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Simple Truths About Wealth Management

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By    |   Monday, 13 Feb 2017 09:36 PM

I’m sure it’s no surprise to anyone who follows the financial literature that there is a bombardment of information from all the “financial gurus” on the latest and greatest wealth management models, portfolios of the best stocks, bonds, mutual funds, the “I HATE ANNUITIES” gurus or even the “I LOVE ANNUITIES” enthusiasts.

This information, or allow me to call it, “potential financial pornography”, is as controversial as the political environment we have seen recently and will be seeing in the immediate future.

The pace of wealth management advice is coming at us at a much faster pace these days, and most likely it’s because in 2016, we saw the oldest baby boomers reaching age 70 which has significant implications for retirement planning and financial matters.

As a baby boomer myself, I keep tabs on the issues of timing and claiming Social Security, tax efficient approaches to taking your required minimum distributions, Medicare premium adjustments, and most importantly how to protect your hard earned assets free of government intervention.

So, when the topic of wealth management comes up, I’m a proponent of discussing this in the context of life planning and not financial planning because the simple truth about holding on to your wealth, is not found solely within someone’s prescription of the latest and greatest portfolio, or favorite speculation of stocks, bonds, mutual funds, or whether you need annuities in your retirement portfolio or not, but rather true wealth management is embedded in the extent to which you can hold on to your health to and through your retirement life cycle.

As you consider proper financial solutions and investment strategies are you thinking about wealth management in the context of those things that will give you the confidence and security of knowing you will not run out of money before you run out of time on this precious earth?

You’re biggest risks in retirement are not merely taxes, market volatility, inflation, but added to these traditional risks you hear advisors talking about, the baby boomers are finding themselves in one of the greatest periods of healthcare cost shifting.

With recent headlines from new research, particularly, Fidelity’s Retirement Health Care Cost Estimate revealing that “a couple, both aged 65 and retiring in 2016, can expect to spend an estimated $245,000 on healthcare throughout retirement, up from $220,000 in 2015.”

That’s an 11% increase in just one year. I don’t know about you, but as I was accumulating my retirement nest egg and saving in all those tax deferred accounts for the promise that I could use the funds at a lower tax basis, I never dreamed I would be spending so much money on healthcare. Did you??

I’m sure I’m not unique and neither are the many men and women I serve in my practice.

This is truly sticker shock and these costs are simply Medicare premiums, co-payments, deductibles and Medicare supplement insurance. It DOES NOT consider dental, vision, nursing home or long-term care. I’m sure the price tag will double if you added this because the Genworth 2016 Cost of Care Report shows an annual cost for skilled nursing care to be a little over $92,000 and based on the increases we’re seeing, in 20 years will be over $166,000. Are you prepared to spend a lot of your retirement nest egg funding your health care bill?

That’s why I’m a proponent of life planning and not simply financial planning. The World Health Organization in a briefing in 1948 stated that “health is a state of complete physical, mental and social well-being, and not merely the absence of disease or infirmity.”

Simply stated, one of the best ways to hold on to your wealth, is to hold on to your health with has significant planning implications. You need to know your risks and accept the notion that total well being is not a financial formula but a formula that helps you create a life plan that integrates your emotional, physical, spiritual and financial life into one retirement lifestyle protection plan.

To optimize the opportunity for success to and through the retirement journey, you’ll need to think about financial and income needs with consideration of lifestyle needs beyond that of core lifestyle costs such as housing, food, taxes, travel, transportation, recreation, etc.

No longer is a simple 4% distribution rule sufficient to achieve your lifestyle needs, or a projected rate of return on your financial assets.

The question you will need to answer specific to your personal life and retirement goals becomes: how much money do I need to maintain independent living through a healthy and active lifestyle beyond age 90, account for the traditional retirement risks of inflation, taxes and market volatility, create the legacy I desire to leave behind, and bucket my strategies for immediate financial needs (1-3 years) , mid-term needs (4-10 years), long term needs (11-20 years), longer term needs (21-30 years), and the very “mature years” of older life stages (31-40) years.

How will you handle life issues such as:

  • Unanticipated healthcare costs to include Medicare premium increases, cost shifting from Medicare to you as a healthcare consumer, additional costs for vision, dental, hearing aids, etc.
  • How do you want to receive care should you need skilled nursing care; assisted living? What location of care do you prefer: aging in place in your home and if so, is the home construction such that you can accommodate needs? Do you want a private setting for skilled nursing care, etc? Do you want to self fund and if so, what will the impact be to your surviving partner/spouse, beneficiaries?
  • How will the use of your retirement nest egg to stay healthy and how much should be allocated to preventive healthcare? Alternative and complementary medical care?
  • What type of activities will you need to fund for longer time periods and most importantly, what activities will you need to include in your plan that will keep you physically, emotionally, socially, mentally engaged and active??

If you are not engaged in discussions with your financial advisor about the health wealth connection, about a total life balance to ensure emotional, physical, spiritual and financial needs, then you are missing the simple truths of wealth management risking a predictable retirement journey.

Jeannette Bajalia, author of "Retirement Done Right" and "Wi$e Up, Women," is president and principal adviser of Petros Estate & Retirement Planning, where she has designed and implemented innovative estate-planning solutions for clients and their families. She also is founder and president of Woman’s Worth®, which specializes in the unique needs facing women as they plan for their retirement. 

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JeannetteBajalia
I'm sure it's no surprise to anyone who follows the financial literature that there is a bombardment of information from all the "financial gurus" on the latest and greatest wealth management models, portfolios of the best stocks, bonds, mutual funds, the "I HATE ANNUITIES"...
Simple, Truths, Wealth Management, Retirement
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2017-36-13
Monday, 13 Feb 2017 09:36 PM
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