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Managing Gold Mines

With proper asset allocation, your client’s retirement money will last a long time.

By Donald Ray Haas, CLU, ChFC, CFP, MSFS

For those of you who have expanded your business into financial services, the near future should be profitable. This is especially true if you counsel clients on how to invest their retirement plan assets—the vast net worth accumulating in Baby Boomers’ IRAs, 401(k) or 403 (b) plans. And there is no ceiling in sight.

Over 20 years ago, many Americans invested primarily in fixed-dollar vehicles-and some kept as much as 75 percent of their assets in safe investments. Thankfully, today only about 25 percent is in fixed-dollar investments.

Historically, the volatile stock market has produced substantially more appreciation than bonds. In many periods, equity to fixed has been two-to-one. Double is nice, but your clients can accumulate more wealth with an even lesser differential.

Allocating assets
When developing a strategy for asset allocation in a client’s retirement plan, divide your thinking into two timeframes-pre-retirement and post-retirement. Before your client’s retirement party, emphasize growth within his or her plan. Except for possible early usage of some of these funds, the plan should be invested 100 percent in equities.

Even as your clients approach their actual retirement dates, very little of their retirement nest eggs should be in fixed dollars. In the past, these individual accounts were barely touched in the early years of retirement; therefore, zero fixed-dollar vehicles were appropriate. In the future, IRAs, 401(k), and 403(b) plans will constitute a much larger portion of most clients’ retirement assets. As a result, withdrawals early in retirement should be part of their planning.

Longevity is a key factor in retirement fund asset allocation.

Also in coming years, some of your clients may need to postpone their retirement to a later date. Expect to see "nonwork" retirement as well as "partial-work" retirement. What is most important, prepare your clients for the need to have their retirement funds continue to produce income for a much longer period. Longevity is a key factor in retirement fund asset allocation. I assume all my clients will live to at least 100. For those clients born after 1960, I assume they will live to be at least 110. So, for pre-retirement planning, I recommend as close to 100 percent equity (stock market and real estate) as possible in any given situation.

After retirement, I recommend clients’ asset allocation change very little at first. Thereafter, and over the course of decades, I advocate an extremely slow transition from equity to fixed dollars. Here’s my strategy: Estimate the need for cash distributions for the following year or two, look at the current and near future stock market trend, and where appropriate, allocate most of the assets to growth-type investments.

Instead of taking a one-size-fits-all approach, consider each client case individually and view each as an opportunity to affect positive change. They will be thankful for your expertise, and your practice will reap the benefits of successfully managing their retirement gold mines.

Be aware that as clients retire, a large majority of them will roll over 401(k) and 403(b) assets into self-directed IRAs. As a trusted financial advisor, you play an extremely important role in this transition. Even though your clients may have access to financial information from unlimited sources, much of this is generally unsound, inaccurate and biased.

Many folks ask questions such as: “What financial vehicles are available? What is the best allocation for each? How can I protect my funds from volatility and inflation? Will my money last long enough?” Your clients need professional guidance to help address these issues.

Do you have the three Es of the true financial service professional? You need a high level of education with recognized designations such as the CLU, ChFC and the CFP as well as an advanced degree such as the MSFS. You also need experience and a strong commitment to high ethical standards. Although acquiring a broad education and gaining experience take time, you should do these anyway. Baby Boomers’ need for retirement asset allocation is long lasting. Develop your understanding of appropriate methods of doing business, place your client’s interest first and you will have most of the ethical considerations covered.

When I was new in the business, I received this excellent advice: "Treat each client situation as if everyone is watching, even when you know no one is."

Next month, our focus will be on risk tolerance. My partner, Mark Davis, CLU, ChFC, CFS (Certified Fund Specialist), and I have researched this subject and have reached an alarming conclusion: many companies and practitioners are using clients’ risk-tolerance information erroneously and detrimentally. Watch for this one—it will be highly informative and it will be an eye-opener.

Donald Ray Haas, CLU, ChFC, CFP, MSFS, of Southfield, Mich., has been an insurance agent and financial consultant for 45 years. You can reach him at 348-213-0101 or at


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