The Investment Coach

A May 3, Bloomberg report by Suzanne Woolley, “America Is Minting More Millionaire Retirees Than Ever,” offered data worth pondering. Per the article, “One of every six retirees (roughly 17 percent) are millionaires, if you include the value of their homes.” Good news or bad news? It depends.

Conversely, one may infer that the remaining 83 percent of retirees are not millionaires, even including the value of their homes. No doubt the data is based on net worth and tells you nothing about cash flow from sources like Social Security, pensions (increasingly rare), part time post-retirement employment, etc. A retiree in Georgia with the same net worth versus someone in a high cost-of-living and/or high taxed state or city may be better off on a net basis. Where you live matters.

Home values are included in the data. A debt free $400,000 home in a lower taxed Atlanta suburb beats a $650,000 home in Atlanta proper with a $250,000 mortgage and a higher tax bill when it comes to net cash flow available for other expenses or “fun money.”

A person or couple with a $400,000 net value residence and $1.2 million overall, given the math in the article, may have $800,000 in investments. Assume a conventional mix of cash, bonds, and stocks. If the bulk of that is in qualified retirement plans like a traditional IRA, all cash flow distributed from the account is taxed fully as ordinary income. If a bulk of the investments are in personal accounts, some of the cash flow may be taxed at lower rates as long term capital gains or dividends. Tax strategies matter. Investments with varying degrees of “tax shelter” may matter.

Suppose the $800,000 is invested 40 percent in cash and bonds, 60 percent stocks. Interest rates are rising but the net yield after taxes and inflation on the 40 percent is low. Stocks are volatile so timing of a sale of equity interests to fund spendable cash flow, matters. Assuming a hypothetical non-guaranteed 4 percent after-tax yield on the overall portfolio, you have $32,000 per year to spend, $2,667 per month, in addition to other income like Social Security. Does that meet your lifestyle aspirations?

If you own a closely-held business or business interest, how you harvest value when you transition matters from a tax standpoint. According to the Exit Planning Institute (EPI), 63 percent of private businesses are owned by baby boomers, the oldest of whom are 72 this year. Of the boomer business owners, 80-90 percent of their wealth is tied up in the business; 76 percent of these owners plan to transition out of the enterprise within 10 years, yet have no plan. Are you counting on payments from sale of a business to fuel a large portion of your retirement “paycheck”? Advance transitions planning matters.

Per Ms. Woolley, 62 percent of retirees are enjoying life without physical or cognitive limitations. Conversely, over a third, 38 percent, are not enjoying life free of limitations. How do medical and caregiving costs play into scenarios? For the “so far” healthy cohort, longer life potential increases planning for “inflation risks” and not having to live in your child’s basement. Costs for medical care, drugs, and food, tend to rise quicker than the overall CPI average. Oil prices have risen by over 50 percent in the past year and the Saudis are pushing for $80 a barrel oil. Costs for flights or road trips to visit far distant children and grandchildren are rising!

Data indicates that retirees, especially high-income, highly educated types, watch more television than ever. Boob tube watching time has doubled in the last 40 years. The term “boob tube,” circa 1980, emerged among parents who worried that children would lower their IQ by watching too much television and ignoring homework. Should we worry about lower levels of energy, purpose, and engagement among seniors fostering mental and physical decline? Clients forced to watch hours of television as they recover from surgery or illness report varying levels of brain damage fears.

Healthcare and wealthcare count. Pre-retirement savings and asset value-acceleration strategies count. Risk/reward tradeoffs count. Planning for “what if?” eventualities, counts. Planning for your exit, from paid employment, from your business or profession, and from life itself, counts. Time flies when you are having fun. Time drags and boredom increases when you are not. Honey, where’s the off button on the remote?

Lewis Walker, CFP®, is a financial planning and investment strategist at Capital Insight Group; 770-441-2603. Securities and advisory services offered through The Strategic Financial Alliance, Inc. (SFA). Lewis Walker is a registered representative and investment adviser representative of SFA which is otherwise unaffiliated with Capital Insight Group. Lewis Walker is a Gallup Certified Strengths Coach and a Certified Exit Planning Advisor (CEPA®).

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