A growing number of Baby Boomers, America's largest generation, are considering retirement in the midst of what many are calling the worst economic environment since the Great Depression. This year alone, Americans have seen the value of their 401(k) and other retirement plans decline by over $2 trillion.If Boomers are planning to use these assets to retire in the lifestyles they envision, advisors owe them some straight talk before they retire.


According to the 18th annual Retirement Confidence Survey conducted by the Employee Benefit Research Institute, the percentage of workers who are confident about having enough money for a comfortable retirement decreased from 27 percent in 2007 to 18 percent in 2008. This is the biggest one-year drop in the history of the survey.

The 2008 survey found that less than half of workers, 47 percent, have tried to calculate how much they will need to have for a comfortable retirement. Forty-four percent of those who did calculate a goal changed their retirement planning and, of those, 59 percent started saving or investing more.

Advisors can help clients set reasonable goals by redefining and prioritizing retirement over short-term goals. Is retirement only about fundamental living needs, or does it also mean travel and hobbies? In the same 2008 RCS survey, 49 percent of workers reported their total savings and investments, not including their primary residences or defined-benefit plans, to be less than $50,000. Although there are no absolute guarantees of how retirement will look, goal-setting helps paint a picture of where people want to be.


Individuals getting close to retirement need to rethink budgeting, which is something many may not have done in years. A detailed budget analysis should include how much money individuals will need to meet their goals every year of the first decade of their retirement. Advise clients to factor in all fundamentals, especially things like health care, which is increasingly expensive and, according to RCS, was a serious concern for 54 percent of current retirees in 2008, a 14 percentage-point increase from 2007.

Clients should be encouraged to do everything possible to pay off debt. Showing them how to break out the interest portion of debt payments helps individuals gain a clear view of how much the debt is really costing them, and helps to make debt reduction a top priority.


Today, most Americans expect to live longer than their parents. In fact, a good number will live 30 to 40 years after retirement. Because individuals want their income to last as long as their retirement, it's important for advisors to point out the importance of factoring life expectancy into retirement planning.

Keep in mind that life expectancy is only an average, and there is a 50-50 chance of living longer. In addition, life expectancy can change as an individual gets older. Clients need to take into account the impact of life expectancy and longevity to have a true picture of what needs to done to ensure their retirement years are secure and comfortable.


Advisors can assist clients by suggesting they explore alternative methods for REDUCING CASH OUTFLOWS, such as restructuring debt using reverse mortgages. For many Baby Boomers faced with shrinking 401(k) savings and declining property values, their homes are still their greatest retirement asset. Clients over 62 years old, who are currently or will be participating in the Federal Housing Administration Home Equity Conversion Mortgage Program, can benefit by H.R. 3221, a new housing bill signed into law in July 2008.

Before H.R. 3221, the maximum limits for reverse mortgages varied by county and ranged from $200,160 in more rural areas to $362,790 in the highest-value neighborhoods. The approval of the single national loan limit of $417,000 was announced by the Department of Housing and Urban Development on Oct. 2, 2008. All lenders in the reverse business are accepting applications using the new rules.

Existing borrowers whose home values are greater than the new limits may be able to increase their benefits by refinancing their current reverse mortgages. In addition, seniors residing in cooperatives are now eligible to apply for reverse mortgages for the first time.

The higher single national loan limit makes reverse mortgages a more viable financial option for more people over 62. These individuals can now receive higher benefits at lower origination fees than in the past.

Origination or broker fees for reverse mortgages have been a flat 2 percent of the maximum claim amount. With the passage of H.R. 3221, this has changed to 2 percent on the initial $200,000 and 1 percent on the balance, with a cap of $6,000. A client initiating a $400,000 reverse mortgage in the past would pay $8,000 in origination fees. Under H.R. 3221 the origination fee is $6,000, leaving more money in the client's pocket.

The new law will allow clients to use FHA-insured reverse mortgages to purchase a new home. This is very important to a number of Baby Boomers who are downsizing and want to free up funds for such things as medical costs, daily living expenses or even for a vacation home. Now these same Boomers have the opportunity to access additional cash through a reverse mortgage on their new property and avoid mortgage payments. Reverse mortgages must be on the primary residence only; a reverse mortgage directly on a vacation home is prohibited. On the other hand, cash taken from a reverse mortgage on the primary home can be used to purchase a vacation home.

Let's look at an example: Assume a client is age 67, has an expected average interest rate of 5.49 percent, sells a larger house for $400,000 and purchases a $200,000 condominium financed by an FHA-insured reverse mortgage. The available proceeds from the reverse mortgage would be $119,000. The client would make the $80,500 dollar investment and never have payments again. The remaining cash from the sale of the larger home is $319,500.


Advisors can offer clients guidance on the potential tax benefits of converting a portion of their retirement assets to a Roth IRA, and the resulting impacts on their projected cash flow requirements. Until recently, the Roth IRA, an excellent tax-advantaged investing tool, had been unavailable to higher-income taxpayers. Now you can remind these individuals to take advantage of special provisions in the current tax law that will take effect in 2010. These provisions eliminate the existing $100,000 maximum income criteria and allow anyone, regardless of income, to convert a traditional IRA to a Roth IRA.

Individuals may want to take advantage of the 2010 conversion rule for another reason. In that year only, an individual has the option of paying the income tax resulting from the conversion divided equally between 2011 and 2012, as opposed to paying all of the tax at once. It is even conceivable that clients could want to make nondeductible contributions to their traditional IRAs in 2008 and 2009 and get a jump start on the new law. The entire amount built up prior to 2010 will be available for conversion in that year.

When considering their long-term retirement plans, many people will wonder what implications this tax law change will have. If clients continue with their traditional IRA, they will need to begin taxable minimum distributions from their account by April of the year following the year they turn 70-1/2 years old, whether they need the money or not. This reduces the positive effect of tax-deferred compounding interest. In the past, clients who were over 70-1/2 and receiving minimum distributions from their traditional IRAs may have had their incomes pushed above $100,000 and would not qualify for the traditional conversion. The 2010 law will change this.

By converting to a Roth IRA, individuals can avoid the required minimum distributions and let their future savings grow income-tax-free. Clients choosing a Roth IRA not only will reduce the size of their estate and their resulting estate tax liability, but their heirs will inherit a tax-free income stream.

For this strategy to make the most sense, clients need to understand that when they make the conversion, they should pay the tax out of their non-IRA assets. By paying the conversion tax, they are effectively prepaying the income tax for their heirs without owing any gift tax or using any of their valuable $1 million lifetime gift tax exemption. Additionally, prepaying the income taxes reduces the size of their taxable estate.

Although traditional IRAs can offer current tax deductions and tax-deferred growth, withdrawals are subject to ordinary income taxes. A Roth takes the opposite approach for your clients, because contributions are not deductible. Qualified withdrawals of contributions and, best of all, earnings are tax-free.


Relocation is an important piece of any retirement conversation. Moving to another state or area is not only about a more active life or a warmer climate: There could be important financial benefits, including a lower cost of living and more favorable tax environments.

Today, instead of looking forward to leisure and travel, retirement is a source of worry for many Baby Boomers. With some straight talk, advisors can help their clients who are approaching retirement understand where they are now and what they need to do to achieve the future they've envisioned.

Herb White, CFP, MBA, is president of Life Certain Wealth Strategies, Greenwood Village, Colo. (www.lifecertain.com).

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