Hello Jennifer:
Welcome to
The Greenleaf Guide
June 2012 Newsletter
How People Wreck their Carefully
Laid Retirement Plans
Lifetime financial security can be
achieved. Many Americans are enjoying
decades of comfort and prosperity in
retirement. Thanks to consistent savings
throughout their working years and careful
decisions, they are enjoying a worry-free
retirement.
However, others have veered off track,
resulting in less happy retirement years. In
many cases, the damage was self-inflicted,
rather than an event beyond their
control such as job loss, large medical bills, or
a significant stock market decline.
Question
My wife would like to consolidate
Protect That Nest Egg
A good retirement plan is most often wrecked
by large, unplanned withdrawals. It can be
hard to say no when a family member wants
to start a business or the grandkids head off
to college. Supporting an out-of-work son or
daughter has also become a retirementsecurity challenge for some parents in their
golden years.
Major decisions need to be viewed in the
our investment accounts -- we
have about 12 in different places -but I think it is safer to have our
accounts spread around so that
they are with different companies.
Am I right?
Answer
Few people are familiar with the
SIPC, the Securities Investor
Protection Corporation. However,
knowing about this governmentcreated agency should greatly
alleviate your concerns.
If your brokerage firm is an
SIPC member then you have
certain protections should your
brokerage firm close due to
bankruptcy or financial difficulties.
SIPC protects each brokerage
account from missing assets up to
$500,000 in securities, including
$250,000 in cash. (Money market
funds are considered securities.)
Essentially, if there is a shortfall in
funds available to repay
customers after liquidation, SIPC
fills in the gap. Some brokerage
firms also purchase supplemental
SIPC coverage from private
insurance companies, commonly
Lloyd's of London. These
brokerage firms then offer
coverage limits beyond $500,000
per account. Fidelity, for example,
purchases the maximum excess
SIPC coverage, which means
there is no per account limit for
coverage of securities. The only
per account limit is $1.9 million on
cash holdings.
Therefore, first check to see which
companies that hold your
context of a financial plan so that the longterm impact is not overlooked. Retirement
planning requires discipline when it comes to
saving and that discipline must be applied to
spending in retirement.
The Dangers of a Buyout
Another retirement-security threat is an
early-retirement buyout. When companies
want to reduce payroll expenses, health
insurance costs, or future pension benefits,
they often approach long-time workers
with attractive
early retirement offers. Unfortunately, taking
a buyout means employees frequently leave
work in their prime earnings years. Despite
skills and experience, finding a replacement
job at the same salary is difficult at best.
Furthermore, that lump-sum payout is often
not fully invested for the future or invested
too cautiously for the coming decades.
Projects That Go Over Budget
Finally, despite intentions to downsize and
limit housing costs, many retirees have
instead tapped their retirement assets for
remodeling projects or second home costs.
Since both types usually go over budget, be
extra careful of large initial expenditures that
will impact your qualify of life later on.
Studies show that the years just before and
after retirement are critical. Unplanned
withdrawals early in retirement will reduce
your retirement asset pool and its ability to
compound and stay ahead of inflation
throughout future decades.
Unbiased advice
from an independent, fee-only firm.
Portfolio Management
investment assets are
SIPC members. The SIPC has
more than 4,700 dues-paying.
Keep in mind that it is your
brokerage account that is covered,
whereas direct-held mutual fund
shares are not. (These are
regulated by the Investment
Advisers Act of 1940, which
protects fund shareholders.) If any
of your accounts is larger than
$500,000 find out if the brokerage
firm has purchased additional
insurance.
Keep in mind that SIPC coverage
applies to stocks, bonds, mutual
funds, and other investments, but
generally not to unusual (and
riskier) investments such as
commodities futures contracts,
precious metals, currencies,
limited partnerships, and hedge
funds. Furthermore, the SIPC
does not offer protection against
investment fraud, such as a scam
in which assets are invested in
securities later found not to exist.
Finally, SIPC does not offer
protection against market
fluctuations. Only missing assets
are covered.
In its forty-year history, the SIPC
has paid out $1.08 billion to
compensate customers with
missing brokerage assets. Half of
that was in 2009. The agency has
helped 625,000 customers retrieve
assets. At the end of 2010, the
SIPC reported assets of almost
$1.2 billion in its reserve fund.
Therefore, depending upon your
concerns and your assets, either
you or your wife may be right.
Investment Advice
Retirement Security Analysis
www.greenleaf-fg.com
Regardless of the outcome, I
encourage you to maintain recent
statements because customers of
liquidated brokerages are often
required to present evidence of
their holdings.
Los Angeles Office
Jennifer Hartman, CFP, CFS
323-330-0579
jhartman@greenleaf-fg.com
Indianapolis Office
Kathleen Hartman, CFP, CFA
317-576-1727
khartman@greenleaf-fg.com
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Greenleaf Financial Group is a Registered Investment
Advisor (RIA).