Financial Planning

The Vanguard Balanced Index Fund constantly maintains a 60/40 (stock/bond) mix; the equity portion is invested in the broad U.S. stock market, while the fixed-income part mimics the Barclays Aggregate Bond Index. For the 10-year period of 2002–2011, the fund averaged 7.04% a year, while a 60/40 mix that was never rebalanced returned 6.82% annually.

A 2009 study by the National Financial Capacity found that 48% of those surveyed believed that owning a single stock was less risky than owning a mutual fund. Only 36% of adults surveyed knew that at 20% annual compounding, money would double in less than five years. In another survey, just 37% of respondents said they compared credit card interest rates when shopping for a credit card; only half shopped for auto loans.

The average monthly cost of a room in an assisted-living facility ranges from $3,000–$4,000 in most states, including California, Texas, and Florida. The states with the least expensive costs are Arkansas ($2,355) and North Dakota ($2,617); those with the most expensive are New Hampshire ($5,086) and Maine ($4,881). None of these dollar figures include the following monthly charges (source: WSJ):

Medicare Parts A and B cover hospitalization and doctor visits for most people age 65 and older. A supplemental plan called Medigap covers the 20% of costs not covered by Part B. For 2012, the typical Part B monthly premium is $100, down from $115 in 2011. Part B premiums ranged from $40 to $220 a month (those with incomes > $214K). Starting in 2013, the Medicare payroll tax will increase from $1.45% to $2.35 on incomes above $200,000 for individuals ($250K for married couples).

A December 2012 WSJ poll shows what its readers invest in for income, beyond conservative bonds: dividend-paying stocks (47%), high-yield bonds (19%), REITs (15%), energy MLPs (12%), and emerging markets bond funds (7%). A separate December 2012 survey by the WSJ asked financial advisors, mutual fund experts, and academics what they felt were the best books about investment basics:

There are 29 states with “financial support” laws that could result in a patient’s adult children having to pay for any unpaid long-term care bills. For example, in May 2012, a court of appeals ruled that a nursing home was entitled to $93,000 from the son of a patient who received care during 2007 and 2008.

Suppose you had a client with a $1 million nest egg (½ stocks and ½ bonds) who began taking withdrawals at age 65 at the beginning of 1973. Depending on the inflation-adjusted withdrawal rate, the client would have been broke before age 77 (January 1977) if the withdrawal rate had been 7–8% per year; the entire nest egg would not have been wiped out until age 89 (January 1997) if the rate had been 5% (age 82–83 at a 6% rate).

As of November 2012, roughly 46 million U.S. households (two out of five) held a combined $5 trillion in IRA assets. According to the IRS, some of the most common (and costly) IRA mistakes made by taxpayers are as follows:

Each day, 182,000 people visit a Social Security office. One strategy considered by married couples is “claim and suspend.” The strategy is to have both working spouses wait until age 70 to collect the maximum benefit. Every year, the benefit is delayed after “normal retirement age” (NRA), which means an 8% annual increase in benefits (note: NRA is between age 65–67, depending upon the worker’s date of birth). Here is how the strategy works: