Retirement Planning: How to Build Your All-Star Retirement Team
3 Top-Shelf Advisors Who Can Minimize Your Taxes, Protect Your Estate & Boost Your Total Return
In “The Millionaire Mind,” author Thomas J. Stanley profiles a well-heeled, 63-year-old doctor with a net worth of $1.5 million. The doctor, according to Stanley, was fed up with the conservative yet consistent returns of his pension fund.
He wanted to make a change.
So the doctor attended a seminar hosted by a smooth-talking asset manager who promised big returns. Without consulting anyone, the doctor gave all $1.5 million to someone he barely knew.
Within two years, his portfolio was worthless.
When you take responsibility for your retirement planning, it’s empowering. You let go of the idea that it is someone else’s obligation to provide for you in retirement. It means making hard choices.
To be sure, no one at your company or in Washington cares as much about your financial future as you do. But not everyone wants to go about things alone. If managing your own retirement isn’t up your alley, there are alternatives.
If you like the idea of having a trusted support system you can rely upon for sound investment advice, the following professionals have proven to be useful, especially when they work together (very common now) to make the best possible financial decisions. They also provide a formidable defense against fraud and catastrophic investment mistakes, like the one made by the doctor above…
Retirement Planning All-Star Player #1: The CPA
According to Stanley’s New York Times bestseller, 71% of the 185 multimillionaires surveyed in the book with a minimum net worth of $5 million used CPAs as investment advisers.
Why? For one thing, CPAs specialize in tax issues.
Taxes for a self-employed business owner, for example, are much different and enormously more complex compared to those of a salaried employee. Knowing what you can and cannot deduct as a business expense can be a chore without the help of a skilled CPA.
Besides offering standard services, such as completing tax returns, a number of CPAs are capable of advising in more complex scenarios.
Many wealthy individuals, for example, rely on the customized advice of CPAs for their knowledge about the tax implications and risks involved with private investments - things like venture capital projects and international real estate holdings.
Lastly, CPAs are great at designing and implementing estate plans for individuals and families. They can devise clever strategies that minimize taxes and take care of any changes that can impact your estate, such as newly passed legislation or an elderly member of your family needing expensive medical or hospice care.
Depending on where you live, a CPA can usually provide three hours of sound investment advice for less than $1,000.
Retirement Planning All-Star Player #2: The Attorney
CPAs are exceptionally good at designing plans. But they should never draft documents without consulting an attorney. The safest thing to do is have the attorney draft all the documents to meet the plan’s objectives, especially when it comes to estate planning…
An estate is essentially everything you own, from stocks, bonds and mutual funds to old photograph albums, the family piano and your Miles Davis collection.
If you die without a will, the court labels your case “intestate,” a fancy way of saying the state steps in and decides who gets what for you. This process is known as probate court.
As if the emotional toll isn’t enough, there’s also the cost. An AARP report claims that probate attorneys receive more than $1.5 billion in fees every year.
In typical situations, probate can cost up to 10% of the estate assets, including attorney fees, filing fees and executor fees. Add court costs, appraisals and extra fees charged for “extraordinary” legal services, and your heirs can watch your estate turn into a crumbs.
The easiest way to avoid probate status is to have an attorney draft a will. Depending on where you live, you should be able to find one who will do it for less than $3,000.
Congress has recently passed legislation that will raise the estate exemption permanently to $3.5 million per person by 2010. Effectively, with proper planning, a husband and wife could pass $7 million to the heirs free of estate tax, which can run as high as 46%.
One simple, but effective strategy an estate lawyer or CPA will often use is to reduce a client’s estate on an annual basis by implementing the gift-tax law. This law allows you to share your wealth - up to $12,000 annually per beneficiary. By leveraging the annual gift allowance, you can drastically reduce the amount considered “estate property” at death.
If you have three children, for example, plus a spouse, that’s $48,000 you can withhold from your estate every year. Assuming you have three decades of retirement to live, and that amount earns a modest 6% return annually, you have shielded more than $4 million from the IRS at death.
Retirement Planning All-Star Player #3: The Investment Advisor
Investment advisors specialize in maximizing your total return. These can be mutual fund managers, a wealth management firm, such as UBS or Fisher Investments, or a CFA.
Many of them take responsibility for rebalancing your portfolio and doing the research on a range of asset classes, including stocks, bonds, mutual funds, REITs and precious metals. And while they may not be tax experts, they know a lot of about tax efficient investments, such as ETFs, and can provide valuable advice in the area of minimizing your fees.
Vanguard funds, for example, are widely favored by many investment managers because of their low expense ratios.
A good financial advisor will also keep your investments aligned with your risk tolerance. If you’re only looking to earn 5% to 7% a year, the advisor would have a smaller portion of your portfolio in stocks than if you were, say, looking to earn 10% to 12% a year.
In short, there’s a lot more to retirement planning than monitoring and rebalancing your portfolio. These three professionals can make it easy, however, and handle everything from budgeting and estate planning to increasing your total return and minimizing your tax bill.
Hire an All-Star team today and spend less time planning retirement… and more time enjoying it.
Sean Christenson
Research Associate, Investment U
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