spousal benefits” if the ex-spouse has an active Social Security account. This means if their ex-spouse suspends their benefits, the divorcee filing will be left without that source of income until their ex-spouse chooses to make it active again.
  • Widows or widowers planning for retirement will not be affected and can continue to take advantage of restricted applications for survivor’s benefits.  Additionally, those who have already executed a file-and suspend strategy or a restricted application will continue to receive those benefits.

It’s important to remember Social Security optimization is different from ‘maximization’.  It’s not how much you receive; it’s how much you get to keep after taxes that counts.

If you’d like to get started on your planning, your first step can begin here!


A Lesson from the Banks

6a017c332c5ecb970b01a73df22bdd970d-320wiJim Lorenzen, CFP®, AIF®

I think many, if not most, professional advisors would agree that even 99% of “the affluent” make the same mistakes made by virtually every other American.

Fact is, even “rich” people worry about running out of money because they live at a higher standard and have a larger ‘cash burn’.

But, many wealthy people know something others don’t.

Programmed bias:  Since childhood, we’ve been taught the same things, which is why most of us tend to do the same things.  Some people, however, were maybe lucky enough to be mentored or did a lot of non-traditional financial reading – reading outside the financial entertainment universe.  Some learned from experience.

Whatever the reason, it seems that those who’ve achieved true wealth often were doing the kinds of things the rest of us either didn’t know about or were unwilling to do – it’s hard to go against everything we’ve been taught, which may be why, according to one figure I saw, less than 7% of all Americans have amassed even $500,000 in investment assets... and far fewer have achieved financial wealth in the millions.

Myth:  Debt is bad.  We’re all told to get out of debt and remain debt-free.  The idea is that we’ll be safer and be able to sleep better at night.  But, is that true?

Reality:  Destructive debt is badConstructive debt can be good!

Lessons from the banks

All through American history, most people have come to see banks as corporate giants who’ve become rich off of the rest of us.   Banks borrow money from consumers constantly.  They do this by paying interest on savings accounts, CDs, and lines of credit.

Think about it.  They make a concerted effort to borrow every single day – they even buy advertising to get people to lend them money!  And, of course, you know why they do it.  They lend the money out at higher rates and make their money on the margin.

No mystery there.  It’s called arbitrage.  Banks want a rate of return on the money they loan out.

Banks do it; why don’t the rest of us?

Mistakes most Americans make

Back in the late 1970’s, I read an interview with Jack Nicklaus, and I’ve never forgotten it.  In addition to his golf winnings and endorsement money, he had a successful golf course design business [he still has it and today he has more than 50 projects under development all over the world; in fact, over 80% of his business is now outside the United States].

In that interview, he mentioned that he’d made some mistakes early in building his business – mistakes he was correcting.  He said that in the early years he had all of his net worth tied-up in his business.  He said it was only later he realized that this type of equity position didn’t have a rate of return.  Business growth should arrive organically, not through loss of return.

From that point on, he used his business as a vehicle to generate cash flow (excess revenue after all taxes and expenses had been paid) and began to build his net worth away from his business where he could actually generate a rate of return.

Common programmed bias:    We’ve been told:  Pay-off your home!  Own it free-and-clear.  Some are taking a second look at this idea.

Now, I’m not suggesting you take out a second trust deed and put the money into the stock market, even for long-term growth.   That’s probably not a good idea.   Besides, your situation may involve another set of circumstances, needs, and objectives that this piece isn’t even addressing.

But, that doesn’t eliminate this as a valid financial strategic question:

  • Is holding home equity really a good idea?  Or,
  • should we be doing what banks do?

After all, banks have a ton of liabilities on their balance sheet; yet, most banks are completely solvent and consider their operations debt-free!

Lesson:  Debt and solvency aren’t mutually exclusive financial concepts.  You can have debt – even a lot of debt – and still be solvent.

6a017c332c5ecb970b01a73de5d743970d-320wiConsider this example:

Let’s say you own a $500,000 home that has $250,000 worth of equity.

Your balance sheet would look something like this:

Assets:  $500,000  home

Liabilities:  $250,000 mortgage

Net Worth:  $250,000

Point:  Your equity will rise or fall with the housing market, but, there’s no real rate of return.

Even if your home appreciates 10% to $550,000, you would have $300,000 in equity – on paper; but, it’s not a return.

Now, ask yourself this: How accessible is it in an emergency?   If you lose your job or become disabled, will you qualify for a loan – hard to do when you’re out of work – to access that equity then?

Maybe not.  You’d have net worth, but no money.  You could take a reverse mortgage; but, that takes time and expense.  It’s also something very difficult, if at all possible, to undo.

How about this?  What if you were to refinance or add a mortgage for your $250,000 in equity and loaned that money out?

Your balance sheet would look something like this

Assets:  $500,000 house + $250,000 returning a fixed return

Liabilities:  $500,000 house

Net Worth:  $250,000

No difference in net worth, except you now have a fixed return, too!   The return is taxable, and it must exceed the cost of the loan on an after-tax basis to be profitable; but, it’s doable if you can find one or more quality, i.e. “safe” or “secured”, borrowers that can pay a dependable and competitive return..

Now, what if the house appreciates 10% just as before and your fixed return was just half that, at 5%, your balance sheet would look like this:

Assets:  $550,000 house; $262,500 returning a fixed return (compounded)

Liabilities: $500,000

Net Worth:  $312,500  – Now, that’s a $62,500 difference.

You still have your equity.  Except now it’s not IN your home; it’s BESIDE it.  And, if done correctly, that equity will be accessible without loan applications or even delay, as you will see.

Oh, yes; you may have noticed I didn’t mention taxes on the 5% return… that’s because you should be loaning your money in a tax-advantaged way… and at compound interest!

If equity has no return “inside” the house; the key is to reposition it “beside” the house where it can earn a return and provide liquidity.

The proper arrangement of assets can be very powerful.

Interest: Yes, you’d be paying interest on your mortgage – let’s assume it’s around 5%.  That interest is tax deductible!   At a combined state and federal income tax rate of 33%, you’d really be paying 3.34%.  Now, if you can loan it out at a compound after-tax rate that’s higher, you’re a winner…. And if it’s tax-advantaged, you can really grow your future!

Where do you get the money to service the additional mortgage interest until you can deduct it?

Why not simply change your withholding exemptions on your paycheck?[ii]

Do you stay in debt forever?

It’s worth repeating:  You’re not eliminating your equity.  You’re just re-positioning it from your house and putting it into a kind of side account – one sitting “next to” your house; except this side account earns a rate of return.

Suppose some years from now your home is valued at $800,000 and it’s fully mortgaged; but, your side account has $900,000 in it – very possible with both the power of compounding and using a tax-advantaged strategy – would you consider that mortgage ‘as good as paid-off’?    I certainly would, and then some.

That’s why banks consider themselves solvent even with liabilities on the books.  If you have more money than needed in your equity side-bucket, you’re solvent, particularly if it’s accessible on a tax-advantaged basis.

Who’s really in a safer position?  Let’s compare.

If you were doing this, how would your financial picture compare to your neighbor who’s doing what everyone else is doing?

Just two points tell an interesting story:

  • If both of you lose your income, which one is able to access equity more easily for living costs or emergency expenses?  Which one of you has true safety and liquidity?   You have liquidity; your neighbor may not qualify for a loan.
  • Which one is better protected against foreclosure?  A bank will foreclose on a home with 100% equity faster than one with 100% debt… and it’s proportional at every degree in between.   And, it doesn’t matter if your neighbor paid $50,000 toward the balance the week before!  The monthly payment is still due and if not paid… well, you know.

Your position?  Just like the banks:  You may have liabilities on the books; but, you’re not in debt.

Quick review:  Your money is (should be) in a position that’s secured, liquid, and offering a consistent, conservative, fixed rate of return.  You can tap it for emergencies.  Your bank has no incentive to foreclose.  You want to pay off your house?  You can (should be able to) do it in a heartbeat.

Who’s in the better position?

  • Your neighbor:  He believed everything he was taught by people – probably parents – who also followed the same formula.  He may not be able to access a loan, savings could be diminishing, and his equity is tied-up, inaccessible without adding more debt or taking a reverse mortgage, which may not be advisable.
  • You have all your equity… it’s just BESIDE your house, not IN it.  The banks can’t touch it there, until you decide.  You have instant access.

You need a quality borrower:  Who do you loan your money to?

Your uncle Fred?  Your neighbors?  Do you run out and buy real estate notes?  I don’t think so.  They don’t satisfy the 4-point test:

  • liquidity
  • safety
  • predictability 
  • tax-favored

Why not loan your equity to an investment-grade financial institution and receive a return? 

There are ways to design sound retirement strategies using well-known “investment grade” financial institutions that can provide the right platforms and designs required – provided – you’re not trying to ‘get rich’ overnight.

Note:  You could loan money to large corporations and institutions by simply buying their bonds – a bond is simply an IOU that pays interest until the principal is returned at maturity – but, bonds wouldn’t satisfy the 4-point test.  They’re liquid, but have to be sold on the open market, and likely at a loss in a rising interest rate environment.  While they can provide safety and predictability, they’re not tax-favored since interest is generally taxed at regular income tax rates.[iii]

There are conservative strategic approaches to arranging financial assets that can not only address the issues cited above, but can also provide for a tax-advantaged retirement, as well.

What are 85% of Fortune 500 CEOs doing, as well as many members of Congress?[iv]

Many investment-grade financial institutions have offerings that meet the 4-point test; and the strategies used by so many CEOs and members of Congress are actually available to anyone.

Worth noting:  If your objective is to build a side-fund that will accomplish the goals outlined above and also provide for a tax-free retirement, you can’t wait until you’re ready to retire.  That simply won’t work.  The retirement objective must be addressed much earlier – the earlier the better, but age 60 is about the limit.  The reason is simple:  It takes time to make the proper arrangement of assets and to build the tax-advantaged value you’ll need.  As I said, it’s not a ‘get rich quick’ scheme; it’s a conservative strategy – conservative strategies always take longer – involving quality investment-grade institutions.

I’ve created a report that reveals what these people know about arranging assets so that they can not only plan for a tax-free retirement, but they also can arrange for a sizable side-fund that can be accessed tax-free.  You’ll need to go through an opt-in page to access it.  You can access that report here.

I think you’ll find it interesting and likely very helpful.

[i] The Power of Zero, David McKnight. Acanthus Publishing, 2013.

[ii] Be sure to discuss this with your tax advisor

[iii] ibid

[iv] See Footnote #1

Is Your Income/Tax Picture Common or Uncommon?

Jim Lorenzen, CFP®, AIF®

6a017c332c5ecb970b0192ac851ba2970d-320wiIs your income common or uncommon?  

Most of us think our income is pretty normal, according to most of the studies I’ve seen.  That may be because we see our neighbors living in the same neighborhood we do; driving the same type of car; and probably making similar incomes.  The people we hang out with are probably similar to us, too.   Sure, we know there are people who are poor and others who are filthy-rich; but, that doesn’t mean our incomes are uncommon…. or does it?

How much money do you have to make to be in the top 1%? – the 1-percenters we all hear about.  How about the top 10% or even the top half of all Americans?   And, how much of the total tax revenue do people who are like you contribute?

According to MoneyTrax®, Inc., these are the numbers (rounded-off):

The Top__%

Total HH Income % of Total Tax Revenue Paid


$369K+ 37


$161K+ 59




25 $69K+


50 $34K+


So, not only are those who’s combined household income totals $69,000 or more in the top 25% of all households, they’re also paying 87% of tall the income taxes paid.

With our national debt now over $18 trillion and with the handwriting on the wall – have you ever seen Congress lower the debt ceiling? – there may be a message for the  Baby-Boomers who are getting within ten years of retirement:  It just might (I’m being kind) get worse.

Do you have a plan?  It might be a good time to start.



Buying An Annuity? Keep it Simple!

Jim Lorenzen, CFP®, AIF®

6a017c332c5ecb970b0192ac05f306970d-320wiIt isn’t uncommon for people to buy things they don’t need; and when it comes to annuities, it’s often no different, and it doesn’t help when (sometimes) an agent adds bells and whistles, in the form of elaborate policy riders, that the client will never use!

Today, because many baby-boomers are concerned about a lifetime income they can’t outlive, annuity recommendations often include a guaranteed minimum withdrawal benefit (GMWB) rider.  The problem is that often it isn’t needed.  Worse, the cost of the rider reduces the earnings potential for wealth accumulation by eating away at the interest clients would otherwise earn.

Rich Lane and Jeff Affronti, in the October 2015 issue of National Underwriter, cited an example of a buyer who purchased an annuity with $1 million in premium who paid more than $160,000 for this type of rider – and it ended-up being a benefit the client wasn’t even going to use!   They pointed out that the example may be extreme; but, the point is no less valid:  It’s a waste of money if it isn’t used.

In today’s low interest rates, it may not be the best choice to add an income rider over selecting the appropriate rate of return.  The GMWB rider may sound great, but during the accumulation stage the focus should be on accumulation.

If income is needed down the road, a deferred annuity will allow the client to turn-on (annuitize) the income stream.  If they need income now, simply purchase a single premium immediate annuity (SPIA) that allows instant access to funds that can be used to supplement Social Security.  For a guaranteed income, it’s probably the highest payout for the money available today.

Deferred annuities have an income stream ‘built-in’ to the product – they all have a basic fundamental feature that allows the owner to elect an income stream on or before the maturity date – and it doesn’t cost a thing.

Something to bear in mind.


Inflation (for YOU) May Be Less Than You Think

6a017c332c5ecb970b01a73de5d743970d-320wiJim Lorenzen, CFP®, AIF®

While historic inflation rates average a bit over 4% and many people doing their own calculations may be using figures in the 2-3.5% range, the actual numbers may – just may – be far less – maybe as low as 1%!

Why?  Because inflation doesn’t apply to ALL of your spending.  Many people are paying on a fixed mortgage – those payments won’t increase.   Granted, other outlays (food, energy, and products) may increase; but, the total may be less than you think.

If 70% of your spending increases at an average rate of 3% annually, but 25% of your expenditures remain constant, you’re actual realized increase is more like 2.25%.

But, what if you’re retired an your spending decreases?  That’s when your overall cost increases may be closer to 1%… maybe.

It’s important that your planning reflect these realities, as well as others.  There are other considerations, to be sure.  A bad (or no) plan can be the most expensive of all.