Enjoy the current installment of "weekend reading for financial planners" - this week's edition starts off with a number of surprise announcements in industry news, including the early retirement of FPA CEO Marv Tuttle due to family reasons, the decision by incoming NAPFA chair Ron Rhoades to resign his leadership position due to a compliance infraction, and a letter by the CFP Board to the Consumer Financial Protection Bureau suggesting the creation of a ratings system for advisor designations and certifications to help reduce elder abuse. We also look at an article explaining some of the upcoming changes with the CFP Board's new sanction guidelines, a discussion from Advizent's Steve Lockshin about how all advisors must help to raise the industry's low minimum standards, and the conclusion of the Investment Advisor/ActiFi study examining how advisors are being served on practice management issues. Wrapping up, there's an(other) article on the rise of the so-called "Robo Advisors", a discussion of how some stress in your business can actually be a positive but it's important to handle the stress so it doesn't become too much, and a technical discussion of some of the unique tax burdens of MLPs, along with a look at how advisors are adjusting investments for a potential inflationary cycle, and a striking article from Texas Tech's Michael Finke about how aging of the brain may reduce financial literacy in later years. Enjoy the reading!
"Save a healthy portion of your income every year from the start of your working years to the end" is a standard of retirement planning advice. Although we may debate about whether the exact number is 10%, 15%, or 20%, or more, the focal point is the same - as long as you save a sufficient portion of your income, you'll have enough savings to fund your retirement.
However, it can actually be even more effective to not save in the early years, and instead invest in one's "human capital" by trying to boost earnings instead of the retirement account balance. In order to make this work, though, it's crucial to keep future spending from rising as fast as future income.
Consequently, the reality is that maybe baby boomers are "behind" in their retirement savings not because they failed to save a percentage of their income, but instead because saving "just" a percentage of income allowed them to consume the rest and increase their spending to unsustainable levels. In turn, this suggests that in the future, the better path to retirement success may not be to save a flat percentage of income every year, but instead to target an appropriate standard of living, raise it conservatively, and save all the rest, however much that may be!Read More...
You have an appointment with a client who has already elected Social Security and now realizes he has made a mistake. Whether because he didn’t think about how his election would affect his spouse, or he was unaware of the options, or for some other reason, he has now changed his mind. What are his options?
While the so-called "Social Security withdraw and reapply" option is mostly gone as a strategy, there are actually still several ways to "undo" benefits, including choosing to pay back benefits within the first 12 months, going back to work to deliberately cause the Social Security Earnings Test to apply, voluntarily suspend benefits after full retirement age, or adjust the timing that a spouse starts benefits. Read More...
For the first time in almost 20 years, the CFP Board has proposed a broad range of changes to the CE requirements that apply to all CFP certificants. The new rules would include an increase in the total number of CE credits required from 30 hours every 2 years up to 40 hours, an increase in the required Ethics education from 2 hours to 4 hours (but half of those hours can be earned from general ethics content, not only "ethics" content on the CFP Board's own Standards of Professional Conduct), and the opportunity to earn up to 4 hours of CE credit from pro bono services and/or practice management content. The changes under consideration address virtually every area for which the CFP Board has been criticized in recent years, although some areas - notably, CE credit for practice management - will be debated more actively than others. At this point, the proposed changes are only a proposal - and open for comment - but unless significant objections arise, it seems likely that these new requirements could be in place as soon as next year!
Enjoy the current installment of "weekend reading for financial planners" - this week's edition starts off with an interesting idea from Don Trone - that as the fiduciary standard gets codified by regulators, it will be diminished, and that the next gold standard beyond fiduciary will become "stewardship" to raise the bar again. From there, we look at an article discussing how the wirehouses are rebuilding their training programs into something that looks a lot like what many independent planning firms would do (but with much larger numbers!), a discussion of some lesser known tools and resources for the investment aspects of a firm, a review of a new software package that estimates client health care expenses in retirement, a summary of the tax law changes coming with the fiscal cliff at the end of the year, and a very personal story of how one financial planner got a first-hand look at the value of having proper documents regarding end-of-life medical care after her brother was diagnosed with pancreatic cancer. There are also a number of interesting investment and economic articles out this week, including Mauldin's latest where he suggests that Europe may not break up (Plan A) nor unify (Plan B) in the coming years but instead will take a slower crisis-by-crisis approach (Plan C) to eventually grind towards unification, an article from GMO suggesting that "reports of the death of equities have been greatly exaggerated" (in response to the recent Bill Gross article) and looking at the components of equity returns, and some fresh research from the New York Fed suggesting that municipal bonds actually may default at a far higher rate than most believe (but the ones defaulting may not be the ones your clients own). We wrap up with two lighter articles, one by financial planner Carl Richards about how we could probably all stand to purge some of the stuff from our lives (good advice for both our clients and ourselves!), and the other discussing the value and importance of a good night's sleep and how our sleep patterns as a society have changed dramatically in the past century. Enjoy the reading!
As retirees and their planners adjust to the 'new normal' - a world of lower-than-average returns for the foreseeable future, many have questioned whether the historical safe withdrawal rate research is still valid. After all, if returns will be below average in the coming years, doesn't that imply safe withdrawal rates must be below average as well? In point of fact, though, safe withdrawal rates do not depend on average returns in the first place; the worst safe withdrawal rates in history that we rely upon are actually associated with 15-year real returns of less than 1%/year from a balanced portfolio! Accordingly, given current bond yields, dividend yields, and inflation, if the current environment for today's retirees will result in a "new record low" safe withdrawal rate, the S&P 500 would still have to be no higher in 2027 than it was in 2007 or even 2000! On the other hand, merely projecting equities to recover to new highs by the end of the decade or generating a mid-single-digits return would actually represent an upside surprise, allowing for higher retirement spending than 4.5% safe withdrawal rates!Read More...
