Investing Through The Ages

Retirement planning has never been easy and in recent decades it’s become even more complicated. Most Americans have less capital to invest, Social Security funding is questionable and we probably don’t have to mention the stock market. Uncertainty is an understatement, even for those who are earning mid-and high-level salaries. One of the big changes to occur in the last 20 to 30 years is that pensions are no longer a given component of compensation packages—most professionals are navigating 401(k) or similar retirement plans themselves. Add in the need to pay a mortgage, insurances, maintaining a modest emergency fund and money for children’s educations, and managing long term goals can become an expendable luxury. We’re also living longer. Although this is a blessing, the simple fact is that becoming an octogenarian can wreak havoc on personal finances.

We turned to a few experts for advice and found that while retirement planning is more important than ever, preparing for common life changes that tend to occur before age 65 makes all the difference. A single person with no dependents can typically invest fairly aggressively with growth as the primary goal. But a married person with a house and young family is generally forced to take a moderately conservative approach that incorporates mortgage payments and retirement planning as well as life and disability insurance. Divorcées and the newly widowed have their unique challenges. And those near retirement will have to consider later-in-life needs like long term care, causing a more cautious attitude towards risk—investing’s four-letter word.

The 30s: Getting Started


“It’s wrong to think one needs a lot of money in order to invest,” said financial adviser Mark J. Snyder, charted financial consultant (ChFC) and owner of the eponymous Medford-based firm. Another tip from Snyder: Don’t invest in a company based on the logo. Instead take a long look at the facts and numbers. “Keep emotion out of your investing. Once you determine your risk tolerance, create a sensible plan and stick to it. Hoping to put something aside at the end of each month rarely works,” he said. “There are too many demands. Having funds automatically deducted and invested is a great way to start.” These plans start for as little as $50 per month. Snyder also advocates hiring an independent financial adviser, who can help keep things in focus and provide objectivity when things get tough. It’s why those in the know rely so heavily on theirs: according to research firm Spectrem Group, 77 percent of ultra-high-net-worth investors (those with $5 million to $25 million in investable assets) are satisfied with their advisers.

Cleaning the slate is also a crucial focus early in life to ensure debt doesn’t snowball out of control over time. “One of the first things someone in their 30s often needs to do is be sure they’re out of serious debt,” said Anthony Thompson, a Certified Financial Planner (CFP) at Bernstein Global Wealth Management in New York. To the pros, “serious debt” is anytime 30 percent or more of an income is dedicated to expenses beyond regular living costs like housing. “They then need to think about their needs and start saving. If your job offers a 401(k) or a Simplified Employee Pension (SEP) plan try to maximize the tax-deferred savings. If your employer offers a match that’s even better. Funds should be invested in an equity-based account, over the long term such accounts will generally produce positive returns. A younger person has a longer time horizon and can frequently take more risks and withstand market volatility.”

Those who start a family at this stage often struggle with saving for themselves at the expense of putting something away to fund a child’s education, but the message from the investment managers is clear: Take care of yourself first, there are no loans for retirement but the kids will have options like scholarships, loans and jobs of their own to pay for school.

45+: The Prime Getting Late Early


Financially speaking, middle age can be challenging. This period can be a “wake-up call” signaling a new phase of life and often marks the first time people begin taking their financial futures seriously. It can be startling to realize earning years are finite or that you may soon become responsible for parents, an impending divorce or college tuition.

“With people living longer and having more active retirement lifestyles, many don’t realize that they need to build their asset base throughout their income producing years in order to fund their retirement years,” said Philip W. Malakoff , senior vice president of wealth management. At First Long Island Investors in Jericho. “This should start early in their careers and continue until retirement. Unfortunately there really is no formula that can be used as a guideline due to differences in lifestyles, fixed expenses, employment income, investment income, healthcare costs, support for children and assistance for parents.”

Divorcées are often stunned to find the breakup can cause a huge life change when assets are split apart—what was more than enough for a couple to share can be barely adequate for two people separately. In cases where they were working together in a family business or the wife gave up her career to stay home, the doubling of household expenses can negatively influence not just income, but also savings.

It’s also not uncommon for one member of a couple to live well beyond age 80. What does an aging Baby Boomer do when sandwiched between the responsibilities of caring for an elderly parent and raising a family? “It can be a positive experience,” said Donald E. Lippencott, Master of Science in financial services, of Lippencott Financial Group in East Setauket. “Grandparents can help raise children but at some point may need assistance themselves. It’s best to start airing plans out and then seek the help of a financial adviser and an estate attorney.” Lippencott echoed that there is no one-size fits all plan since individuals often face different hurdles. “For those who started families later in life they may have ample savings and investments. Their biggest concern is often putting money aside for their children’s education. For those who had a family early in life, they often need to plan for their own retirement and reduce debt.” To address college expenses, Lippencott recommended 529 college savings plans, which offer tax-deferred savings on money earmarked for education.

After 55: Knocking on Retirement’s Door


At this point, things are supposed to start easing up. The children have been through school, the mortgage is paid-off and estate plans and long-term care essentials are in place. While a comfortable retirement may seem all but a matter of time, don’t pop any corks yet. A retiree who’s living proof that 60 is the new 40 still has to plan for life after exiting the fast lane. Some may actually need more money than when they were working to embrace free time with an active lifestyle. Those who held off starting a family in order to establish their careers first may still have responsibilities to their children. “Many who started families in their mid-40s are not necessarily retiring in their mid-60s. Their needs will differ from the 45-year-old with grown children,” said Thompson. “You’ve got to plan for the unexpected and start thinking about elder care.”

While there is still a need for investment growth, most pre-retirees will have a more defensive asset allocation with a greater emphasis on bonds and bond-based mutual funds over stocks, which can be erratic. The mix aims to reduce volatility while providing regular income as dividends. Other hot-button pre-retirement issues that factor into finances include having adequate health coverage, arranging a will, health-care proxy and estate planning. Downsizing a home is becoming a popular step for empty nesters, but those who used the majority of their equity to fund other expenses may find their after-closing pay-out to be smaller than expected, possibly even too small to buy their next home outright and thus the mortgage cycle continues.

This is also the time to think about care that may be needed later in life. Lippencott described a premium, legacy life insurance plan targeted at seniors who might have missed planning for longterm care in their 60s. A legacy life insurance plan uses a sizable chunk of lazy money—funds that are languishing in the bank earning 1 percent— and buys coverage in the event long term care is required. This can avoid passing the financial burden to the family, and there is also a death benefit. “Say you put $100,000 into this product, are healthy enough to qualify for $200,000 in coverage, but years later end up in an institution because of a stroke. You’re going to get $200,000 worth of long term care. Or, if you die having spent $80,000 of that benefit, your family gets the other $120,000 tax free.”

Investing and planning for the future can be daunting, bordering on morbid for some, which might explain the procrastination. But consider the risks of not planning the way Snyder put it: “How you handle your money today may affect how you live tomorrow.”

Sound Strategies
Philip W. Malakoff, SVP of wealth management at First Long Island Investors specializes in helping high net worth individuals manage money. He shares a few gems from his 25 years of experience with tricky financial situations.

What is a common financial mistake the widowed make?
It’s a very emotional time and the biggest challenge is not understanding the finances or the budget and making rash decisions. Some think they have this large sum of money and they can go out and spend whatever they want—spending two-thirds of annual expenses on gifts to family is not realistic. If this were Melinda Gates that would probably be fine, but most other people have somewhat limited resources even if they are wealthy. We would start with a review of expenses, income and investments to ensure the individual can continue to live the lifestyle to which they have become accustomed.

What is the most important thing when it comes to legacy planning?
If you know you want to leave something to family or friends you should start planning early—but not so early it impacts your lifestyle or retirement plans. There are tax efficient ways to give, like setting up trusts and annual gifting, which is capped at $14,000 (single) or $28,000 (married) to each child and grandchild.

What is the most common misstep people face when coming into an inheritance?
Clients often have a hard time saying “no” to family or friends who ask for money. We would advise clients to put money towards paying down any debt. If you have some future expenses that you planned before the inheritance, put money away for that. I’m not saying don’t buy anything—if you inherit $5 million and you want to buy a $30,000 luxury item there’s probably nothing wrong with that. But in general it is best to put the money someplace safe where the principle won’t be touched while you let things sink in, for at least six months.

Knowing that retirement is on the horizon, are there any guidelines a couple in their 50s should check themselves against?
There are four things you can do with money: you can spend it on your lifestyle, you can choose to leave a legacy to children or other family, you can be philanthropic or you can be entrepreneurial. Someone who is nearing retirement is probably not thinking entrepreneurially, so it’s really the other three. It comes down to having proper risk tolerance to maintain those goals. What if the market were to go down significantly? For example, if you have a portfolio that is down 33 percent, that means $100 goes down to $67. To get back up to $100 you need to make 50 percent—it’s a big way back up. You need to start de-risking your portfolio. It’s also a time to define what spending will be on an annual basis once you retire. Our experience says you need between 20 and 25 times your current annual spending to safely fund a multi-decade retirement.