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Old 07-15-2008, 08:41 AM   #41
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So-- as a professional finance dude, what advice would you give to others who may stumble into this sort of situation and might be motivated to extract themselves? It could happen!
I will formulate a reply, which I will post by the end of the day. These folks have an issue in that they think they are invincible, everything will work out, they are super smart, etc. Once in awhile folks like this prove everyone wrong, but Murphy's Law usually applies at some point.........

FWIW, I have a situation more desperate than yours in regards to one of DW's co-workers......it makes your scenario look rosy by comparison............
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Old 07-15-2008, 11:17 AM   #42
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Nords, your willingness to take on an almost certainly lost cause in fixing these folks' finances is truly admirable. It is infinitely more than I would be willing/able to undertake. I guess you just can't retire the consummate trainer.

Though seeing that your spouse may/will be closely exposed to their problems, even if by proxy, seems to add a sense of urgency.

Good luck with the book, hopefully it will benefit those still in uniform.
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Old 07-15-2008, 11:37 AM   #43
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But it's like having a front-row seat at a train wreck-- even if you don't know any of the passengers, the disaster evokes a certain amount of empathy. Of course it'll never happen to you, but you also want to know how to avoid having it happen to other people.
...
The culmination of those first three factors is a target audience for a book on military ER. If indeed a veteran's ER is as simple as a COLA'd pension and cheap healthcare, then why do fewer than 15% of the veterans bother to do it? There's an important lesson to be learned here, and it's worth figuring out how to explain it to someone who thinks they make so much money that they can blow off paying their bills. If I can reach that group then I can explain it to anyone. Of course these kind of people might never read the book, either, let alone buy it, but that's only important if I use an actual publisher. ...
Different strokes ... early on in my career, I came across a caricature of a pig, posted in one of the clients cubicles. The caption was' ... never try to teach a pig to sing ... it wastes your time and annoys the pig'. I made a copy of this and posted it on my desk. it was one of the many life lessons that helped me through life (both corporate and personal).

Fast forward to 7 years before retirement. I'm sitting in a restaurant with a new colleague. We're going to be w*rking together so it's important to build a personal relationship and get to know what makes the other guy tick. Over drinks we go over where we've been and what we've done in our careers with megacorp. It turns out he is retirement eligible (30 years in). I congratulate him and ask him what his plans are. He states that he can't possibly retire, mostly because he can't afford it. I mention how our 401ks should be helping with funding our retirements. He casually states ' oh yeah, ... I'll have to look at that one of these days'. I was in shock. As with you, my colleague has many of the same attributes and characteristics as I have. College grad, maybe an advanced degree, success at climbing the corporate ladder ... etc. We became good friends. 2 years later he brings up retirement and asks my opinion on his plans. He has been sold on an annuity by 'a friend'. I give my opinion but quickly figure out, he wants validation and is not interested in my opinion. Again, a very smart, educated, and talented person. Just too much 'bought into' the American dream. He is what I call a 'heat seeker'. Always buying whatever the hot 'toy' is today. I wanted to help my friend and tried, but when it became obvious I was trying to teach a pig to sing, I stopped, and ordered another round of drinks and changed the subject. 1 year ago, I retire and he is still working.

On the other hand, I have helped quite a few other friends on their savings planning. I find that it depends upon whether or not people feel like they need help or not. Obviously your friend does not. I can see this since they do not have JUST a COLAed pension but a $140k COLAed pension... that alone hides a lot of sins. They probably don't have to worry about where their next meal is coming from.

Your question on why only 15% of the military retirees do so may be because they are not at the $140k mark, but much lower depending upon the rank and time at which they retired (I really don't know, ... this is a supposition on my part, when I was in the service, we enlisted dogs didn't make that much money).

After all that, I think your thoughts on writing a book is a good one. IMO, focusing it on military retirees would be good marketing too.
Good luck on your endeavors.
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Old 07-15-2008, 12:23 PM   #44
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That is one whopper of a pension, and they are fortunate to have it. From Nords backgrounder on the couple they were carefree long before they had the pension (him more than her), so the pension is not what made them carefree and uninterested in financial subjects.

Some people just do not like to think about money. Others are completely uninterested in -- name it -- music, cars, airplanes, landscaping, health... Quite often you can see a triggering event cause someone become interested in something that they previously did not care about. Like the 50+ year old obese diabetic smoker with high blood pressure and high cholesterol who stood up at his desk one day and said "I think I'm going to go home because I am having some vision problems and am a little short of breath today". (BTW, the office people let him get in his car to drive home! He made it to the ER ok and they put him in ICU. I was not there that day and would never have let that happen (the get in his car part). He has it all under control now. This belongs in the Workplace BS thread.) The point is that sometimes it takes a major event to get someone's attention.

So either there will be some event (health issue, loss of a job ... -- well I certainly hope not) or things will gradually build and the couple will realize they need to do something. Or Nords will break through and educate them.
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Old 07-15-2008, 04:33 PM   #45
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Hmmm - as leaders they could delegate and are probably comfortable with that - unfortunately, one needs to trust that the delagatee will do the job as you want it done - OR you must be willing to accept a possilbe lower outcome than that which you would have liked or done yourself. It seems as though that is what these intelligent, well resourced people are doing. They are probably years away from when they had to do 'things themsleves.' They reviewed and approved or disapproved, but they relied upon the information given to them by others whom they assumed knew the intricacies better than they do and would steer them in the right direction. Unfortunately, the 'bond' one has in the military with the command chain is not necessarily something that can be attained in the civilian world.

With all of that above, if you wish to interact with them I suggest the following:

1) Listen politely and nod your head when they start to complain - if it begins to bother you a lot, then find and excuse for a polite exit - otherwise, if they ask for advice, then offer it
2) That advice would probably be best in how to determine if their delegatee has their best interests at heart - they may need the stepping stone approach of have someone help me and then I'll help myself
3) Expect things to get worse before they get better...however, they have one hell of a safety net
4) Perhaps you could give the kids presents of books regarding financial savviness so the financial illiteracy doesn't keep perpetuating through the generations - *however*, some might find that tacky :-) Perhaps that could be a quick way to sever the interaction - depends on your motivation.

With all of that said - what others have said previously is true - they will need to find the internal motivation and inspiration to fix this. Hey maybe this is your equivalent to my "why do people who have issues with authority join the military?" For you it's "why do financial train wrecks seem to seek me out for possible advice?"

Cheers - Bridget
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Old 07-15-2008, 04:49 PM   #46
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Hmmm - as leaders they could delegate and are probably comfortable with that . . . They reviewed and approved or disapproved, but they relied upon the information given to them by others whom they assumed knew the intricacies better than they do and would steer them in the right direction. Unfortunately, the 'bond' one has in the military with the command chain is not necessarily something that can be attained in the civilian world.
An excellent point. In addition, while good leaders typically spot problems coming down road, they will more frequently be alerted by a member of their staff/the affected division of an upcoming disaster challenge. In this case, there's no one to sound the alarm. Hey, if nobody has brought it up at the staff meeting, it's probably not an issue.

None of this excuses their situation, but it may help explain it.
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Old 07-15-2008, 05:15 PM   #47
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Hmmm - as leaders they could delegate and are probably comfortable with that - unfortunately, one needs to trust that the delagatee will do the job as you want it done - OR you must be willing to accept a possilbe lower outcome than that which you would have liked or done yourself.
There's a mighty wide gulf between "delegating" and "Here, fix this pile of crap and gimme a call in my stateroom when you're done." I think these two are beyond help unless some calamity knocks them off the salary treadmill, but their situation offers a challenge to figure out how to reach someone of this level of ignorance. Of course I'm not wading into this cesspool unless specifically invited.

FinanceDude probably appreciates the heck out of the financial advisor's tactics, but one reason that this couple have thrown their lot (and their faith) in with him is because he's "exclusive". He's agreed to take them on as clients-- they've pursued him. She speaks of their mortgage accelerator program as a sophisticated financial technique not available to the average consumer. Their move out of the TSP is because their advisor can get them into "better funds" than what they had to rely on when they were slogging it out in the trenches of active duty. Why should they do for themselves when they can pay him a small percentage of their wealth to do better for them? Even the wisdom of "Work Less, Live More" would just start an argument.

Their financial advisor's approach is very similar to the tactics I read about for advisors who are trying to recruit physicians as clients. Word-of-mouth referrals and exclusive techniques are much more appealing than Bogleheads.

She did spend a large part of her career managing downsizings, regionalizations, and outsourcings. So to some extent this twisted logic may make sense alongside all of the briefings we've had to sit through from KPMG and other consultants. The part she may not appreciate is where she and her spouse have to work like crazy to keep earning the money to put this valuable team to work for them.

I bet that pretty soon the advisor will mention that they can no longer deduct their IRA contributions (technically true) so maybe they should invest elsewhere? And if they're worried about their financial future then maybe they could seek peace of mind from an annuity!

Hopefully they draw the line at selling their pensions for a lump-sum payment...
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Old 07-16-2008, 08:52 AM   #48
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Very good point, Nords, it comes to the fact that they are obviously very well-to-do but feel that they know nothing about finance, personal finance even. Instead of learning what they can do, fairly easily I may add, they would rather just delegate the responsibility to somebody else for a small fee. It does have advantages, however, if they do not trust themselves. If the market does poorly or their portfolio, they won't be kicking themselves but can lay the blame on other people and sleep well at night (ignoring the fact that it WAS their choice to go to that person)
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Old 07-16-2008, 09:16 AM   #49
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I thought I would weigh in, got too busy yesterday.
The bad financial decisions are many, and they are on a path to financial ruin. Here's a few things I think:

1)$1 million mortgage. They are probably paying $6-$7,000 a MONTH to live there. NO wonder they can't "make it" on $140,000 a year. The mortgage accelerator program is a joke, and probably has hidden fees folks are making a killing on......

2)Advisor - hard to know if the guy is a total schmuck, partial schmuck,or what. First Command is not known as a shining example of financial advisory prowess....... I don't know if you have any leverage with them, but rolling the TSP accounts into his "special accounts" is the absolute LAST thing I would do. Do what you can to dissaude them, but it's probably too late..........

3)Do they have any life insurance or disability insurance? Seems to me they have a TON of bills, and not a lot of hard money assets. If one of them gets hurt or disabled, they are screwed, and will lose the house ASAP. I would get at least $1 million of term on each, just in case one of them dies. Also, I would get as much disability insurance (long term) as they can afford and qualify for. They HAVE to keep working whether they want to or not because there's "bills to pay"........

4)Their kids will have PLENTY of financial challenges in their lives going forward, they've had terrible teachers.

5)Unless this couple WANTS change for the better, they are on the road to financial hell...........
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Old 07-16-2008, 10:31 AM   #50
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This "exclusive financial advisor" crap is something I have seen regularly. It usually signals the end of any meaningful discussion regarding investments.

It is probably more productive to discuss why their kid is so (ugly, retarded, unsuccessful,...) 8)

(But then we all have our own "secret" techniques for how to make money and not make someone else rich. Why should we share it with anyone?)
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Old 07-16-2008, 11:02 AM   #51
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Instead of learning what they can do, fairly easily I may add, they would rather just delegate the responsibility to somebody else for a small fee.
It's possible that any particular (ignorant) client could luck into a competent, ethical FA and that their financial situation will improve dramatically as a result. It is more likely that, if they chose at random, they will choose a remora who will steer them to inappropriate products and suck them dry. IMO, by the time a client has educated himself sufficiently to allow him to choose a competent advisor, that client will be nearly able to do the work himself. Visiting a competent. ethical FA is still a good idea in order to get additional perspective and fine-tuning. Unlike getting your car repaired, I just don't think there's any substitute for self-education and getting your own hands dirty in this area.
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Old 07-16-2008, 11:25 AM   #52
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Unlike getting your car repaired, I just don't think there's any substitute for self-education and getting your own hands dirty in this area.
Sadly, the part about checking the tire pressure, fluid levels and cleaning the windshield is no longer outsourced. But that is no excuse for no longer doing it.

Just like shopping around for home repairs or electronics, anyone can gain significant insights by interviewing many different advisors.
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Old 07-16-2008, 12:09 PM   #53
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I will chime in again... but not on advice.... but as a taxpayer....

It is amazing to me that we as taxpayers can be paying a $140,000 COLA pension to two people unless they worked 40 or more years....

Seems to me that the pension might be a bit rich....
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Old 07-16-2008, 12:43 PM   #54
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I will chime in again... but not on advice.... but as a taxpayer....

It is amazing to me that we as taxpayers can be paying a $140,000 COLA pension to two people unless they worked 40 or more years....

Seems to me that the pension might be a bit rich....
TexasProud,
...Agreed but not nearly as rich as the salaries of many of the execs in the companies that people like you and I invest in. Also not as rich as many of the fund managers making their living off our investments. Something to also consider is that with that large an income from their pensions and apparently equally large income from their work these people are paying a very large part of their pensions back to Uncle Sam in taxes. My military pension is far smaller than the couple in question but the combination of my pension and my and DW's paychecks and investment income has us paying more in total taxes than I get in my pension.
Jeff
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Old 07-16-2008, 12:47 PM   #55
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jclarksnakes, this is true. We choose to invest in these companies, however, by our own volition. Can't really decide not to pay taxes one year...
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Old 07-16-2008, 01:08 PM   #56
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It is amazing to me that we as taxpayers can be paying a $140,000 COLA pension to two people unless they worked 40 or more years....

Seems to me that the pension might be a bit rich....
Unlike private industry, pensions of that magnitude are available to any American citizen who obtains a commission in the armed forces and competes successfully for promotion. There were no sweetheart deals to get it. If you believe it is too rich, then write your Congressman with your opinion. These pensions are part of a total compensation package that routinely lags the civilian sector.

Some will be pleased to note that the Government sometimes avoids paying these pensions. Many of those on the USS Thresher didn't get a dime. Celebrate the savings.

(This post replaces a more bluntly worded earlier version).
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Old 07-16-2008, 02:16 PM   #57
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I know retired second-grade teachers who are getting a higher pension than that (if we figure $70,000 for each to make the combo $140,000 for the couple).... Nothing against teachers, but I think the military jobs might be a little harder to fill and they didn't get the summers off.
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Old 07-16-2008, 04:29 PM   #58
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I know retired second-grade teachers who are getting a higher pension than that (if we figure $70,000 for each to make the combo $140,000 for the couple).... Nothing against teachers, but I think the military jobs might be a little harder to fill and they didn't get the summers off.

My sister was a teacher with 41 years of service... getting in the mid $50s with no COLA.... to me, that is in the range I would think is 'fair'... maybe even a bit more.... but I think the $70K was earned in 20 years

SO... if someone goes into the military when they are 18.... stay 20 years... and start to get a $70K pension with COLA for the next 50 years.... hmmmm, not like a teacher IMO...

I wonder what the 'true' cost of that soldier really is...



OK... did a quick calc.... if the person was getting a 5% raise for 20 years and ended at $70K... and then got a 3% COLA for the next 40.... it is like paying them 2.4X of their salary if we only paid salary... so the 'gap' is not that great IF they did not happen to lose their life along the way...
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Old 07-16-2008, 04:37 PM   #59
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Just a curiosity question... what level do you have to be to GET a $70K pension?
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Old 07-16-2008, 04:41 PM   #60
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Just a curiosity question... what level do you have to be to GET a $70K pension?
I suspect at least E-5 (Commander - Lt. Col in other ranks). How much does a senior manager in the civilian world make?
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