3 ways to strategize with a fiduciary
People are living longer, and as wonderful as that news is to many, there is a possible downside: outliving your money in retirement.
It’s a very large fear that many people have today.
Most retirement plans have not incorporated the longevity risk. And without mitigating that, many middle-class retirees could exhaust their 401(k)s and be left with only Social Security and a little equity in their homes.
The financial worries about retirement and the planning options can be overwhelming. One of the concerns people have is getting appropriate advice and finding a financial advisor who puts the client’s interests above his or her own. That type of retirement planner is defined as a fiduciary, and according to a survey by Financial Engines, 93 percent of Americans think financial advisors who provide retirement advice should be fiduciaries — legally required to put their clients’ best interest first.
On the other hand, 53 percent of those respondents mistakenly believe that all financial advisors are fiduciaries.
Trust is imperative, especially where a client’s retirement is concerned. An advisor working as a fiduciary is held to a high standard of honesty and full disclosure to the client. And there are three critical aspects of retirement planning in which a fiduciary can help guide the client to both protect their retirement assets and prosper.
Those three areas are:
Reduce sequence-of-return risks. This refers to the order of annual investment returns, and it becomes a concern for retirees who are living off the income and capital of their investments. The danger comes when an investor receives lower or negative returns due to withdrawals made from their investment. The timing of taking those returns impacts wealth. A planner who’s a fiduciary has multiple ways to reduce sequence-of-returns risk by allowing the portfolio to stay ahead of inflation. You utilize other income-producing vehicles in the portfolio.
Prioritize a tax plan. Understand that in retirement you’re creating your own income from qualified money — money that’s never been taxed before. It’s vital to have a tax plan that can fit into your portfolio. For example, the required minimum distributions (RMD) at age 70½ is something many people are not prepared for in terms of tax impact. The RMDs have never been such a concern in our economy than they are now, because such a large percentage of baby boomers are over 70½. Having a reallocation plan or a Roth-conversion conversation is important to avoid higher tax burdens.
Create an estate plan. Procrastination is an obstacle for many when it comes to estate planning, and it’s important to differentiate between a will, which goes through probate, and a trust. Understand how those things fit in the portfolio, and the difference between live-on money and leave-behind money. You need to establish goals for the assets. A lot of people want to leave a legacy, but they don’t know how large, or how, or when. A fiduciary can help you leverage technology and look at a realistic rate of return, based on your projected longevity.
Having all these planning tools under a full-service fiduciary roof is powerful, because the baby boomer generation doesn’t like change. They need a sense of security before reaching retirement; solid options to make their financial fears and uncertainty go away.
Alexander Joyce is CEO and president of ReJoyce Financial LLC (www.ReJoyceFinancial.com), a full-service retirement-income planning firm, and author of the book: “ReJoyce In Your Retirement: Everything You Need To Know To Get Everything You Want.”