What did I miss: December 9, 2004

Those attending Executive Network Group's (ENG) December 9 meeting enjoyed Jeff Secord's lively presentation, "Surviving the Financial Crunch during Transition -- "This too shall pass." Secord, a Certified Financial Planner (CFP) at the Rabjohns Financial Group, is native to Bloomington, Illinois, and an adjunct faculty member at Illinois State University in Normal. He addressed some ENG members' concerns at the segment's outset, among which were:

• What considerations might favor an interest-only mortgage?
• Given tuition commitments and similar matters, what tools are available to help determine and manage expense levels?
  
• What are the considerations and consequences of liquidating 401K or IRA funds?
  
• Transition's duration is uncertain; what is a realistic planning horizon?

Secord offered a systematic, "end-in-mind" checklist to meet a 12-18 month transitional planning horizon:

• "Determine both routine and extraordinary cash requirements; reduce discretionary cash outlays; employ "zero-base" budgeting techniques
  
• Set income objectives; identify all income sources; secure unemployment benefits, if possible
  
• Rank all assets for possible liquidation, bearing risk and tax impacts in mind
  
• Review investments to reflect transitional risk considerations
  
• Weigh all retirement plan and borrowing options, paying particular attention to non-deductible debt
  
• Evaluate housing requirements; consider alternatives
  
• Understand insurance coverage (medical, life, property, liability) and alternatives
  
• Choose wisely; tax consequences and penalties can be steep

Jeff distributed worksheets to help ENG members estimate their income, expense, savings, and investments -- tools useful for members to build both a personal profit and loss statement and a balance sheet.

Contact information:

Jeffrey R. Secord, CFP
Rabjohns Financial Group/New England Financial
A MetLife Affiliate
8700 West Bryn Mawr Avenue -- Suite 600 South
Chicago, Illinois 60631
Voice: 773/864-8751
FAX: 773/380-9711
e-mail: jsecord@rfg-chicago.nef.com

-- R. T. Jones (12/15/2004)

How to survive the financial crunch while you are in Transition -- "This too shall pass" -- by Jeffrey R. Secord, CFP

Introduction

A. Twice started practice over from scratch in different cities … therefore, has personal experience with transitions
B. Provided education and advice to over 3,000 investors in various stages of retirement planning and financial transitions
C. Teaches Personal Financial Services at the college level

Step-by step procedure to survive the transition experience

A. Establish clear goals … be brutally realistic! Include all stakeholders

a. Extraordinary cash needs
b. Fixed cash needs
c. Variable cash needs
d. Discretionary cash needs
e. Evaluate each item to look for unnecessary spending and less expensive alternatives

B. Evaluate all income sources

a. Spousal income
b. Severance package
c. Part time work … (Note: Go to a neighboring community if you don't want to be seen working at your local Home Depot)
d. Unemployment income claim
e. Investment income

C. Establish a very conservative estimate of how long you will need to provide for cash needs before you return to full or part time work

D. Evaluate all assets to establish a priority to provide a "liquidity ladder" as needed

a. Cash, bank, money market accounts
b. Short-term bonds and bond funds
c. Life insurance cash values
d. Stocks and stock funds
e. Look into borrowing provisions from your retirement plan
f. Individual Retirement Accounts

1. 60-day rule
2. Pre-59 ½ distribution rules

g. Evaluate cost and tax impact of selling assets vs. borrowing
h. Adjust investment asset allocation to reflect any changes in risk tolerance

E. Evaluate additional borrowing opportunities

a. Personal line of credit (Note: Best to get before you leave your job)
b. Home financing

1. Refinance first mortgage
2. Second mortgage
3. Equity line of credit

c. Credit cards

1. Lower interest rates
2. Consolidate

d. Watch out for the following

1. Pay day loans
2. Pawnbrokers
3. High yield lenders

e. Family and friends

1. Put it in writing
2. Establish a payback schedule

f. Borrow against other assets (e.g. a Certificate of deposits)
Note: Borrowing against life insurance cash values and brokerage accounts on margin are example of borrowing against assets

F. Evaluate housing needs

a. Re-location
b. Downsizing
c. Sell then rent

G. Insurance

a. Medical insurance

1. Spouse coverage
2. COBRA

3. Short term

b. Disability - get individual policy before you leave if possible
c. Life - look at term options and paid-up insurance to reduce premiums
d. Property and liability
e. Long-term care

H. Income tax considerations … look at impact of each decision!

a. Tax on income from investments
b. Capital gains on asset sales
c. Tax deductibility of interest on borrowed funds
d. Taxes and penalties on retirement plan and IRA distributions - know the rules before you act

I. Working with professional advisors

a. Ask lots of questions
b. Make sure they listen and understand all aspects of you situation
c. Make sure you know how they are compensated

Summary/Action

A. Propose
B. Organize
C. Activate
D. Control