(888) 234-7982

The recent announcement of P&G’s decision to lay off 5,700 workers reminded me how vulnerable financial security can be.  Even though our economy is recovering, many people are still afraid of losing their jobs.  In January, my sister learned her company is laying off 40% of its workforce on April 2nd.  As the sole income earner for her family, she has to wait and worry while she manages her staff until the announcements are made.

Obviously, the Great Recession of 2007-2009 had an impact on the financial well-being of many families, but it appears the impact on upper level executives and high net worth retirees was much more severe.  According to the Wall Street Journal, one third of all people considered wealthy in 2007 were no longer in that group by 2009, and the income of the top group fell 34% over the same period.  By contrast, the average income of the bottom 90% of the population fell less than 3% over the same period.  Published in December, The Truth About Wealth pointed out affluence today is much more unstable than it was in the past.  While the article focused on families in the top 1% of the population (those earning more than $343,000 in 2009) the issues it raised were relevant to anyone who is trying to build and retain wealth.  If you have a high income job with great benefits, or have accumulated several million dollars to live on in retirement, you might be secure; but there are risks you may be taking that can cause a fast reversal of your fortune if you ignore them:


The risk of wealth concentration is difficult for many people to accept if they have created their wealth by putting all their eggs in one basket, and watching that basket most of their lives.  A Hewlett Packard Company executive who held only HP stock in his 401(K) plan and exercised HP stock options to supplement his lifestyle suffered a severe financial shock when he lost his job in 2007.  Meanwhile, his HP stock fell from trading at $52 a share in October 2007 to $27 a share in March 2009.  You can definitely become wealthy by concentrating your investment in a single company or asset class, but when it drops in value, you have no safety net.

Before retirement, if your livelihood is dependent on an industry or a specific company, you should not concentrate your investments there as well.  You should have no more than 20-30% of your net worth in any single asset – even if you own your own company.  In retirement, your lifestyle should be supported by a diversified portfolio of investments, with no more than 3-5% of your holdings in one company.


Over the last decade, debt was the rocket fuel that propelled people into homes and lifestyles their parents only dreamed of.  But when you have a significant mortgage or other debt, and your source of income is reduced or eliminated, you may be forced to sell assets at the worst of all possible times.

Your total debt load should be no more than 25% of your total combined liquid (savings and investment accounts) and non-liquid assets (such as your home).  Many financial articles recommend your total principal and interest payments for all your loans, including your mortgage, car, credit cards and student loans, should not exceed 35% of your gross income.  But after observing people as a financial advisor over the last 24 years, I think 25% to 30% is much more realistic and gives people more room to weather a financial surprise such as a job loss or illness. 


Many people don’t really know what they’re spending on an annual basis.  As a result, they may be one crisis away from a financial collapse and not even know it.  This is the biggest issue for most people contemplating retirement, and the one that causes me the most stress when counseling clients. 

It doesn’t matter how much you have saved for retirement if you aren’t sure what it takes to support your lifestyle.  If you retire, and find you are spending nearly 10% of your savings each year, it’s very difficult to adjust after the fact.  You will be much more financially secure if you ‘practice’ retirement by living within the income you think you will need in retirement, before you retire.  If you find you aren’t happy living within your planned income limit, you have time to adjust.  You can work longer and save more, or eliminate expenses that might not be as important to you as retiring when you planned.

Wealth might be more fleeting today than it was before the 80’s, but there are steps you can take to keep yours intact. 

Jeannette A. Jones, CPA, CFP ®