Newsletter | Mar/Apr 2008

Spenders vs. Savers: Financial Planning with Gregory Hannah

by Stacy Webb
Gregory J. Hannah, MBA, CFP talked to OWA members on February 5, at the PG&E Energy Center, San Francisco.

Gregory Hannah began by saying that where finances are concerned there are two types of people, Spenders and Savers. He went on to say many people put off saving for their retirement and then are unprepared when they are ready to retire. He asked, "Do you spend more time planning your two week vacation than you do your retirement?" He advised that in order to be prepared, one first needs to figure out one's goals and priorities, then develop a financial planning strategy, create a budget, and start an investment portfolio that is geared towards one's risk tolerance and your needs.

Mr. Hannah further declared that individuals desire to retire early and because of advances in health care may live well into their nineties and beyond. The quality of life in these elder years is so enhanced that the level of activity is reflective of a much younger person. The assets designated for retirement are often times not sufficient for the longer lives and lifestyles of today retirees. No one wants to outlive their money. To further complicate this issue, it is common knowledge that social security will not be adequate for the next generation of retirees. Financial planning for the future requires a complete analysis that includes debt to income ratio, budgeting, and investment possibilities.

He continued to advise that the strategy for retirement, college planning, estate planning, and/or legacy planning all begin with your priorities and goals. A financial planner can help develop an investment portfolio with a balanced assortment of financial products to safeguard your money and allow it to grow.

According to Mr. Hannah, a balanced mix of financial products and a well-chosen combination of risk levels is crucial. You should plan your asset allocations with a mix of stocks, bonds, and cash that are a match to an individual's risk tolerance and good financial sense.

In Mr. Hannah's view, small company and international stock funds, options, and commodities can have huge gains, but are also extremely volatile. International investments with the fastest growth such as BRIC (Brazil, Russia, India and China), gained 60% last year, but carries significant risk. Middle risk investments such as annuities, stocks, and real estate, with real estate being historically riskier than the stock market are the next level of risk. Large company stock funds, corporate bond funds, government bond funds, money market funds and CDs are good products for those with low risk tolerance, however the returns are lower. A good balanced mix of the three tiers of investments in alignment with the individuals risk tolerance will buffer your investments as well as secure growth.

Mr. Hannah advises that life insurance can be an estate plan; the money is there when we need it by taking cash from the policy. He also heartily advises us to invest in a Long Term Health Care plan, saying, " Don' t wait to get it or you may not qualify when you need it". This insurance can cover a significant portion of home care or nursing home patient care. Mr. Hannah illustrated the importance of having such insurance with his personal story of a potentially debilitating stroke that occurred at a relatively young age. He was lucky enough to have recently purchased a Long Term Health Care plan right before his stroke. It helped to cover the extensive medical care he required. Many who have diligently saved for retirement have lost it to such circumstances. That is enough of a warning for me and I am looking into buying mine now.

A Long Term Care plan is one way to prepare for the unforeseen. Among the reasons people do not save enough money to retire are a lack of planning, inflation, loss of income to taxes and poor investment choices. Mr. Hannah would like to help us plan and save enough for our future. He points out that Certified Financial Planners are responsible for what they tell you, while brokers are not legally responsible for their advice.

Some retirement options to help save for our future are to live on less now, save more, delay the day we retire according to our priorities and earn more money now. Inflation averages about 4% per year, so your money must earn 4% interest per year just to keep up. At this rate, a cup of coffee will cost $16 in 2024! When looking at retirement needs, inflation is the most important factor to consider. Mr. Hannah points out that if you take full Social Security benefits at age sixty-six, there is no taxation on additional income. In addition to giving this informative presentation, he has kindly offered to meet with OWA members for one hour, pro bono to give us financial planning advice. Feel free to call him and set up an appointment - Gregory J. Hannah (510) 568-4652.

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