I read an article recently about a woman with a PhD from Harvard, held a high government position in the Treasury Department and worked at the Federal Reserve. You would think that this person would be smart about finances and investments.
You would be wrong. She messed up, but was able to recover.
Academic skills and executive level jobs – in or out of government – don’t automatically translate into wise lifestyle decisions and certainly not wise investment decisions. Having a high paying job provides you with the opportunity to save for retirement. But for too many people it provides for an extravagant lifestyle.
You may never have heard of Curtis James Jackson III, but if you are familiar with the current music scene you may have heard of “50 Cent.” He is reputed to have earned about $30 million a year but he just filed for bankruptcy claiming he owes between $10 and $50 million to his creditors.
How does this sort of thing happen? Some of it could be the result of poor investment decisions. But lifestyle is the primary reason that highly paid entertainment figures, athletes and the like go broke. They spend money on expensive things – homes, cars, planes – entertainment, and on “posses” (friends and hangers-on) who they support not realizing that their money is not literally endless.
Of course “50 Cent” is not typical, but the woman who we discussed at the beginning of this essay had the same problem, on a smaller scale. She and her husband had a huge home that absorbed a lot of their income. There was a big mismatch between their current lifestyle and the savings that were supposed to support them in retirement. In addition, they kept too much of their savings in cash or cash-equivalents because, while they were educated, they were not investment experts.
We have met too many couples who are in their 50s, are earning $150,000 to $350,000 a year, and want to retire in about a decade. But they have not really focused enough on asset gathering. Their lifestyle absorbs most of their income and their investment decisions have lacked a plan.
Does this mean that retirement for them is bleak? No. But it requires facing some facts about lifestyle, savings and investing that will require some smart decisions. This is the point at which a good financial planner and advisor can help people get their financial life in order, before it’s too late.
If this sounds like someone you know, give us a call. We may be able to help.
Arie J. Korving, a CERTIFIED FINANCIAL PLANNER™ professional, has been delivering customized wealth management solutions to his clients for more than three decades. Prior to co-founding Korving & Company, he was First Vice President with UBS Wealth Management and held management positions with General Electric.