Retirement Gps: How to Navigate Your Way to A Secure Financial Future with Global Investing (BUSINESS BOOKS) - Softcover

Katsman, Aaron

Softcover

ISBN 10: 007181406X ISBN 13: 9780071814065

Publisher: McGraw-Hill Education, 2013

Synopsis

The secret to ensuring financial peace of mind in retirement?

INTERNATIONAL INVESTING

Building a solid retirement portfolio while ignoring the global economy is simply not a reality anymore. While still strong, the U.S. economy is no longer the only big player on the scene. China, India, Turkey, and Brazil are just a few of the many powerful upstarts in global markets. The world has changed for good--and your portfolio must change with it.

Financial advisor Aaron Katsman steers you in the right direction by providing you with a Global Portfolio Strategy (GPS) tailored specifically for today's diverse world economy. In Retirement GPS, Katsman calls for a more balanced portfolio in light of today's realities--one that places heavy emphasis on foreign investments. This no-nonsense guide teaches you:

• Why international investing is critical to your retirement portfolio
• Where the best places to begin investing are--from Scandinavia to the Middle East
• How to invest in foreign stocks and bonds

Set your course for a happy, safe financial future. The tool you need is right at your fingertips--Retirement GPS.

About this title

About the Author

Aaron Katsman is president and CEO of Lighthouse Capital, LLC, a boutique investment firm serving a global clientele. A regular contributor to SeekingAlpha.com, he is author of the investment blogs at www.gpsinvestor.com and www.aaronkatsman.com.

Tamela M. Rich is a business writer based in Charlotte, North Carolina.

Excerpt. © Reprinted by permission. All rights reserved.

Retirement GPS

How to Navigate Your Way to A Secure Financial Future with Global Investing

By Aaron Katsman

McGraw-Hill Education

Copyright © 2013 Aaron Katsman
All rights reserved.

ISBN: 978-0-07-181406-5

Contents

FOREWORD
ACKNOWLEDGMENTS
CHAPTER 1 Matching Retirement Lifestyle with Retirement Income
CHAPTER 2 A Fresh Approach to Asset Allocation
CHAPTER 3 A Primer on International Investing
CHAPTER 4 Around the World with the GPS Retirement Portfolio
CHAPTER 5 Investing in Foreign Stocks
CHAPTER 6 How to Invest in Foreign Bonds
CHAPTER 7 Putting It All Together
APPENDIX A Budget Worksheet
APPENDIX B Investment Criteria for International Markets
NOTES
INDEX

CHAPTER 1

Matching Retirement Lifestyle with Retirement Income

When I was 10 years old, I got my first job; I was a newspaper delivery boy forthe West Seattle Herald. There were probably 50 subscribers on my route, amanageable number for a kid to deliver to once a week. But the Herald wanted meto deliver an advertising supplement to about 500 other homes as well. I was agood boy and delivered the supplements for a year. I wasn't too keen ondelivering the advertising supplement, and after a while I figured that I couldget away with just delivering the subscriptions. Sure enough, that worked.

For about a month.

Remember, this was Seattle, Washington, which gets about 38 inches of rain everyyear but doesn't get enough sunshine to dry it up. After about a month ofleaving the supplements in my driveway, you can imagine the pulpy mess thatgreeted my supervisor when she drove past my house. If you also imagined thatthis did not end well for me, you were right. I was fired from my first job atthe ripe old age of eleven and a half.

What's that got to do with a book about retirement? It taught me the folly ofshortcuts. I find that in life, if you follow the rules, you'll be okay.Retirees who invest in get-rich-quick schemes almost always lose everything;those who don't save because they intend to win the lottery almost always end upwith nothing.

Why I Wrote This Book

Plain and simple, most of the books, advice columns, and radio and TV programson retirement planning rely on outdated notions of what retirement means in thetwenty-first century. Also, too few of the authors of these books highlightinternational investment strategies and vehicles. In advising a globalclientele, I've found that international investing is key in achievingpersonalized retirement goals. More on that later.

While my retired clients span the globe, they seem to have similar goals andneeds—helping their children, more travel, philanthropy, and enjoying theirnewfound free time. Let's start with what real people, not paid spokespersonsfor financial services companies, have to say about their goals andexpectations. The 2011 SunAmerica Retirement Re-Set Study poll revealed thefollowing:

• Retirees have a new outlook. Today, 54 percent of Americans view retirement asa new chapter in their life, rather than a winding down—a significant increaseover the 38 percent that held a similar view a decade ago.

• Retirement is being postponed. Preretirees say that they now intend to delayretirement by five years—from 64 to 69—in part as a result of increasinglongevity, along with the 2008 recession and newly projected financial need.

• Retirement no longer means the end of work. Almost two-thirds of those polledsay that ideally, they would like to remain productive and include some work inretirement so that they can stay active and involved.

• Financial peace of mind is now six times more important than accumulatingwealth. In fact, 82 percent name it as their key financial goal.

• Unexpected multigenerational family assistance has become the new retirementwild card. Preretirees must balance their retirement plans with the possibilityof their having to support aging relatives, adult children, grandchildren, andsiblings. Nearly half of Americans 55 and older expect to be providing thissupport and, in a new twist on child-care, 70 percent of those believe thattheir adult children will need financial assistance.

I am convinced that most people writing pre- or postretirement information havenever sat with a living, breathing client. Nothing is personalized. There is nofocus on the client's goals. Nothing is real. They assume that a genericretirement lifestyle of walks on the beach and exotic vacations is a universalaspiration.

What about the person who wants to spend as little as possible during hislifetime so that he can leave a legacy to a favorite cause or to his family? Ihave several clients who have achieved that goal.

What about those who want to see their financial contributions take root inpeople and institutions during their lifetimes and who don't care to endowanyone after their death? I've helped people bring this to fruition, too.

I find that celebrity financial gurus dish out irrelevant information aboutgoing after returns that outperform market benchmarks when they should behelping people balance their retirement lifestyles with their retirementincomes. Anyone who doesn't take this approach is pitching products, notpracticing financial planning.

"Wait," you say. "Outperforming the market is irrelevant?"

Yes, for most retirees it is irrelevant because what matters to retirees isfinancial peace of mind. The SunAmerica research backs this up.

The main financial difference between people who have retired and those whohaven't is the source of their income. Retirees are funding their lifestylechoices with retirement income, and everyone else is funding their lifestylechoices with nonretirement income. No matter what your stage in life, you've gotto balance your income with your expenses. That's playing by the rules.

The Biggest Financial Mistakes Retirees Make

I will set forth a new paradigm for a retiree's investment portfolio soonenough. Some of this advice you will embrace, and other parts you will ignore.Regardless of how much of your nest egg you decide to invest in the GPSretirement portfolio, I hope you'll avoid these top five mistakes that I seeretirees make time and again.

Mistake 1: staying on autopilot. I recently met with a well-off American lawyerwho was here in Israel visiting his children. He asked to meet with me becausehe wasn't happy with his investment advisor. His broker of many years hadretired, and the new one he had been assigned to had never taken the time to getto know him. His now-retired broker had made a practice of calling the busylawyer with interesting ideas and both portfolio and market updates, and hemissed that kind of personal service. The lawyer was also disappointed with hisinvestment returns and thought that his portfolio should have performed betterbased on the market's performance during the same period. When I asked him whyhe hadn't transferred his account to a different firm, he said that he was verybusy and hadn't had the time to get around to it.

Investors need to stop running on autopilot. They need to take control and makesure that their money is working efficiently. This doesn't mean that you have tobecome a do-it-yourselfer; instead, keep in touch with your advisor on a regularbasis to make sure your investments are doing what they are supposed to bedoing.

Mistake 2: lack of organization. Too often, I learn that retirees have multipleinvestment accounts with different firms, which makes it difficult for them tosupervise and evaluate their investments. When a client has multiple accounts,her financial advisor should be sitting on top of her entire situation. Theprofessional should not just focus on one account, but rather should assesseverything and see how the client's entire financial situation fits her goalsand needs. In short, your financial advisor should be like a corporate chieffinancial officer (CFO).

Mistake 3: budgeting. I volunteer for an organization that helps get people outof debt. I can't tell you how many times I sit with someone and he tells me thathe earns $5,000 a month and spends $5,000 a month, but for some reason he isalways in debt. Nine times out of ten it is because he forgot about annualexpenses when he formulated his monthly budget. Annual items could be carinsurance, a vacation, or anything else that isn't a day-to-day expense,including home maintenance. When budgeting, always remember to take annualexpenses into account. To help you with your monthly and annual budgets, I'veincluded a budget worksheet in Appendix A.

Mistake 4: keeping too much in money market funds. Part of any financial plan isto keep enough funds to cover between three and six months of expenses on theside, totally liquid, in case of an emergency. This is generally referred to asan emergency fund. I often see investors keep more and more money in moneymarket funds. While seven years ago money market funds were used as a strategicasset because they carried a decent yield, now they pay virtually nothing. Nada,as we say in the vernacular. Keep your emergency fund in the money market, butget the additional money invested and starting to work for you.

Mistake 5: locking assets outside your own reach. As retirees age, they usuallydon't add someone to the account who can make changes on their behalf. I adviseretirees to give a child or a trusted relative trading authority. This way, ifthey are not able to fully supervise the account, it doesn't become frozen.There are many ways to go about this that provide for checks and balances.Perhaps you will want to require two signatures from a list of three possiblesigners. Perhaps you will draw up a power of attorney. Consult with your familyand your advisors to devise a plan and instruments that work for you.

Funding Your Life Goals

No matter how you're funding your retirement—whether from investments, rents,royalties, pensions, or government assistance—you've got the same issue ofbalancing income and expenses in retirement that you had during your workinglife. Sure, you have different goals and constraints in retirement than you hadin earlier phases of your life, but the need to fund your life goals isconstant.

Far too often, financial planning conversations are centered on investing whenthey should be focused on funding your life goals. Clients and prospectiveclients call me all the time asking if they should invest in this fund or thatopportunity, and at first they're surprised when I confess, "I don't know." Thereason I don't know whether a particular investment is a good choice for theclient is that most clients haven't defined their life goals. They come to mewith account statements and ask me what to do with their money instead oftelling me what they want to do with their lives and asking how to fund thejourney.

How Much Money Do You Need in Order to Retire?

The amount of money you need in order to retire is based on how much you'll bespending in retirement, plain and simple.

It's a great maxim of many financial planners that, if you play your financialcards right, you will need less income to live in retirement. They reason thatonce you've retired, you don't have to commute to work, pay as much in incometaxes, fund your children's college educations, or make mortgage payments. Myexperience is that most people need a nest egg that will provide the same amountof income in retirement as before, even if the categories of expenses havechanged.

How can this be? Take a look at some of the life events that may happen duringyour retirement:

• Your home may be paid for by the time you retire, but you still have tomaintain it, and you may have to remodel it someday because it's run-down or toaccommodate a wheelchair.

• Your adult children need financial help. The SunAmerica study showed that 70percent of respondents anticipated that they might need to provide some level offinancial assistance for their adult children. Sometimes this means that theadult children move back in with their parents and bring the grandchildrenalong.

• Your parents need financial help. We're living longer, after all.

• Your medical expenses increase.

• You need to move out of your home into a more expensive residence where yourmedical needs are better served. Or perhaps you need skilled care in your ownhome.

• A cause that's important to you needs financial help.

• Your grandchildren deserve some spoiling. Or perhaps they need a collegeeducation that their parents can't afford.

• Your nest egg loses value.

• You want to do more with your golden years than sip coffee at your own kitchentable. If you want to have your coffee at a coffee shop every day, you've got topay the barista.

• You lose a life companion. Now you must dig deeper into your wallet when youseek companionship by going to movies or learning a new hobby.

In spite of the Great Recession, some people haven't gotten the message that youcan't live beyond your means. Here's a case in point. A retired couple from theAmerican Midwest called to inquire about hiring me as their financial advisor.It soon became apparent that we were not a good fit. They had lost twoproperties in foreclosure, and they carried tons of credit card debt despitetheir ages (late sixties and early seventies). They told me that they had turnedover a new financial leaf and wanted to start saving, even if it was only acouple of hundred dollars a month.

When I asked what they intended to do about their high-interest credit carddebt, they said that they would default on it. I told them that they had anethical duty to repay at least the principal to the credit card companies: "Youtook the money; you have an obligation to pay it back."

FIND YOURSELF IN ONE OF THESE STORIES

Ask yourself which of these options feels right to you. Most people want toblend these options a bit, but one will resonate overall.

• I want to save as much money as possible to leave to the next generation (savenow to endow after death).

• I want to use my money during my lifetime to support the next generation (givewhile living).

• I want to enjoy things during retirement that I couldn't enjoy during myworking life and still leave something behind for others (enhance my standard ofliving and leave something behind).

• I want to race my money to the grave and leave only enough to bury my corpse(spend now).

You need to listen to that little voice that says "yes!" to one of theseoptions. Sometimes it helps to find yourself in a story, so here are four thatillustrate the options just given.

Save Now to Endow After Death

Electrical engineers Aadi and Vanita live in a Boston, Massachusetts, suburb.With the exception of Vanita's 10-year hiatus while she was nurturing their twopreschool children, they worked for the same company for nearly 40 years and are3 years into retirement. They are fortunate to have both a defined-benefitpension and a 401(k), but the company has discontinued health insurance forretirees. Their children are married with families of their own; they arefinancially self-sufficient and will receive the proceeds of the couple's lifeinsurance policies.

In addition to a mortgage-free home and $125,000 in savings, Aadi and Vanita ownan apartment building that is currently valued at $5 million, but with acommercial loan balance of just under $2 million that is due in the next twoyears. The property generates sufficient income to pay the balance of the loan.Through a planned giving program, they have pledged the building to anorganization that builds medical facilities in rural communities in India. Theagreement includes a provision that up to $500,000 of the value can be divertedto their needs, but they are committed to leaving the entire value with thecharity. They spend their time helping this organization reach out to otherIndian expatriates who are in a financial position to help with its humanitarianwork. This involves a moderate amount of travel, which they enjoy.

Aadi and Vanita have enough income to live comfortably in retirement, but Aadi'srecent heart attack has made the couple appreciate the need to allocate some oftheir retirement nest egg to cover healthcare expenses throughout the rest oftheir lives.

Give While Living

Lincoln and Doris have been blessed with six children, all living near theirparents in Charlotte, North Carolina. Since their children and now theirgrandchildren have always been the center of their lives, they want to providefor them as best they can during their retirement. When one of the kids needsorthodontics, her grandparents pick up the tab. Sundays are always spent aroundthe large dining room table, and the grandchildren are now spilling over intothe family room at card tables. Lincoln and Doris never miss a grandchild'sdance recital or soccer game, and they plan to take each grandchild on a trip toa foreign country of the child's choice to celebrate his high school graduation.

Doris who is 62, is a medical social worker at a hospital and would like toreduce her hours significantly; Lincoln is an accountant, but not a partner inthe firm, and at age 64, he is ready to retire. They will spend about $60,000 onthemselves and their family yearly. While they have social security benefits of$35,000, they must make up the difference from the $1 million in their IRAs and401(k)s. This means a balancing act of capital preservation and lifestyle choiceso that they will not need to liquidate their paid-for home worth $500,000 formany years to come.

(Continues...)

Excerpted from Retirement GPS by Aaron Katsman. Copyright © 2013 Aaron Katsman. Excerpted by permission of McGraw-Hill Education.
All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
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Edition details

• Publisher: McGraw-Hill Education
• Publication date: 2013
• Language: English
• ISBN 10: 007181406X
• ISBN 13: 9780071814065
• Binding: Paperback
• Number of pages: 224