A 'Rebuilding American Retirement' Call to Arms for Financial Advisors

Person holding jar of coins and cash with "Retirement" label on it
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Retirement in America represents a complex equation fraught with many diverse and hidden challenges that require thoughtful, proactive, forward-looking planning. Many quantitative empirical studies of retirement preparedness find that a substantial number of US households face a potential financial crisis at some point in the future. The CFA Institute Research Foundation provides a critical survey of the most important and best-known of these studies in their recent monograph “Is There a Retirement Crisis?”:

“The most sophisticated models imply that anywhere from 25% to 50% of US households preparing for retirement will end up short of the savings they will need…. The surveys of retirement readiness we have summarized support this conclusion on the whole, although these surveys are not always easy to interpret. The one finding that really stands out is the apparent unpreparedness of older Americans for the unexpected.”

The recent May 2021 Rebuilding Retirement in America Summit hosted by Fairway Independent Mortgage Corporation provided a deep dive into some of these retirement challenges and offered creative solutions to address them. Many sessions at the Summit provided very different perspectives and an opposite way of thinking from many prevalent retirement solutions, but they were always squarely based on the best interest of clients.

The goal of the Fairway Summit was clearly to change the way retirement planning is done in this country. The Summit highlighted the strength behind many unique financial, tax, and risk management strategies, and a rethinking on a breadth of investment tools that may be applied to address the growing retirement crisis in this country, including effectively managing the $8 trillion in home equity. The key message or challenge offered in the Summit was how advisors can be the crucial missing piece of a client’s financial retirement puzzle by strategically partnering with other financial experts to mix these financially advanced approaches early and thoroughly to provide a truly comprehensive retirement plan for their clients.

Highlights with key takeaways:

Harlan Accola, National Reverse Mortgage Director, Fairway Independent Mortgage – Harlan outlined how there is a growing retirement crisis in America that the government, AARP, or corporations are not going to be able to fix. There is no one group or entity that can fix this growing retirement crisis but everyone on their call can – financial advisors, loan officers, accountants, lawyers – if they work together as a team.

Is there really a crisis? - Harlan reported that in 2020 for the first time ever in history, the number of people over 65 exceeded the number under 5. The next 20 years we are going to double the number of people over 65 to over 72 million. Most people alive today that are 65 years old are going to live into their 90’s. A United Nations and NYTimes recent article estimates that by year 2100, only 80 years from today, 25 million people will be over the age of 100. While this is going on today, 1/3 of the baby boomers have less than $25,000 set aside for retirement. Another third has severely under saved at around $100k-$150k.

Accola: “Why is Fairway doing this? We are not financial advisors. We do not allow any of our 3,000 loan officers to sell any insurance, annuities, investments – so we know we need to partner. We realized that we have to talk to each other. If three different doctors are providing care for a client and they do not speak to each other, that can be called malpractice. The bottom line is this. In the financial world, the attorneys, the financial advisors, CPAs, loan officers, do not usually talk to each other. By all of us working together, as a single unit or team, we will be able to change the way retirement is done in this country. We are sitting on $8 trillion dollars of misallocated funds in home equity that should not all be in home equity, especially at the expense of not having LTC insurance, specialized life insurance, proper retirement assets under management to be able to provide for themselves, unforeseen contingencies, and their families particular needs going forward. This is a critical juncture that we are in – a key corner of history. If we continue to put a lot of our money into our homes, money that should be in investments and strategic financial tools, we will be in deep trouble.”

Wade Pfau, Professor of Retirement Income, The American College – in his presentation “The Four Approaches to Managing Retirement Income Risk”, Wade talked about some of the best approaches to managing volatility and longevity in retirement. Wade emphasized how sequence-of-returns risk is a fascinating concept in that minor tweaks to spending can have major implications for portfolio sustainability. When understood in this context, financial tools and strategies that are not always viewed positively by investment-focused advisors and their clients, can create net positives for the financial plan to support spending, liquidity, and legacy. Examples of such tools and strategies include delaying Social Security, using annuities with lifetime spending protections, employing a rising equity glidepath in retirement, using a time segmentation or bucketing strategy, and creating a “buffer asset” with a reverse mortgage or whole life insurance.

Dan Hultquist, National Reverse Training Specialist, Fairway Independent Mortgage - is the author of Simplifying the Reverse Mortgage, a Certified Reverse Mortgage Professional (CRMP), and an active member of the National Reverse Mortgage Lenders Association (NRMLA). Dan presented on “Who Is Today's Reverse Mortgage Applicant?” where he shared data to explain why the reverse mortgage loan is being used by all types of people today and is no longer the "loan of last resort"; becoming more of a lifestyle enhancement and a retirement planning tool as part of a comprehensive retirement plan. It is the emergence of research coming from the academic world – not the mortgage industry – that has started to increase the reappraisal of the strategic uses of reverse mortgages with wealth managers now discussing ways to incorporate housing wealth into retirement planning. Some of the notable research includes:

But many advisors still do not realize that reverse mortgages are a very efficient solution to the retirement crisis. Dan pointed out that homeowners aged 62 and older saw their housing wealth grow $234 billion in the fourth quarter of 2020 to a record $8.05 trillion per the RiskSpan Reverse Mortgage Market Index. That is a lot of wealth that can be strategically managed to fund long-term care, mitigating longevity risk or sequence of returns risk, using tax free draws from to manage their adjusted gross income, to name a few applications. That makes today’s ideal reverse mortgage client not someone who is house rich and cash poor who needs money right now, but someone maybe closer to age 62 giving the line of credit more time to grow; they may still be working and making periodic draws and prepayments whenever needed; and ultimately, they may never need the funds but can sleep well knowing they have a stand-by reserve if they need it.

Rao Garuda, President, Associated Concepts Agency – Rao founded Associated Concepts Agency to serve his clients' planning needs and co-founded the American Tax Planning Institute, which is an advanced financial training and mentoring program for financial advisors across the nation. On speaking about “What Financial Planning Opportunities Could You Be Missing?”, Rao illustrated some the opportunities that Financial Advisors may be missing in retirement planning by not properly integrating IRA strategies (Roth conversion) + home equity (HECM) + insurance (Life & LTC) + charitable strategies (Pooled Income Fund).

Roger Roemmich, Founder and CEO, Retirement Cash Flow Education Group – Roger as an author, CPA, and Retirement Cash Flow Specialist spoke about implementing various strategies using home equity for increased retirement cash flow and ultimately more net worth. Roger illustrated examples of using reverse mortgages to minimize taxation of capital gains, help avoiding social security taxation, increasing cash flow without causing taxes, and providing the cash flow necessary to maximize retirement contribution opportunities, especially benefitting teachers and others with 457(b) or 403(b) plans in later years.

Edward Slott, Ed Slott and Company – a leading IRA Expert and author of The New Retirement Savings Time Bomb: How to Take Financial Control, Avoid Unnecessary Taxes and Combat the Latest Threats to Your Retirement Savings, Ed discussed in his presentation “Planning for the End of the Stretch IRA” the critical issues and specific steps that must be addressed to protect the largest IRAs from changing legislation. He illustrated how to turn advanced tax strategies into understandable and actionable advice for advisors to help their clients get the most out of their retirement savings and take control of their financial future in retirement. He discussed, among other strategies, Charitable Remainder Trusts (CRTs) and reverse mortgages, coupled with Life Insurance. Ed emphasized how Life insurance moves to the top of the list as an estate and tax planning vehicle for the largest IRAs and can replace the benefits of the stretch IRA and IRA trusts.

NAIFA’s “Hidden Threats to A Secure Retirement” Panel – the panel discussed the three hidden threats to retirement that advisors must take into consideration when undertaking any kind of comprehensive planning. Emphasis was put on how each individual threat – college planning, family member with special needs, LTC needs – can wipe out a retirement without proper planning. The case was made that there is no excuse for someone in our business not knowing a specialist in LTC, special needs, college planning, or advanced tax/life insurance strategies. NAIFA provides access to these specialists to members so they can plug into any of them and now have the tools needed to profoundly change the way we plan for retirement in this country.

Suzanne Carawan, VP Of Marketing & Communications, NAIFA – moderator - Suzanne discussed briefly the mission of the National Association of Insurance and Financial Advisors (NAIFA) to advocate for a positive legislative and regulatory environment, enhance business and professional skills, represent a full spectrum of financial services practice specialties, and promote the ethical conduct of members. They work with families & businesses to help Americans improve financial literacy & achieve financial security.

Carawan:“We hear a lot from the boomer population with retirement at their doorstep and we as an industry tend to focus there, but we have to look at other generations around them and see how all these pieces fit together. Most Americans are in a sandwich generation between their children and elder parents. We need to not just talk about how to fund the client’s retirement but explore what might blindside the client. It is vital to work with clients to get a spread of understanding, not just the individual and their partner but understand the entire family structure. What else may need to be taken into account in a truly comprehensive financial plan. Just like in addressing major diseases in life, you get a team of specialist doctors working with you to get on a path to health. This should be no different for your financial wellness, that you need a team of experts in key niche areas. We promote at NAIFA that you are part of a larger network so you can make sure that you have those trusted resources and specialized knowledge at the ready for whatever life scenario your clients may be in.”

Chris Barnthouse, NAIFA (Long Term Care)- has become a recognized expert on Long Term Care solutions of all types and is often asked to speak on the topic at public, industry, and government forums. NAIFA created the Limited and Extended Care Planning Center to shed light on this topic area not brought up enough by advisors and they help them with having these conversations. Chris feels LTC is a retirement issue that is hidden in plain sight. People do not want to talk about it like they do not want to speak about disability insurance. Yet 2/3rds of all Americans who reach 65 will need care: 19% only need it for a year, 14% for 5 or more, everyone else is in between. According to the state of Indiana Dept of Health and Human Services, the average family is indigent, for Medicare purposes, within a year entering a LTC situation.

Also, there are the myths to deal with. Worse of all is that many people think that Medicare will pay for their LTC? A great conversation starter on the topic would be to go over your client’s social security statement and review the warnings on page 4 upper left-hand corner which states that Medicare does not pay for LTC and they should consider private insurance. That is more than a hint. Also, many are not aware in talking about Medicaid, there is a bias there towards facilities – the most dangerous place during COVID. LTC works to keeps you out of nursing homes. 80-90% claims most companies report are for home and community care services, not nursing homes. You have options that give you the care you want, where you want to receive it, and stay home longer. Key message is to do not expect and wait for the government to take care of your LTC needs.

Barnthouse: “I believe it is the innate right for every American to be able to retire and live with dignity. The only way to that is to offset the risks of long-term care. I consider myself a “financial gerontologist” coordinating everything going on in their financial life as they age – first priority is to offset the risk of LTC. A lot of advisors talk to their clients about LTC when they are close to retirement. My average client is 52 – kids out of college, peak earnings years, financial wherewithal to pay for LTC and underwriting is better. Before 55 is optimal.

It is important to note that the day you need care, your life will not end, you will get care, but someone else’s life very well may. Beyond what it does to the retiree, often LTC will blow up the next generation’s retirement – the sandwich generation - and possibly grandkids not being able to go to college due to taking care of mom. MetLife did a study determining the average cost of lost promotions, lost income, time taken off, lost contributions to 401ks, totaled in the 100’s of thousands of dollars of adult children taking care of elderly family members. Medicare even has a diagnostic code now called care giver stress.”

Cheryl Canzanella, Brokerage Director, Coastal Life Strategies (Special Needs Children) – Cheryl, as a Chartered Special Needs Consultant, outlined the nature and scale of the problem with special care needs in American families. There are 20 million families facing these struggles of raising children with special needs. There are over 1 million Americans over the age of 60 that are still providing for care for their special needs children. The exorbitant costs involved can really put a dent on your income planning and it is even difficult for any parent to think about their retirement when you are constantly faced with all the costs and overwhelming pressures of raising a child with special needs. The American College Special Needs Designation teaches that a child with autism is expected to need $3million till adulthood to raise that individual. Many parents do not realize that by not securing their own financial future, they cannot possibly secure the needs of their child’s future.

Canzanella: “In my own experience, helping my husband fight a deadly disease, we saw our savings, earnings, investments, everything we worked hard for, depleting. All our financial decisions became very cloudy as we put everything on the back burner. Even if had some plans, we found out the hard way, at the wrong time, how much we missed the mark.

It is hard to know how to balance all this. The key is taking advantage of all the options out there, making sure you are getting all the help that is available. But you must be aware of lots of potential mistakes that can be made and be careful that you do not disqualify yourself from government benefits. For example, inheritance from grandparents without planning gift effects.

That is why it is important to talk with specialists educated in this area, partner with them, they can not only navigate you through the benefits but connect you with local professionals in community, government agencies, etc. Life is messy in general, and we are living in challenging times. We need each other more than ever. So, as advisors, it is important to continue our education on these risks and partner with specialists who are focused in these areas.”

Brock Jolly, Capitol Financial Partners (College Planning) - Brock is a financial advisor with Capitol Financial Partners and the founder of The College Funding Coach. When you think of things that can potentially erode wealth, college funding is the #1 most real fear for most American families per Gallup and Fidelity studies – how do you save & pay for your kid’s college education (a lot of times paid out of pocket or retirement funds) and still retire? Most families do not know where to start.

Jolly: “Most advisors answer to this problem is product driven – put money into a 529 plan. While 529 is a wonderful tool with significant tax advantages, a 529 plan, in and of itself, is not a strategy. The solution is not a one trick pony. You need to think about these two problems of college and retirement together, in context. Not as separate pieces. You do not need a 529 plan to pay for college, or a 401k plan to retire, or a mortgage to buy a house. These are tools. Looking at it that way, you can be more creative, more strategic.

It is a missed opportunity for advisors to not discuss this combined threat. Being trained by industry on the knee jerk reaction of 529 plans is missing the forest for the trees. You need a sophisticated plan to be careful to not also make the client ineligible for college benefits. College planning can be the door opener to having much more comprehensive planning with your clients. There are so many misperceptions out there. Many parents just think that there are all kinds of money out there.”

The Fairway Rebuilding American Retirement Summit put together an impressive and diverse group of retirement specialists that offered advisors a non-traditional range of strategies and tools to differentiate an advisor’s positioning as a comprehensive retirement specialist. This value proposition can attract prospects and retain clients with confidence that they are in good hands with a well-thought-out, comprehensive retirement strategy.

I highly recommend you review and investigate further the resources and tools available from the speakers and firms outlined in this Retirement Summit review. Having this level of retirement conversation and family engagement is a differentiator – especially when encompassing all three major hidden retirement risk topics. Fortunately, Fairway assembled some of the best minds in the country to give us advice of what we need to do in order to rebuild American retirement.

The Institute for Innovation Development is an educational and business development catalyst for growth-oriented financial advisors and financial services firms determined to lead their businesses in an operating environment of accelerating business and cultural change. We position our members with the necessary ongoing innovation resources and best practices to drive and facilitate their next-generation growth, differentiation, and unique client/community engagement strategies. The institute was launched with the support and foresight of our founding sponsors - Ultimus Fund Solutions, Nasdaq, Pershing, Fidelity, Voya Financial, and Charter Financial Publishing (publisher of Financial Advisor and Private Wealth magazines).

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Bill Hortz

Bill Hortz is an independent business consultant and Founder/Dean of the Institute for Innovation Development- a financial services business innovation platform and network. With over 30 years of experience in the financial services industry including expertise in sales/marketing/branding of asset management firms, as well as, creatively restructuring and developing internal/external sales and strategic account departments for 5 major financial firms, including OppenheimerFunds, Neuberger&Berman and Templeton Funds Distributors. His wide ranging experiences have led Bill to a strong belief, passion and advocation for strategic thinking, innovation creation and strategic account management as the nexus of business skills needed to address a business environment challenged by an accelerating rate of change.

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