DMD Staff

By the time Generation Y and Millennials are ready to retire, Social Security will either be bankrupt and nonexistent, completely reformed and funded differently than it is today, or replaced by some other mechanism. But if you’re getting closer to retirement within the next decade or two, income from Social Security

—and when to begin taking it&mdash;will 

One important thing to note: Social Security was never meant to be the sole source of income for retirees. Most experts agree that a typical retiree will need to have somewhere in the neighborhood of 80% of the income they received while working to live in the manner they’ve become accustomed to, and for most

, Social Security won’t get them close to that. Hopefully, you’re 

looking forward to income from the sale of a practice, a

 pension, retirement accounts, and other investments

Social Security for you will be what it was designed to be

Like many other financial and retirement-related decisions, when to start Social Security will depend on your circumstances and goals. You 

 start collecting Social Security benefits as early as age 62, but that doesn’t mean you 

. If you start collecting at age 62, you will forego as much as 25% of the monthly amount you will receive by waiting until full retirement age.

While past generations could enjoy full eligibility for Social Security at age 65, everyone born after 1937 must make a bit of an adjustment. For example, if you were born after 1943, you'll have to wait until at least age 66 to retire if you want to receive full benefits. If you were born after 1960, your full retirement age is 67. But if you’re in a position to do so, waiting even longer can be beneficial. Your benefits will increase each year beyond the year you turn 67 until you reach age 70.

The Social Security Administration website is easy to use and is very helpful. The site includes a calculator 

A retirement benefits estimator you can use to figure out how much income you can expect at different ages based on the number of “credits” you earned over the course of your career; and

 we’ll look at when you should start claiming benefits.

Articles

Social Security shouldn't be the core of your retirement planning, but it can be an important component. Here's a look at how different retirement ages will affect your benefits.

Back to Basics: When to Begin Social Security, Part 1

Our financial plans, saving and investing strategies, and ability to bear risk all change over time. So, too, do our retirement worries. Earlier this year, we covered the 

 dentists face regarding their retirement. For each of those fears, we included a reason to rest easier.

For those nearing retirement, though, the fears are often quite different—and more urgent. So let’s revisit the topic, this time with an emphasis on concerns you may face as you near retirement.

The big four concerns for all retirees are:

• Will healthcare costs in retirement eat away at my savings?

• Will I be able to maintain my standard of living when I retire?

• Will my kids’ education costs cripple me?

For those nearing retirement, though, the fears often narrow in scope but worsen in intensity. These are the big 3 for near-retirees:

Will my standard of living take a big hit when I retire? 

It’s easy to see why this would be a holdover concern. All the estimations and calculations you make can’t fully prepare you for what post-retirement living costs are going to be like. Why? Because you won’t know until you’re truly retired whether you’re perfectly comfortable taking things at a slower pace now that your dental career has wound down, whether you’ll suddenly start splurging on hobbies and travel, and many other variables that will directly impact your expenses and your standard of living. While some costs will increase, others will decrease. Estimates show that you should plan to replace about 80% of your income for when you retire, but the actual amount will differ. By how much? Only time and experience will tell.

Lifestyle calculators are terrific and available for free in many places. Something else you’ll want to consider, though, is joining an online retirement community, where you can virtually meet people from all walks of life who share your concerns. These forums offer helpful hints from people like you who navigated some challenges during their first few years of retirement. Another way for dentists to combat this fear is to work longer and keep building that nest egg. That may not be ideal; you may have had your heart set on retiring by a certain age. But you may end up enjoying your retirement more if you wait until you feel more financially secure.

Will I stay in good health through my golden years? 

No matter your family health history or current health, you know from your experience in health care that good health can be fleeting. And you know that costs aren’t going to start going down. So how can you prepare to meet this fear head on?

One way to deal with the unexpected is to estimate your costs. Age, personal and family medical history, and other factors such as maintenance medications you may be likely to take go into this calculation. Many savings calculators allow you to plug in facts about your current health status and how that might project to costs in retirement. And look into what, if any, health benefits you can look forward to as a retiree. Today, fewer employers than ever offer health coverage for retirees, but some still do. Consider also whether a spouse may continue to work after you retire, or, conversely, if your spouse is likely to retire before you.

How much will taxes eat into my nest egg?

Protecting your assets is a significant concern for physicians, who (hopefully) have set aside a pretty substantial nest egg in tax-protected investments. But as you know if this is your fear, tax-protected doesn’t mean tax-free. Uncle Sam gets his eventually. In the coming weeks, we’ll do a full run-down on the tax implications of the many different types of retirement investments you have, but for now…

There are many tax strategies that, while they won’t eliminate your tax burden, can reduce it significantly. Annuities, for example, can provide income that doesn’t count toward the formula that calculates how much tax you should pay on Social Security income. Also, any Roth IRA investments you maintain have already been taxed at the Federal level and are not subject to additional federal tax.

When it comes to taxes, the key is to estimate closely what you’ll be taxed for and when. Knowing in advance how much of your retirement “income” you’ll actually see is an absolutely critical piece of information to have.

If you're nearing retirement, there's a good chance you've got three main concerns weighing on your mind. Read this column to sleep easier.

3 Big Retirement Worries as Your Near the Big Day

In a recent column, we covered almost two dozen 

questions you might ask when looking for the right advisor

. Now, let’s go about helping you figure out the answers.

This isn’t the easiest task, because your reaction to the answers given will be based partly on your own intuition and partly on how you prioritize the questions. If, for example, experience is the single most important attribute to you, it may not necessarily concern you if the advisor charges higher fees, or if she isn’t licensed to sell life insurance. Yet, there are some common concerns you should look for.

2. Have you worked with dentists before? Other people at my income level? Those who face similar life and career situations?

3. Are you specialized in any specific area of financial advice?

4. Do you have references I could contact?

5. Will I be working only with you, or will you refer me to others at your company if there are areas in which you lack expertise or licensure?

Some of the above questions will be more important to you than others. Overall, though, you may want to work with advisors who have worked with dentists before, particularly if you own your own practice. Why? Because being a business owner can sometimes seem to be at odds with being an investor; there is always the question of how much income to re-invest in the business versus how much to set aside for your future retirement needs.

Also, people around your income level often have similar goals and similar amounts to invest. An advisor who has a feel for that isn’t likely to waste your time—a precious resource in its own right&mdash;on exotic or risky investments you’re unlikely to be in the market for. Equally important, an advisor used to working with the super-rich may not be inclined to devote much time and attention to your portfolio.

Specialization will be important to you if you’re looking for a full suite of financial products, such as variable annuities, or truly advanced investment vehicles, such as hedge funds. Life insurance investments require supplemental licensure that not all financial advisors have. If your advisor doesn’t have the credentials you’re seeking, that doesn’t have to be a deal-breaker. Most advisors have colleagues or partners to whom they refer if they don’t have the needed license.

7. How do you stay current? For example, do you take continuing education courses and keep your licenses up to date?

8. Do you have any industry affiliations, awards, or other credentials you’d like me to know about?

The answers here are designed to get beyond the often-confusing initials that come after an advisor’s name to the truth about their background. The vast majority of advisors won’t make up or inflate their credentials, but because of the alphabet soup of initials around (CFP, CFA, CPA, ChFC…and many, many more), make sure the credentials your advisor lists are legitimate, and find out what kind of oversight he or she is subject to.

If you don’t know what the initials mean, ask. Ask, too, for the credentialing body. You’ll want to make sure that the advisor has at least a Series 7 license from the Financial Industry Regulatory Authority (FINRA). Even if the initials check out, take advantage of two highly useful tools: FINRA maintains its own invaluable tool, 

, an exhaustive resource of any disciplinary history an advisor or broker may have; and the Securities and Exchange Commission has 

 (IAPD) website. In a neat feature, the sites even cross-reference each other.

Ask for references, and don’t take no for an answer. You can also contact the Better Business Bureau to make sure that the advisor, and the firm he or she works for, have a clean record. The nefarious operators out there are rare, but you wouldn’t hire a babysitter for your children without doing some checking. The same should be true for the person you ultimately entrust to handle your finances. 

Lots of people are willing to take your money in exchange for financial advice. But how do you find out whose advice is worth the cost?

Choosing an Advisor: Qualifications and Experience

 of this series we looked at the types of annuities. We then 

 some basic concepts. In this final article, we’ll tackle the different phases of an annuity contract.

Annuities follow similar basic paths, from accumulation to annuitization to payout. The 

 always comes first. It is the period of growth for the annuity that begins after the initial investment is made. During the accumulation phase, your funds are invested in fixed or variable accounts that you choose. Any growth on your investment will accrue tax-deferred. Investments in variable accounts share all the same potential for growth—and, importantly, for losses&mdash;that all investments have, including the potential loss of principal. Your investment during this phase is illiquid. You may, at certain points, be able to withdraw your investment, but it will come with an IRS penalty and potential penalties from the annuity holder as well.

 is when the insurance company begins making payments to the investor. In the case of a variable annuity, this is when your investment is converted into annuity units, a portion of the investments the annuity holder has made on your behalf. Note that some types of annuities—which we’ll discuss in the next installment&mdash;don’t have an annuitization phase. Hold that thought for now.

 is the final phase of the annuity, in which payments are made to you based on your ownership of annuity units. This phase can be short, or very long, depending on several factors including the payout amount, the type of annuity and the total amount of investment

You might think that your investment stops earning after the accumulation phase, but it doesn’t. Interest or market gains will continue to accrue during all three phases. If you made an initial investment into a fixed annuity but later made additional deposits, the contract will pay you a guaranteed rate on the initial deposit and all subsequent deposits, both during the accumulation phase and in the annuitization and payout phases. The balance of the funds—less any amount paid to you&mdash;will also continue to earn the guaranteed rate until payout is complete and the contract is depleted.

You control when to enter the payout phase of an annuity. When you do, your funds are pooled with other investors’, and the insurance company guarantees an income. The income may be for a fixed period of time or it may be income for life. Your payments will be a combination of principal and interest that you have earned. Those payments will be subject to taxes at ordinary income rates.

How those payments are made, to whom they are made if you pass away, and the timing and variability of those payments depend on the types of annuities, are discussed 

This is a good time for a reminder that unless you choose a “period certain” or fixed period annuity option, where payments stop after a specified period, the annuity will offer regular income payments for as long as you live—the single biggest advantage to investing in an annuity. This guarantee, however, is based on the claims-paying ability of the annuity provider, so do your homework before choosing. Make sure the company is highly rated and a good match for your financial goals.

Before you sign up for an annuity, make sure you understand the various phases of an annuity contract.

The Phases of Annuities

There is often an inverse relationship between the perceived complexity of a retirement investment and its adoption in the marketplace. Lifecycle (target-date) funds are at the simpler end of the complexity spectrum. For many, annuities are at the other end of the spectrum. For that reason, and several others, annuities are often ignored by investors.

But the key advantage an annuity offers—guaranteed income in retirement&mdash;is too important to completely ignore&mdash;complexity or no. Dentists who get used to a certain level of income might find the idea appealing. While the topic of annuities is large enough to fill a textbook, we’ll are tackling it in three parts. 

, we looked at the different types of annuities. Today we’ll look more broadly at the concept of annuities. In the final part of the series, we’ll look at the different phases of an annuity contract.

An annuity is essentially a life insurance product that changes over time into a series of payments for the investor. Life insurance pays an insured beneficiary upon death, while annuities pay the insured while they are still living. The idea behind annuities dates back centuries, but recent changes and additions to annuity offerings have made them a more attractive investment vehicle than they once were.

Still, there are several kinds of annuities—fixed and variable&mdash;and several 

 of investment in an annuity. So even a quick, simplified breakdown of annuities isn’t all that quick or simplified. Ironically, an investment vehicle designed for simplicity is anything but. So, before we lose you, let’s talk about the…

We’ll summarize the benefits here and probe more in later articles.

All money invested into annuities of any kind grows tax-deferred until it is withdrawn. A key advantage for high income investors is that, unlike many other investments, you can make unlimited contributions to annuities.

: With any annuity, choosing a life payout option means an annuitant will receive some sort of payment until they die.

Protection from creditors and exemption from assets: 

Annuity contracts are (with some state-level exceptions) exempt from creditors and probate proceedings nationwide.

The cons of investing in annuities often depend on the type of investor you are and the type of annuity you invest in, but they can include:

Much of annuities’ bad reputation in the marketplace comes from the simple fact that they are one of the most expensive types of investments available in the financial marketplace. This is not a myth.  

How can we list tax deferral as the key benefit of annuities, and then “taxation” as a disadvantage? Because withdrawals from annuities funded from pre-tax money are taxed as ordinary income, regardless of how long the investment was held.

 You can withdraw money from an annuity, but it will not easy, and it will come with a penalty—in some cases a substantial penalty.

Have we mentioned this? Even experienced investors may not understand how annuities work and may misuse them in their investment portfolio. We’ll discuss in future articles how to avoid the missteps. Also, because of fee complexity, many insurance providers have come under fire for charging excessive fees, which consumers often fail to notice. This is one of the many reasons the Department of Labor recently overhauled the kinds of disclosure financial services providers must give their clients.

In future articles, we’ll get into the details of annuities and why they are an important investment option for dentists.

Annuities can play an important role for some investors. Here's a look at how they work.

Breaking Down the Basics of Annuities

If you read much about personal finance, you've probably heard a lot of strong opinions about annuities. The fact is, annuities can be an important piece of one's financial puzzle, but they aren't right for everyone. In this first of a three-part series, we'll attempt to explain the basics of annuities. Our goal here is to give you the basics, and to simplify the concept of annuities as much as is possible. Once you determine which type of annuity you’re interested in, you’ll want to do more in-depth research and consult a financial professional.

 is just as it sounds—income commences within one year of purchase and will continue for either a specified period or for the life or lives of the annuitants, depending on the payout option you choose. Those options include:

• A “Life with Period Certain” annuity pays an income for a period selected by the owner. If the annuitant dies before the end of the Period Certain, payments will continue to the beneficiary for the remainder of that period.

• A “Life” annuity pays an income for the lifetime of the annuitant, or, in the case of two annuitants (a “

• A “Life Only” annuity pays an income until the annuitant (or surviving annuitant) dies, at which point the annuity expires without value, even if death occurs shortly after issue.

• A “Life with Refund” annuity pays an income for the 

the annuitant’s lifetime or the expiry of the refund feature. The refund feature may be either a Period Certain (e.g.: 10 years) or a Cash or Installment Refund (where payments will persist for the greater of the annuitant’s lifetime or until the entire purchase payment has been paid out.

is so named because payout may be delayed, at the option of the owner, until much later in life. A deferred annuity gives you the potential to accumulate tax-deferred funds over time before you begin to receive payments. Because your money isn’t taxed until it’s withdrawn, it has the potential to accumulate more quickly. Then, when you withdraw money, you only pay taxes on the amount your investment may have earned above your principal.

 are CD-like investments issued by insurance companies. They pay guaranteed rates of interest. Fixed annuities can be deferred or immediate. Immediate annuities make fixed payments, determined by your age and the size of the annuity, during retirement. Fixed annuities are popular because they require low investment, fewer decisions from the annuitant, and because they are predictable. But fixed payments will not rise to keep up with inflation, so your purchasing power may erode. This is especially true if you retire young and collect payments over a longer period.

Also, “fixed” is a bit of a misnomer, as rates may drop after the first year. If you are unhappy with the new rate, you can withdraw your investment early, but it will be subject so potentially large surrender payments.

 allow you to choose from a selection of investments, and then they pay a level of income in retirement that is determined by the performance of the investments you choose. Unlike their fixed counterparts, variable annuities can appreciate. As with fixed annuities, gains are not taxed until withdrawal. This potential growth could help you keep up with inflation. But they bring more risk as well. If the investments you choose for your annuity decline, the value of your annuity will also decline. There are also important tax implications for gains, plus a 10% penalty if you withdraw funds before age 59 ½.

In addition to potential surrender charges, taxes, and investment losses, variable annuities also have fees, and this is where the bad rep for annuities typically comes in. Sales commissions for variable annuities can run as high as 4%, and ongoing maintenance fees—including management fees&mdash;can run as high as 2-3% per year. John Oliver 

Variable annuities are potentially suitable for investors who have maxed out contributions to other retirement vehicles. Consider all the fees involved in a variable annuity, the claims-paying ability of the issuer, and the recent performance of the issuer’s funds, keeping in mind that past performance is no guarantee of future results.

Well, we’ve only covered certain types of annuities and the provisions they may have. The key thing for dentists—or any investor&mdash;to remember is that the devil is in the details with annuities. Investors considering them should be prepared to read the fine print, ask a lot of questions, and perhaps work with an advisor. Because despite their bad reputation, annuities have helped many people secure guaranteed income in retirement, a concept that may seem 

Annuities earn a lot of press, much of it skeptical. But they can be an important part of your financial picture, if you know what you're getting into.

Learn About the Types of Annuities

 of our back-to-basics course, we looked at savings bonds. Next, we’ll tackle another easy one: mutual funds.

Investing terms can be confusing, but that’s not really the case with mutual funds. They are what they say they are. A mutual fund is a company that brings together a group of people (mutual) and invests their money in stocks, bonds, and other securities (fund). Each investor owns a share of the fund, as opposed to a portion of the stocks that make up the fund. The “shares” of a mutual fund represent a portion of the overall holdings of the fund.

Many mutual funds are more or less pre-diversified, because they invest in stocks and bonds in many industries and many different locations, although there are some funds that focus on particular sectors, such as healthcare or technology. Mutual funds are popular with investors because they don’t require a lot of time and effort to keep track of, and they don’t necessarily involve a huge up-front investment. Buying 1,000 shares of Apple stock may be a great idea, but it’s a little pricey, and it offers no diversification.

Mutual funds have other advantages as well, including economies of scale, very high liquidity, and professional management. Purchasing power is better than for the individual investor, constant trading allows for easy entry and exit, and a professional money manager is making the fund’s investing decisions on your behalf.

So how can this go wrong? This is investing, so it can go wrong. That professional money manager may be very good—or not so good. And he or she comes at a price as well. Mutual funds always have fees, which typically include both shareholder fees charged when you buy or sell shares of the fund, and annual operating costs (typically around 1-3%). Because these fees aren’t waived if the fund loses money, any losses an investor experiences are magnified.

The liquidity of mutual funds is great, but since investors are constantly buying into and selling out of the fund, the company that manages the fund keeps large amounts of cash on hand—cash that is not earning much of a return. And if the fund is dissolved due to losses, your investment is not protected by the Federal Deposit Insurance Corporation.

While mutual funds are regulated by the Securities and Exchange Commission (SEC), it can be difficult to decipher exactly how much the fund is investing in what it says it’s invested in. The SEC requires that 80% of a fund’s assets are invested in the particular type of investment listed in their names (eg., “international growth fund,”), but those definitions can be a little vague, and how is that other 20% invested? Unlike individual stocks, for which price-earnings ratio information and other investment measurable are easily obtained, performance information for mutual funds may be difficult to compare to other funds.

As with all investments, before purchasing shares of a mutual fund, do your research. While you don’t have to study the potential returns of individual stocks and bonds, you do have to take a close look at the company offering the fund: What are their investment goals? How has the fund you plan to purchase, and the company offering the fund, performed in the past? (As usual, past performance does not guarantee future results.) Find out how diversified the fund is, and what fees you’ll likely face for your investment.

For certain investors, the advantages of mutual funds will outweigh the disadvantages. Finding out if you’re that kind of investor, and if there is a fund that matches well with your financial goals, requires due diligence.

Mutual funds offer a pre-diversified and relatively low-maintenance opportunity for investors. Here's a primer on what you need to know if you put your money in a mutual fund.

The Basics: Investing in Mutual Funds

As we near back-to-school time, we’re going to embark on a short series of investor refresher courses. Let’s start with savings bonds, the Pythagorean Theorum of investment choices: simple, easy to learn, and tried and true.

Savings bonds are US government debt obligations. They are non-negotiable securities backed by the Treasury Department that pay an interest rate that is compounded semiannually and accrued monthly.

There are better, more interesting investments than savings bonds. In fact, many experts consider savings bonds only a savings vehicle as opposed to an investment vehicle, and with good reason: they simply do not offer the growth potential of other investments. And while they are among the safest “investment” vehicles, that doesn’t mean they don’t have risk. Savings bonds offer inflationary risk—the risk that inflation makes the initial investment less valuable over time.

But savings bonds have some advantages that other vehicles don’t offer, and for that reason they still bear some consideration, not as the foundation of an investing strategy, but as a corollary.

Let’s talk through some of the advantages of savings bonds. (Note: there are 

different types of bond offerings, so the information below is slightly generalized.)

, by now you’re familiar with the inverse relationship between risk and return. The fact that savings bonds are backed by the federal government makes them among the safest investments available. But that doesn’t mean they are completely without return. The US government offers interest rates that are competitive with the market. Some bonds are even available that adjust for inflation.

Monthly interest compounding is rarely offered in corporate bonds, which typically make interest payments twice per year. While the interest that is compounding with savings bonds won’t be huge given their safety, compound interest does add up over time.

Beyond safety, savings bonds offer convenience, because they are issued in different denominations starting as low as $50 and up to $10,000. That can be attractive for investors who have large sums of money locked up in other investments. Savings bonds are somewhat liquid; although they can’t be bought or sold on the open market like a stock or a corporate bond, you can redeem them at most banks whether you are a customer of that bank or not. Keep in mind that redeeming bonds early can come with some penalties. Savings bonds generally bring a low tax liability, as the interest income earned is subject to federal income taxes but not state or local income taxes.

Like all investments, savings bonds have their cons as well, but it isn’t a long or dangerous list. As mentioned above, redeeming before a waiting period will result in some (relatively) mild penalties. Also, when redeeming, you should be aware of when the next interest payment is posted so that you don’t miss out on that extra income by only a few days.

Savings bonds are vanilla by design, but like their counterpart in ice cream, they can be a welcome addition to some fancier choices. 

On the surface, savings bonds might seem as though they're too simplistic for a sophisticated investor. But savings bonds offer some significant advantages worth considering.

Back to Basics: Savings Bonds

We often write about the best places for retirees to consider living, based on location, weather, cost of everyday living, things to do, and real estate values and prices. Today, we’re going to look at some states retirees should avoid—and why. Some are obvious and are for very specific reasons, such as the incredibly high real estate prices in New York. Others may surprise you.

The Empire State tops the list of worst states for retirees to consider. Everything is more expensive here, but the real estate costs in the Big Apple take the biggest bite. Even outside New York City, though, cost of living and tax rates are as high here as they are anywhere. State and local income taxes in New York are the highest in the U.S., and property taxes are always in the top 5 nationally. But there’s another reason New York isn’t a great choice for retirees: though New York is home to some of the premier healthcare institutions in the country (Memorial Sloan Kettering, and NYU Langone, among others), healthcare costs in the state are significantly above the national average. This problem is pronounced for retirees.

Ok, so it’s not technically a state. Still, it’s a bad enough place for retirees that we’re including it here anyway. The usual suspects—high cost of living and high real estate costs&mdash;make DC less than hospitable retirees. But the big kickers for the wealthy in DC are high sales and income taxes, and an astronomical estate tax for estates valued at $1 million or more. Many dentists won’t have to worry about that number, but some will, particularly if they have any wealth generated from sources outside their main career.

By now you know the drill: high sales tax and ridiculously high property values are a given in California. Even worse, though, is the traffic in the southern part of the state. The temperate climate is partially offset by the ever-present smog there as well. California has its charms, but for many retirees, the “dreamin’” comes with too high a price.

The Beaver State is our first real surprise, because it’s lovely, quiet, and loaded with activities that appeal to many retirees, including golf courses aplenty, spectacular hiking amidst startling mountains and breathtaking views, fishing, and inviting beaches. Unfortunately, other Oregonians have noticed all these things as well. Rent in cities like Portland start at nearly double the national average rental fee. Gasoline tends to be more expensive in Oregon also. While there is no sales tax in Oregon, there is a high income tax for residents who earn more than $125,000 per year (retirement income included) of almost 10%. Your dollar will go farther in the lumber state than it will in New York, but not by as much as you think.

The Aloha State is a wonderful place to visit, but you probably wouldn’t want to live here. Unless you’re spectacularly rich, that is. Even vacationing in Hawaii is expensive, but at least then the price of milk only hurts the wallet for a few days or weeks. The higher prices of goods add up over time, and nowhere in the U.S. are everyday prices higher. Income taxes, also, are a bear.

Cost of living isn’t everything, but for retirees on a limited income, it can be a very important determinant of how far their dollar stretches. Most of the locales on this list have in common that they are simply pricier than their neighbors.

Cost of living isn't everything, but for retirees on a limited income, it can be a very important determinant of how far their dollar stretches. Residents of these states face the toughest challenge.

The Worst States for Stretching Retiree Income

When I worked in healthcare journalism, I was an editor at a managed care publication. I was fascinated by an apparently contradictory but enduring trend: when people were surveyed about the effectiveness of “managed care” in general, they were almost overwhelmingly opposed to it. But when asked specifically about their own health plan, it didn’t matter whether the plan was Aetna or Cigna or United Healthcare—the same respondents rated their plan and their satisfaction with it very highly.

I was reminded of this when looking at the latest data from the American Institute of Certified Public Accountants (AICPA) quarterly survey of Americans’ financial satisfaction, known as the Personal Financial Satisfaction Index (PFSi). Despite a hotly contested and divisive election season afoot, the dramatic exit of Great Britain from the European Union, and uncertainty in foreign markets, here in the United States many investors are pretty satisfied with how things are going. (The “Brexit” vote occurred late in the measuring period and may have a more significant impact on consumer confidence in upcoming measurements.) 

In some ways, this optimism makes sense. The stock market is in the midst of a strong cycle, home values are rising across the country, and other economic indicators point to a pending period of mild inflation—which, despite its reputation and connotation, is actually a signifier of economic growth. 

The methodology behind the PFSi is a little complicated, but it boils down to this: it’s a quarterly economic indicator that weighs a variety of economic factors to calculate the financial standing of a typical American. The index is calculated as the difference between two component sub-indexes, the Personal Financial Pleasure Index and the Personal Financial Pain Index. According to the AICPA, “These sub-indexes are each composed of four equally weighted proprietary and public factors which measure the growth of assets and opportunities in the case of the Pleasure Index, and the erosion of assets and opportunities in the case of the Pain Index. Positive scores of the PFSI indicate Americans are feeling personal financial pleasure, whereas negative scores indicate they are feeling personal financial pain.”

The key is that the data, updated quarterly, provides a snapshot of the evolving mood of US investors. Don’t get hung up on the PFSi value of 17.1, but rather consider that this is a 3.4 point increase from the prior quarter and a 1.2 point increase from the same period last year. The bump may be explained, in part, by a strong job market and a jump in home equity nationally and in many states, driven by tight supply in many markets and a prolonged period of low interest rates. 

The largest decline in the indices AICPA reported was in US economy optimism, which mirrors the example I outlined in the article opening. People feel good about their own economic standing, but pessimistic about the overall state of the economy. 

Big swings in the indices may be in store soon; by the next quarterly report, the US election outcome will be known. No matter who is elected President in November, there will be reverberations. 

Economic indicators show a confusing dichotomy when it comes to investors and their mindsets.