Moving Up to Millions: The Life Calculator Guide to Wealth - Hardcover

Connell, Kathleen

Hardcover

ISBN 10: 0470131810 ISBN 13: 9780470131817

Publisher: Wiley, 2007

Synopsis

Better ways to progress down the path to a secure financial future

In Moving Up to Millions: The Life Calculator Guide to Wealth financial guru and former California State Controller Kathleen Connell outlines a dynamic and digitally accessible interactive approach to securing anyone’s financial future.  It contains practical advice on overcoming life’s adverse financial events as well as a winning game plan that can be instantly updated for these uncertain times. It also includes a sophisticated, yet easy-to-use financial calculator that enables readers to create an unlimited number of personalized, real-time “what if” scenarios and calculate their optimal financial plan.

Aimed at readers in their peak earning years to those a few years away from retirement, this book offers both profiles of individuals and families who address financial challenges and reposition their careers and personal lifestyles to redeem their finances, as well as the actionable tips they follow on the road to financial freedom. A digital platform encourages readers to access weekly on-line expert panels and blog sites where they can interact with the author and access extensive web references for further education.

Kathleen Connell Washington, D.C is currently President of the Connell Group, an investment advisory firm located in Washington, D.C. and teaches International Finance at the U.C. Berkeley Haas Graduate School of Business and at the Georgetown University McDonough Graduate School of Business. Dr. Connell has twenty-five years of experience in the field of finance and served as a trustee for CalPERS and CalSTRS for eight years, which together comprise the largest pool of retirement assets in the world.

About this title

About the Author

Kathleen Connell is currently President of the Connell Group, an investment advisory firm located in Washington, DC. She also teaches international finance and corporate goverance at the UC Berkeley Haas Graduate School of Business. Dr. Connell has twenty-five years of experience in the field of finance and served as a trustee for CalPERS and CalSTRS for eight years, which together comprise the largest pool of retirement assets in the world. She was recently honored by SmartMoney magazine as one of the thirty smartest people in investing.

From the Back Cover

Praise for Moving Up to Millions

"A powerful tool for achieving financial success, offering the customized advice available only to the largest pension funds and wealthiest investors. A great buy!"
Jack Ehnes CEO, California State Teachers' Retirement System (CalSTRS), and Board Chairman of the Council of Institutional Investors

"American families today from the working poor to all but those at the highest economic levels are uncertain about their ability to achieve the American Dream. Kathleen Connell provides essential, accessible tools to help working people achieve their goals in the complex maze of our twenty-first-century economy."
Andy Stern President, Service Employees International Union

"Connell has produced a web-based approach that will help families manage the events of life and the accumulation of lifetime wealth in a constructive and informed manner. The ease and completeness of the Connell Life Calculator algorithm is awesome... widely used, this software will eradicate financial illiteracy and, properly applied, will increase savings and the ability of people to assure their own future."
Al Osborne, PhD Senior Associate Dean, Associate Professor of Global Economics and Management, founder and Faculty Director, Harold Price Center for Entrepreneurial Studies, UCLA Anderson School of Management

"In this book, Kathleen provides us with sophisticated, tailor-made financial advice. She shows how to grow and maintain wealth and provides a path for comfortable retirement. Good stuff!"
Larry ElderHost, The Larry Elder Show, KABC Talk Radio

"Moving Up to Millions is a how-to-survive text for all the financial risks of modern America. The web-based applications with which it is linked will allow millions of readers to plan systematically for their financial security."
Tom Campbell, PhDDean, UC Berkeley Haas School of Business

From the Inside Flap

The dynamics of changing life events divorce, sudden family expenses, uncovered healthcare costs, major disability, and investment losses, to name only a few cannot always be anticipated. While you may have achieved years of high returns on an investment portfolio, failure to mitigate the unforeseen risks that occur over your lifetime can quickly offset any accumulation of investment gains. In Moving Up to Millions, former California State Controller and respected financial advisor Kathleen Connell offers four principles of financial success that, if mastered and executed on a continuing basis, will guide you to economic security.

The rules are deceptively simple: Own your future. Make time your ally. Reduce risk. Master change. To help accomplish this, Moving Up to Millions provides an invaluable interactive tool for predicting risks and offsetting them with pragmatic action strategies: the Life Calculator. Available on the author's web site (www.LifeCalculator.net) the Life Calculator is the only financial engine that incorporates both investment advice and personal "What If" scenario simulations on life events. It provides you with sophisticated financial advice while including the additional capability of calculating the impact of a range of future life scenarios on your retirement savings, potential second career plans, and investment opportunities.

The life profiles of ten hypothetical American families and individuals whose life experiences may mirror your own are recreated throughout the book to illustrate how the Life Calculator works. Using varied income, career, geography, lifestyle, and personal finances, the examples describe profiles for each of the decades from people in their 40s through 70s. By seeing the financial challenges they face and their responses to adverse events, you will be educated to various financial strategies that can be employed in your own life to mitigate negative events.

Whether you have limited savings in the bank when you begin reading this book or have accumulated millions in investments, Connell's customized, sophisticated Life Calculator tools and strategies will increase your wealth and insure your financial future.

Excerpt. © Reprinted by permission. All rights reserved.

Moving Up to Millions

The Life Calculator Guide to WealthBy Kathleen Connell

John Wiley & Sons

Copyright © 2007 Kathleen Connell
All right reserved.
ISBN: 978-0-470-13181-7

Chapter One

Meet Your Neighbors

Moving Up to Millions offers you a multidimensional opportunity to create financial strategies that are unique to your own circumstances. In moving toward a goal of financial independence and millionaire wealth, you will have the opportunity to call on multiple resources. You will learn by completing financial exercises; reading the profiles of individuals and families-from union workers to top executives-who have met the challenges of becoming millionaires; drawing on the resources of hyperlinks and Web-based informational sources to gain knowledge; and making your own financial plan using the Life Calculator. You will become an active participant on your journey to multimillionaire status.

Life profiles of Americans are re-created throughout this book by 10 hypothetical families and individuals whose experiences may mirror your own or that of your neighbors. (On the Life Calculator Web site, www.LifeCalculator.Net, additional profiles are available, enabling you to identify with those individuals or families facing challenges similar to your own.) In reading the financial challenges they face and their responses to life events, you will be educated to various financial strategies that you can employ in your own life to mitigate negative events and to maximize opportunities. You will be encouraged to engage in appropriate financial responses to advance your own personal agenda.

Profiles are described for people who are in their 40s up to people in their 70s. Figure 1.1 shows the 10 Life Calculator profiles that represent a range of incomes from $42,000 to $225,000, with career fields as varied as nursing, clinical research, hospitality services, teaching, construction, law enforcement, advertising, law, bioscience, real-estate, and technology.

These Life Calculator profiles, seven couples and three individuals, have encountered personal challenges ranging from divorce, disability, loss of jobs, volatile income, unreimbursed healthcare costs, unfunded pensions, caregiving of parents, and investment losses. In response, they have proven resilient by identifying successful second careers, taking care of aging families in their own home, restructuring investment portfolios following major losses, recovering from serious injury, finding cost-saving methods of financing college, and regaining financial stability following costly divorces.

Moving Up to Millions

The families in the 10 profiles examined work hard to achieve their personal dreams. Each family encounters setbacks that challenge its ability to reach goals; and each adopts new strategies to regain financial security. Whether they work in blue-collar jobs, own their own businesses, or serve in high-professional positions, all of the people who are profiled hope to become millionaires or multimillionaires. If they have already achieved the status of a seven-figure net worth, their goal will be to maintain that status and seek opportunities to further expand their financial assets.

A millionaire is defined as someone whose total net worth exceeds the seven-figure range, including all financial assets: their personal residence; all investments; the value of all defined benefits, 401(k)s, and other retirement assets; and all savings. Millionaire status is based on the projected appreciation value of an individual or couple's assets with a total net worth value determined at the time of their expected retirement. Appreciation factors related to each asset category are available for your review in the profiles section in Chapters 8 and 9.

You, Too, Can Be a Millionaire!

What financial factors must be present to enable an individual earning $60,000 a year, or a family earning $122,000, to become millionaires? Is that really a possibility? Yes, as Adriana Dell, a nurse; Vivian Blackboard, a nonprofit executive; Hank and Trudy Trio, union workers; and Bill and Marla Newton, a high school guidance counselor and real-estate executive, confirm! All of them have assets over a million dollars at the time of their retirement.

If multimillionaire status is your goal, what factors beyond income assure you of reaching that status? As you read through this book, you will be given specific tips on investments, second careers, protecting against financial loss, benefit-rich jobs, and maximizing the value of your home investment, which will guide you on your financial journey to multimillionaire status. James and Nancy Razor, a police officer and a public attorney; Eric Router, a real-estate appraiser; Dan and Christina Apple, an advertising executive and a lab technician, all have achieved multimillionaire status, with assets valued between $2 million and $3 million.

Achieving a higher level of financial wealth, having accumulated over $3 million in riches, are Peter and Betty Moto, a bioscience executive and an arts enthusiast; Jack and Cindy Palm, a technology manager and stay-at-home mother; and Mary and Ken Blackberry, a CPA and an adjunct professor/consultant. The Motos and the Palms both benefited from generous stock options, while the Blackberrys leveraged the sale of an expensive home and a downsized lifestyle to regain financial success following their double job/pension losses at Enron.

How do you make a million dollars? Many of you may have already experienced the triumph of a seven-figure bottom line, and some of you are eager to seek the status of a $3 million net worth or beyond. Having read the diverse strategies adopted by the hypothetical households, both individuals and couples, you may be surprised that they, like yourself, are still evaluating financial strategies and seeking additional financial knowledge. Their use of the tools in the Life Calculator improves their financial sophistication, preparing them to make the best decisions leading to greater financial security and increased wealth.

Their achievement of a million-dollar or multimillion-dollar status is not the gift of a trust fund or a parent. That is a legitimate avenue for personal wealth, but it occurs for a select number of Americans. Only one in five Americans age 43 to 61 receives an inheritance, with a typical sum of $64,000. It is not wise to assume, unless you are certain of a windfall, that any such gift of dollars will be a factor in your achieving millionaire or multimillionaire status.

Rather, the strategies for becoming a millionaire are simple:

Earn significant income that, when invested, can catapult you to millionaire status.

Grow a million dollars or more through a diversified investment plan over a 20- to 30-year period.

Purchase a home(s) that enjoys the benefits of appreciation over a 30-year period.

Work in a benefit-rich job that provides generous healthcare and pension support.

Leverage employer-provided benefits, investing to the maximum limit for employer-matched savings.

Adopt a sound risk-management strategy incorporating appropriate health, long-term care, disability, and life insurance policies.

Educate members of your immediate family on the importance of appropriate age-related insurance, reducing the probability that their uninsured status will burden you with financial costs.

Win a national or state lottery-just joking!

Realistically, millionaire or multimillionaire status is the result of sound financial practices (living within your means and developing realistic savings goals); careers typified by hard work and superior performance; investing in real estate; protecting against the downside of adverse events through risk management; and leveraging the power of time and its associated compounding effects in a diversified investment strategy. Time is indeed your greatest ally in the journey to millionaire status.

Later in this chapter, the Four Rules of Making Millions will expand the discussion of strategies, and an in-depth review of the power of the Life Calculator in future chapters will facilitate your financial education. You will learn to track your own financial growth.

Begin now by considering your own financial situation. Apply strategies of the profiled families to your own life circumstances. By completing the following Life Calculator exercise, you may begin the positive steps to millionaire status.

Not All Millionaires Are Equal

Although all 10 profiled families included in this book have worked hard to achieve their financial security and also their millionaire status, there is a significant difference in their net worth, ranging from a low of the Trios, a nonprofessional couple with barely a $1 million estate, to a high of $4.7 million for a Silicon Valley-based tech executive and his family. These millionaires would all view themselves as middle class, though with significantly different status, lifestyle, and financial security. The millionaires' wealth falls into three groups.

Bronze-Medal Millionaires ($1 Million to $2 Million)

Those having $1 million to $2 million are typically known as the Bronze-Medal Millionaires. This group is composed of four families: one, a nurse; two, a CPA; three, a married couple with a school counselor and a mid-level corporate executive; four, a union household with a construction foreman and a hospitality worker.

The Trios are fortunate to both have defined-benefit plans together valued at roughly half a million dollars, which at net present value for their extended longevity, estimated at a minimum of 85 years, adds significantly to the increase in their net worth. Hank Trio used his construction skills to build a well-designed five-bedroom home, which he sold in the appreciating market. Without the value of the defined benefits and home, the Trios would have a much-reduced estate.

The Newtons, former entrepreneurs, intentionally redirected their careers to employment opportunities with secure income and generous benefits. Marla specifically chose her job as a public high school guidance counselor and coach, as its hours coincided with that of her children's school day, saving the Newtons over $30,000 annually in childcare expenses. Bill Newton's employer-matched savings program complemented his wife's defined-benefit plan, and both contributed importantly to their economic security.

The two single women profiled, Adriana Dell and Vivian Blackboard, achieved millionaire status due to the rapid appreciation of their home residences and the value of their employer-matched savings programs, which both were diligent in maximizing.

Table 1.1 presents a comparison of the four families.

Silver-Medal Millionaires ($2 Million to $3 Million)

Those households having a net worth of $2 million to $3 million, known as silver-medal millionaires, are increasingly frequent, given the excessive home appreciation cycle during the past decade. For most Americans at this net worth level, the personal residence represents 40 percent of their assets. Appreciation in many housing markets has created a cohort of households whose property values grant them automatic millionaire status.

For the Apples, more than half of their net worth was created from the value of their home. However, in order to enjoy the benefits of their home value, the Apples will have to consider a strategy that would result in the sale of their home and the purchase of a less-expensive downsized residence, freeing up assets that can be reallocated to a more diverse portfolio that reflects their personal preferences regarding risk and liquidity.

The Razors' promotion to silver-medal millionaire status was a direct result of their employer pension plans, which comprised a large percentage of their final retirement wealth. They were also able to retire at age 55 from their public-sector jobs, enabling them to begin second careers, receiving valuable income while still collecting their generous public-sector defined-benefit pensions.

Eric Router, a single professional man, credits his aggressive real estate investing activities for his significant wealth. Ironically, that investment style exposed Eric to a high level of risk in an investment arena characterized by cyclical returns. He reconsiders his willingness to continue on a path of high-risk behavior and reallocates his $500,000 investment portfolio to a diversified stock, bonds, and mutual fund portfolio, while still owning a few selected real estate assets. Router also recognizes that he has not had to pay the significant costs of raising children, saving himself the substantial expense of $300,000 to $500,000, the amount it would take to raise a middle-class child from birth through college graduation.

Comparisons of the silver-medal millionaires are presented in Table 1.2.

Gold-Medal Millionaires ($3 Million+)

The three highest-ranked multimillionaires profiled in this book, those having $3 million and above, are identified as gold-medal millionaires. Ken and Mary Blackberry, Peter and Betty Moto, and Jack and Cindy Palm achieve the impressive rank of gold-medal millionaires through entirely different avenues of wealth appreciation.

The Blackberrys, fired from their management positions at Enron, were able to finance their mid-career job changes due to the $700,000 net proceeds from the sale of their expensive Houston home. They made an important tactical decision: they relocated to the less expensive city of Austin and chose to buy a smaller home, placing $500,000 of their $700,000 home profit in an investment account, which grew substantially, together with their employer-matched contributions from their second career jobs.

Peter and Betty Moto benefited from the generous stock options Peter received as a biotech executive. Those options, together with the $1.4 million net profit of their home, helped compensate for the $500,000 medical costs they paid to support their son's multiyear recovery from a near-fatal car accident. Peter Moto's willingness to work beyond his early expected retirement provided additional income that enabled them to enjoy a comfortable, though delayed, retirement in Sedona, Arizona.

The Palms' route to gold-medal status was based on Jack Palm's employment in two pre-IPO Silicon Valley companies that netted him significant options when they both went public. The appreciation of those options served as the basis of his personal wealth.

Jack regrets that soon after his second company went public, he lost his well-compensated position, due to offshoring the functions to India. Jack was unable to secure a similar position in the industry, despite his credentials and active career search spanning a period of three years. He suffered three years of unemployment before taking a job at a salary of $160,000, but with an employer-matched savings program. The Palms are on the road to recovery!

See Table 1.3 to review the Gold-Medal Millionaires. See Table 1.4 for a summary of all three classifications.

Do You Really Need a Million Dollars?

Absolutely! A million-dollar lifestyle in 2007 is not a portrayal of a life of greed and wanton excess. Rather, it affords an individual or couple a reasonable lifestyle where they are financially independent and empowered to achieve their life goals. Recognizing the responsibilities of the club-sandwich generation and extended longevity of most Americans, achieving a millionaire or multimillionaire status simply helps ensure that your retirement will be characterized by comfort and security.

Fill in the blanks in Table 1.5. How many of the items have the power to erode your financial security? Total the costs associated with your selection. Note the difference between one-time costs and ongoing expenses.

Do your potential expenses surprise you? Whether you are beginning your pursuit of $1 million status, have achieved a seven-figure net worth, or are strategizing to leverage your multimillionaire status to further wealth increases, you may not have anticipated how quickly your million dollars will be spent on these nonbudgeted items, many of which are not within your control.

Advanced planning can substantially reduce many of these costs. The advice in this book and its accompanying Life Calculator software could save readers as much as $250,000, if you are responsive to the information and take the necessary action to mitigate against potential costs. See Table 1.6.

(Continues...)

Excerpted from Moving Up to Millionsby Kathleen Connell Copyright © 2007 by Kathleen Connell. Excerpted by permission.
All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
Excerpts are provided by Dial-A-Book Inc. solely for the personal use of visitors to this web site.

Edition details

• Publisher: Wiley
• Publication date: 2007
• Language: English
• ISBN 10: 0470131810
• ISBN 13: 9780470131817
• Binding: Hardcover
• Edition number: 1
• Number of pages: 208