We talk with a CFP who has a different approach

A Different Look at Retirement Planning

by Gary Foreman


Many baby boomers wonder if they've saved enough for retirement, and they have good reasons to be concerned. The economic landscape has changed dramatically over the last generation. Do the old rules even apply?

Rebecca Walser is an author, licensed tax attorney, and certified financial planner at Walser Wealth Management in Tampa, FL. She specializes in strategic tax and financial planning for high net worth individuals, families, and businesses. Her first book, Wealth Unbroken, is out now. We asked Ms. Walser to help us understand what choices are available to those who are near or already in retirement.

Q: Fear of running out of money is at the top of list for baby boomers. How realistic is that fear?

Ms. Walser: Unfortunately, this fear is very realistic for millions of Americans on the verge of retirement. With a retirement savings gap estimated between $7 and $14 trillion dollars, many people will retire to a substantial decline in lifestyle. This is a result of our American culture becoming more about instant gratification, spending it now, and not worrying about it later. Later is finally here for many Americans. 70% of the baby boomers will retire between 2022 and 2029. For those who are financially under-prepared, we might take some lessons from our eastern neighbors where it is common for extended family to share one household and where three generations living in one house is the norm. Alternative arrangements like this might be a potential solution.

A Different Look at Retirement Planning

Q: While we can't control things like bad economies and stock market crashes, are there ways to minimize any damage they do to our retirement savings?

Ms. Walser: Most advisors advise against trying to time the market and pretty much follow a "buy and hold" philosophy. However, when we are at or near retirement, our portfolio does not have the investment horizon left to be able to absorb a substantial loss and re-grow to former value. This is especially true if we take distributions from that same portfolio every year to maintain our lifestyle. This means that we must take preemptive steps to avoid losses. One thing to keep in mind is that you have to know when to hold and when to fold just like the old Kenny Rogers song. Ask yourself, "Can I afford to absorb a substantial loss?" Also, ask, "Have I made a substantial gain with my portfolio as of this point in time?" If you can't afford the loss and you have enjoyed large growth to date in your portfolio, then a move to safety sounds like it could be the right call.

Q: Traditionally, advisors felt that a retiree could safely take an income stream equal to 4% of their invested assets each year. Do you feel that's right? Or do you give your clients different advice?

Ms. Walser: The 4% rule was debunked for us when Morningstar published a white paper in 2013 discussing low bond yields and market volatility. That report replaced the 4% rule with 2.8%, which is frankly not livable as it equates to only $28,000 per year on a $1 million portfolio. Since 2.8% is not really a workable number for most people, we have to modify our planning by selecting asset classes that will produce a higher level of income in a consistent and reliable way. Once you are aware of the limitations, you can modify and usually make it workable. The advisors that continue using the 4% plan are more than likely accumulation/growth advisors and do not specialize in the distribution exit strategy during retirement for their clients. Those advisors are needed, but clients need to work with an advisor that specializes in distribution planning once they are 10 years out from retirement.

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Q: With governmental debt increasing, it's possible that we could see tax increases. What can be done to protect a retiree's investments from increased taxes?

Ms. Walser: Now you are talking my language. This is my area of expertise and you are 100% correct. It is not only possible, but it is most likely highly probably that we will see not only tax increases but substantial tax increases in the coming 10 years. That is why I wrote my new book, Wealth Unbroken, coming out in January 2018. My practice performs a tax analysis and forecast for our client's full retirement years with taxes at their current levels. We then walk our client's through the options they still have today to take control of their pre-tax accounts by converting them to after-tax and tax-free assets, while taxes are still at their present levels before the tax increases are here. If someone has never talked with an expert about tax diversification, there will never be a more critical time to do so than now.

Q: Many financial advisors follow a common traditional view to building wealth and maintaining it in retirement. You're on record that some of those ideas are wrong. Can you point out a few of those areas?

Ms. Walser: Yes, absolutely. Building wealth in pre-tax vehicles really gained mainstream conventional wisdom status during the early 80s and that made sense at the time because our baby boomers were only 16 to 34 years old and our debt wasn't even $1 trillion dollars when Ronald Reagan took office. However, America version 2017 is very different than nearly 40 years ago. First, our boomers are retiring en masse and it will be the largest transfer of people out of our workforce and onto our social programs that we have ever experienced at one time. 70% of the boomers will retire between 2022 and 2029. Second, we are now the second largest debtor nation in the world, second only to China. With this financial tsunami of national debt and baby boomer retirement, having wealth built in a pre-tax account that is taxed as the distributions are pulled at the current ordinary income tax rate simply does not make sense given America's fiscal condition now. Therefore, I believe pre-tax wealth building will quickly become a financial relic and it is important that everyone take every step they can as fast as possible to settle their balance, the taxes they owe on their pre-tax wealth, with the government as quickly as possible. We are still in a low tax bracket period and now is the time to take advantage of that while it is still possible.

And as I mentioned earlier, the 4% distribution rule and the buy and hold strategy are also areas where I disagree on the math from most other advisors and so we look at things from a different perspective in those areas as well.


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Gary Foreman

Gary Foreman is a former financial planner and purchasing manager who founded The Dollar Stretcher.com website and newsletters in 1996. He's been featured in MSN Money, Yahoo Finance, Fox Business, The Nightly Business Report, US News Money, Credit.com and CreditCards.com. Gary shares his philosophy of money here. You can follow Gary on Twitter. Gary is also available for audio, video or print interviews. For more info see his media page.

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