The Independent Investor: Financial Challenges Facing Single Parents

Over 13 million Americans struggle each day to be the best single parent they can. It can be a thankless job and one that requires an entire set of financial tools that couples rarely face. This column is dedicated to helping the single parent cope.

Twenty-five percent of children under the age of 18 in the U.S. are being raised without a Dad. That's not to say that there aren't plenty of single fathers bringing up children, but the facts are that the majority (80 percent) of single parents in this country are women. Nearly half of them live below the poverty line. Here's how you can avoid that fate.

The first change you must make is in developing a new attitude toward life and your finances. If your spouse had been handling the finances before you broke up, that responsibility is now squarely on your shoulders. Step one is to know how much you are spending. Create a budget. Record everything you spend each day for the next three months and then divide the total by three. That will give you an understanding of how much you are spending on average each month. With knowledge comes power.

Continue to do this for that first year and make sure to monitor your spending on everything. The next thing to do is establish an emergency fund that can be accessed easily. This pool of money is earmarked for unexpected expenses like home repairs, new tires, etc. You should keep a reserve of 3-6 months of expenses on hand for emergencies, or in case you lose your job.

If you are now or have been a stay-at-home spouse, you will probably need to consider a new career. That may require taking classes to earn a degree or attend a vocational school. Sometimes divorce courts allow for "rehabilitation maintenance," which can be negotiated in a marital settlement agreement requiring one spouse to pay for the other's training. This is especially so when one spouse initially worked and paid for the other spouse's law, medical, MBA or other degree. Now it's your turn.

For those of you who already have a good-paying job, retirement savings will now become critical to your future and that of your family. You need to save at least 15 percent of your salary each year and if you can afford it, much more.

You must also reevaluate all of your financial documents. Term life insurance is important in the event that something happens to you. It is the obvious way that your children can be cared for financially if you or your ex dies suddenly. Life insurance, for those who are in the throes of divorce right now, can be mandated in a divorce decree. I suggest you insist on it and make sure your ex does not allow it to lapse by law. The policy should be large enough to insure there are ample funds to provide a home, basis living needs, medical expenses and college tuition for all your children.

Make sure that all of your retirement accounts and other pools of money have the proper beneficiaries recorded. This includes any money your parents may intend to leave to your kids. Normally, your children should now be the legal beneficiaries of any inheritance. The last thing you want is to see your ex-spouse receive your assets or become the custodian of assets while your children come of age. And while you are at it, you might give some thought to who you would like to have as guardians of your children in case of your death if not your ex-spouse.

Single parenting is a hard job and the relationship you have with your ex can make it that much more difficult if it is mired in recrimination and hostility. What is done is done. Your future success demands that you acquire a new self-image, devoid of the past, that will allow you to treat your ex as a business partner for the sake of your children and your future self. The sooner you accept these facts, the sooner you and your children can start enjoying life again.

Bill Schmick is registered as an investment adviser representative with Berkshire Money Management. Bill’s forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquires to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.

The Independent Investor: Kids & Money

Given that most Americans grow up with little or no idea of how to save, budget, or spend money, it might be a good idea to ask why.  It begins with the family but discussing money in this country is as uncomfortable as talking about sex.  That needs to change and it starts with our children.

"My kids were taught about personal finances as part of their school curriculum, but it went in one ear and out the other," said one hard-working client, who called asking for advice on how to teach his teenagers the value of money.

Although the majority of states now mandate some kind of classroom training in finance, most students fail to "get it." Children learn best when they apply what they've learned to their daily life, especially when it concerns their own money. If money is a taboo subject at home (and in most homes it is not), than managing one's money, no matter how little, simply becomes a hopeless task.

Yet kids are naturally curious about money. Last year, T Rowe Price, a global financial company, polled parents on the subject and learned that 37 percent of children asked their parents "how much things cost." Another 29 percent asked about an allowance, while 19 percent wanted to know where money comes from.

The majority of parents (77 percent) used their children's allowances as the main tool in family finance education. But there is a lot of controversy over whether kids should work for their allowances, just receive it as part of family environment, or get nothing at all.

Suze Orman, television's finance guru, believes that the word should not be part of the household vocabulary. Instead, children should be paid for chores. The more chores one does, the more one is paid, depending on the task and the child's age. This teaches a work ethic, she believes, while negating the allowance as their "due" simply because their best friend receives one.

On the other hand, an allowance for accomplishments above and beyond the expected daily chores (room cleaning, bed-making and other household chores) does help prepare the child for a future in the work place. Simply doling out an allowance to your kid, as many parents do, is no answer, since money never earned is money never valued.

The only way kids learn about savings, budgeting and spending money, in my opinion, is by practicing with money they have earned. But here is where the allowance concept falls down. Of roughly half the children who receive an allowance, in the survey, fully one-third spend it all and come back to their parents for more money. Eighty percent of the families polled in the study gave in to their children's demands. Is it any wonder that most Americans grow up to constantly live above their means? Even worse, only 1 percent of children save any money from their allowance, according to the American Institute of CPAs.

Most American families have never addressed sensitive issues like family debt or how much income their parents generated. When asked why that new bike won't be forthcoming, Mom and Dad simply say "no," or "we can't afford it." That is usually the end of the conversation. In my next column, I will discuss some methods you can use to further your children's (or grandchildren's) concept of money, while also teaching them how to budget and save and spend wisely; so stay tuned.

Bill Schmick is registered as an investment adviser representative with Berkshire Money Management. Bill’s forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquires to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.

The Independent Investor: Rise of the Smoothie

The global market for smoothies is projected to hit $9 billion this year. Driven by a new health-consciousness among consumers, today's on-the-go convenience of gulping down your vitamins and minerals is appealing to more and more of us. Expect that trend to continue.

From a niche market in America in the '90s, the industry here at home has grown to over a $4 billion market today, which makes the United States the dominat domicile of all-things smoothie. The sector is forecasted to grow 10 percent a year for the next five years, according to Research and Markets Group, an analytical business group. Food chains, service restaurants, beverage companies and consumers, not to mention the dozens of smoothie franchises, have made the fruit and/or vegetable drink as ubiquitous in America as McDonalds or Starbucks.

For many consumers worried about obesity, eating right and living longer, the convenience of gulping down your daily FDA minimum requirements of fruits and vegetables can be a strong selling point. It sure beats the pants off swigging down gallons of unhealthy soda.

Most of us consider smoothies a healthy but a sweet snack consisting of fruit and possibly yogurt or other ingredients like peanut butter or soy milk. The most convenient (and cheapest) way to make the drink is by using frozen fruit. Frozen fruit sales in the U.S. now top $1 billion a year, which is up 67 percent from five years ago, according to Nielsen. Sixty percent of that fruit went into making smoothies, which is up from just 21 percent back in 2006.

The making of smoothies goes back to the 1930s, '40s and '50s with the invention and use of both blenders and refrigerators. Smoothies became associated with the health food industry in the '60s through people like Jack Lalanne, the renowned health and fitness guru, who was one of the earliest advocates of juicing and nutrition. Today, with the trend toward organic and natural foods, smoothies have come into their own.

My own experience with smoothies is now two years old. I started with my old blender making a combination of fruit and vegetables drinks, but soon found that my tried and true blender wasn't cutting it. In search of the same consistency and flavor as a store-bought smoothie, I moved on to a popular smoothie-maker, which cost me a bundle. Still not satisfied, I stepped up once again and bought an even more expensive brand with a powerful motor. If I am an example of a typical smoothie consumer, no wonder that blender sales in America have grown 103 percent since 2009.

Today my wife and I consume at least one a day, combining both fresh vegetables and fruit. I will admit that making them can be time consuming and depending upon the ingredients, expensive. As such, you can usually find me in the bruised fruit and vegetable corner of my local supermarket. I usually make enough to last us at least two days. It gets better.

My company, thanks to my constant urging, decided to buy an almost-industrial smoothie maker. I have become the official "Smoothie King" in the office. It helps that just about all of us here are health nuts, extremely busy and concerned with our weight. As such, we are typical Americans.

As more and more commercial players move into the business, competition is emulating the differentiation that has been so successful in the coffee market. Now, we are being tempted by "Super Smoothies," made with antioxidant-rich super fruits like goji berries or super foods such as chia and flax seeds. Tropical fruit and tea-flavored concoctions are now common at most juice bars and cafes. Pre-made and bottled smoothies are also popping up at many local supermarkets.

If you haven't dipped your taste buds into the smoothie world as of yet, I suggest you do. The health and weight benefits are substantial and they taste great to boot.

Bill Schmick is registered as an investment adviser representative with Berkshire Money Management. Bill’s forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquires to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.
 

The Independent Investor: New Fiduciary Rule Would Benefit All of Us

The Department of Labor is trying again. This week, a proposed new rule, backed by the president, would force all financial advisers to adopt a "fiduciary responsibility" toward their clients when overseeing retirement plans. If passed, it could substantially reduce the fees and expenses we pay for that advice.

So exactly what is this fiduciary responsibility that President Obama is championing? The rule would require all advisers to put their client's interests above all other considerations when making investment recommendations on accounts covered under the Employee Retirement Income Security Act. That means the bulk of middle class savings represented by all types of IRAs, 401 (k)s, 403 (B)s, pensions, et al. would finally be protected from the present practices of gouging Americans through investing them in high-priced, low-return investment vehicles.

"But I thought that was already the law," said a New York client, on hearing the news.

Actually it is not. Unless you work with a registered investment adviser, most financial advisers on Wall Street are simply required to suggest products that are "suitable" to investors. In practical terms, all that means is that a broker can't put your uninformed, 92-year-old granny into a foreign penny stock that fluctuates 10 percent or so on a daily basis. Anything else is fair game and the industry has taken advantage of that suitability rule to rake in billions over the years from you and me.

It is estimated that over the course of 25 years of saving for retirement, the average investor will pay one-third of his or her assets in fees and expenses. The White House Council of Economic Advisors estimates that these conflicts of interest cost the investor 1 percent, or about $17 billion, per year.

These legal (but less than moral) practices of the financial community have been a pet peeve of mine for years. In my columns, I have repeatedly written about these pitfalls and how my readers could avoid them. Back in 2010, when the Department of Labor suggested this rule, Wall Street, the GOP and the SEC successfully shot down the proposal arguing that a tougher fiduciary standard would prove so costly that small investors would not be able to afford investment advice at all.  I say, why pay for investment advice that only enriches the broker that gives it to you in the first place?

I'm not saying that everyone in the financial sector who is not a fiduciary is a bad guy, because they are not. It is the system that is at fault. The early '80s saw the end of an era of fixed commissions for Wall Street brokers. Since then the way brokers managed to earn a living was to acquire as many clients as possible, while making as much money as one legally could through fees, commissions and revenue-sharing kickbacks from other vendors like mutual funds, insurance companies and annuities.

The fiduciary rule would change that model substantially and it would be expensive to implement and oversee. One's compliance department, like my own, would need to oversee that rule and ensure that client's interests were always placed above the company and individual's interests.  It is certainly doable. My company has a fiduciary responsibility to our clients and enjoys a good bottom line while fulfilling the letter and the spirit of that rule.

Wall Street, in my opinion, could fulfill a fiduciary obligation and still make money — just not as much. The quality of personnel that interface with clients would have to improve and many lucrative relationships with their existing vendors would have to change as brokers pursued the best investments possible at the lowest costs. I, for one, believe this rule is long, long overdue. It's about time the government and the White House put their money where their mouth is when it comes to the little guy.

Bill Schmick is registered as an investment adviser representative with Berkshire Money Management. Bill’s forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquires to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.

The Independent Investor: How to Make the Most Out of Social Security

Yes, it's complicated. Social Security benefits have been around since 1935 and, like taxes, have become increasingly complex through time. Most people are losing out because they don't understand the fine print. Starting today, you will, so read on.

For most of us, who haven't saved a great deal during a lifetime, Social Security benefits are about all we can depend on once we retire. In 2013, almost 58 million Americans received these benefits. Retirees and their dependents accounted for 70 percent of benefits paid, 19 percent went to disabled workers and dependents while survivors of deceased workers accounted for 11 percent of the total.  Although benefits have increased numerous times since its creation and those benefits are inflation-indexed, the total doesn't come to much, so wringing every last penny out of the program is essential.

In past columns, I have explained that if you can, waiting until you are 70 years of age is your best bet as far as receiving the most money from Social Security. If you defer filing at age 62 (your earliest allowable retirement dates) until age 70, the difference is over $100,000 per person. That's a nice piece of change for retirees. Of course, the downside is that if you die at age 71, then retiring early would have been a better bet. The healthier you are, the more sense it makes to retire later.

There is also an opportunity for married couples to enhance their combined benefits. It is called "file and suspend." It works best if one spouse is making significantly more than the other. The bigger the income gap, the bigger the payoff. Hypothetically, let's say my wife and I are now 66 and debating on whether to tap Social Security since we are both at full retirement age (FRA). Assume my wife, Barbara, as president of the company, has been the real bread-winner and has earned more than me over the years. She can expect to receive $2,000 per month in benefits, while I get $900 a month.

If Barbara files for benefits under her earnings record, I could claim one-half of her benefits ($1,000). At the same time, I could let my benefits continue to increase (by as much as 32 percent if I wait until I am seventy) before claiming them. That's a great deal for me since I make $100 more a month and let my benefits ride. But what happens to Barbara's benefits under this scenario?

As soon as I claim my spousal benefit, Barbara can turn around and immediately suspend receipt of her own benefits of $2,000/month. By doing so, we can now both accumulate the 32 percent increase in benefits until age 70. In dollars and cents, Barbara's benefits will grow to $2,640 a month and mine will top out at $1,188. But in the meantime, as the claiming spouse, I still receive $1,000 a month until age 70.

If we both live to say, 95, the file and suspend strategy would result in more than $200,000 in extra benefits between us. Not a bad return to simply spend an hour or two of additional form filing. There is an added benefit as well; since it would allow me to take a survivor benefit on Barbara's increased monthly amount should she die unexpectedly after age 70. Complicated? Yes, but well worth the time and effort.

Bill Schmick is registered as an investment adviser representative with Berkshire Money Management. Bill’s forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquires to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.