Are Baby Boomers Getting More Attention Than They Deserve?

Are baby boomers getting more attention than they deserve? Before I answer the question, here are some facts on the biggest population bubble in our nation’s history:
1. An estimated 78.2 million baby boomers were born between 1946 and 1964

2. Almost 8,000 people turn 60 each day

3. Fifty-nine million boomers will be living in 2030. During that decade year, boomers will be between ages 66 and 84 — 54.9 percent will be female.

If you put the facts together, it means a big bunch of people will be receiving discounts on a Denny’s Grand Slam breakfast and will be around to eat it for a long time into the foreseeable future.

The long awaited milestone of this important demographic group is now upon us, is not going away, and, in spite of all the hype surrounding the boomers, they will have significant implications on our economy and investment markets for the next 20 years — and beyond.

So the answer to the question, in my opinion, is: The more boomer attention received the better. Bring on the hype if it helps rivet the attention of our law makers. This baby boomer phenomenon is going to have important consequences for retirement if you are either younger, older or in the middle of the pack. Remember this fact: 43 million of American’s 100 million households will enter retirement within the next 20 years.

As you know, Americans who are retired with portfolios supporting them have different needs than younger pre-retirees who are working and saving for their future.

Portfolios after cash withdrawals begin makes these portfolios far more vulnerable to short-term economic and market swings than an individual whose portfolio has had 20 years to build assets. This is exactly the situation we are going through now.

Let’s face it: Most of us have been overly focused on asset accumulation and portfolio performance. We unprepared to handle the huge distribution of assets coming sooner than realized.

This new trend of switching from accumulating assets to helping retirees stabilize those assets into income to last the rest of their lives has not been on everyone’s short-list.

There’s a whole group of issues on the stage: longevity, inflation, taxes, monthly income plans, philanthropic efforts and second job entry, health care and long term care costs, estate planning, inheritance, life long learning, Social Security benefits, care giving for parents and children, liquidity, investment guarantees, retirement security and the seesaw of market performance.

Let’s just take just one issue, “retirement security.” Compared to 2007, baby boomers confidence in their long-term retirement resources has fallen in the dunk tank. In 2007, Watson Wyatt Worldwide, a global consulting firm focused on human capital and financial management, surveyed boomers about their retirement plans, and found that 63 percent felt very confident about having enough resources to live comfortably five years into retirement.

The latest survey by the consulting company shows that confidence has dropped to 44 percent. Further, the survey shows that, throughout a 25 year period, 32 percent of boomers have no confidence at all about their retirement security — most of whom will live that long, according to life expectancy tables.

A more recent survey conducted by the Employee Benefit Research Institute (EBRI) has posted a new low in confidence about having a financially secure retirement. Only 20 percent now say they are very confident about having enough to live on comfortably in their retirement years, down from 41 percent in 2007 (the lowest since the survey began in l993).

I need not mention the lost confidence, market instability and Wall Street scandals (i.e., Madoff) that have influenced the role of the financial advisors like myself and how recent events have affected the confidence, trust, and reliability of our advice. Due to these recent events, investors are disenchanted with advisors because, I suspect, many advisors have been more interested in gathering assets than managing them.

As we are talking about the baby boomer generation here, the challenge for wealth advisors is simply this: You will have to work with your boomer clients to have an asset allocation strategy that fine tunes withdrawals in order to maintain sufficient income throughout their lives.

This calls for Human Relations 101. More than ever, boomer clients who still are working and have a longer investment horizon. To be specific: Why not offer a complimentary service to clients/prospects entitled, “Are you making enough for life?” As a result of the drop of this year — and the mini recovery of 2009 — will you run out of money in the future?

Since there’s a good chance the boomers will make it to the IRS life expectancy tables, withdrawals may be too high compared to post-2008 retirement balances. Any advisor can be a hero if he/she catches this now — before it’s too late to reassess clients and prospects. Extend this service to your newsletter and seminars.

Focus on income solutions for your boomer clients rather than specific investment products. With this approach, you as an independent advisor, can develop realistic income strategies that can move boomer clients successfully through their retirement years.

Putting Your Wealth into One of Uncle Sam’s Best Deals Ever

What a year so far! You’re fighting to steer clear of the potholes of this down economy, the equities elevator (ups and downs), home foreclosures, job layoffs and a stimulus for everybody, it seems, but you.

Not only that, if you haven’t done so already you may be fighting to protect your biggest check you will probably ever receive: your final lump sum retirement pension.

You have worked long and hard to build wealth in your retirement savings and you want to be double sure that you preserve those assetswhen you change jobs or retire. At this stage of your life, you should not have to lose a large portion of your wealth to excessive taxation either.

The message is that Uncle Sam is not your friend. The Uncle is prepared to do taxable damage to your pension plan unless you follow concrete steps. You need to turn Uncle Sam from a pension-grabbing tax collector into a benefactor of high proportions. Preserving yoour wealth will be the best deal you will ever receive from the Uncle.

As you know, the IRS at the time of withdrawal and other weak moments, is poised to grab 70 percent, 80 percent, or maybe as much of 90 percent of your retirement funds!

There’s a better way of managing retirement money than the traditional IRA. It does not mean the traditional IRA is chopped liver. In fact, you should know that it’s the one of the best tax-saving and wealth-building vehicles for savers our government has ever put together to help individuals fund their retirement.

However, the Roth IRA instituted in l998 by Congress and introduced by a fellow named Roth (U.S. Senator William V. Roth Jr. of Delaware) is tweaked slightly differently than the traditional IRA. It may be best for you that the Roth IRA is a better way to go with your wealth, in most cases.

As you know, a Roth IRA is an individual retirement plan that bears many similarities to the traditional IRA. The big difference in a Roth is that the contributions are never tax deductible, and qualified distributions are tax-free. In short, a Roth is a tax-free account; no taxes are paid on your earnings, the interest, and dividends — ever. With a Roth, your client pays his or her taxes up front as the money goes in, not at the other end as they take it out. Of course, there’s no free lunch, as certain requirements have to be met for you to qualify for a Roth.

Still, in effect, in 2009, you could deposit $5,000 in a Roth and a $1,000 “catch up” contribution for individuals age 50 or over. Contribution caps have been increasing since 2002. 2010 is the beginning of inflation indexing, so your maximum contribution will increase in $500 increments yearly in the foreseeable future.

Also, as you are probably aware, for tax years after 2009, all taxpayers can make Roth IRA conversions regardless of income level.. Once your  adjusted gross income reaches $105,000 if you are single, or $155,000 if married, the amount you can contribute decreases, reaching zero for those with an AGI of $120,000 (single) or $176,000 (married). To let you know, the “phase out” range is how much your IRA deduction decreases as you approach maximum AGI.

You will love this. Another benefit of the Roth IRA is that there are no required minimum distributions imposed on the owner. The owner does not have to take money out of the IRA unless he needs it. His or her Roth can compound undisturbed and be left to the next generation, if desired. Beneficiaries, however, are required to take minimum distributions based on their life expectancies.

Most political observers expect taxes to increase, and the President and the majority in Congress have advocated higher taxes on at least some taxpayers. Therefore, if you   averaged your tax payments over the two-year period in 2011 and 2012, you might be hit with higher tax rates.

Look upon a Roth as a savings account. You can pull out contributions anytime you wish. That’s a huge difference from the traditional IRA and 401(k) counterparts. Some things to keep in mind, however: It applies to the money you put in, not earning or interest. For those withdraws, you have to be subject to IRS Qualified Distribution Rule. Also, watch losses. Putting $5,000 in and losing a portion of its value will prevent you from pulling out the whole, $5,000 later.

It’s a win-win situation. If your client converts to a Roth and then decides he or she wants to go back to a traditional IRA, you can do what’s called an IRA recharacterization. Also, unless certain criteria are met, Roth IRA owners must be 59 ½ or older and have held the IRS for five years before tax-free withdrawals are permitted. On these types of things, your advisor can steer you in the right direction to avoid potholes on the Roth conversion.

A Roth is a really good deal for the Gen X and Gen Y group. It gives them years and years to accumulate tax- free earnings. Actually, anyone under 50 should get into a Roth as their primary retirement vehicle. For boomer-plus people, and probably the majority , a Roth will be good for them too, based on their planning needs. Remember, most aging clients have long-lasting genes. With the longevity bonus, most boomers will receive — they will have maybe 20 years more of living give or take to build upon their nest egg. And don’t forget about those grandchildren your client could leave his or her legacy to.

When all the facts are in, putting your wealth into a Roth IRA is one of the best deals you can get, because it’s the best investment vehicle Uncle Sam has ever brought to the table.