From the February 2007 issue of Wealth Manager Web • Subscribe!

Ready--or Not

Like our universe itself, the idea of what constitutes retirement is regularly expanding. While retirement remains for most clients the 'Last Frontier,' it is no longer what it used to be. Today's retirement landscape is in a constant state of flux. Longer life spans have created a new breed of retiree--some who've left the rocking chair for the motorcycle and are planning a retirement full of adventure and opportunity. Others remain fretful and apprehensive of this untested and extended lifestyle which brings with it a host of new challenges, ranging from the need for a reliable and seemingly endless income stream to long-term care and estate planning--to name just a few hurdles on the horizon.

Even a retiree who is living proof that 60 is the new 40 still has to plan for life after exiting the fast lane. As a result, today's financial advisors are boldly going where their predecessors have never gone before, blazing trails to help clients make the most of this new frontier. Further complicating the matter is that each client's retirement reality is as unique as the individual.

How are advisors meeting this challenge? We interviewed nine professionals who have been keeping an eye on the changing face of retirement and asked them how they're positioning both young and old clients to best navigate these shifting waters.

The Personal CFO

Peter Burton, co-founder, Burton/Enright Group, Walnut Creek, Calif.

"We're moving towards the distribution stage for boomers," says Bay Area wealth manager Peter Burton. "But most boomers never had an advisor as their personal CFO." Burton regularly asks clients for permission to speak with their accountant and attorney, and then quarterbacks the relationship. He says the real risk is advisors who do not penetrate enough to address the issues that are truly concerning clients. "Ninety percent of advisors say they have the better mouse trap. We're spending too much time on technology, most of which clients do not care about. Advisors should be asking clients what they want to accomplish. What type of legacy do they hope to leave? What goals do they have for their family?"

Burton largely handles a high-net-worth "self-made" clientele, most of whom have definite ideas about how money should be handled. "They're not worried about outliving their assets. They don't want to be a burden to their children, but they have serious convictions about the value of work and the importance of sacrifice before one tastes success. It's more about values than valuables," says Burton, who gets to know a family's various generations as a regular part of doing business. "The industry has become commoditized and is not trained enough to deal with the dual-phenomenon of potentially massive wealth transfer and boomer succession."

But before a large amount of that wealth reaches the next generation, Burton says the ultra-high-net-worth client has other concerns such as privacy, personal security and insulating himself from any shocks to the financial system. He's been lining many of them up with non-correlated assets and employs various hedging strategies to provide an in-depth level of diversification.

For Burton, the listening is the part that never ends. One of the recurring themes he hears from his clients is growing concern over the eventual fate of the estate tax. The uncertainty makes it difficult to plan and is making clients uneasy. "We're heading towards a fee-based, total-net-worth billing system," says Burton. "The future is the family office anchored by the advisor who delivers solutions."

Making the Tough Choices

Lee Eisenberg, author of The Number: A Completely Different Way to Think About the Rest of Your Life, former editor of Esquire and rumored creator of the term "power lunch," Madison, Wisc. and Chicago

The key retirement issues now break down into two categories according to Lee Eisenberg: The first one is "How Much Do I Need?" Says Eisenberg,"This is the one most of us obsess over, our anxieties fueled by all the usual fears, dreads and evil omens such as living too long, getting sick, becoming dependent on others, including--but not limited to--our self-indulgent, free-spending kids."

The other category in the financial planning gospel according to Eisenberg is "What Will Make Me Happy, Productive and Fulfilled?" "This is just as important, but far less examined," he adds.

Advisors should be giving clients, especially younger ones, "sailing lessons," says Eisenberg. "See that happy sunset on the horizon? Now see all the dangerous water between here and there? It's up to the individual to pilot that leaky tub and reach the sunset in good shape. To do that you'll need to develop decent navigational skills--a basic understanding of long-term investing and the discipline to stay the course."

The best and most innovative product to help clients reach their goals is an advisor who "knows how to listen" to what a client thinks he needs. "The next step is to use patience, insight and empathy to help refine financial and emotional goals over time," Eisenberg continues. "No formula, spreadsheet or software program can come close to doing that, no matter how slickly packaged and marketed it is.

"Risks are inevitable and innumerable. Each of us needs to accept the fact that we'll run into a great many likely and sudden risks. Try facing them one at a time, keeping in mind the old proverb: You can't leap a 20-foot chasm in two 10-foot jumps."

Eisenberg also advises not to "short change" the effects of either taxes or insurance on long-term financial planning and to avoid the "Debt Warp" in order to make income last.

"This is the silent, number-killer afflicting young and old," Eisenberg preaches fervently. "It has been brought on by our 'whip-it-out' credit-card culture. You've got to make decisions in life," Eisenberg asserts, "some of them hard, others not so. It (retirement planning) isn't rocket science," he lectures. "Do you really need to own, not rent, every lousy movie John Travolta ever made? Do you really need a big plasma TV to watch Nancy Grace?" Are Americans prepared to make these types of sacrifices?

How to Hit a Moving Target

Jeffrey Fishman, investment advisor, founder, JSF Financial, Los Angeles

Today's key retirement issues overlap, notes Jeffrey Fishman. "It's multi-dimensional. The rising cost of health care is inseparable from greater life expectancies. Under this scenario, the negative impacts of inflation escalate and when you combine this with a questionable outlook for Social Security, costs begin to snowball." Another hot topic in Fishman's southern California office: the sharp rise in home values. "We're asked every day if someone should sell their house, relocate or downsize to shore up their economic position for retirement."

Whatever the client's age, advisors always need to focus on budget and make sure clients are living within their means, says Fishman. "Otherwise you may create a pattern of overspending which, at times has been remedied through rising home values. This can be difficult to overcome in retirement unless one can be financially assisted by their children. Most understandably want to avoid this and shoulder the burden themselves, but to do so they often must take prudent steps."

Despite the best planning, the possibility of long-term illness remains one of the greatest risks. "The need for acute care can last years and be financially debilitating," says Fishman. "From a risk-management perspective, we encourage clients to take long-term care insurance to help protect assets and keep retirement plans intact."

At times, he's had clients end up in a higher bracket at retirement due to windfall items like an inheritance. "We discuss a variety of planning techniques such as charitable trusts, gift annuities and the newest law allowing direct gifts of retirement assets to charity of up to $100,000 per year without tax implications."

The other key to a successful retirement is debt reduction. "The ability to comfortably retire becomes a lot more obtainable when there's no mortgage or other debt at variable rates," Fishman points out. "This allows one to chart expenses without the concern that they will change monthly."

The ball is always in play on Fishman's retirement-radar screen. "Retirement's a moving target; laws change, lifestyles change. To hit that target you've got to be moving on all fronts."

Recognizing the Clues

Barbara Friesner, generational coach and founder of AgeWiseLiving, New York

"Not communicating correctly is the biggest risk faced by the 'sandwich generation' and its parents," says Barbara Friesner, who regularly helps clients cope with the multitude of issues that stem from caring for aging parents. Everything from how to manage forgetfulness and depression to finding a suitable place for elderly parents to live comes under her umbrella.

Friesner, who created and taught Seniors Housing Management at Cornell University's School of Hotel Administration, advises younger family members to record their parents' and grandparents' histories--not just as a way for a family to learn its past, but also as a means of opening a dialogue.

"Not only is it sad for a family to lose touch with its history, but learning about one's parents' past provides an opening to see what they now want." Many of today's elderly come from a time when issues like money and health were too personal to discuss, even with close family members, she notes. "Discussing family history can be the door opener."

Opening such a dialogue is a way to learn how an aging family member feels about assisted living, or whether they would prefer in-home care--which can lead to a discussion about estate planning or long-term care. But Friesner urges clients to take yet another generational step by emphasizing the importance of getting siblings on board early to start planning for mom or dad. "Don't wait for a crisis to decide what needs to be done," she says. "This is a generation whose members can be reluctant to talk. Waiting for the perfect occasion to do everything at once can be too much pressure." Friesner's seminars, "Building a Bridge to Yes" and "Understanding Family Expectations," aim to help professionals better serve senior clients and their children without losing compassion.

Ironically, it's technology that's making caring for the elderly a bit easier. The first place sandwich generation members often turn to for information is the Internet, which has helped build awareness of the many choices available. "People are now openly discussing elder care. Five years ago, it was a very private issue. Today, we know we have more choices than the nursing home,"she says.

The Advisor as Life Mentor

Sheryl Garrett, CFP, Garrett Planning Network, Shawnee Mission, Kan.

Understanding clients' post-retirement fantasies and helping them decide whether or not to pursue them is how Sheryl Garrett spends a great deal of her time.

"Many people in typical nine-to-five jobs often dream about opening that used-book store or coffee shop," says Garrett, a by-the-hour, fee-only planner who oversees a network of some 270 independent advisors. "But as that retirement dream date approaches, there comes a time for serious business and life planning."

Garrett, whose network has no account or net-worth minimum, believes in utilizing the "collective wisdom" of its membership to help individuals reach long-term goals. She regularly asks clients questions like:

o How long do you wish to work?

o How do you wish to spend your time?

o How do you feel about money? Family?

While acknowledging that "underestimating our own longevity" is a key risk, Garrett probes deeper to help clients get the most out of what, ideally, could be a fulfilling period of life. "We want to help them avoid or minimize regrets while remaining realistic. Sometimes this means not retiring. People need purpose in their lives."

Garrett notes that many employees tired of cubicle culture often dream of opening a retail business. "Are they capable of dealing with the public six days a week? Will they be there when help calls in sick or deliveries don't arrive? These are the day-to-day realities business owners face. Clients want to fire the boss but don't realize that in business the customer is the boss," she says. "[These clients] frequently don't see the psychological shift that's coming."

Garrett counsels that before clients "let go" of their pre-retirement life, they need to re-explore what they'd like to be when they "grow up." This process also examines concrete issues such as: What is the client's health status? Their spouse's health? How are they going to manage the cost of living? Inflation? Insurance? What's their debt level? Can they afford to stop working? Clients should begin dealing with how to prepare for this next stage a good five to 10 years in advance, says Garrett who, in the end, often recommends tempering the client's retirement fantasy with a dose of reality.

Lifestyle vs. Health

Stephen D. Gresham, founder of the Gresham Company, LLC and author of Advisor for Life (to be published April 2007), Madison, Conn.

Today's key retirement issue is "affordability of desired lifestyle," says Stephen D. Gresham, who regularly advises on attracting and serving the affluent. "'Desired' is the key word in that phrase," he emphasizes. Increasingly, we hear about a varied lifestyle in which the freedom and independence of retirement is utilized for travel, work and education. The question for advisors, according to Gresham, is: What is your client's retirement vision, and how can you help make it a reality? Advisors who can successfully answer this for numerous clients, each with a unique set of circumstances, will pull ahead of the competition. But their success will largely be judged on their ability to anticipate and act on potential risks--some of which may not have been so apparent during initial fact-finding conversations.

"Every retirement plan is incomplete because the future of each client's health is unknown," says Gresham. "It's easy to see how health care can become the number-one concern of pre-retirees and impact their independence."

Consider that five years ago, the oldest baby boomer was 55--an age when most pre-retirees are often not fully focused on retirement planning and wealth protection. Ten years ago, the same folks were only 45 and in the midst of a historic bull market along with a Federal budget surplus, falling interest rates and rising real estate values. "Life was good, everything was booming. Why worry, be happy!" notes Gresham, adding, "Attempting to create urgency about uncomfortable subjects like health care and retirement savings was not popular."

Gresham says that the possible curtailment of health benefits is potentially a bigger overall financial burden for retirees than the future of Social Security. Complicating this scenario is the likelihood of retiring earlier than planned--either due to physical disability or illness or economic issues such as downsizing or outsourcing.

No matter what happens, each client will need a place to live, an income source and health care. "Ask what are the best, worst and most likely cases that may result from retirement-lifestyle choices as well as issues out of your client's control--namely, health," Gresham urges. "The firms that will be profitable in the end will be those that can apply the solutions to match this new generation's demands."

Evolving Retirement Paradigm

Michael Kitces, director of financial planning, Pinnacle Advisory, Columbia, Md.

It's important to go beyond the numbers according to Michael Kitces. An advisor's job is as much about helping clients navigate the softer side of retirement as it is about helping them understand distribution requirements.

"Is not working really what everyone wants? How will they fill their time for the next 10, 20 or 30 years? Or is it working less or working differently?" Kitces says probingly. "Clients often need guidance to understand and articulate their retirement goals because they have both financial and non-financial objectives."

Kitces says that to prepare for "long retirement horizons" a key part of the strategy must focus on managing investment returns as well as risks. "We need to determine a safe withdrawal rate and/or the amount of assets that will be necessary to sustain their desired amount of retirement spending."

Uncovering a client's financial and non-financial goals--whatever their age--is an important part of the evolving retirement paradigm. "Five years ago was just the beginning of an emerging understanding that retirement no longer means to stop working cold-turkey and watch TV or play golf for the rest of one's days," says Kitces. "Yet 10 years ago, that was generally the only understanding of [retirement]."

Kitces observes that the science of analyzing retirement is "dramatically evolving" on technical levels as well. "Five years ago, we began to see an expansion of research into safe withdrawal rates, proper retirement portfolio management, etc. But 10 years ago, little to no research focused on these topics."

In Kitces' view, history has a lesson for those planning to retire as well as for those aiming to help them. "Five years ago, the stock market was stumbling from the greatest bull market in recent history. Ten years ago, it had also been a roaring bull market. Now people realize that markets can and do go down, as well as up."

'Snowbirding' on the Job

Bill Novelli, CEO of AARP, author of 50+: Igniting a Revolution to Reinvent America, Bethesda, Md.

"For many, Social Security will be the only reliable, guaranteed source of retirement income," says Bill Novelli, CEO of AARP, America's retirement advocacy. "We need to make sure it's strengthened for future generations."

Novelli argues that with traditional pensions going the way of the dinosaur, people have to assume "more responsibility and risk" when it comes to making sure they will have the resources to maintain their desired retirement lifestyle. "Far too many Americans are not saving at all, or enough to live the life they want," he warns. Add to that skyrocketing health-care costs and low savings rates, and many future retirees may not have the financial resources to make retirement ends meet.

"Advisors should always discuss client goals before talking about specific products. Once goals have been clearly defined, advisors can then make recommendations for products or services that can help them," says Novelli. "If they don't have a suitable product, they should let the client know up front."

But the financial advice business is a two-way street, he continues. "People need to ask how a financial product may meet their needs as well as about costs, fees and tax consequences." Novelli recommends individuals use products that are easy to understand, like index funds, and to ask for rebalancing based on a targeted retirement date. He's also a supporter of annuitization to ensure a steady income that cannot be outlived; working longer; and "snowbirding," which allows people to work but get more satisfaction from their jobs.

The biggest risk? Planning for how long we might live. Novelli cites an AARP study which found that fraudulent investment victims are often overly confident that they can rely on their own hunches and ferret out a bad deal.

"People are often on their own to figure out how to accumulate assets and then draw down just enough to live on--many for half as long as they worked," Novelli points out.

Responding to the Wake-Up Call

Diane Pearson, CFP, Legend Financial Advisors, Pittsburgh, Pa.

"The gold watch no longer exists," says Legend Financial's Diane Pearson. "We've become a nation of job nomads." Pearson says that although risks are different for each client, overspending usually tops the list of issues to be addressed when they come for a consultation.

Legend, a fee-only firm, targets the "soon-to-be-affluent," (those worth between $1,000,000 and $10,000,000) as well as the wealthy (with investable assets over $10,000,000), their families and businesses. Legend clients complete a 35- to40-page questionnaire before serious discovery begins.

"A lot of clients are asking, 'Will I have enough to retire?' and for more and more, the answer is 'no'," says Pearson. While this sounds surprising for a firm that caters to the ultra-rich, lifestyle changes such as divorce, health problems, buyouts and issues like how to best help the children can put a crimp in the plans of even the highest-net-worth families.

"This is a wake-up call signaling a new phase of life," says Pearson, who notes that most clients are about 50 when they first enter Legend's offices. "For some, it's hard to pay attention to where they're spending. Many have never balanced a checkbook and have no idea where their money goes." It's usually a "life-changing" event, such as suddenly realizing that they're about to become responsible for their parents or an impending divorce, that motivates that initial consultation.

Pearson often gets down to brass tacks with such clients, tracking cash flow and analyzing retirement plans and lifestyles before mapping out how they may be able to reach their next financial destination. A key mission: Helping clients understand the "critical interdependencies" among investments, income and estate taxes while furnishing a retirement income plan, daily expense management as well as business counseling and philanthropic decision-making.

While careers are often cut short by outsourcing, mergers or takeovers, the portable pension plan has made employees equally transient and self-reliant (for better or worse) when it comes to retirement planning. Pearson often advises clients to fully fund all available qualified plans. An annuity may be recommended only after each of these is exhausted, and if the client lives in a high-tax state.

"Many of our clients exhibit the same fears and goals," says Pearson. "We help them prepare for the big change."

Joseph Finora writes about personal finance. One day he may even retire.

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