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Securing a Happy Retirement

Whether your clients are late to the game or ahead of the plan, they should adopt a balanced approach to financial planning.

By Dave Willis

In San Diego, a 57-year-old tech firm employee we’ll call Stan retired early a few years ago, taking with him more than $1 million in a 401(k) plan, which he wanted to roll over to another plan. In his quest to tap into an advisor, Stan interviewed Mike Botkin, senior vice president of sales and field operations with Asset Marketing Systems and president and owner of Preservation Financial and Insurance Services. Armed with data, Botkin suggested they take at least half the money and place it in a very conservative position—a position of preservation, Botkin calls it—and take a little more risk with the rest. He also recommended that, at 57, the man find a job. “His lifestyle couldn’t be supported by retirement,” Botkin says. Stan didn’t care for that advice and sought out a different advisor.


Eighteen months later, Stan called Botkin again, asking to see him. By then, in his life of leisure, the man had spent or lost a substantial portion of his retirement savings—more than 40 percent. They got together and crunched the new, now depressed, numbers. As Botkin was set to present his first recommendation, Stan interrupted. “I got a consulting job,” he said. But it was a move born out of desperation, not as part of a plan. As Botkin moved on to his next piece of advice, Stan interrupted him again. “I know, I know. I need to put half the money I have left in some conservative investments,” he said. “No,” Botkin replied. “Now, you need to put in a whole lot more than half.”

This demonstrates the value of a caring and knowledgeable financial advisor and affirms what several advisors say: Advisors must instill in their clients—whether they’re late to the game or on top of their plan—the importance of early-and-often savings, the need for diligence and seriousness in planning, and the value of a balanced—even conservative—approach to one’s financial future.

There’s gold in savings
Stan’s real-life experience validates the single top piece of advice Gary Chard, an investment advisor for Principal Financial Group and member of Rochester AIFA, says planners should drill into their clients’ heads: “Save more.”

He recently had to do just that with a 55-year-old client. After sitting down and working up a retirement-income projection, they both realized Joe, the client, was not as ready to retire as he thought. He had hoped his $10,000 annual 401(k) contributions, coupled with his company pension plan, would generate enough income to let him stop working sometime in the next five or six years. But the numbers just didn’t add up.

So Chard told Joe what he tells his other clients, “I don’t care how much you’re saving now, save more.” Besides making sure his 401(k) investments are working in his best interest, Joe has started putting some money aside independently to help get to the $250,000 it looks like he’ll need to retire.

The 20 percent solution
Chard says advisors should recommend that clients try to put away 15 percent to 20 percent of their income. So does Richard Wesselt, owner of Wesselt Capital Group in Jeffersonville, Penn., and a member of Philadelphia AIFA. Wesselt targets a generally younger client base—25- to 45-year-old married couples, most often with kids and usually earning more than $80,000 a year. Wesselt says he believes in the basic principle of disciplined savings on a consistent, monthly basis. This is what helped build the financial services industry. He pushes the use of checkbook draft or payroll deduction, “where it’s out of sight, out of mind,” he says. “It’s very beneficial for our clients, and very simple. It can be a money market, a 401(k) plan, an insurance policy, whatever.”


He also advises clients to earmark 15 percent of their gross income for more short-term purposes. He candidly admits that in a highly consumptive society, this can present a challenge. After clients pick their jaws up from the floor, he explains the need for the 15 percent set-aside, using the following breakdown: “Three percent for inflation, 3 percent for taxes, 3 percent for technological change—replacing computers or cell phones or the like, 3 percent for planned obsolescence—buying a new car or refrigerator, for instance, and 3 percent for other unforeseen expenses. This money can be tapped for these things,” he says.

Catching up
Chard says his savings target represents, for many, the need to catch up. Catching up is in order when you consider data from a myriad surveys, including The 2004 Retirement Confidence Survey, published by the Employee Benefits Research Institute and the American Savings Education Council. It shows more than half of all workers have less than $50,000 in total savings and investments, excluding the value in their home. Four out of five of these peg the number at less than $25,000. Among older workers the numbers are better, but not much. Slightly more than one in three over-55 workers admit to having savings of less than $50,000. Only one in four reports more than $100,000.

Most folks put off putting money aside for any number of reasons, whether it’s raising kids, putting them through college or living the good life while money’s available, Chard says. Then the reality of ‘Hey, I need to start saving for retirement’ starts to strike, but nobody wants to change their lifestyle.

The problem
Ott Walker, CLU, ChFC, AEP, principal of The Ott Walker Agency, in Knoxville, Tenn., advises individual clients and counsels participants in nearly two dozen 401(k) programs. He knows firsthand that many people don’t pay attention to savings and retirement needs until they’re older. On top of that, they’re often too cavalier with money they do have earmarked for retirement. Carrying too much risk in the early 2000s, he says, clients saw their accounts plummet 30 percent, 40 percent or even 50 percent. “In many cases, they left everything alone,” Walker says.

NAIFA-Tucson member Anil Vazirani, LUTCF, CSA, owner of Secured Financial Solutions, encounters this problem nearly every day at the retirement-planning seminars he leads. He recalls one particularly disturbing situation. One participant, he says, was sitting on a portfolio of more than $375,000 just 18 months ago. He met with her last month, and the value of her holdings had nose-dived to a relatively paltry $120,000. “Graphs showed her money going down every month for the last two years,” Vazirani says. “I asked, ‘What are you doing?’ She replied, ‘You know, Anil, we get these statements, and I call my broker, and he says, well, we’re in it for the long term.’” But for her, the long term is statistically not all that long. She’s 79 years old. “This lady lost 70 percent of her nest egg,” Vazirani says. “Now she’d have to see her portfolio’s performance reverse, and net out 210 percent in gains just to break even.”

Many in the 50-and-over group—and probably a lot of younger folks, too—have been hit with a double or triple whammy. “They got out at the bottom of the market—in the 2000 to 2002 timeframe—and failed to get back in and take advantage of the market rebound more recently,” Walker says.

Those taking distributions as part of early or planned retirement suffered, too. “When the market goes down dramatically and you’re making withdrawals, you quickly find that a portfolio that should have lasted for 20 years might only last for 10 or 12,” says Gary Thomas, J.D., LL.M., CLU, ChFC, who owns Wealth Technology Group in western Massachusetts. He finds this to be the case even among younger and older investors, some of whom might have been laid off or changed jobs, and who tapped IRAs prematurely to cover shortfalls.

The solution
Advisors must help clients understand the implications of their choices. They must constantly communicate with clients and keep close tabs on what’s happening with their money.

Thomas says, “Before the market reversal in the early 2000s, a lot of advisors felt pretty confident just plugging numbers into a spreadsheet,” and letting the market work. Walker says clients shared this confidence. “Sometimes things were going so well with their investments, they didn’t care,” he says. “They’d say, ‘I don’t need to talk to you, Ott. Call me next year.’” That’s no longer true. Or at least, it shouldn’t be.

In Walker’s estimation, people are now dead serious about planning. “My clients are,” he says. “They’re also more demanding about me staying in touch. That’s a big change.” Walker reviews accounts and makes contact every three months—via email, which his clients readily accept. “If they want to talk about accounts each quarter, we do,” he says. “Regardless, I make them talk to me in person every year.”


Tactics and tools
Botkin says it’s more than just timing that’s important. It’s also how you talk to clients. “The way you deal with a Baby Boomer is much different from how you’d talk with a 70- or an 80-year-old,” he notes. “You almost have to be a bit more challenging with Baby Boomers. By definition, they’re not very trusting of anyone. What they do respect is someone who comes from a position of strength.”

Trust and facts can be valuable weapons in any advisor’s arsenal. Total Quality Management gurus fondly say, “In God we trust. All others bring data.” While some advisors would like to think clients view them as gods, solid data is the fuel that powers good financial planning. That’s something Brett Berg, J.D., LL.M., CLU, ChFC, Nationwide Financial field director of advanced sales, tries to impress on advisors all the time.

Client goals
“We start with the fundamental that clients should work with advisors to analyze their current financial situation, and help connect their resources to life goals and goals for transferring wealth to the next generation,” he says. “For younger clients, with longer time horizons, a retirement analysis is a tool that focuses on how much they’ll need for retirement, and what they’ll have to save to augment resources already accumulated.

“For older clients, those nearing the end of the time when accumulation is their main emphasis, a retirement-income analysis offers a realistic idea of how what clients have saved will help them live in retirement.”

Chard employs an asset-allocation questionnaire from Principal Financial, which asks clients nine questions about how they view investments, their preferences regarding stocks or bonds, an affinity to large or small companies, and so on. Using these tools faithfully and consistently can be a smart move for advisors who want to help clients assess or reassess their financial well-being and future.


• Stress the importance of savings.
• Use retirement-analysis tools and retirement-income analysis tools, as appropriate.
• Stay in touch with your clients.
• Do not forget to use life insurance and annuity products.
• Educate, communicate and advocate for a balanced approach to retirement planning.

Annuities to the rescue
Walker says advisors should recognize that many individuals who once were aggressive now claim to be over it. “They say, ‘This hit me right between the eyes, and I have to do something to protect the money I have left,’” he says. Walker uses variable annuities to help those individuals, because the product offers principal protection but allows clients to stay in the market.

Vazirani advocates injecting fixed annuities into the mix. “I don’t ask people to take all their money out of the market,” he says. “I ask them to simply limit their exposure.” He encourages clients—mostly the over-60 crowd—to do a 50-50 or 60-40 blend, and protect and keep half their money in safe, fixed vehicles.

Using results from his asset-allocation tool, Chard helps individual clients identify with one of five profiles, which align with investments ranging from stable to dynamic. He uses funds tailored to the profiles to ensure appropriate investments. In his role as 401(k) advisor for a local cable company, he is passionate about convincing more employees to buy into the company plan.

Other insurance devices and more conservative portfolio allocation models have earned a prominent spot in Thomas’ cache of resources that can help bulletproof clients’ portfolios. “We’re making annuities with guaranteed minimum benefit riders a larger part of programs than before,” he says. “We’re also using accounts with put options, in case the market makes a big change, a negative change. And we’re incorporating more life insurance products to supplement investment performance.”

The value of insurance
Wesselt, whose firm is affiliated with Ohio National, also advocates the use of life insurance. “The heart of our model is permanent insurance, whole life,” he says. “Regardless of other assets—401(k)s, mutual funds or equities—the presence of a death benefit lets people use their money as efficiently as possible.” He believes advisors should consider other pluses of insurance, as well. For instance, permanent life insurance offers an option to his younger clients, who often find themselves financing higher education expenses. While he usually encourages customers to tap dormant equity in their homes to pay for college, a back-up strategy involves using life insurance as collateral. He finds these tactics more efficient than popular college savings plans or putting money in children’s names.

Advisors also can serve clients well by making sure they understand and address potential marketplace volatility. “There are financial tools out there that can reward volatility, whether it’s interest rate volatility or market volatility,” Botkin says. “It’s very important that people, as they approach retirement, start to simplify their financial future. There’s any number of ways to do that.” And the benefits are substantial, for clients and advisors, alike. “As we move money into safer positions such as good insurance products that deliver a modicum of safety, we don’t need 18 different accounts for diversification,” Botkin explains. “When we use truly conservative and responsible financial tools, we don’t have to spread out over as many positions.”

That makes retirement planning simpler. And offers advisors more time to educate, communicate and advocate for a more balanced approach to retirement planning—for early birds and late starters alike.

Dave Willis is a contributor to Advisor Today.


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