This according to William Black, author of the book The Best Way to Rob a Bank Is to Own One: How Corporate Executives and Politicians Looted the S&L Industry

Bill Moyers Interview with William Black

Currently an Associate Professor teaching Economics and Law at the University of Missouri, his book paints a picture of the fraud that occurred during the 1980’s Savings &Loan  crisis from his front row seat as a senior regulator.

William Black calls it as he sees it.

Our current financial meltdown a “moral crisis” and one of calculated dishonesty.

“A single bank, IndyMac, lost more money than the entire savings and loan crisis.”

The difference between now and then, explains Black, is a drastic reduction in regulation and oversight, “We now know what happens when you destroy regulation. You get the biggest financial calamity of anybody under the age of 80.”

What is so important to understand that the checks and balances, the regulations meant to protect our fiinancial system, vanished once again. Will we never learn?

Watch the April 3rd Bill Moyers’ PBS video interview to hear William Black’s insight and full analysis. (opens in a new window) Please share your thoughts.

The second step in the Swan Circle of Wisdom is Acceptance.  You must embrace your current reality before you map out and begin your personal journey to financial serenity.

Sands of Time Stop for No One

Balancing the wisdom of knowing what you actually control and learning what you must accept will transform your life. You cannot control the passage of time, world events, or the daily fluctuation of the stock markets.

But you can control your thoughts, attitudes and perspectives.

You can choose how you spend your time, how much you choose to spend or save, and where you place your money to ensure either its protection or potential growth. You can choose to find an advisor you trust.

You can decide to make an investment that is guaranteed to provide you with an exceptional return on your time and money. Education and skill building.

By laying a foundation of personal awareness, you will realize that the power to change direction lies with you. Watch the video and understand that the most serious threat to your future and that of your children is our country’s addiction to debt.

Accept the truth. Then take control. I’m here to help. Please take time to share your thoughts. Let me know if you are interested in a Women & Money workshop by either posting below or contact me.

Next Step Accountability, the Freedom of Responsibility

Our decision-making process, the Circle of Wisdom, teaches that awareness is the first step in creating a life you love. So how does that help you get out of debt and gain financial serenity?

It’s just like dieting. When you begin a weight loss plan, an “in your face” reality check can clearly show you that what you are consuming is the problem. This awareness can be the wake up call that transforms and energizes your goals. Now that you know the problem, you can achieve success.

If you don’t know where your money is going, it’s impossible to plug the leaks and gain financial peace of mind. Although I use QuickBooks for my business, I have been searching for a simple financial software system I could recommend for personal financial planning.   You Need a Budget is more than a simple, effective personal budget financial software system. It is a tool that will help you quickly gain an awareness about money and lead you on the path to financial peace of mind.

Get Out of Debt, Stop Living Paycheck to Paycheck and Stop Fighting with Your Spouse

End sleepless nights and the stress that financial insecurity brings. Create a written spending plan (I’m not fond of the term budget) that simply and effectively works. Money management is made easy when you know what you want, realistically look at your income and debt, and create a spending and saving plan that works for you and your family. Sometimes a simple financial software tool helps takes the dread out of budgeting.

Do you need a personal financial software tool to get out of debt?

My Lightbulb Moment

Not necessarily. But gaining clarity about your current money situation will be your lightbulb moment. A true foundation to regaining financial control.

Whatever financial planning tool you decide to use (even a simple Excel or Numbers spreadsheet or spiral notebook), gaining a clear insight or awareness into your current situation is essential to get a snapshot of your financial picture.

These tools will shine a strong light on the problem and you will immediately know what you need to do to get out of debt and gain financial peace of mind. Awareness is the important first step.

An Amazon best seller with 93 5-star reviews, this You Need a Budget personal financial software can be up and running within minutes, allowing you to import your banking transactions, track all your spending, and quickly gain financial peace of mind by gaining control of your money. Compatible with Windows Vista/2000/XP, not Macs.  Users claim it is easier to use than Quicken or Money. As I haven’t used those tools, I can’t comment.  I do know You Need a Budget is a much less expensive financial planning software tool especially considering the provided support options.

Created by Jesse Mecham, a Certified Public Accountant, and based on four rules of cash flow, this personal financial software budgeting program helps you maximize your money as you set and fulfill all your financial goals. Get out of debt, save for retirement and remove guilt about spending money by having a defined spending plan already in place. Spreadsheets, online video tutorials, and community forums are made available.

Is this financial planning tool right for you? Maybe. Maybe not.

If you are interested, there is a 60-day free trial available to see if it’s a good fit.

Reviews:

“Just what I was looking for. I was looking for software that used the “envelope system” of budgeting where you take your cash and divide it up into different envelopes for your budget categories and then is removed as you spend. This software fit perfectly…”

“This software is very easy to use. The company goes way above and beyond to make sure you are comfortable through extensive video tutorials and customer support. You can even attend free webinars that go step by step…”

“I love it!! It is so freeing to get a month ahead on paying bills, but even if you aren’t planning to do that, you can use this software and tell your dollars where to go instead of wondering where they went!!!”

“The best thing about YNAB is that I know exactly how much money I have for everything. I know how much I want to spend on clothing, so I dont feel guilty when I buy something…”

“I have used Quicken and Money for several years and I can honestly say that, this is the best tool I have used so far. YNAB is a powerful budgeting tool, but if you only need to track and budget your income and spending, then this is the tool for you. “

Check out more success stories here.

The bottom line? Awareness is the first step to Take Control of Your Money

It is important to face reality, find the money leak and make the decision to fix it. Money matters. Start your Get Out of Debt Journey today.

Resource: 
You Need a Budget

Bears Eventually Hibernate

It’s the nature of the beast. Change is inevitable. How do you achieve financial security in uncharted waters?

If you haven’t done so yet, it is vital you protect yourself and conserve cash now, so when the true buying opportunities present themselves (and they will), you’ll be ready, with cash to invest. Unlike the masses, you can profit from this beastly decline.

Take advantage of upticks in the market to sell investments. Don’t mistake them for a new bull market. Not yet. ***

The ebb and flow of the ocean tide provides powerful life lessons. I’ve just returned from spending time at Cape Canaveral, walking and biking the beach each day, quieting the soul to open myself to the life lessons I would discover.

Ocean tides are predictable; just like clockwork they naturally and alternatively rise and fall. But the choppiness of the waters, height of the waves and color of the ocean change unpredictably each day. Some days the wind creates whitecaps even within a sheltered bay. Other times the ocean itself is calm and flat waters prevail.

But the tides?

Predictable. Expected. Unavoidable.

Ocean Tides Ebb and Flow

Understand the tides of investing are similar. Don’t fight reality nor bury your head in the sand. Neither will help your situation. When times are prosperous and the market is rising, no one thinks those times will ever end.

When the market is in a downward spiral, there also doesn’t appear to be an end in sight. Neither belief is true.

Contrarian wisdom wins every time. It is time to prepare for the next wave. Think about this …

Cash is King. Always.

Achieve financial security in uncharted waters by understanding and implementing timeless strategies for building financial strength. If you have remained invested in this market, you have to seriously ask yourself, why? Check out our October 08 article the Fox and the Goat, Who do you trust?

Is fear or greed interfering with rational thinking? Or are you procrastinating because you don’t want to make a wrong decision? It’s really not your fault. You have been programmed to hold on at all costs.

Right now, today, your primary objective should be preserving your assets, not looking at potential investment returns. This is a different ballgame. Back to basics rules apply.

Money market funds paying just 1/4 %? That’s a fabulous return when you are looking at the alternative. By investing in a money market savings, U.S. Treasury Bills or similar liquid investment, you have just made 20% more than the investor who chose to stay invested … and that’s just since January of this year! Perspective is vital to your success.

The DOW is at 1996 levels and the S&P is at 1995 levels, essentially wiping out all gains for the last decade.

Buy and hold? I don’t think so.

Buy and hold is a bull market strategy and does not work in a bear market.

Whatever happened to buy low, sell high?

Regardless of the market, all financial plans should begin with a planned “exit” strategy. This is the most important discussion you will have with your advisor (or with yourself for that matter).

• When will you take profits?
• When will you conserve principal?
• What is your plan when you have reached a financial goal?
• How much of a loss are you willing to take before you take money out of the market? 10% – 20% – 30%?

It is difficult, but necessary, to ensure emotion is removed from your buying or selling decisions.

Just as a fire drill prepares you in advance for an unthinkable emergency, advanced investment planning protects you from having your financial security go up in smoke.  Make decisions when you are calm. Consider your investment time frame, risk tolerance, and need for this money.

Prudent investors realize any money you will need to access in the next 3-5 years should always be kept safe. Stock market investing is for long-term money. If you are either close to retirement or already retired, you cannot afford to ride this financial tsunami. If you will soon need money for college, the stock market is not the place to be right now.

The DOW hit its historic 14,000 marker July 18, 2007 and then slowly but persistently tumbled down the mountainous slippery slope of global debt and financial crisis. Still there was an aversion to selling that defies all reason. This includes mutual fund managers and sophisticated investors such as Warren Buffet whose Berkshire Hathaway put in its worst year yet, losing 48%.

Are you a Victim of the Ostrich Syndrome? It’s Contagious!

Selling is a timeless strategy that has taken a back seat to the Ostrich Syndrome of buy and hold, regardless of the consequences or what the market trends are clearly showing. Since most investors (and young advisors) have experienced nothing but a growth market, it is a mind shift to embrace the reality that a bear market (click for video) is dancing right in front you and you can’t see him.

This global downward spiral is real. Ignore the bear at your peril. Denial won’t help.

If you bought $10,000 of AIG stock last May when it sold for $50 a share, you would now have $98, down 99.25%.

• Bank of America is $3.65, down 91.43%
• Citigroup is $1.22 a share, down 96.31%.
• GM closed at $1.99, down 93.64%.
• GE sells for $7.01, down 81.73%

These are the companies your pension and 401k plans are invested in. Liquidity is your friend. Check out the stock chart below to grasp what has happened to these four corporations over the last year. This is reflective of the market.

Stock Chart 2008-2009

Take heart. Even though no one can predict the bottom, it will come. I’m a realistic optimist. I have faith in the people of the United States even if our corporate leaders have led with greed rather than prudent judgment. However, I also believe the worst may still be ahead of us and that recovery may take years. I truly hope I am wrong, but I would rather err on the side of caution than inaction.

***So what should you do now? Talk to a trusted advisor and decide on a course of action that is appropriate for you and your circumstances. If your investments are with a 401k, talk with an advisor about any restrictions in moving your money into more stable investments within your retirement plan. Same for any variable annuities or IRAs. Don’t panic and make choices you don’t understand. Information is not knowledge. Knowledge is not wisdom. Fully understand your options and restrictions prior to making an irretrievable decision.

Join the conversation. Please feel free to leave a comment or ask questions.

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“To every thing there is a season, and a time to every purpose under the heaven…
a time to keep, and a time to cast away.” –
Ecclesiastes 3:1,6b, King Solomon of Israel, ca 1000 BC

DISCLOSURE: This publication is strictly provided as an educational resource and research publication and is does not provide any individual customized recommendations to buy, hold, or sell securities. Consult with a personal financial advisor before making any personal investment decisions. Click to read more about Lynn Shepherd.

By an unlucky chance a Fox fell into a deep well from which he could not get out.  A Goat passed by shortly after and asked the Fox what he was doing down there.

“Oh, have you not heard?”said the Fox, “there is going to be a great drought, so I jumped down here in order to be sure to have water by me.  Why don’t you come down too?”

The Goat thought well of this advice, and jumped down into the well.  But the Fox immediately jumped on her back, and by putting his foot on her long horns managed to jump up to the edge of the well.

“Good-bye, friend,” said the Fox, “Remember next time,
Never trust the advice of a man in difficulties.” Aesop

Whose guidance are you following?

Surrounding yourself with people who all spout the same financial jargon, from newscasters, brokers and so called journalists, is dangerous to your wealth. Look for the advisor who has a fiduciary duty to watch out for your best interests. Someone who isn’t afraid to take a stand. Look for the contrarian and listen with an open mind. Get a second, unbiased, opinion. What do the experts say?

Economist Nouriel Roubini, refered to as Dr. Doom by the naysayers, predicted this financial meltdown in his February, 2008 12 Steps to Financial Disaster. Today he posted an updated version of this insightful paper, The Risk of a Systematic Meltdown, suggesting policy recommendations to avoid the pending collapse of our global economy. He says:

… this is the worst housing recession in US history and there is no sign it will bottom out any time soon…
…radical action can be taken and should be taken to control the damage and prevent this meltdown from occurring. At this point the US, the advanced economies (and now most likely even some emerging market economies) will experience an ugly recession and an ugly financial and banking crisis regardless of what we do from now on… The financial and economic conditions are extreme; thus extreme policy action is needed now to save the global economy from an ugly depression.

Buy and hold?  No matter what?  I don’t think so.

Many advisors will eagerly show you what can happen if you miss just the top 5 days in the market by succumbing to fear and moving assets out of the market. Why does no one show you the benefit of missing the 5 worst performing days in the market? Neither can be predicted.

Here is a bit of stock market perspective

The Dow Jones Industrial Average hit a high of 11,722.98 on January 14, 2000 before starting it’s decline. It’s important to note, the decline began before the 9-11 World Trade Center attack. The DOW hit a five-year low of 7286.27 on October 9, 2002 (a short 6 years ago) and didn’t climb back over 10,000 until a year later on December 11, 2003.

In the 694 days between January 11, 1973 and December 6, 1974, the Dow Jones Industrial Average benchmark lost over 45% of its value.

The Roaring Twenties, which was a precursor to the Great Depression was a time of prosperity and excess in the city. Despite warnings against speculation, many believed that the market could sustain high price levels.

You can’t predict the market, but you can prepare. History always repeats itself. As the Bible states, “there is nothing new under the sun.”  Eclesiastes

• Never put all of your 401k money in one company stock. Think Enron, Tyco, Arthur Anderson, Worldcom, Lehman, Bear Stearns. Your circumstances are not the exception.
• Diversify. Not just with the mutual funds or stocks you choose, but also consider the tax treatment on your investments, including cash. Never be 100% invested.
• Don’t get greedy. As you age and circumstances change, it is not prudent to have all your money tied up in investments, regardless of their returns.
• Pay off your home. Don’t be lulled into thinking because you have a sizable retirement account you are well off. Not if your mortgage and credit card balance exceeds your investments. At the end of the day, it’s your net worth and debt-free assets that create the bottom line.
• Be a Girl Scout. Their motto? Be prepared. Always plan for the unexpected. Prepare, don’t predict. The only thing constant about life is change.
• Cash is always king. It provides you with the power of choice. This is a key Buffett strategy. Buffett’s Berkshire Hathaway was sitting on over $30 billion in cash during this crisis ready to take advantage of opportunity that always accompanies crisis.

Tax strategies give you options. Read our Traditional and ROTH IRA Comparison article. (opens in new window)  If you own a ROTH IRA and have the need for cash, your principal contributions can be withdrawn without the typical 10% penalty and tax consequences.  In times like this, that may become an option you need.  Please remember, however, that retirement funds are protected from bankruptcy proceedings so really think this through before taking withdrawals or using a 401k debit card.

If you see a bear market on the horizon, and believe me, we’re in one, when do you move to preservation rather than growth?

I don’t like to use labels when discussing investment options, but in this case it’s important you understand that variable annuities will offer you both downside protection, income guarantees, and the ability to transfer one subaccount to another without tax consequences. This may allow you (depending on your contract) to move to a money market as a safe haven and provide yourself with some peace of mind. Please talk with your advisor. This can be more complicated than it sounds.

Stay Tuned, Coming Up Next: Don’t Drink the Koolaide

Reference: Dow Jones Indexes

As much as we’d like the road of life to be smooth, the path we travel is often filled with potholes, detours,  and unexpected hairpin turns.

“Wear clean underwear,” she’d say. “Just in case.”

Yep … Mama said there would be days like this.

Prepare – Don’t Predict

You can’t predict the future. Change is always on the horizon, just a moment away. Prepare. For the unexpected. The unthinkable. The inevitable. How?

“Catch a falling star and put it in your pocket. Save it for a rainy day.”
“Don’t put all your eggs in one basket.”
“A penny saved is a penny earned.”

Childhood. Green stamps. Dime books. Piggy banks. Allowance. Eating out? Rare.

This crisis is the wake up call that can positively impact your future. When did it become silly to save? Prepare for the future? Be old fashioned and live within our means instead of borrowing against the future of our children?

What happened to building solid businesses on a foundation of tangible worth. Steel. Railroads. Cars. Bridges. Dams. Hospitals. Instead on phantom wealth. Derivatives. Short selling. Manipulation.

The Committee on Oversight and Government Reform met for the second day of hearings today about the financial crisis. Chairman Henry Waxman opened with a statement:

Average Americans are suffering economically. They are losing their jobs, their homes, and their health insurance. Yet less than one week after the taxpayers rescued AIG, company executives could be found wining and dining at one of the most exclusive resorts in the nation.

Rooms at this resort can cost over $1,000 per night. Invoices provided to the Committee show that AIG paid the resort over $440,000, including nearly $200,000 for rooms, over $150,000 for meals, and $23,000 in spa charges. Read Chairman Waxman’s full opening statement here.

Criminal. It’s time to get angry. Really angry. Demand accountability.

How can Martha Stewart be sentenced to jail time for her misdeeds while, under the same rules, today’s greedy CEOs that created this global financial meltdown, destroying the financial security of millions of citizens, are rewarded with a financial bailout package. I’m not so naive as to think we didn’t need government intervention. However having no criminal consequences for the greatest financial hijacking we’ve seen in our lifetimes is not justice. What lesson does that teach our children?

In an article recently posted on the CBS website, Ben Stein shared:

Despite every bit of historical experience of Wall Street, the government trusted them to do the right thing. Instead, of course, they did the things that made them the most money in the short run – issued oodles of subprime mortgages, and then made staggering bets on whether those mortgages would ever be paid off. When, as might have been predicted, those mortgages defaulted en masse, the whole Wall Street edifice turned out to be a House of Cards. Many of the biggest, most famous names collapsed, and fear spread across the nation like oozing flood waters.

Let’s learn from this. Wall Street has many fine men and women, but they need to be regulated for their own good – and for our own good. Click to read the entire Ben Stein CBS article .

Since when did regulations, rules, and ethics become outdated?

“Rules are Rules – It’s for your own good,” my mama said.

Share your wisdom. What life lessons will help you through this crisis?

In the land of the blind, the one-eyed (wo)man is king. Irish Proverb

The 2008 turmoil in our financial markets has been a true “black swan” event. Improbable. Not expected. Life changing.

Anyone not living in a bubble could see a day of reckoning fast approaching, but we were all caught off guard by the swift fierceness of the meltdown.

Life as we know it cannot continue. This is not just about overspending by the government, the banks, or the Wall Street investment banks. This is about greed, short term thinking, bad judgment, and the pervasive self-interest of “what’s in it for me.” Change has to come at a fundamental level. It is

Time for a Renaissance

As women, we have the power to reshape the world. Ethics. Leadership. Nurturing empowerment. Intuitive thinking. Courage. Patriotism. Your strengths make a difference.  Strong women have always made a difference in our nation’s history. Women like Eliza Pinckney, Sarah Livingston Jay,  Deborah Read Franklin, and Martha Washington were revolutionary women. As Cokie Roberts cited in her New York Times Bestseller, Founding Mothers,

They did – with great hardship, courage, pluck, prayerfulness, sadness, joy, energy, and humor – what women do. They put one foot in front of the other in remarkable circumstances. They carried on.

It’s time for a second revolution, a Renaissance of enlightened thinking.

Adversity always brings opportunity. As difficult as unexpected change is to experience, we gain both strength and wisdom. As business owners, teachers, advisors, entrepreneurs, and parents, there has never been a better time to share your voice with the world and make a difference. If you provide guidance to your clients, your co-workers, your children, your students,

This is Your Time

The world is begging for leaders they can trust. The original $700 billion bailout package didn’t pass because we lack trust in our leadership as well as the system itself. It didn’t matter that the President addressed the nation. It didn’t matter that the wolf was scratching at the back door, in clear view, ready to sink his teeth into our financial security and rip it away. The administration and political system had cried wolf too many times. We didn’t trust them.

And what they did next proved us right.

Politics as Usual

As Ron Paul said, the Senate took a bad bill and made it worse. Lobbyists and special interest groups sweetened the original 3 page proposal (arrogantly submitted by Hank Paulson with Section 8 providing for no oversight) into a 451-page Emergency Economic Stabilization Act with over $150 billion added to the bailout (now coined “rescue” plan) literally buying votes with “incentives” that had nothing to do with the original bill. Puerto Rico and Virgin Islands rum excise tax, NASCAR track cost recovery , children’s wooden arrows, green technology and energy tax credits, and income averaging for Exxon Valdez litigation settlement. No. I’m not kidding.

This must end. For our children. And our children’s children.

It starts with you.

“The facts speak for themselves… Runaway spending and a rising national debt will destroy America’s future as a great nation. As more of our debt is held by those in other countries, our political independence is put at risk by our economic dependency. We must act now!

David L. Boren – President Univ. of Oklahoma, Longest-serving Chair of the U.S. Senate Intelligence Committee

We have reached a tipping point. What we do now will directly impact the future of our country. For better or worse. Check out this extremely informative slide show documenting our national debt. Of particular interest to those of us who are baby boomers are the enlightening, eye popping, and somewhat scary slides dealing with Social Security and Medicare programs. Trust the truth.

Who is Ross Perot and why should you listen to what he says?

With an estimated net worth of around $5 billion in 2008, Ross Perot, a Texas businessman who is probably best remembered as running as an Independent candidate for the President of the United States in 1992 and 1996, is ranked by Forbes as the 68th-richest person in America. Whatever you may think of Ross Perot, his statistics and accompanying slides are reality, gleaned from government records.

Trust the Truth – Or Face the Consequences

“A rising tide lifts all boats.
It’s not until the tide goes out that you realize who’s swimming naked.”
Warren Buffet

Merrill Lynch. Formed in 1914 and headquartered in New York City, Merrill occupies the entire 34 stories of the Financial Center building in Manhattan. Plans were announced on September 14, 2008 for Bank of America to acquire Merrill Lynch.

AIG. This was the largest government bailout of a private company in U.S. history, though smaller than the bailout of Fannie Mae and Freddie Mac a week earlier. According to the 2008 Forbes Global 2000 list, AIG was the 18th-largest company in the world. It was on the Dow Jones Industrial Average from April 8, 2004 to September 22, 2008.

Bear Stearns, based in New York City, was one of the largest global investment banks and securities trading and brokerage firms prior to its collapse in 2008.

Washington Mutual. A thrift holding company and the former owner of Washington Mutual Savings Bank, which was the United States’ largest savings and loan association. On September 25, 2008, (the 119th anniversary of its founding), due to a $16.4 billion 10-day bank run, the United States Office of Thrift Supervision seized Washington Mutual Savings Bank from Washington Mutual, Inc. and placed it into the receivership of the Federal Deposit Insurance Corporation (FDIC). The FDIC sold the banking business to JPMorgan Chase for $1.9 billion, which re-opened the bank the next day.

Wachovia. On October 3, 2008, Wells Fargo and Wachovia announced they had agreed to merge in an all-stock transaction requiring no FDIC involvement, apparently nullifying the Citigroup deal. Wells Fargo announced it had agreed to acquire Wachovia for $15.1 billion in stock.

Fannie Mae & Freddie Mac: On September 7, 2008, James Lockhart, director of the Federal Housing Finance Agency (FHFA), announced that Fannie Mae and Freddie Mac were being placed into conservatorship of the FHFA (see Federal takeover of Fannie Mae and Freddie Mac). The action is “one of the most sweeping government interventions in private financial markets in decades”.

In the land of the blind, you are a woman with vision.

Share your voice. It matters.

“It’s not the return on my money I’m worried about. It’s the return of my money.” Yogi Berra

Who would ever imagine voluntarily investing in an investment that pays only 1/20th of 1%?

Yet that is what happened when $40 billion moved into 7 day Treasury Bills. Almost as bad as putting your cash under the mattress, isn’t it?  Fear is running rampant and despite it’s low return, there is a trust factor built into treasuries that at least you will get your money back.

Warren Buffett says he has never seen anything like the current fear and tsunami of financial crisis in his lifetime. When asked if we could be facing another Depression, he said, yes, it is possible. The root cause? Derivatives and false accounting.  (Sounds like greed and self-interest to me.)  However, Mr. Buffett also has strong confidence in the ability of America to be better off ten years from now than we are today.  He is a realist, not a doomsayer.  He believes in the “bailout plan”, but also realizes this is not an immediate answer.

He refers to the Reconstruction Finance Corporation which was used during the Great Depression.  Here is his interview with PBS journalist, Charlie Rose, about the bailout plan and our country’s future.

It’s time for fundamental change and accountability. It’s time for ethical, strong leadership. It starts with us.

“Change in beneficiary policy will help you simplify your planning?”

If you received the letter, did you understand the consequences? If you are like most people, you didn’t.

Ignore Vanguard’s Letter at Your Peril

When Forbes showed Vanguard’s letter to IRA experts, they were outraged. What did the experts have to say?

“It’s crazy. I don’t see how they can change the beneficiaries on your accounts without your consent,” Boston lawyer Natalie Choate said.

“Don’t let your broker or fund company have the final word on how you plan your estate. If your provider won’t follow your instructions, make a change and find one that will. You deserve to keep control of who’ll inherit your assets.” Dan Caplinger, writing for The Motley Fool.

“This borders on the unconscionable,” Green Bay CPA Robert Keebler fumed.

Simplify in this case means that if you hold multiple IRAs at Vanguard, each “class” of IRAs will be bundled together and beneficiary designations will now be the same at each class level.

What Does Vanguard’s Beneficiary Policy Mean to Your IRA?

Let’s say you have three ROTH IRAs, several rollover IRAs, and a Traditional IRA.  Each of these types of IRAs now represents a class.

If prior to Vanguard’s policy change, you implemented good estate planning principles, taking advantage of the IRS rules allowing you to designate a different beneficiary for each IRA, that planning has been indiscriminately discarded.

Vanguard views that type of planning unnecessary.  Different IRAs for charitable gifting? Separate IRAs for each child? Not necessary in their way of thinking.

Solid estate planning strategies suggest you take advantage of stretch IRA provisions and other tax planning by creating separate IRAs and naming just one beneficiary per IRA.  This allows your beneficiaries, Joe, Jane and Jerry, to each inherit one IRA acccount and take distributions based on their individual life expectancy should they inherit your IRA.

So what happens now?  According to Vanguard’s new policy, the last beneficiary form received at Vanguard controls the designation of all your IRA classes.

• Your ROTH IRAs now all have the same beneficiary.
• Your Rollover IRAs now have the same beneficiary.
• Your Traditional IRAs have the same beneficiary.

Clarify IRA Class Please?

Example:  You separated your ROTH into three equal IRA accounts, filled out account applications for each ROTH naming Joe the beneficary on one account, Jane the beneficiary of the second account, and Jerry the beneficiary on the last account. When Vanguard receives the applications, the one that is processed last is the beneficiary designation that will be placed on all three accounts. Your planning has been thrown out the window. Jerry will now inherit ALL of the ROTH IRAs.

Change your perspective. What if you were the IRA beneficiary?

You were the beneficiary.  And now you aren’t.

You are the IRA holder and were physically or mentally incapable of responding to Vanguard’s 2007 letter. Beneficiary changes were done without your consent or knowledge.

Time to Move Your IRA?

If your IRAs are held at Vanguard, or any other firm for that matter, it is vital that you periodically check your current beneficiary designations and make sure the beneficiaries listed reflect your choice. If not, get them changed.

If beneficiaries cannot be changed, move your funds to a firm who respects your power of choice and your ability to implement good estate planning practices.

Resource Articles (open in new window):

Disinherited by Vanguard? Forbes article by Ashlea Ebeling

Recommended IRA Retirement Planning Resource

Excellent IRA Resource and Check lists from Ed Slott: (You will leave this site when clicking on link. Use back arrow to return)

“Your Complete Retirement Planning Road Map:
A Comprehensive Action Plan for Securing IRAs, 401(k)s,
and Other Retirement Plans for Yourself and Your Family

A few of the more important considerations to keep in mind when choosing the right vehicle for your IRA contributions include:

• Tax Treatment (both at time of contribution and distribution)
• Income Limitations
• Age Limitations
• Required Minimum Distributions
• Early Withdrawal Penalties
• Contributions after 70 1/2
• Beneficiary Tax Consequences

IRA Comparison Chart

This handy comparison chart should help you answer questions you didn’t think to ask and help end some of the confusion. 

Open and print your personal copy of the IRA Comparison Chart here.

Copyright 2008 Forefield Advisors

Keep in mind that as long as you have earned income, anyone can contribute to a Traditional IRA. But …

Just Because You Can, Doesn’t Mean You Should

Just because you are permitted to contribute to a Traditional IRA doesn’t mean your annual contribution is deductible. This depends on your income, filing status, and if you or your spouse are covered by a company retirement plan. If you won’t receive an income tax deduction for your contribution, why not consider a ROTH?

ROTH IRA Guidelines

The ROTH IRA places more restrictions on who is allowed to contribute.  In order to take advantage of  tax-free growth found within the ROTH, you must meet certain income and tax filing guidelines.

If you are single / head of household and your income falls within the range of $101,000 – $116,000 congratulations. You can make a ROTH IRA contribution in 2008.  If you are married, file a joint tax return, and together your income falls within the range of $159,000 – $169,000,  you also can contribute. What if you are married, but file separately? Your income must be below $10,000, a very unlikely circumstance.

Bottom Line?

Assuming you meet the ROTH guidelines and you will not receive a tax deduction for the Traditional IRA contribution, the ROTH IRA may be your best choice.

Other Considerations?

Conventional wisdom tells you to diversify your investments among asset classes.  I agree, but believe diversification should be carried one step further.

Diversify your investments by also considering the tax consequences you will face in retirement.  No one knows what the future tax code will be. Your 401k, 403b, pension, Traditional IRA and perhaps even Social Security benefits are taxable. It is wise planning to take advantage of the tax-free growth of the ROTH IRA if you qualify.

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Please remember!  Information is not knowledge and knowledge is not wisdom. Feel free to post questions or comments.  Consult with a professional before making your decision.