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:
• Barry H. Sacks – Reversing the Conventional Wisdom
• Wade Pfau – Incorporating Home Equity into a Retirement
Income Strategy
• John Salter – Standby Reverse Mortgages
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.
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