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Sources of retirement cash flow

January 23, 2018

The purpose of attaining financial security should be to be able to have sufficient cash flow to meet spending needs for the rest of your life. The planning to have everything worked out exactly right so that the check for the funeral bounces is not realistic since we never know when we would be passing on. Rather, we need to accumulate a sufficient amount of assets that will provide the needed cash flow no matter how long you live. This could require leaving some funds untouched, forever, so the cash flow stream won’t cease. Here is a look at a reasonable picture of cash flow sources in retirement.

Retirement income: Retirement means you are no longer earning a pay check. If you are still working, there is a high likelihood that your cash flow needs will be filled from your salary, so this discussion should not apply to you.

Part time income: If you retire from your primary job, but either feel the need to continue doing some work, or are concerned that there will be a short fall of your retirement cash flow, then you might want to continue with some sort of job providing a pay check. This would then be your first level of retirement cash flow – the take home pay from this job.

Social Security: If you are old enough, Social Security benefits can be paid to you. From a big picture, long term plan, plenty of people would be best served by delaying their benefits until age 70, and spouses until a younger age depending upon their circumstances. By waiting until age 70 you can assure a guaranteed cash flow that you can never out live and that will be increased periodically based on inflation. See a blog I wrote on July 23, 2015. Link:

Employer pension income: The next source that you likely will not be able to outlive will be pension payments from an employer’s plan. Caution: Make sure you understand the election and withdrawal choices prior to making decisions on what to do. Every plan has different ways of handling what looks like the same things.

IRA, 401k and many employer retirement plans: These require mandatory withdrawals at age 70 ½. Make sure you understand the rules and starting and deadline dates. If not planned correctly, the withdrawals can exceed the plan’s income hastening a depletion of the fund. With right planning it could take up to 10 years until the withdrawals exceed the income lengthening the payout period and sustainable cash flow.

Roth IRA and 401k: If you have these, they can be a reliable last case withdrawal source as the income with accumulated tax free and the distributions will likewise be tax free. This should be considered a fall back safety net.

Annuities: Many people make investments in various types of annuities that provide either guaranteed or nonguaranteed cash flow for the duration of the annuitant’s life. This is a source that needs careful analysis and understanding when the decision to annuitize is made as many of these decisions are irrevocable or carry huge penalties if changed. To the extent there is a cash flow stream, it would need to be factored into your modeling.

Investment sources: The cash flow in the form of interest and dividends withdrawals will provide for a freezing of the account values since the income will be withdrawn. There will be growth if there are stock market investments that go up, but to the extent of asset withdrawals, investment management fees or stock market losses there will be a reduction of the asset base. Any asset reductions or withdrawals will set in place a process of eventual elimination of that source. Depending upon the asset withdrawal amounts this could occur over relatively short or very long periods. This is another instance where planning is essential. As to losses in your fixed income portion, these losses can occur when a fixed income mutual or index fund decreases in value (usually caused by rising interest rates, but can also be caused by risky fund investments that drop in value).

Rainy day funds: These are cash amounts that are set aside from your investments that are kept in money market funds or short term bank certificates of deposit that “guarantee” a source of cash for periods up to 18 months (depending on your circumstances). I do not suggest including these amounts in your asset allocation as the purpose of these funds is to provide a safety net and not asset growth or be exposed to potential loss.

Cash flow needs: This is what you spend. Some of this cannot be cut, such as food, health care, insurance and shelter, but some can, such as entertainment, cable and cell phone charges, the types of cars you drive and eating out. To the extent your cash flow needs are greater than your income, you can consider cutting some of your spending. That is your choice, but keep in mind that spending drives the need for cash flow and that many expenditures are behavioral, optional, possibly habitual and can be reduced.

Inflation: This is a stealth cost. It is rarely obvious and creeps up until one day it hits you that your costs have gotten out of control, while nothing major has changed in your life. This should be factored into your long term planning.

Income taxes: Income taxes is a major cost and must be considered in determining your spending needs.

Nonliquid or income producing assets: This includes residences, art, antiques, collectibles, jewelry and similar assets and cash value life insurance that are part of a person’s wealth, but which do not provide cash flow, so these are not considered in a spending analysis.

Closely held businesses: This is another category of assets that might not be liquid, and that may or may not provide cash flow. If there is cash flow, it should certainly be considered in the analysis.

The above covers the major categories of investment and sources of cash flow and is not directed toward the many people who do not spend all of their cash flow. However, for those that do, hopefully this will help you reassess your situation and have you put your total asset situation into full perspective. Good luck!

My Investment Club

January 18, 2018

I have been in an investment club for about 10 years. Originally I had no interest in joining since the monthly investment would have no significance in my portfolio. However, I joined after about a year understanding that it was more of a social activity than a serious investment move.

Basically, there were ten of us and we met once a month for a dinner meeting. We each invested $100 a month and then spent about $25.00 on dinner – for me it was a dinner club – a night out once a month with the guys. We had a private area in the back of a pizza restaurant that had unusually good food. The business meeting lasted about 30 minutes and the dinner about an hour and quarter. We ended up with about thirty stocks in our portfolio. Our criteria was dividend paying stocks. Nothing was purchased without an extensive discussion. Initial purchases were made for $2,000 and subsequent purchases of additional shares in a company we had was for $1,000. Obviously no one would get rich from this club, but it was also made with money we really didn’t miss, but at some point it would end and we would all get checks that would pay for really nice vacations for us and our family. As time went on, some members dropped out so we are now left with 8 people and we kick in $125 a month.

While the overall importance as an investment is not material, the discussions are very insightful. Because of the meetings, stocks that I might not have considered were brought to my attention. Considering ten years of monthly meetings discussing hundreds of stocks, something must have piqued my interest, and two stocks have. One, the club bought and the other it passed on. Well, I invested in both of them – substantial amounts – and they both did extremely well. The money I made on them can be directly attributed to the club. So, besides over a hundred of friendly dinners, and an eventual payout that will fund a grand trip, I also made a few bucks and increased my personal cash flow with the dividends from those two stocks.

The leader of our club meticulously keeps our books, prepares detailed monthly reports and has us examine the brokerage reports as an audit procedure. At one point he ran other clubs and he is really good at this. His reports are a model for anyone having their assets managed and should be emulated.

Investing is a serious business, but in the cloak of this investment club, a friendly night out, with investing actually a secondary activity. This is an exception of my exhortations of treating investments as a serious matter. Investing is a serious endeavor – except in cases such as my dinner club!

Explanation of the charts – Jan 2018 update

January 16, 2018

When the stock market is up, all of the indexes are up, and when down, they all are down. This is illustrated in the charts that shows the annual percentage changes. The only exceptions are years where the gains or losses were marginal. Last year was a good year so there are healthy gains all around. However some interesting, even if not fully explainable, results occurred last year.

  • The stogy DJIA increased more than the more representative S&P 500, and a little less than the high flying NASDAQ with the go-go stocks. The S&P includes all of the DJIA and most of the larger NASDAQ so I would guess the smaller companies dragged down the S&P index. This suggests 2017 was the year of the larger cap companies. This is further borne out by the smaller gains in the Russel 2000, although all the gains were impressive.
  • The PEs of the DJIA stayed the same as last year and the S&P dropped. Considering this was against a 25% and 20% price gain, I think these are pretty impressive. The yields dropped somewhat since the dividend payments did not keep up with the stock price growth, but the yields in the current interest environment are holding up very well.
  • The PEs over the past 10 years have increased, and it seems they increased beyond the traditional ranges. However the PEs are a reflection of a capitalization of earnings, and with the low interest rate environment over the last ten years, it is not unreasonable for the PEs to have increased. The percentage dividends for the DJIA have dropped but the dollars paid out have increased somewhat while the S&P 500 yields have remained pretty stable throughout the last ten year period. These indicate to me a low risk in the cash flow expectations from this index.
  • What I found interesting was the big jump in the Treasury Bill rate while the 10 year Treasury couldn’t be flatter. I gave my opinions on this in previous blogs so won’t go into this other than to state that this is pre-tax increase activity. It is too soon after the tax cuts that were “promised” to spur corporate capital spending, so we will have to wait and see what happens here. I suggest watching the bond market closely which will be a barometer on capital spending and the benefits from the tax cuts. Note that it is my contention that while the Fed has strong control over the short term rates, the longer term rates are determined by the market and the flat 10-year rate indicates that this demand hasn’t been evident in the last year and it is questionable if it would materialize going forward, but who knows?
  • The dollar got weaker against the Euro, Yen and Gold. However, the ten year growth of gold was much lower than any of the four stock indexes and also provided no cash flow during the last ten years. The 10 year change of the dollar against the Euro and Yen were 20% and 2% increases. Fluctuations between currencies are normal and these are not beyond an expected range.
  • The trend lines of the stock indexes are similar although to different degrees. When the market is up, everything is up and when down, everything is down. If you want to invest in the market, one strategy could be to choose a basket of the four indexes illustrated. One argument against this is that these do not include any foreign or emerging market funds. I content this is not that necessary since over 40% of the S&P 500 companies’ sales are out of the United States and likely there are similar numbers for the DJIA and NASDAQ, but likely not for the smaller companies in the Russell 2000. For now I would stick with the U.S. indexes.

The above are solely my opinions and I do not suggest acting on anything I said without further information, analysis and research on your part. Investing is a serious endeavor and requires the upmost thought, attention and input. Us the above as one person’s opinion.

2017 Year End Financial Benchmark Charts and Graphs

January 11, 2018

These charts continue an annual tradition I started ages ago to use when I do financial planning with clients. The charts show the 10-year annual and cumulative percentage gains or losses of the major stock market indexes, interest rates, currencies and gold. The indexes include the dividends paid. These charts are provided for illustrative and educational purposes. No recommendations are made or should be inferred from the information presented. Also note that past results are no indicator of future performance.

10 year financial benchmark performance of major stock market indexes,
interest rates, currencies and gold

ed graph 1

ed graph 2

ed graph 3

Withum SOTF

January 9, 2018

Yesterday Withum had its annual State of the Firm (“SOTF”) event. It is sort of an annual meeting attended by the entire firm – 1000 people – from Orlando, West Palm Beach, Bethesda, Boston, Aspen and more locally, Philadelphia, Manhattan and the five offices in New Jersey. The event was held at the NJPAC which comfortably accommodated us. The four hour program (with a strategic 15 minute break) ended with a two hour cocktail reception where we were able to meet and catch up with colleagues we don’t get to see often enough.

Bill Hagaman, our managing partner/CEO gave his report of the state of the firm which is really great. Important metrics were presented and we continued our 43 year string of consecutive revenue growth. We also added services and niches and Bill covered the growth in industry niche revenues and projected growth and expansion of the firm in every important area. The program began with our eighth annual SOTF video which included 150 people. This is a can’t miss and can be accessed if you click here. The annual strength awards recognized exceptional service in marketing, innovation, outstanding achievement, community service, client service and firm administration. While there were individual strength award winners, as far as I am concerned, everyone nominated was a winner for their exceptional activities. They are a really great group and we are all proud of them.

For the first time, a guest speaker was brought in and he was riveting. John O’Leary, author of On Fire, spoke for an hour with a moving, motivating and inspirational presentation that kept us on the edge of our seats; and gave us a way to pay it forward in order to honor those that helped us get where we are, or for the younger people, that are helping them get where they want to go.

Withum is over 1000 people strong, with half being millennials, so we are a young 43 year old firm, with second generation home grown leadership. Strategic plans are in place identifying and grooming our future leaders. We have our act together and are strongly poised well for the future.

I am excited about our future, excited about the state of the firm, and excited about all the great and really nice people that comprise Withum. There is much more to share, but I think this is a good time to conclude this blog, saving the additional information for another day.

How did your investments do last year?

January 4, 2018

The market was very good to us last year. The question is how did you do? Here are four questions to ask yourself:

  1. How much did your account balance increase (or, ugh, decrease) last year? __________
  2. What was the average yield on your portfolio last year? (Divide your total interest and dividends by your opening and closing balances divided by two) __________
  3. What was the dollar amount of your interest and dividends last year? __________
  4. Were your total interest and dividends sufficient to provide the cash flow you needed, or, if reinvested, will they bring you closer to your goals? ___ Yes, ___ No

If you have multiple accounts, add them all together to perform the above calculations.

Note that your portfolio increase cannot be compared to the market indexes since most portfolios are comprised of multiple asset classes, i.e. stocks, bonds, bank CDs, and to determine your performance against the averages you need to compare each of your asset classes to the respective index.

The above won’t give you scientific answers, but it will provide close enough guides about how you are doing, whether your cash flow is sufficient and if you are heading in the right direction to achieve your goals. If you aren’t, then perhaps a meeting with a financial planner is in order.

Keep in mind, your plan should not be to amass great wealth but to attain your goals and financial security.

Lucky 13th Anniversary at Withum

January 2, 2018

Today marks the 13th anniversary of mine, Peter’s and Frank’s merger with WithumSmith+Brown, PC. It also marks Scott Perlzweig’s and Debbie Malles’ tenure here. It’s been a great move for all of us. It is our Lucky 13.

The merger was the right thing on paper. Everything fit in – the reasons, the addition of staff, partners and services, the ability to approach larger prospective clients, the similar cultures, greater opportunities for staff – and there was never any doubt about the decision, from either side. However, the reality has been so much grander than could ever been expected.

We joined Withum at the exact moment where there was the start of a questioning process whether there might be a better business model. The process started easily with bringing in speakers at the partners’ retreats to explain different models. There was no agenda other than to hear successful larger firms lay out how they grew. This took a couple of years with differing views. The Withum model was successful, but it was being questioned if it could sustain the expected growth also considering where public accounting was headed. The Withum model was office centric client servicing where resources were maintained and concentrated in local offices. Ivan Brown, our managing partner prepared 5, 10 and 20 year models to determine whether we would have the infrastructure and service specialists to handle the expected growth and our clients’ needs. At some point a new paradigm started to take shape – that of niche specialists not dependent on an office location. This was also enabled by new technology that was quickly becoming available with Jim Bourke heading an accelerated adoption and integration program.

Once there was a path, our management group met to develop plans on how it could be implemented. Detailed, deliberate and careful plans were established with realistic timetables without any feelings of rushing to completion. Rather a slow and steady approach was decided upon. During this period, industry specialists were engaged to share their experiences and comments on our plans. Partners and senior managers soul searched to decide on how they wanted to participate. Firm wide niche groupings for industries and service specialties were organized with the right leadership. The best people for each niche were assigned irrespective of office location. This process took about 5 or 6 years and reached its culmination about 2 years ago and is now fully operative. We have over fifteen industry and twenty service niches with many having multiple sub niches. Our website has listings you can access at

Change happens. When living through it, it seems to take forever, but when looking back, it seems like it took no time at all. For me the metamorphosis occurred over 13 years, but looking back it looks like it just happened. It just did happen but with a lot of thinking, planning, investigation, deliberateness, foresight, guidance from outside consultants, and just plain good business management. It started with Ivan Brown, and ended up being guided by Bill Hagaman, who succeeded Ivan six years ago, and who is handling the reins of leadership with a strong steady hand. It needed an idea, a desire to explore if there were alternative models, and the initiative to tread carefully but forward, and once a plan was formulated, a commitment of the necessary resources.

It has been thrilling for me to see all of this and to be a part of it. If you want to consider something similar for your business, reach out to me and we’ll see if we can help you move forward, if that is your choice.

Have a Happy, Healthy and Peaceful New Year!