February 02, 2010
The New Age of Retirement; Marcum Financial's Steve Brett Quoted
By Claude Solnik
Steve Brett, president of Melville-based Marcum Financial Services, starts retirement planning conversations with a question, not about assets, but about aspirations. He asks clients to imagine it’s 11:30 a.m. on a Thursday well into their retirement. Where are they? What are they doing?
“Everybody’s going to answer that differently,” Brett said. “One person’s needs and lifestyle in retirement are different from others’. What will their lifestyle look like in retirement? Does it require a little money or a large amount?”
Although people often initially envision themselves playing golf in Florida or on permanent vacation, Brett said he tries to ascertain whether that’s feasible. When the conversation shifts to assets and liabilities, clients sometimes realize they must adjust their expectations thanks to changing times.
“There were certain guaranteed incomes individuals had,” Brett said. “That has changed. Pensions for the most part are no longer. There’s been a lot of changes to Social Security and the outlook for Social Security. The burden is falling on the individual or the family to plan for their longevity.”
While Americans once faced a larger risk of dying before reaching traditional retirement age, the reality is they’re more likely than ever to live longer into retirement – but may not be well prepared.
Americans’ life expectancy has nearly doubled in a century and is continuing to increase, rising from age 46 for men and 48 for women born in 1900 to 75 for men and 80 for women born in 2005.
“Life used to be linear. You were born, educated, you worked, retired and you died,” Brett said. “There wasn’t a long lifespan between retirement and dying. That has changed.”
Planners are crunching numbers to try to fill the gap as lives last longer even if people don’t earn more.
“When we’re planning for retirement, we’re using longer terms,” said Bill Ackerman, a financial planner at Affiliated Financial Services in Syosset. “For a retirement plan, if someone uses life insurance for estate planning, we go way past age 75. We go to age 100 now. Some policies go to age 110 if a person’s really young.”
Longevity is becoming a bigger issue in retirement planning in other ways. Many Americans are leaving school later and beginning to set aside money later as well.
“Most people don’t even start saving until they’re 30,” Ackerman said. “Retirement could last longer than a savings career.”
Brett said more people are aware of the need to fund their own retirement, shifting “from focusing on accumulation of assets to distribution over a lifetime.” But as they struggle with credit card debt and mortgages, they may not be able to do so.
“They’re not even at the point where they can consider saving. People are working off debt, licking their wounds from bad investments,” said Stephen Breitstone, partner at Meltzer, Lippe, Goldstein & Breitstone.
Even those who save have miscalculated after taking big losses in the stock market crash. “They go back to work, take second, third careers,” Brett said. “They may retire and have to change their plans based on their income needs and lifestyle.”
While planners said being prepared for a long lifespan doesn’t necessarily mean using different tools or saving more, putting together a plan matters more – since you may need money longer.
Whatever tools people use, planners agree the earlier money is set aside, the more time it has to compound, so a dollar saved today is likely to be worth more in retirement than five saved a decade later.
“When should you begin planning? Can it ever start too early? The answer is no,” said Brett. “You should begin early thinking about living longer.”
Although saving more is likely to mean more for retirement, planners said diversification is key. And that doesn’t just mean having money in different stocks.
“Diversification means having some exposure to commodities, gold, offshore investments,” Breitstone said. “Other countries are not necessarily experiencing the same things that are happening here."
He said younger people can invest in riskier stocks because they have a cushion. But it’s important to change investments, reducing risk as you near retirement, since there’s less time to amortize losses.
“Greed is the reason people lose money,” Ackerman said. “If you’re a year away from retirement, you shouldn’t have 80 percent of your money in the stock market.”
While investing in stocks through IRAs, 401(k)s, mutual funds and other vehicles can help fuel retirement, stocks bring the risk of declining value. Annuities provide the chance to grow with the security of a guaranteed minimum income.
“You could do very well with an annuity,” Ackerman said. “And you can get guarantees, which you can’t get in the stock market.”
But annuities have a down side in the form of what’s known as surrender charges that kick in if you withdraw money early. “I would never lock any of my clients up for 10 years, no matter how good the deal is,” Ackerman said.
In addition to health insurance, long term care insurance can help prepare for illness in retirement, especially in areas like Long Island where nursing homes easily cost $100,000 annually. But some said this insurance protects others more than policy holders.
“You buy long term care insurance to protect your assets,” said Ackerman, adding Medicare picks up long term care costs for those unable to pay. “Long term care insurance is to protect your assets so you can leave it to other people. Not to protect you.”
Brett said people need to plan for others’ care as well, including older relatives whose bills they may end up paying. “I have a client who has taken out a long term health care policy for their parents,” he said. “My client was concerned that the burden of costs would fall upon her family and her sibling.”
While there can be risks to retirement planning, the biggest danger may be doing nothing. And that’s exactly what some planners worry many people choose.
“It’s hard to imagine that there will not be a day of reckoning,” Breitstone said. “There are so many people that don’t have money to help their kids with education. Their housing is underwater. Retirement planning is often the last thing on their mind.”