Talkin’ ‘Bout My Generation

For Baby Boomers Who Spent Their Lives Saving for Retirement, Now What?

By Kate McDermott | Photography by Turner Photography Studio | Posted on 08.01.14 – Feature, People & Places

Their parents’ generation invaded the beaches of Normandy, but now the Baby Boomers are storming into retirement.

It is estimated that between now and 2030, baby boomers—those born between 1946 and 1964—will turn 65 at the rate of nearly 8,000 a day. But unlike their parents, the Depression-era babies, many of whom scrimped and saved every penny they had well into retirement—boomers are approaching their golden years with a different set of expectations and aspirations.

To begin, they expect to live longer than their parents. Chances are they will spend nearly as many years being retired as they spent working. Secondly, the vast majority of boomers do not have the defined-benefit pension plans their parents enjoyed. Although they will have Social Security benefits, the majority of their retirement assets are a reflection of their ability to plan and save for retirement without relying on their employers. And perhaps most importantly, boomers are healthier and more active than previous retiring generations. They may be done working, but they are not done living.

“Baby boomers will live active lives well into their 70s,” says Shabri Moore, president of financial planning firm Moore Wealth in Frederick, and herself a baby boomer. “They want to travel, give back, help their children. We are a bunch of optimists who want to continue to change the world.”

Making It Last

Given the fact that baby boomers will be retired for decades, the challenge financial planners face now is making sure that their clients’ savings last as long as they do. “Baby boomers have done a great job of accumulating wealth, but their concern is about running out of money,” says Scott McCaskill of McCaskill Financial in Frederick. “Our job is to make the money last.”

He asks his clients to document detailed budgets of what they spend pre-retirement and then make an honest, realistic assessment of what they could do without once they retire. “For our retirement projections and financial planning, we typically plan for 80 percent of pre-retirement expenses in retirement. While you are in retirement, your expenses typically decrease because you are not commuting, paying for lunches or parking, and generally spend less,” he says. “However, keep in mind that when you’re retired, you also have more time to spend money, travel and go shopping. So, it is possible that some expenses may actually go up.”

McCaskill says various organizations and associations have done research over the years to determine what might be a safe distribution rate during retirement, and although everyone’s situation is different, his firm typically recommends a withdrawal rate from retirement assets of 4 to 6 percent annually. “We believe this should be sustainable through 30 years to 40 years of retirement living,” he says. That means that as they approach retirement and enter those golden years, boomers need to limit the risk in their portfolios—and that includes listening carefully and warily to friends’ investment advice. “You always hear about your friend’s one good investment, but you never hear about the nine bad ones,” he says.

But even the money they’ve set aside for retirement comes with a set of caveats. The IRS requires that individuals begin taking required minimum distributions from their retirement accounts at age 70 and a half. “What we’re seeing is boomers maximizing the amount of money they can put into their 401(k)s and IRAs,” Moore says. “But it is important to remember that when they pull that money out of those accounts it will be subject to income tax, so they need to be aware of the tax liability.”

She advises her clients to think of their assets as being held in three separate “buckets.” There are taxable investments such as mutual funds and stocks that are subject to long-term capital gains, tax- deferred investments such as 401(k)s and traditional IRAs that are subject to ordinary income taxes, and tax-advantaged investments such as Roth 401(k)s and Roth IRAs that are typically subject to no tax at withdrawal.

“The goal is take money from each of these buckets in an organized fashion to build a retirement income stream strategy that minimizes tax liability and allows clients to keep more money in their pockets,” she says.

Have “The Talk”

Although most experts would recommend discussing your retirement and estate plans sooner rather than later, Moore says there is never an age at which it is too late to talk. “Most people begin thinking about it when they are around 50 or 55,” she says. “That’s a good time to develop our blueprint, although actual implementation of the plan may start later.”

That’s what Frederick County residents Kim and Mary Ann Marcantonio did. They began thinking about what they wanted to do in retirement in their early 50s and saved aggressively to make it happen. Today, they are enjoying the fruits of their labors by traveling the country in an RV they bought shortly after Kim retired. But at the time the couple was planning for their retirement, an RV “was not even in the equation,” Kim Marcantonio says. Thus one of the other great lessons of retirement planning and execution: be prepared to change direction along the way.

McCaskill says many clients, like the Marcantonios, come to him expressing their desire to leave their assets to their children but when they actually share with their kids their plans, the children have other ideas. “Often Mom or Dad are concerned about leaving a legacy for their children and grandchildren, but most of the time the kids wish Mom and Dad had spent every penny,” he says. The Marcantonios had thought they would use money from their 401(k)s to help establish college funds for their grandchildren. “But when we told the kids that, they said, ‘We want you to enjoy the money,’” Mary Ann Marcantonio recalls.

When plans change, it is crucial that legal documents change with them, says Janet I. McCurdy, an estate planning attorney in Frederick. “Having legal documents in place is one of the best gifts you can give your loved ones,” she says. She acknowledges that talking about wills and trusts is not an easy conversation to have, “but just do it,” she says. “Have the conversation.”

An important part of that discussion, the experts say, should include living arrangements in retirement. Boomers may be less likely than their parents to stay in the same homes in which they raised their families. Many are choosing to downsize to condos in the city so they can be close to dining and entertainment options. Others are choosing to make what may have been their vacation homes their retirement homes. And others may be counting on the equity in their homes to finance their long-term care needs, leaving no real estate assets for their successors to inherit. However, McCaskill advises anyone considering reverse mortgages or pricey buy-ins to senior living facilities to do the research, read the fine print and consult professional advisors. “In the right situations, they can work great,” he says, “but there just aren’t a lot of those situations.”

Pay to Play

Although retirement and estate planning deal with different stages of their clients’ lives, financial planners stress that the two are so closely related that they must be carefully coordinated. “I think the key players are the accountant, estate planning attorney and your financial advisor,” Moore says. When all three can sit down with the client at the same table, it provides a system of checks and balances that enables everyone to keep in mind the client’s needs for legal, tax and asset protection.

Given the ever-changing and increasingly complex tax laws and legal requirements related to retirement and estate planning, the experts recommend regular “check-ups” that include reviews of life insurance policies, tax returns, investments and all legal documents. These evaluations become even more crucial following life-changing events such as the death of a spouse or child or a move. “If your documents say you live at 123 Smith St. but then you move and the document doesn’t reflect that, you can have a problem,” McCurdy says.

Although some may be hesitant to pay for the services of experts, McCaskill reminds his clients that it is his job to worry about minimizing their exposure to things like capital gains or federal estate taxes (a.k.a. “death taxes”). Their job is to enjoy where they are in life. “I tell my retired clients that they worked hard to accumulate this wealth, so enjoy it.”