Investment adviser Christopher Neubert has been thinking about your financial security.
Though hardly the traditional image of a liberator, in essence that’s the role Christopher J. Neubert plays in his clients’ lives. He sets people free from worry about the financial future of their families, liberating them to live the lives they’ve always imagined.
A tall, athletic man who communicates with the ease and facility of a college recruiter, Neubert is the coauthor, with Robert S. Keebler, of a notably good book titled Living & Learning (Quantum Press, 2005), a guide for achieving retirement and education security.
Married with two young children, Neubert is a registered investment adviser and certified financial planner — he also holds a law degree — and is the founder and president of Moneco, a financial planning firm in Southport. Achieving financial independence, he asserts, is as much about peace of mind as it is the bank account.
Q: Are there some common misperceptions about what financial planning really involves?
A: Absolutely. Financial planning means very different things to different people.
To some people it means “stockbroker” or “investment planning.” To some people it might actually mean a certified financial planner. It has a very general application that iroically doesn’t capture the real essence and beauty of the process.
Q: How would you describe what you call the real essence and beauty of the process?
A: We have a slogan: “Success on your terms.” What we mean is the process, to us, is you. The first thing I would do is ask you one question: “If we were sitting here three years from today, what would have had to have happened for you to feel happy with your progress?” And don’t limit it to a financial answer. Tell me where you’re trying to get to in three years, almost like a life plan. If you give me that, then what I can do for you will be much more targeted and specific.
Think of it this way: If you were to come in to me and say, “Chris, I’ve got X dollars, make me some money,” I would just smile, shake your hand and say, “I’m not the right person.” The key is, give me the bigger picture. Like, “No. 1, I’ve got two young kids, I’m very concerned about their education. No. 2, I’ve got a couple of older parents,” and on down the list, and tell me the money you’ve got. Now we’ve got something to talk about. We want people to have a conversation with us.
Q: What are some of the common mistakes people make early in financial planning?
A: The old adage is true: Time is money. The sooner you can start, the more you’re going to have at the end. People having children today are looking at a quarter of a million dollars per child for education at the college level, not even taking private high school into account. Add on that ticket in today’s dollars and that’s another hundred thousand. So a child’s education could range from $200,000 to $400,000 in those years. There isn’t going to be any financial aid going out to people in Westport. I know it’s hard for them to accept the fact that their kids aren’t all going to get scholarships, but they’re not. But start putting $2,000 away or $5,000 away today and that money will be there. And there are some wonderful ways to do that, with Section 529 programs and things like that. That, to me, is a very meaningful piece of information to get across.
Q: Is it hard enough to get a young family to think about education, let alone retirement?
A: We like to refer to it as retirement income planning, but also we add a “slash,” so to speak, called financial independence. And the reason we use that term is because people like the idea: “Boy, wouldn’t it be nice one day when I don’t have to work? I may choose to work, but it would be nice to have the option not to work.” The reality [of Westport] is that some people have done very well financially, and they see people at younger ages driving around, playing golf, and doing things, and they think, That looks like a pretty nice life to me, as opposed to having to get up at 5:30 a.m. and getting on the train to New York.
In other words, financial independence to you could mean, “If I could have an income of $200,000 a year or $100,000 a year, I think I could be financially independent.” That’s terrific. What do we need to do to get there? We can take a concept — retirement income/financial independence — and turn it into real dollars, but, more important, turn it into, Here’s what we have to start doing today. Which leads to the question, “Can I start doing it today?” Part of the planning process is a little dose of reality. And again, the people that ultimately want to go through the process want that reality. They say, “Don’t sugarcoat it. If what I want is not feasible, tell me what is.”
Q: How do job changes and the great unknown of health-care costs, and the share individuals have to bear, affect financial planning?
A: The biggest challenge people face now is outliving their money. When we grew up, our moms and dads worked for a company, retired at sixty-five, had a pension, social security, and dropped dead at seventy-four. When people come in today, one of the first things that gets out on the table is, “I want to know when I can get out. When can I stop working?” They’ve worked so hard and been pushed so much, they know they’re going to get pushed out, but they want out. So that’s almost one of the mandates. They don’t want to work past fifty or fifty-five. That’s a wonderful goal, but here’s the other side of that equation: How do I keep income for these people for thirty or forty years?
I now have the responsibility to provide income for people who are going to be in retirement longer than they had earning years. It’s an interesting proposition. A person who starts work at twenty-five and works to fifty-five, they’re hoping to live to ninety-five. So they’re going to work for thirty years, and I’ve got to deliver forty years of income. That to me is the essence of where my profession is going. The real iceberg question they all have is the same: “Do I have enough?”
Q: How does asking “What do I need to get out” achieve that goal?
A: I believe the Social Security system will remain intact. But for those people who fear it’s going to collapse, you have that issue. For people in Westport, Social Security income is going to provide only a small percentage of their needs. Then there’s health care. People retiring before sixty-five have to provide health-care coverage for themselves up to that age, when they go on Medicare. So you’ve got to find that coverage, which means you’ve got to be healthy, because if you’re not healthy, no one [insurer] wants you.
The second issue is longevity. And the third issue, which is a new issue for people our age, and which was not there for our parents, is long-term health care.
What happens if I have to go into a nursing home, or I need long-term home health care? Just to throw some ballpark figures out there, if you’re living in Fairfield County, those costs at a minimum are going to be $60,000 a year and as high as $120,000 to $150,000, and that’s in after-tax dollars. It’s a big expense getting more expensive every day.
Imagine a couple where he’s seventy and she’s sixty-seven. These people have every intention of living another twenty years. If, for some reason, something happens and he has to go into a nursing home, or needs home health care — and let’s take a middle-of-the-road cost, $80,000 a year in Fairfield County — that’s a big chunk of her income. So the person that gets punished isn’t the sick one, it’s the healthy one. Her lifestyle totally is changed. That’s the message. Because you know what happens? You always take care of the sick one.
Is it hard for a forty-year-old to get into that? Yeah. But is it hard to get a fifty-five-year-old’s teeth into that? Not hard at all. They get it. Because most of them have parents. And a lot of their parents are facing those issues, so they’re seeing it firsthand.
Q: When should somebody start thinking about long-term health care?
A: I wouldn’t recommend to them that at forty you go out and buy long-term health-care insurance. I don’t think that’s a good purchase. But I do tell my clients, at fifty the issue comes on the table. And my strongest recommendation to people is between fifty and, at the outside, sixty, that decision should be made. If you are in the financial strata where you think, “Boy, if I had to access long-term care for myself, my spouse or my family, it could really hurt,” then long-term-care insurance should be a major consideration. If you’re wealthy enough that you have plenty of income so you can absorb that cost, then it’s not an issue.
Let’s translate that into real dollars. Let’s say you’ve accumulated $3 million. Sounds like a pretty nice nest egg, right? The basic rule of thumb is that you should not count on withdrawing more than 5 percent a year. So this guy who wants to get out at fifty-five, if he can live on $150,000 of income a year, then they should have $3 million of investible assets that can generate $150,000, after you build in for inflation.
Now let’s take that one step further, and add in the possibility of long-term health-care costs. One of them needs care, and that care costs $80,000 a year. That $150,000 income is now $70,000 for the healthy person. That cuts the lifestyle big-time.
Is insurance always the answer to everything? Absolutely not. But could insurance play a role in that person’s plan on a long-term basis? Absolutely.
Q: Even if you have a good, solid job today, there’s uncertainty. But for the entrepreneur, that seems to require some different questions regarding financial planning.
A: What we’ve found with that mentality is very interesting. It’s almost like a two-sided coin. What I mean is that anyone who’s entrepreneurial obviously has a certain element of “risk-taking” in them or self-confidence. When we’re hired by that type of person, they primarily want us to lock up all the security bases. Their point is, “Look, I take risks everyday. I don’t need you to take risks for me.” Many of them feel that if they have extra money, they want to save some, but also keep a lot of capital in their business because they think they can make more money in their business than I can make for them. It’s the feeling that, “If I’m doing my job well, I can take $1,000 and turn it into $2,000 quicker than you can.” But what they do want me to do is cover all the bases that ensure that if things go wrong, they’re going to be OK.
Q: In your book, in one of the checklists, you talk about making “reasonable expectations.” What is that?
A: Here’s an example: Imagine a single woman, around fifty, who would like to retire at sixty, and would like to retire at a certain income. Based on her income, and what her current investment savings are, and what she’s able to contribute every year to her 401(k) because she works for a traditional employer, she’s not even close. So I have to deliver her that message. And then say, “Here’s how we’ll address this issue. You might have to work until seventy. But even at seventy, it’s not going to work. You’re in a situation where you either have to re-adjust what your needs are going to be or what your goals are going to be, because you’re just not going to get there.”
I’m not a career counselor, but I might also suggest getting another job. She either has to do that through freelancing or has to leave her traditional job for something else.
That’s the dose of reality I’m talking about.
Q: Do many people have unreasonable expectations about how much money will actually be there?
A: Absolutely. The baby-boom generation is very underfunded for what they want to have in terms of lifestyle. For the lifestyles we’ve established and at the levels of income we’re living on right now, the vast majority are underfunded. So what the solution has been for people, very candidly, is they have to work longer.
And working longer does two basic things — and I’m not going to talk about the aggravation [laughs]. It gives you more time to compound and to contribute income to retirement, and you’re going to be withdrawing over fewer years. Adding five more years of work is a double-win: plus-five on the accumulation, minus-five on the withdrawal. It’s a great one-two punch.
Q: What is the most unexpected retirement cost other than unforeseen illness or long-term health care?
A: No. 1 is kids. We see it all the time: Parents still helping their adult kids. And helping fund their grandchildren’s education. That’s one of the new big agenda items.
No. 2 is helping kids with housing. Housing’s gone off the charts. That’s very pertinent in Fairfield County.
The third thing, and I personally think there’s going to be a pullback here, but what we’ve seen in the last five years is people transitioning to retirement places in Florida or Arizona, and the cost of real estate there. It got much larger than they were anticipating. What people thought, ten years ago, was going to be a nice home in Florida for $200,000 is now $600,000, so all of a sudden the entry fee for their nirvana has gone up.
The other thing that people probably are somewhat prepared for, or at least they should be, is travel. Whether that cost would shock them, I don’t know, but that’s going to be a big new item. That can be a big number depending on what you want to do.
Here’s one other thing, and maybe it’ll make you’ll smile. When people are retired, all of a sudden whoever’s been doing the meals says, “I don’t want to make meals anymore.” Next thing you know, they’re going out four, five times a week. So all of a sudden, where before they were spending a couple of hundred dollars a month going out to dinner, now it’s $1,200 because they’re going out five times a week.
What I say to people is that whatever you’re used to living on, I’m not sure you should count on living on much less. The rule of thumb used to be, whatever your income is going into retirement, take about 70 percent of that. I don’t think people should buy into that. You’re definitely going to lose things, but you’re going to pick up other things.
Q: What is the impact of so much of our nation’s debt being held overseas, especially by China?
A: In terms of financial planning, I think it’s excellent. Because of globalization, when it comes to the management of money you have a much broader playing field now. People can invest very safely and comfortably in foreign markets, in conjunction with the domestic markets, and as a result have a broader portfolio.
I think you can look at [China holding so much of our debt] in two ways. If they wanted to stop buying the Treasury bills, it most certainly would be a bump in the road. But the other side is, it’s not in their best interests to do that, because we are their biggest trading partner. This economic cycle is basically bringing China, India and the emerging markets into the free world of capitalism. And, yes, microscopically, it looks a little dangerous, but when you look at the big picture, it’s another event in the march of progress.
Q: What is happening with the tax code or tax policy that could affect financial planning?
A: The big one is the modification of the estate tax, which is going to allow significant amounts of wealth to pass from one generation to another. This only affects the top 5 percent of people, but in the financial planning world, it’s a seismic event.
But we’re going to have a change in president in two years. Depending on that, you could have a whole change in the tax code. Right now you’ve got very attractive long-term capital gain and dividend tax rates. If that were to change, that could have an effect on the markets. It’s an unknown, but an important unknown. The capital markets prosper under a favorable tax code. That’s an element people should keep their eye on.
The third element is, there’s tremendous pressure, starting at the community level, on governments for money. We see it in Connecticut, and we see it on the federal level. Everyone’s in deficit spending. But the dog has got to eat, and the only way he can eat is through tax dollars. My sense is that taxes are going to become, on the income tax level, and maybe the real-estate level, more onerous. There’s a constant demand for money, for police, fire, education and other services. There has to be more coming up from the tax level. And what are the two big drivers? Income taxes and property taxes.
Q: What does “tax-efficient” mean to you?
A: Tax-efficient becomes important in two or three ways. No. 1, and assuming you’re in a higher tax bracket: Are you better with tax-exempt yield, as opposed to taxable yield? It’s a simple equation, one you should never lose sight of. No. 2: Make sure you’re maximizing 401(k) programs. You may or may not know that when you’re fifty and over you have catch-up contributions you can make. No. 3: Many people that are self-employed or run their own businesses can maximize many deductions through their company. Maximize every deduction you can. Because there’s no better return on investment than a tax deduction. Just remember that if I can put a dollar into a plan and I can deduct that dollar, and I’m in a 28-percent tax bracket, it costs me 72 cents, and yet I’m getting credited for a dollar. That’s pretty simple math. Most people think of return on investment as “I’m getting 5 percent at the bank” or “The stock market went up 8 percent,” but tax-efficient is also return on investment.
Q: How often should people reevaluate their financial plan?
A: At least every two years you should get a checkup, or when a major event occurs: child born, person dies, job gained or lost, major illness, retirement or deciding to retire.
It’s like the former mayor of New York, Ed Koch, used to ask: “How’m I doing?” I love that. We have a one-page summary for people that shows that, and we call it “How’m I doing?” Because, you know, at the end of the day, that’s what people want to know. If I can answer, “You’re doing OK,” you know what, they don’t want to see anything else.