Retirement planning takes on new urgency. Are Baby Boomers ready for retirement? Join the survey; get the answers.
November 5, 2007
by Rick Telberg/At Large
Americans excel at many things, from lawn care to rocket science, but perhaps our most common accomplishment is accumulation. If you don’t believe it, go look in your garage. If you don’t have a garage, well, you have a place somewhere — a certain closet, perhaps, or a kitchen drawer — that I’ll bet is almost too full to shut.
The same goes for investments. For most Americans, accumulation includes a lot of home equity, an array of mutual funds, maybe some annuities, a stash of stocks and bonds, a pension fund or two, some cash under the mattress and, for a lucky few, more than half a tank of unleaded regular.
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Are Baby Boomers ready for retirement? Join the CPA survey. Get the answers. (Free. Confidential.) |
Accumulation is the reward of hard work, and investments for retirement are the rewards of smart planning — the kind of planning made possible by astute financial planners and family CPAs.
In general, Baby Boomers have done a pretty good job of accumulating the reserved wealth that they intend to use during retirement. But for too long, many figured their own retirement years would be similar to their parents’ retirement years — a sudden cessation of work followed by a long trip in an RV or an intensification of daytime television viewing.
But, it isn’t turning out that way. For the modern boomer, retirement is commonly a matter of dropping a 60-hour-a-week job, relaxing for 10 or 20 minutes then taking up a new job — a labor of love or a labor of less, like professional fly-fisherman, say, or part-time IT consultant who works only when she damned well feels like it.
In either case, retirees probably find themselves in a pretty good financial position. The only problem, besides the Big One down the road somewhere, is the orderly “decumulation” of wealth — the gradual consumption of all that has been saved, leaving as little as possible for the kids to squabble over.
It isn’t really the financial planner’s job to make sure people don’t live too long, but sometimes that happens. Nor are they supposed to encourage clients to save too much, but that happens as well.
Clients who save too much, or too little, haven’t done it quite right. The good CPA financial planner helps clients plan for an ideal balance — a comfortable process of accumulation followed by a comfortable and well-timed process of consumption.
Traditionally, financial planners have been most concerned with the accumulation side of the formula. But several factors have made the decumulation side more important and more complicated.
For one thing, as I mentioned, retirees are more likely to keep working and earning. They’re healthy enough to work well beyond the age of 65, and they have more options for alternative employment. They’re old enough to harvest their individual retirement accounts (IRAs), young enough to hike some stretches of the Appalachian Trail and smart enough to do a little IT consulting from a laptop on a cruise ship.
Better health means a longer life. Woe be unto the retiree who lives too long! While it seems like a good problem to have, it’s still a problem. Rare’s the boomer who wants to be 103 and living under a bridge on the outskirts of town.
The timing of decumulation has also been affected by houses that have rather suddenly become big assets and semi-liquid equity that can be tapped through reverse mortgages, sales, time-sharing and other special deals.
At the same time, Social Security has become a question mark in the fog of the future. Its certainty is in inverse proportion to its distance from now.
Meanwhile, the cost of post-retirement life is shifting. Studies have shown that retirees spend less on food, for example, but more on entertainment than they did before retirement. Property taxes change when retirees move, and they change again as local and state budgets rise. The retirees lose the expense of kids but gain the expense of grandchildren who live three time zones away. It’s a mistake to think that tomorrow’s budget will be the same as today’s.
And what are interest rates going to be doing in 20 years? And is that good or bad for the retiree?
These aren’t issues for amateurs. It takes a dedicated (and trusted) professional to help people plan for the accumulation and decumulation of wealth. The planning goes beyond investment advice. It becomes a matter of risk management.
These changes in the nature of retirement necessitate changes in the nature of financial planning, and those changes necessitate changes in what financial planners need to know. Ideally, they’ll learn it before they notice that their client’s address has changed to the underside of a bridge on the outskirts of town.
YOUR TURN: Are Baby Boomers ready for retirement? Join the survey; get the answers.
COMMENTS: Questions, rants or raves? Write Rick Telberg.
Copyright © 2007 Bay Street Group LLC. All Rights Reserved. Used by Permission. First published by the AICPA.
