The One Key to a Dignified Retirement? Starting Early

Mar 25th 2013
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By David Shill, CFP®, GPP Wealth Management, LLC, Champion Partner, Wealth Management

Many years ago, when I started my very first job and received that first paycheck, someone came to me and asked, “How much of your first paycheck are you going to invest?”

“What are you talking about? I only made $350,” I said.

This particular person was a very important person in my life – my late father – who said to me, “It's $350 more than you had last month.”

With that, I started a retirement plan, a dollar-cost averaging plan in which I took a portion of my earnings and put it away each and every month. I did that for many years and still continue to do so today. It's through this lesson that I decided to make financial services a career and retirement planning my area of emphasis because it is vitally important that we get all our clients to start saving as early as possible.

Is it Too Late for Baby Boomers

We talk a lot now about the baby boomer generation that is facing retirement. At the end of the 1990s, the baby boomers were all going to retire at age 55. They were going to spend their lives playing golf. They were going to spend their lives hiking. They were going to spend their lives sailing. This was really easy, coming off four years of 20 percent plus compounded rates of return in equity markets. And then the early 2000s happened. Emotions got in the way and a lot of the baby boomers got out of the market, then got back in right before the markets crashed again in 2008. That, of course, changed the whole plan for retirement.

In reality, it didn't change the whole plan for retirement – because there was no plan. The role of a financial planner and particularly a financial planner in a CPA firm, is to educate our clients that retirement planning is not about market timing. It's not about investment returns. It's all about having a consistent plan and then sticking to that plan. So we help our clients with asset allocation.  We help our clients make smart choices.

One of the choices that every baby boomer who is a parent has been faced with is choosing between making provisions for their own retirement and funding their kids' college education. These two are seen by most baby boomers as being mutually exclusive. That is not the case. One of the worst things that you can do is take time off from building your retirement nest egg to fund your kids' education.

There are different ways to deal with education costs. Starting early is the absolute key.  Anybody who wants to accumulate a $1 million and has a 40-year time horizon is faced with putting away $500 a month. If you wait 10 years, that $500 a month becomes $1,000 in order to reach the same $1 million milestone. If you wait 20 years it becomes about $2,200 a month. The folks that have waited until the kids are through college are 10 years away from retirement and will need to put away $6,000 a month to be able to accumulate $1 million.

Worse yet, many may need more than $1 million to continue their standard of living. To play off of an old Yogi Berra quote, “A million bucks ain't a million bucks anymore.”  So a $1 million at today’s yields could generate $10,000 or so in income each year. That’s not much and illustrates there’s some serious need for financial planning.

It’s an old, clichéd expression that “we never plan to fail but we fail to plan,” and that's never been truer than in these particular times. The real key to having a successful, dignified retirement is starting to save early. I cannot stress enough how important that is. For baby boomers, this is probably a little late in the game to say that, since they're already on the doorstep of retirement. But for their children, it is going to make an incredible difference.

The CPA Difference

When we sit down with our clients, we engage them in a discussion. We get a good idea as far as how they envision their retirement. We gather the details of their various assets, retirement plans, joint accounts and annuities, and also all their liabilities from all different sources.  From that point, we have a discussion around the various risks that are applicable to those individuals.

As wealth managers, we must get inside of our clients’ minds because they are only going to stick with a plan that addresses the issues that are of most importance to them. Once we've gathered all the information and we know exactly what the risks are, we cover the things like planning for long-term care.

There's a misapprehension that Medicare is going to cover you if you have a long-term care issue. That's not the case.  If you are planning for retirement today, you will need to plan for about $250,000 to $400,000 in out-of-pocket medical expenses in retirement.

After we discuss all these considerations, we craft a plan. Certain elements of that plan are going to produce steady amounts of income that are absolutely guaranteed. One of the significant components of that is Social Security. Social Security retirement age, the full retirement age of 66, is really the earliest point that any baby boomer should be contemplating taking his or her Social Security benefit.

All too often, we have folks tapping into those funds at age 62. If you delay taking Social Security further, from 66 right through to age 70, that Social Security benefit will be about 132 percent of what it was at age 66.  That makes a significant difference. For lower-earning baby boomers, Social Security is a vital component of retirement income and could account for as much as 60—70 percent of the income they require.  When you're talking about more affluent clients, clients that have a higher price tag on their lifestyle, that involves significantly more planning and Social Security obviously becomes a much lesser component.

I hear baby boomers say this a lot: “I'm going take my Social Security at age 62 because Social Security is just not going to be there for me.”  Excuse the language, but that's a lot of baloney!  There is no problem with Social Security as far as baby boomers are concerned. The Social Security fund trustees report that came out recently indicates that we still have many, many years before the benefits are forced to be reduced and that certainly will not affect baby boomers. So there's an element of comfort.

Getting back to the plan, whereas the baby boomers in the late 1990s felt that they could do absolutely everything themselves, today it's incumbent upon every baby boomer to go out and get financial advice. The issues are way too complex to try and deal with these problems on one's own.

The online brokerage story, as far as accumulating funds, went out of the window with the two financial crises that we had at the beginning of the 2000s and toward the end of the 2000s. Simple things that baby boomers can do: Make full use of your retirement plans, your 401(k) plans. Participate in those plans. In addition, business owners have wonderful opportunities to put in uniquely designed retirement plans that were made available with the advent of the 2006 Pension Protection Act.

Retirement planning is great area for CPAs to get involved. This is something that your clients demand of you and this will benefit your business as well. The best part about providing wealth management services as a CPA is that these folks are already your clients. All you have to do is engage them in a conversation, develop a relationship with a good strategic partner – such as 1st Global, the wealth management research and consulting group with which I’m affiliated – to enable you to deliver these services in a tax-effective, cost-effective manner. You will be developing clients for life – not just with the baby boomer generation, but the successive generations to come.

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David Shill is Champion Parter-Wealth Management for GPP Wealth Management, LLC, a Dallas-based wealth management, investment and financial planning firm. You can learn more about David and GPP Wealth Management at

1st Global Capital Corp. is a member of FINRA and SIPC and is headquartered at 12750 Merit Dr., Suite 1200, Dallas, Texas 75251; 214-294-5000. Additional information about 1st Global is available via the Internet at

Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™ and federally registered CFP (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.

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