Much of the publicized focus about financial planning is geared toward the concept of financial independence and retirement. While financial independence and what you need to do in order to maintain independence is clearly important, it isn't the only thing, nor is it a final destination that can have you sitting worry-free on the front porch.

Your clients' vision of planning for retirement and accumulating enough savings is driven by large financial companies. Just think of the many commercials you've seen on TV with people carrying around their "number" - what they need to earn on their portfolio to reach financial independence - or the ads for the green line to follow to stay on your retirement path. Catchy ads, for sure, and they have been noticed by your clients.

Amongst the opportunities that I see for the CPA financial planner is to be the source of helping to figure out the most efficient way to become financially independent. Included in that discussion is way more than how much you need to save and then earn on your investments to reach the land of independence: It should include a comprehensive financial planning engagement that will integrate and coordinate all the moving parts that need to work well together. These parts include cash flow today and then the desired cash flow during retirement. It includes an exhaustive analysis of risk, and what could go wrong to mess up the simple financial independence calculation. It would necessitate an annual tax plan to be sure that you are minimizing the tax impact of your decisions today and in the future. An investment review that focuses on growth as well as volatility and downside protection becomes even more meaningful when your client isn't adding to the nest egg anymore. And lastly, this process would not be complete if you didn't also factor in estate planning considerations, ranging from premature death to your pension payout options.


Let's address a few of the issues that impact most of our clients after retirement. The first, not technical, is the state of mind of your client. When clients stop adding to 401(k)s and do not have the paycheck coming in each month, they may get a little anxious. They may seem like the same person to you, but inside many are frightened by the possibility of running out of money. This impacts everything that they do from a lifestyle perspective and impacts their financial decisions.

When examining cash flow during retirement, it all starts with the desired lifestyle. Consider using the methodology of segregating spending into the categories of needs and wants. This may help clarify the spending picture for them. Also be sure to blend in the "wish list" part of the spending. Most clients have something, ranging from a trip around the world to helping fund the grandkids' education, as a secondary goal. Your job is to dig out these secondary objectives by asking a lot of questions.

Planners also need to factor in certain undesirable possibilities for spending. Issues like extended illness or elder care are material, and any discussion about retirement planning would be negligent if you didn't discuss a few of these large contingent possibilities.

Expenses are one half of cash flow planning during retirement. Generating income is the other half. For most clients, leaving money in banks and spending only interest income is not feasible. Generating income in today's low-rate environment is a scary thought. The answer may be to diversify into asset classes that retirees have heretofore ignored. Generating income from multiple asset classes such as domestic and foreign sovereign or corporate debt, dividend-paying equities, real estate, insurance products and bank products may be helpful tools to consider for your clients' nest eggs.

The game of generating income will change. Rates will rise and fall, credit spreads will rise and fall, and taxes will go up and go down during the entire course of your clients' retirement. Today, for example, many of your clients may be taking on more risk than necessary by extending the duration of fixed-income holdings and ignoring the long-term impact of rising rates and inflation. Recent research performed by Michael Kitces suggests the possibility that a "rising equity glide path" throughout retirement may actually give the highest probability of obtaining your clients' retirement income sustainability.


The next subject to monitor closely after retirement is that of risk management. What can go wrong to mess up this rosy picture? We all think of health care issues and the possible consequences of a long-term-care issue. While this is indeed a consideration, take the guesswork out and do a comprehensive "what-if" analysis to forecast the potential outcomes. Solutions here often involve a combination of savings, long-term-care insurance and annual health care planning. The proactive CPA financial planner will address this for their clients. Playing long-term-care roulette and ignoring the peril is not wise, and may raise an issue of professional liability for the planner.

Beyond health care, use your knowledge of the client's entire financial situation to recognize other risks that may be present. Are there rental properties not held in a protected entity? Does your client have adequate umbrella liability insurance? Are there any undocumented loans to friends or family? Think "catastrophic" when assessing risk. It is your job to recognize the possible risks and to recommend a mitigation strategy. It is your client's job to decide the strategy to implement to protect against these risks.

Tax planning for retirement may be just as important after retirement as it is before retirement. Before retirement, your options are limited. You have income, retirement plans and a few other ways to reduce your tax bill. But during retirement, you and the client may decide where the income comes from, and what type of tax you'd like to pay. In fact, there may be a possibility for a little tax arbitrage here, and to pay some tax now to avoid a larger tax later.

If your client retires before any pension payments or required minimum distributions come into play, you can often architect the nature of the taxable income. You can draw from IRAs, savings, portfolios, etc. Many tax professionals would agree that utilizing low-bracket opportunities now may make sense if you are likely to be in a higher bracket later. This may be the case for clients with large qualified plan balances. Taking some from the 401(k) now may keep you from a higher bracket later by reducing your future RMDs. In fact, Roth conversions may be valuable. Just like a distribution, a Roth conversion leaves you the opportunity for a tax-free bucket of money forever, and on to the next generation. This strategy makes a lot of sense if you have targeted the next generation as the most likely user of these qualified assets. Of course, income tax planning is a year-by-year changing situation. But don't let your recently retired clients live for a few years in the lowest tax brackets only to creep up a bracket or three when RMDs must start.


Arguably, investment planning during the distribution phase of managing wealth may be the most important. As we mentioned earlier, many retiree clients live in fear of running out of money. They worry about their expenses, inflation, and the unexpected -- which include a sudden drop in their portfolio. Once you have figured out the desired rate of return for your client, making sure that a portfolio is constructed to maximize the possibility of that outcome is a valuable service.

Increasing the probability of achieving a desired rate of return each year is more active than passive in terms of the day-to-day management. Passive, low-cost holdings may still be possible, but actively managing risk with an objective of minimizing drawdowns on the portfolio will help to keep your client focused on the long term. Striving for less volatility and lower standard deviation will increase the odds that poor economic or market conditions will help clients accept some risk. When primarily focused on volatility management, you are not likely to fully participate in market rises. But if done well, you may not fully participate in market declines, either.

When it comes to estate planning, no one wants to talk about their demise. But often, retirement is the first time that many clients get more than a set of identical "I Love You" wills. Let's face it, after retirement most clients should realize that a functional estate plan makes sense.

I suppose the term "functional" is up for debate in the context of estate planning. The "I Love You" wills, for example, where each spouse leaves all the assets to each other, then equally to the children, can work. But it may create several post-mortem problems.

First can be the loss of a state or federal exemption. Portability or not, why wouldn't you set this up in a way to make it easy? The simple will estate plan often results in a lengthy and costly probate. If your client has any children with special needs or a rocky marriage, this simple estate plan may deflect assets from your grandkids if your child has an ugly divorce.

Help your retired clients keep their estate plans up to date. Things change. Some children of your clients will become wealthy in their own right and others will be in need of assistance. Even if the client wants to keep the estate distribution equal, perhaps it is the grandchildren or favorite charity of the well-off children that receive their share. Encourage a family meeting for your clients to talk about the estate plan. Don't let their passing be the first time that the children learn about the plan and who is required to act as a trustee or executrix.

While your clients may feel that they've made it to the goal line by affording the retirement of their dreams, it may be your sage guidance and wisdom that will help to maintain that ideal life and avoid the pitfalls that may derail that vision for an ideal future.

John P. Napolitano, CFP, CPA, is CEO of U.S. Wealth Management in Braintree, Mass. Reach him at (781) 849-9200.

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