Financial Planning

Alan Haft is the president of 5th Avenue Financial, a financial planning firm based in Boca Raton, Florida. He is a pretty savvy guy when it comes to financial planning and recently set forth what he considers the five biggest financial retirement planning mistakes that Baby Boomers make. At the outset, he says that most Baby Boomers, and even retirees, realize rather quickly that their so-called bulletproof retirement savings plan is actually riddled with bullet holes. To Haft, living longer could mean outliving nest eggs that were intended to secure that financial comfort zone. Haft is well known in helping the wealthy become even wealthier and the not-so-wealthy achieve financial security. “Most of what I’ve seen in the industry in terms of poor retirement planning,” he says, “involves improper guidance or self-guidance, and a lack of foresight.” Here are what he considers the five biggest mistakes in such planning: 1) It’s Too Late to Start Planning. Once you reach your 50s or 60s, many people think that the parade has passed them by. But Half points to the power of compounding, boosted by the tax-deferred growth offered by IRAs, 401(k) plans, and the like. So, building up that nest egg may not be too late. 2) Underestimating Life Expectancy. He says studies show that some 20 percent of workers expect their retirement to last 10 years or less but according to the 2000 Retirement Confidence Survey by the Employee Benefit Research Institute (EBRI), half of the men reaching age 65 have an additional life expectancy of some 17 years while half of the women reaching that age are spun out 21 years. 3) Miscalculating Needs. Most financial planners say that you must plan on needing 60-85 percent of your pre-retirement income in your retirement years. According to that EBRI survey, only 53 percent of workers have tried to determine how much money they’ll need in retirement. 4) Looking at Inflation. Many investors, Haft says, particularly older ones, are uncomfortable with market volatility. They invest solely in Treasury bills, fixed-rate CDs, and savings accounts. He feels it is important to consider keeping some money in growth investments such as stocks and stock mutual funds. 5) Putting Other Financial Goals First. Haft points out that to many people, retirement probably isn’t the only financial goal--not when you may be saving for a child’s college education or for a down payment on a second home. But he cautions not to place them ahead of a financially secure retirement. Of course, easier said than done.

A sampling of tax returns filed by fishermen in 2004 revealed that thousands of workers had overpaid an average of $530, after failing to take advantage of the averaging provision in calculating their income tax liability. According to the report from the Treasury Inspector General for Tax Administration, more than 4,600 taxpayers -- about 90 percent of the fishermen who could have benefited from the averaging provision -- didn't take advantage of the provision included the American Jobs Creation Act of 2004. TIGTA said that the overpaid taxes for the individual returns filed during the 2004 tax year totaled more than $2.4 million; and a startling 90 percent of the fishermen’s returns were prepared by paid tax preparers. The 2004 law allows fishermen to elect to compute their tax liabilities by averaging all, or a portion, of their taxable fishing income from the prior three years. The measure was designed to help fishermen recover from low-income years by keeping more of their income in successful years and offsetting potentially high tax burdens in isolated years. At the time of its enactment, the Joint Committee on Taxation estimated the provision could save fishermen up to $61 million in taxes over the next decade -- between $3 million and $10 million annually. During a prior audit, TIGTA noted that less than one half of taxpayers who could benefit from a similar provision for farmers, had actually taken advantage of the measure. The inspector general recommended to a variety of federal offices that a better and broader effort be made to educate both fishermen and tax preparers about the averaging provision. The full report is available at www.treas.gov/tigta/auditreports/2006reports/200630158fr.pdf.

The Internal Revenue Service has issued details on the process for military reservists called to active duty to receive payments from individual retirement accounts, 401(k) plans and 403(b) tax-sheltered annuities, without penalities.

Did you ever stop and think why you are now at the ATM machine again taking more money out when you were just there a few days ago? Does it seem like you are constantly replenishing your wallet and can’t understand why? Visa did something about it. They decided to do some research on where money goes, other than, of course, paying for their credit cards or people charging on the Visa card. Actually, in England, they discovered that the Brits spend as much as $160 billion (yes, with a “B”) a year but have no idea where that money went. Actually, Visa surveyed more than 1,000 people and found out that the average adult was spending some $60 every week with no idea of where the money was going. In other words, in answer to the question, “On what did you spend that extra $60?” the response was “I don’t remember.” Now, according to Visa, if you didn’t spend that $60 a week for something you don’t recall, you could have paid for the following: 1) All your electric and water bills for a full year 2) 96 percent of traveling costs for year 3) Your weekly grocery shopping for some nine months of the year 4) Three months’ of mortgage payments. So, to where is this money traveling? Visa says that most people spend more than they would like when grocery shopping (that’s the impulse buying habit) and on entertaining for children or grandchildren, not to mention their own “night out.” Who spends the most? Oddly enough, men do, averaging some $70 a week compared to half that by women. So ends that woman/shopping myth. Also, those 18-24 year olds spend almost a $100 a week. Who spends the least? Besides a five-month old baby, it’s the over 55ers who only use up about $30 a week on items they don’t remember buying. So, what does Visa recommend? They suggest monitoring your money through online banking and by maintaining accurate records every time you go to that ATM machine; in other words, marking down what the money’s for. According to Visa, if you can check your bank balance from home, you will find this is an enormous benefit in indicating what’s happened to your money.

Recent headlines surrounding the ordeal of 104-year-old socialite Brooke Astor chronicled a lawsuit filed by her grandson that accused his father of mismanaging his grandmother's financial affairs.For once, maybe the rich aren't so different: Experts predict that, for millions of Americans, the problems associated with relatives acting as trustees, guardians or conservators will only grow as the population ages. Policymakers are focusing on solutions that may well affect the way CPAs serve clients in the coming years.

ADP TO SPIN OFF BROKERAGE ARM: Payroll and benefits outsourcing concern Automatic Data Processing Inc. will spin off its massive brokerage-services unit, an arm that observers project would have a market cap of more than $3 billion. ADP said that as a result of the spinoff - which should be completed by the end of fiscal 2007 - it expects to receive a distribution of $500 million to $700 million from the business in the form of a tax-free dividend.ADP said that the decision to spin off the unit came after a year-long strategic review. In that process, the company mulled an initial public offering, as well as an outright sale of the business. Although ADP is better known for its signature payroll unit, its brokerage-services business both processes and clears trades of securities, along with handling the distribution of related materials such as proxy reports. It generated roughly $2 billion in revenue for its most recent fiscal year, accounting for about 20 percent of the company's overall revenue figure.

With as much as 75 percent of CPAs performing some type of financial planning services for their clients, there are many financial planning business models available for accountants who are thinking about wading into that growing arena.One such model is an affiliation with a broker/dealer who has an understanding of CPAs and their client relationships. What follows is a basic overview of four major broker/dealers and their programs.

If an individual delays claiming Social Security benefits until after she reaches full Social Security retirement age, her benefits may be increased for two reasons.First, there is a delayed retirement credit that increases the benefits for each month that retirement is delayed beyond full Social Security retirement age. Second, additional earnings (wages or self-employment income) may also increase the benefits that will be received after retirement.

In another lifetime, I lived and worked in Rome. It was quite an adventure and last week I returned to the city after an absence of some 30 years. Unfortunately for me, Thomas Wolfe is definitely right.

The Employee Benefits Security Administration, part of the Labor Department, is seeking comment on its plans to update guidance on the independence of accountants who audit employee benefit plans.