Good "Will" Hunting

Hunting around for estate related documents after a loved one has passed away is another burden during an already difficult and emotionally painful time. In the most recent edition of our newsletter, I talk about the gift we can give to our survivors by getting our estate and funeral documents/wishes in order. Below is an excerpt from the article which can be accessed via the image to the right.



Estate planning is not fun; it is not easy; and it is not cheap. Estate planning is also emotionally tough to address. Not only is thinking about our own death tough, but the needed discussions around estate planning are also filled with emotional triggers that generate more barriers to implementing an estate plan.


I know all of this first hand as my wife and I recently had our estate planning documents updated. It was amazing how quickly conversations would get derailed by low probability events and our own emotions.


Though somewhat painful, there is a very good reason to get through the estate planning process: it is the responsible thing to do - for our children and family. What is the alternative to estate planning? Generally, it means leaving your loved ones with the enormous and frustrating process of finding and gathering all of the information necessary to settle your affairs. Do you want them dealing with paperwork, complexities, and frustration at a time when they are going through a time of great emotional pain and adjustment?


And while having a will, advanced directives, and other legal documents is a must, most people think estate planning is done once they walk out of the attorney's office with signed documents in hand. There is a little more to do once the documents have been executed. Instead of leaving your family a mess, you can give them the gift of peace of mind by also getting organized. For example, what if your spouse died and you found yourself asking the following questions:

  •  Did he name beneficiaries for his IRA? Am I the beneficiary?
  •  What is the password to his email account?
  •  How do I contact his last employer to ask about life insurance benefits?
  •  Where can I find tax returns from last year?
  •  Where did he stash the keys to (fill in the blank)?

How do you do this? How can you know what is critical for your family to know in the weeks after your death? At Mallard, we have made this easy by creating a small "Estate Binder" for each client that contains the needed documents, checklists, and summaries. 



Should I Pay Off My Mortgage?

Let's first go through the benefits of paying down versus maintaining a mortgage.


The Benefits of Paying Down a Mortgage

Let's start with the benefits of paying off a mortgage - either by taking a lump sum of funds to pay down principal, or by sending in extra principal payments. First, making extra principal payments is a form of forced savings. If you were not making the extra payments, would that same money get saved? If not, then it is best to make the extra mortgage payments. Second, pre-paying mortgage principal will guarantee you a return equal to the mortgage rate (ignoring some adjustments for taxes). Therefore, if the funds were going to sit in cash earning 0.2% anyway, why not send them to the mortgage company to get a higher guaranteed fixed rate? Finally, paying off a mortgage feels good. It feels liberating and freeing.


The Benefits of Maintaining a Mortgage

First, a mortgage provides "positive financial leverage". This is the ability to borrow at one rate (the mortgage rate) and invest at another (by using your money for investment rather than mortgage pre-payment). In other words, if you were NOT making mortgage pre-payments and you were to instead keep the money invested at a rate higher than the mortgage-interest-rate (over the life of the mortgage,) then you come out ahead in the long-run. Borrowing money at 3.5% and investing it at an expected long-term rate of 7.5% provides a 4% advantage over the long-run (with some risks). Second, a fixed mortgage allows you to maintain a low rate as mortgage rates rise, but also allows you to refinance at an even lower rate if mortgage rates drop. Third, maintaining a mortgage provides some cash flow flexibility in the event of job loss/disability due to the funds remaining liquid and are NOT locked up in home equity. Fouth, a mortgage allows diversification. Who is better diversified - someone with a $400,000 home (no mortgage) in a single neighborhood/city, OR someone with the same $400,000 home, but because they have a mortgage of $250,000, they are able to maintain a $250,000 globally diversified portfolio? Finally, a mortgage provides some inflation protection. In the event of inflation, your salary rises and the loan value "shrinks" (in real dollars) due to the effects of inflation.


Should You Pay Off Your Mortgage?

To simlify, if your interest rate is low and your risk level is moderate/high, it is far better for your long-term financial security to maintain your mortgage and invest the dollars you would otherwise send to the mortgage company as pre-payments. If you are financially independent or risk averse and would feel great getting rid of your mortgage, go ahead and pay it off.  

Are You Retirement Ready?

tnesionI saw this quote, "Goodbye Tension, Hello Pension" hanging on an old sign in a restaurant.  Of course, today with pension plans fading out of  the retirement income portfolio, it should now read, Goodbye Pension, Hello Tension. Now the responsibility for generating an income stream is on the retiree and with that comes much tension - evaluating fees, asset allocation, fixed annuities, Social Security, etc.

With financial security evaluation, and retirement planning as a major focus of my practice, I receive a lot of questions about retirement readiness. In the article below I address a few of the most typical questions.


I would like to retire soon, what are the things that I should be considering?

The single most important consideration when it comes to retirement preparation is if you have saved enough to maintain your desired retirement lifestyle for the rest of your life. Unfortunately, determining what is "enough" is very complex and depends on many more factors than just expected retirement spending.


What other factors are there to consider?

First, you must consider other cash inflows - beyond the portfolio. For example, you may have a $50,000 a year pension. If this pension is inflation-adjusted at 5% a year, versus a fixed pension, this can have a dramatic impact upon the actual amount of savings that needs to have occurred. Also, does the pension provide for survivor benefit and if so, in what amount. These factors, and many more, will strongly impact how much needs to have been saved. Having to account for all these factors, render rules of thumb (such as the 4% withdrawal rate rule) irrelevant very quickly. I prefer to call these rules, "rules of dumb". 


Can you give me an example of how one of these complexities can impact planning for the future?

While it is relatively easy for most people to calculate their regular monthly expected retirement lifestyle, what people don't consider is how this lifestyle will change in the future. This is because people greatly underestimate the amount of change they will experience in the future. For example, if your plan is to move into a high cost CCRC (continuing care retirement community) this will require a very large one-time cash outflow at that point in the future - - plus larger ongoing expenses. In other words, it would be necessary to spend less now (earlier in the retirement years) in order to ensure that funds are available for these large expenditures in later retirement years. If you instead followed a rule of thumb such as the 4% rule, you might not have money for the move to the CCRC. These types of scenarios cannot be accounted for using rules of thumb or online retirement calculators. The situation may easily be reversed whereby you may need to take much larger savings withdrawal immediately (due to a decision to delay collecting Social Security) and therefore, smaller withdrawals in the future (since Social Security payments will be higher).


Other unanticipated or unaccounted for expenses include assisting children, your own medical needs, and large one-time capital expenditures such as home improvements, auto replacement, and emergencies.


Are there still other things to consider?

Absolutely. The most important considerations always revolve around the irrevocable decisions such as when to begin to take Social Security (and under what collection strategy), or when and how to take a pension. Both Social Security and most pension plans have a dizzying array of collection options. Decisions around selecting Social Security and/or a pension are very complex by themselves let alone once this decision is integrated within the context of a person's complete financial picture. Again these complexities cannot be illustrated or accounted for using rules of thumb or online retirement calculators. Even the most widely used financial planning software in my industry does not take detailed, year-by-year income tax calculations into account when doing retirement projections.


So, am I ready to retire?

I can only really answer that question once I have evaluated every aspect of your financial situation - income, pension, Social Security, spending, future medical, expected investment returns, asset allocation, debt, lifestyle spending in retirement, college funding, savings rates, current portfolio value, inflation, taxes, etc.  And that can only be done with the right tools which can handle all of life's financial complexities. However, once done, you will have a very strong handle on your expected retirement age and lifestyle in retirement.  


What if I have not saved enough? Then what is the best method of improving my situation?  

First, do not attempt to play "catch-up" by increasing your portfolio risk. Also, while saving continues to be very important, saving just a bit more will not have the impact you would hope. Instead, there are two things you can do. First, is work longer. This has several benefits. Delaying retirement continues your employment income which allows you to delay (and therefore increase) your pension and Social Security. It also keeps your portfolio intact by eliminating investment withdrawals.  


The second thing that has a major impact upon your situation is to reduce your lifestyle. This is not just in order to save more, but to adjust your spending habits back in line with your anticipated resources. 






Leverage Your Retirement Preparation with a Free App

oldbillLiving within our means is a classic (yet unequal) battle between the current self and our future self—in other words, between immediate gratification and delayed gratification. The current self doesn’t want to restrain spending; he wants the immediate gratification that comes with the enjoyment of travel and buying new “stuff”. Yet the future self wants the current self to rein in the spending and instead save so that he can retire in comfort.

The younger we are, the harder it is to consider our future selves. This is why most 20 & 30 year olds have trouble taking retirement saving seriously. When I was 20, I certainly didn’t feel connected to my current 45 year old self. And no doubt I will hardly recognize my 66 year old self. We are not able to imagine being retired (or older). We can’t or don’t want to imagine ourselves sitting in doctors’ offices, relying on eldercare services, or sitting in a nursing home bed.

 In the paper, Increasing Saving Behavior Through Age-Progressed Renderings of The Future Self (which can be found at the following link) the authors made an excellent point about the disconnect between the current and future self:

“To people estranged from their future selves, saving is like a choice between spending money today or giving it to a stranger years from now.”

It is true that at times saving can feel like giving money to a stranger. That certainly makes it much easier to spend it on our current selves now. The authors also state, “….that many people fail, because of a lack of belief or imagination, to identify with their future selves….”

Therefore, there should be a benefit to making our future selves more real and easier to imagine and identify with. Perhaps this will give our future selves a louder or more powerful voice. How can you make the reality of your future self more concrete? What the study found was that participants that viewed age-progressed pictures of themselves at age 70 saved twice as much as the control group (who only saw pictures of their current selves). So, how can you experience the same results – where you can make your future self more real and therefore do a better job saving for your future self?

There are free phone apps such as Age My Face or Face Retirement that will show you what you will look like when you get older. I used Face Retirement to demonstrate how my future self may look in my later years. Try the app and talk to your aged self. If you can better visualize yourself old, perhaps you will gain some leverage towards making a change.

Ask your future self what will life be like in the future if you keep spending your income and have little savings? What will this cost you in your relationships, your self-esteem, etc.? Visualize this clearly and experience what it will feel like to be poor and old. By really reflecting on these things and their associated feelings, you will gain some leverage for moving towards positive change.

current self


If you know you are not saving enough; if you know you don’t have an emergency cushion; if you have revolving credit card debt – then your present self has been in charge. oldbill


Give your future self a gift - know you must make a change (no matter how small) right now for the benefit of your future self. See your future (if you don’t change), experience how it feels, then take a step towards financial security by making a change that your future self would want.

I wish all the best to your current and your future selves.


College Planning for High Income Earners

College is expensive, but worth it. Unfortunately, according to Sallie Mae, 40% of all parents paygraduate no attention to costs when searching for a school. It is easy to get caught up in thinking their child should go to the “best” school regardless of cost, and then figure out how to pay for it later.

I have said in the past that paying for college is a partnership shared by those vested in its benefits. Unfortunately, because the cost of college is a more immediate problem than retirement and it involves our beloved children, many parents fund college at the expense of their own retirement. Rather, even for those of high income – which I will define for this article as those with incomes greater than $200,000 - it is imperative that your life-long financial security is assured prior to committing to paying for “whatever college costs” for all of your children. Ideally, high income earners will have prepared for both their financial security and for college costs, by limiting lifestyles along the way.

The Big Picture

Valuable college educations are available for all types of students at any price (even for those with high incomes). You don’t have to pay high tuitions for a good education. Smart ambitious students who aim high are likely to do well no matter where they earn their bachelor’s degree – even if it is not at a prestigious university. In fact, most students love whatever college they wind up going to. Don’t you think fondly of your alma mater? Forget the competitive game and instead focus on finding the best education and the best fit (socially and academically) at an out-of-pocket cost that can be managed by everyone.

What Will This Cost & What Am I Expected to Pay?

A college education will likely cost between $30,000-$60,000/year. For example, an in-state public school may cost between $20,000-$30,000/year whereas private school tuitions are generally $45,000-$60,000/year. These costs are the “sticker prices” and (especially for) private schools, the sticker prices are generally higher than the actual out-of-pocket costs. Why? Marketing. Parents tend to equate “sticker price” with quality. However, many private schools (if you choose wisely) will discount the sticker price (via merit aid) in order to attract desired students.

It is a very good idea to find out what the government expects you to pay for a year of college. This is what is known as your Expected Family Contribution (EFC) and should be calculated as early as possible at This dollar figure is important because if your EFC is $25,000 and the school costs $30,000, you will be offered financial “aid” of $5,000. Of course this “aid” will likely be in the form of loans. The EFC can be as low as $0 for a poor family or over $100,000 for a high income family. The methodology used to calculate EFC figures for millions of Americans isn’t always fair. It’s no wonder since the EFC formula is actually a political creation driven primarily by income.

The government is willing to loan you (and your student) a lot of money, but that doesn’t mean you should borrow it. I said earlier the cost of college should be shared by those vested in the benefits, but students need to give serious consideration to minimizing their share. This consideration should be done within the context of their future earnings power. For example, if a student will end up as an investment banker, they should feel comfortable borrowing more than say a future school teacher. One rule of thumb is to borrow no more than the amount of their first year’s starting salary.

Let’s assume a “high income” family of four ($200,000 of income) with one child entering college where their EFC would be about $50,000/year. Since most colleges cost the same or less, not much or any assistance should be expected. Also, there is not much advantage to attempt to lower your EFC by minimizing assets or income.

However, Todd Fothergill, a college planning consultant with Strategies for College, states that high income parents must be aware how their EFC can change. For example, if and when a second child enters college when your first is already in college, the EFC would drop down to about $25,000/child. In other words, even those of high income will qualify for help. Therefore, don’t assume if you don’t qualify for aid with your first child, that you won’t with your second child. Of course with two in college, you would still see a cash outflow of about $50,000/year, plus added debt in the form of need based “aid”. Families either must be ready for this, or must consider how to minimize the net cash outflow.

Once you have an idea of your EFC, the next step is to get an idea of the ACTUAL cost of your desired schools. Unlike the sticker price, the actual NET price of attending a school reflects the “discounts” due to financial aid and merit awards. The best tool for calculating your net price is a “Net Price Calculator”. These Net Price Calculators can be found on the website of each school or try The results will provide an estimate of the net price of the chosen school AFTER grants and scholarships (i.e., free money) as well as from the Federal and State governments.

Best Practices for High-Income Parents

  1. Avoid the Northeast. A good rule of thumb is if there are more “cows”, you will pay less. It only takes a quick glance at a list such as Kiplinger’s Best Values in Public Colleges to see this correlation. For example, public schools in North Carolina, North Dakota, Missouri, and New Mexico cost quite a bit less than those in the Northeast.
  2. Apply strategically to schools where your child is most likely to receive free merit aid. Since need-based assistance is off the table, find a school where your child is in the top 25% academically. In other words, find schools that are excited to have them. Another method of increasing merit aid is to find good-fit schools that generally offer higher amounts of merit aid. US News keeps a list of schools providing the highest percentage of non-need based aid. These schools are willing to pay for “brains” in order to improve their status
  3. Avoid the brand names – NYU, MIT, University of PA, University of Michigan, etc. According to Todd Fothergill, “Elite undergraduate degrees don’t hold the weight they did 30 years ago”. Prestigious brand-name schools don’t give merit money because they don’t need to. They charge more because there are folks willing to pay for the name. In fact, there is far more merit aid to be had from the schools you have never heard of in a Midwestern or Southern state.
  4. Look for schools with high four year graduation rates, and screen out those schools where only a small percentage of students graduate in four years.
  5. Other ideas include taking college credits while in high school, or using the College Level Examination Program. Many schools will give credits to kids who pass these proficiency exams.


The goal is finding the best education and the best fit while keeping out-of-pocket costs at a manageable level. Ideally, your child should know early on how much you can afford and work within those guidelines.

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