Saturday, March 12, 2016

What Do You Find Most Confusing About Retirement Planning?

In response to my recent post, Retirement Savings and Annual Spending, a reader made the following comment.
"For older workers, I would say that the level of knowledge is generally a state of confusion unless they are working with a good RIA type of planner. The barrage of conflicting information from the financial industry has generally made it difficult for people to become well-informed, even if they put a modest amount of effort in."
We can start with a clarification of the term "RIA", an abbreviation of registered investment adviser. I think Investopedia says it well. 
"In general, only larger advisors that have at least $25 million in assets under management or that provide advice to investment company clients are permitted to register with the SEC, while smaller advisors are required to register with state securities authorities. Registration of an investment advisor is not meant to denote any form of recommendation or endorsement by the SEC or state securities regulators. It simply means that the investment advisor has fulfilled all the requirements for registration as an investment advisor."
RIA is not a certification, like CFA or CFP, but simply a required registration with the Securities Exchange Commission for large firms or the state for smaller firms. RIA does not speak to the skills or training of the adviser, it only denotes that the adviser has legally registered to provide advice, analysis or recommendations regarding securities for pay.

What do you find most confusing about retirement planning?
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It is also possible that the reader meant to type "RIIA", an abbreviation for Retirement Income Industry Association. RIIA does offer a certification called a Retirement Management Analyst (RMA) Designation that involves "rigorous educational and ethics training curriculum."

I responded to this reader by saying that I try to resolve some of that confusion with my blog, but it occurred to me that I may not have a clear idea of what confuses people most about retirement finance. So, here's your chance to let me know.

If there are issues about retirement finance at any life stage that you find particularly confusing or conflicting, please let me know with a comment below. I'll do my best to respond to them all.

I'll summarize the results in my next post, Following Up on Confusing Issues.

Some readers have had difficulty posting comments recently, possibly a problem with the IE 11 browser. Here are a couple of options. First, try a different browser. When one reader switched from IE 11 to Chrome, he was able to post with no problem. Second, email your comment here and I will post it anonymously for you. Add whatever name or user id you wish in the text of the email, or omit it to remain anonymous. I'll only post the body of the email. These problems tend to get fixed with a little time.


  1. Definitely it is moving from accumulation to distribution phase. Its like starting over: different goals, different tactics, different mental acuity, etc. We have "enough $$$," but figuring out the most tax efficient way to distribute from IRA, Roth IRA's and taxable accounts at the right time is just a few too many variables for me and Excel. Few, if any, financial planners seem to even acknowledge the problem, let alone know where to start -- much less provide a plan. Looks like I'm headed for a tax accountant.

    1. Great question, but a very complicated one, as you note. This probably deserves a post, not simply a response to your comment, and I promise to write one soon.

      A couple of points for now. This isn't simply a tax question, though that would be complicated enough. It is also tied in with your Social Security claiming decision. (For example, should you live off taxable savings so you can delay claiming and "buy" more longevity insurance?")

      Also, your IRA's enjoy more protection from creditors than your taxable accounts. Consequently, someone who focuses solely on minimizing taxes might not consider other important aspects of the problem. A good financial planner should be able to address all of the issues and call on a tax specialist if necessary.

    2. I'm posting the following response from Dana Anspach:

      Unfortunately, I find Grandpa D’s comment to be all-too-true. Few financial planners have the tools or training to adequately deal with the distribution phase.

      Advice is often give from the “investment silo” view looking at decisions strictly in terms of rate of return.

      For example, many people still tell clients they can take Social Security early and reinvest the money and earn more. This advice ignores a significant risk, longevity risk, that retirees face. Delaying Social Security is not an investment decision. It is a risk management decision - and delaying hedges longevity risk.

      Simple rules like the 4% rule are also still too often used. A person thinking they can withdraw $4,000 per $100,000 often forgets about taxes. Depending on their tax rate perhaps they can only spend $2,500 of that $4,000 withdrawal and the rest must be withheld or set aside for quarterly tax payments.

      Taxes aren’t considered as thoroughly by some planners because many brokers or registered reps are prohibited by their firms from answering tax questions. They may be able to use a program that taxes everything at an estimated tax rate, such as 25%, but taxes can vary widely from year-to-year depending on how assets are drawn out.

      We have found even many tax accountants are poorly equipped to plan for retirees. They look at tax planning in terms of single year outcomes. When viewed over life the value of using Roth conversions, and managing capital gains and losses can be significant. Accounts are often laser focused on how to reduce your current tax bill without looking at the life-long impact of the decisions.

      As software improves, I think you will see a vast improvement in the advice available in this area. But right now it is challenging to find the right planner with expertise.

      Being a Retirement Management Analyst, and having written the tax bracket planning section of the curriculum, I’d suggest people seek out an RMA!

      Dana Anspach, CFP®, RMASM, Kolbe CertifiedTM Consultant (6-5-8-2)
      Founder, Sensible Money
      To learn more about Sensible Money, visit our website or check out our latest content on Facebook or Twitter.
      Sensible Money, LLC
      Toll Free: 888-MY-RETIRE
      Local: 480-719-7290
      Check out Dana's column at

    3. I'm posting the following response from Mike Lonier:

      Taxes are certainly part of the life change from accumulating savings to paying living expenses from income that comes from those savings, but there are many other things that a financial planner well schooled in retirement management can help identify and sort out.

      Take risk exposures. The way Wall Street advisors tell it during the accumulation phase, investment risk is all that matters to the portfolio, and they are certain they can help with that throughout someone’s whole lifetime.

      By the time someone arrives at retirement, they may have all the money they are ever going to save, and investing and investment risk begins to fade in importance—and along with it the narrow view of the Wall Street advisor. Income risk—the threat that savings will not provide sufficient income—takes a front and center position.

      Income risk is driven by a whole slew of things far beyond the scope of the investment portfolio, like regulatory/policy risk, inflation/deflation, spending risk, longevity risk, health care expense risk including long term care, household life shocks including issues with adult children, estate plan risk, and errors in household financial management including taxes.

      It’s not that these things did not exist before retirement, but an income from working was a buffer that helped reduce the household’s exposure to their consequences. Without that buffer, a retiree is much more exposed to these broad set of risks that can threaten income from savings.

      Wall Street gives its advisors one tool to deal with investment and sequence of returns risk—diversification. Nothing wrong with that and it should be prominently used in the part of the portfolio that is still exposed to market risk. But it’s not a sufficient tool for managing all the other household risks that bear on retirees.

      A good planner, on the other hand, has a broader view than an investment manager, and a first duty to the household’s lifestyle, not to the investment portfolio. A good planner has the full set of tools ready to go to help a retiree analyze the household financial status, allocate household resources to a variety of risk management methods, and plan the way forward into a retirement that will sustain the household lifestyle for the rest of the retirees’ life and into the next generation.

      Maybe one of the first things that can be helpful to a those nearing retirement is to begin to understand the difference between a “financial advisor” (the overwhelming majority of people who work in financial services who sell and manage investment products) and “financial planners,” a much smaller contingent who focus on household financial management, not just investment management, and who may not sell anything accept their professional planning services.

      Michael Lonier
      The Financial Preserve™
      Conscientious Financial Planning and Retirement Income Management
      from Lonier Financial Advisory LLC
      299 Turquoise Lane
      Osprey, FL 34229

  2. Yes, Dirk, you are correct. We have decided to delay (till 70) my SS benefits primarily to increase survivor benefits for my wife if this all drives me to my grave. :) So ... now its mainly down to a tax question for *us*.

  3. Dirk has a good point, Grandpa D, about planning AND taxation. Most of your taxation is already baked into the cake since you've made the fundamental choices between taxed and tax deferred during the accumulation years. Yes, there are some strategies withdrawing too as well as using conversions (even after age 70 1/2) to balance things. But that is with today's tax code ... which could upend even the best of plans when the code inevitably gets changed in the future, as it always has in the past.

    You could use National Association of Personal Financial Planners ( ) Find an Adviser tool to find a fee-only fiduciary planner (don't sell products) who also lists a specialty in tax planning. You would use the advanced search option to elect the specific specialties for that.

    Wishing you the best as you work on that puzzle.

  4. I find the most difficult issue to get my arms around is evaluating the potential for early retirement (say at age 62) and the myriad complexities that come with that regarding everything from healthcare coverage to Social Security to short- and long-term portfolio decisions. So far, any financial planning people I have spoken to are way, way behind this site (and the others it links to) for understanding the challenges and potential solutions. Most seem baffled by anything more complex than Bengen's 1994 4% rule. They haven't even caught up to his later evaluations. Or they just work with canned software and don't understand its assumptions and models.

    For other family and friends, the most important point of confusion is an almost complete lack of understanding of the various fiduciary and non-fiduciary obligations of the various "financial planners". They know something isn't quite right, but can't put their finger on it.... The current DOL push for expanding the fiduciary rule is very critical, but they don't even know the fight is going on.

    I had my own experience with a small amount of money with one of the "financial advisors" in the 1980s that did not end well for my money. The loss of $1,000 taught me a lot of invaluable lessons.

  5. OK, so, several great issues here.

    1. Hard to find a good planner. That's my experience, as well, but they are out there. I know several personally. I suggest you see Larry Frank's comment above regarding NAPFA and look at the RIIA website. If I mention a planner in my posts, they will be someone I trust. Wade Pfau is associated with McLean Asset Management. Check out Dana Anspach or Mike Lonier or Larry Frank.

    I suspect a lot of people feel like they need a retirement planner with an office nearby where they can look them in the eye. I don't personally find this necessary and suggest that you expand your search for a planner geographically. Do you want a good one or a close one? You may have to choose.

    2. The potential for early retirement. I wrote a few posts on this beginning with The Risk of Retiring (or Being Retired) Early. Retiring early is far riskier than most people assume. We say that the most important factor in the cost of retirement is how long you live, but what we really mean is "how long you live in retirement." Retiring early means increasing the largest risk factor in the cost of retirement. Retiring earlier is significantly riskier than retiring later, so the answer to the question, "Can I retire at 62?" is "Maybe – we'll need to run the numbers – but it would probably be a lot safer not to." How much standard-of-living risk are you willing to accept?

    3. Who has fiduciary responsibility? Is your adviser required to put her clients’ interests ahead of her own at all times? I'll tackle this one in a future post.

    Lastly, I had one of those learning experiences in the nineties. Cost me a lot more than $1,000, but fortunately it was one of those times when I said, "Let's see what you can do with a small amount of my assets and go from there."

    Thanks for writing! I promise to expand on these answers in future posts.

    1. Since my commitment to future posts is growing significantly, I'll respond to your "fiduciary responsibility" issue here. I think this recent article in USA Today explains the issue well and is quite readable.

      The key issue is that a fiduciary must provide impartial advice in their client's best interest, while currently, many advisers merely need to recommend investments and actions that are "suitable." The problem is that many investors don't understand the difference or know whether their adviser is a fiduciary.

      Fee-only advisers tend to be fiduciaries and advisers who sell stocks and bonds tend not to be, but this isn't always the case.

      Obviously, you either want your adviser to have fiduciary responsibility, or you want to know that you are using an adviser who isn't legally required to put your interests ahead of his/her company's interests.

      As the linked article points out, the Department of Labor is currently trying to clarify the situation.

      As the column also points out, the best way to find out if your adviser accepts fiduciary responsibility is to ask. I would add that you should make sure you see the commitment in writing.

    2. "I find the most difficult issue to get my arms around is evaluating the potential for early retirement (say at age 62). . .

      I'll write a post on this shortly. A quick way to get a ballpark estimate on your ability to retire is to add your expected Social Security benefits to the amount of income you could buy with a life annuity (currently around $385 per year per $10,000 annuity purchased). Would you be comfortable living off that amount of annual income?

      . . . and the myriad complexities that come with that regarding everything from healthcare coverage to Social Security to short- and long-term portfolio decisions."

      Yes, detailed retirement planning is indeed complex, but a good planner should be able to solve it for you. That complexity is why researchers find the issues interesting and good planners need lots of training and lots of experience. And, it's why I chose this field as a retirement hobby.

  6. Another place to consider looking for a planner is the Garrett Planning Network:
    Since the Garrett affiliated financial planners work on a fee for service basis, not on a percentage of assets under management, they are potentially a good source of assistance for the “unwealthy" and those who don't need a family CFO.
    I agree with your risk of retiring comments, with one caveat, one’s health and life expectancy may impact the timing. If your family longevity history and/or your general health situation is poor, your risk of running out of funds is lower and your risk of not having a retirement is higher. Of course finding a way to make the numbers work is still critical.

    1. I "sort of" agree with both comments. A planner can be in the Garrett Network, be a CFP, a CFA, and a fee-only planner and still not be a very good financial planner. I would prefer a planner with these designations to one without, but they're no guarantee. I personally would not hire a planner based solely on those credentials. Look for recommendations.

      Second, while health and family longevity are fair factors to consider, I would weight them carefully. A lot of unhealthy people live a very long time and lot of people with the "longevity gene" get hit by trains. You still have to consider the possibility that you will live a long time. Going broke in old age isn't pretty. Guessing how long you will live isn't a great strategy.

    2. The men on my father's side rarely made it out of their 60s. However, the combination of never having smoked (rare for European men my father's age) and modern medicine major interventions means that he is still chugging along at 80 despite having the problems that felled our relatives. Meanwhile, my mother's side typically got into at least their 80s and some into their 90s despite many of them having smoked or had other major health issues like rheumatic fever as children.

      So in this day and age, even if family history says otherwise, you still have to plan on making it at least into your 80s and there is a decent chance that at least one person in a couple will make it into their 90s.

  7. Here are some things that vex me in retirement, despite my being very financially savvy and managing all of our household finances and investing (without an advisor):

    * How to pay for LTC for conditions like Alzheimer's that could last many years. My spouse and I have a generous 4-year shared-care LTC policy and the means to pay for about 5-6 years of LTC beyond that, but the open-ended nature of long illnesses like that still frightens me, especially if each of us would be stricken.

    * Continuity of investment and household expense management if I die or become disabled. My spouse could take over some of this, but she doesn't have the financially analytic side that I do. And she's not an Excel spreadsheet wizard. I worry that if she were to turn to somebody for guidance, that they would take advantage of her, charge unreasonable amounts, and/or destroy much of our now carefully-designed self-managed financial retirement plan.

    * Where to find emotional, decision making, and day-to-day support in very old age, when we're less sharp and mobile. We don't have any children and are not sure what would happen. Many of our friends would also be quite old at that point. We'd like to stay out of senior living communities if at all possible...

    1. I'm going to do some research and get back to you on items 1 and 3. But I will give you some thoughts on the second.

      You should be able to find a financial planner you can trust to help with investing and an accountant for paying bills when you no longer can.

      Annuitizing some of your wealth, perhaps with a longevity annuity, will take some of the pressure off investing as you grow older.

      I suggest you identify the planner and CPA and begin to develop a relationship with them now. You will be drawn, as I am, toward professionals our own age, but that is an obvious mistake.

      If you would like to discuss some specifics, email me and I will find a time for us to talk.

      Thanks for writing!

    2. Since your third question regarding "emotional, decision making, and day-to-day support" falls a bit outside the focus of The Retirement Cafe, I asked podcaster, Ted Carr of Retirement Journeys if he had suggestions.

      Ted gave the following response:

      Hi Dirk, I have not done something on this yet.

      However, my May podcast is with Professor Sharona Hoffman who has written Aging With a Plan. Her book contains a lot of information about different types of support to help with all sorts of issues. She too does not have children and shares similar concerns.

      Also, I recently came across this organization Happiness Amplification Project. I'm researching them to see if they might make a good podcast.

      I haven't read Professor Hoffman's book, but I plan to. I also suggest you look for Ted's podcast of her interview.

  8. Dirk: I've been going in circles with Social Security on this question: If I defer benefit to age 70 will my wife then get the delayed credit and therefore higher amount when i pass on. SS says she will only get what I earned at FRA of 66.

    1. This comment has been removed by the author.

    2. It is my understanding that while spousal benefits cannot exceed half of the higher-earning spouse's PIA, survivor benefits can equal the amount received at age 70. So if Unknown delays his SS benefit until his age 70 and then passes on at, say, 75, his wife would be able to still collect his full benefit that he will receive at 70. She would have to drop her spousal benefit at that point since she can't collect both after his death, but she would be able to keep the higher benefit.

    3. As the anonymous commenter above suggests, I need to improve my answer to your question. I assumed you were referring to spousal benefits, but in fact, you asked about "when I pass on." That implies survivors benefits, not spousal benefits. I'm guessing the SSA made the same assumption. (Shame on us both.)

      While spousal benefits aren't increased by delayed credits ("However, spousal benefits do not increase if the retired worker earns DRCs."), survivors benefits are. When you die, your wife can switch from spousal benefits to survivors benefits and take advantage of your delayed credits.

      Refer the SSA agent to
      § 404.313. What are delayed retirement credits and how do they increase my old-age benefit amount? (see below). I think you will get the answer you want.

      Thanks to the anonymous commenter above for catching this! I wish you had not commented anonymously so I could single you out for thanks, but then again, I suppose you know who you are!

      This illustrates my initial point in the post: Social Security benefits are complex and confusing.


      From section 404.313:

      (e) What is the effect of my delayed retirement credits on the benefit amount of others entitled on my earnings record?—(1) Surviving spouse or surviving divorced spouse. If you earn delayed retirement credits during your lifetime, we will compute benefits for your surviving spouse or surviving divorced spouse based on your regular primary insurance amount plus the amount of those delayed retirement credits. All delayed retirement credits, including any earned during the year of death, can be used in computing the benefit amount for your surviving spouse or surviving divorced spouse beginning with the month of your death. We compute delayed retirement credits up to but not including the month of death.