Financial Planning put person a six-expert panel to discuss the challenges many clients close to retirement face in today's uncertain economic environment.
The panel included:
Peng Chen, president of Global Investment Management Division at Morningstar
Jonathan Guyton, principal of Cornerstone Wealth Advisors
Deena Katz, chairman and co-founder of Evensky & Katz Wealth Management
Thomas Streiff, executive vice president at Pacific Investment Management Co.
Cathy Weatherford, president and CEO of the Insured Retirement Institute
Ed Slott, CPA, IRA distribution expert, author and professional speaker
What sorts of problems are people facing?
Slott: Inflation. There are a lot of products being developed that are designed either to guarantee principal or guarantee an income stream. When you look at the volatility that is likely to come and you play those scenarios out, it doesn't bode well for clients being able either to stay flexible or to retain the ability for their incomes to appreciate with inflation.
People are talking about risk. What is the biggest risk?
Slott: Everybody's been talking about risk, and taxes will be the single biggest factor that separates people from their retirement dreams. And that's why they have to be managed now.
Right now we have a two-year window of opportunity of relatively low rates, but that model is not sustainable. Our government is broke. At some point taxes have to go up, despite what the politicians say. You can have all these investments with all these returns, but if you're losing 40% or 50% a year to taxes, a lot of those models are not going to work out.
I thought low rates were going to end in 2010. But with the extension of the tax cuts, we've got a two-year reprieve to use some of those low rates and leverage taxable money into tax-free territory. Planners and their clients shouldn't miss this opportunity.
Final piece of advice?
Slott: Plan now. A lot of people think because the estate exemption is now $5 million and $10 million for couples, they don't have to do any estate planning. There is so much more you can do with these exemptions.
Finally, somebody probably said it before, but I've been saying it for years, too: It's a yo-yo economy-"you're on your own." There's not a lot of help out there from government or from businesses; even guaranteed pensions are not guaranteed anymore. Because you are really on your own, you need a financial advisor to help you through it.
CLICK HERE to read the entire panel discussion.
By Jared Trexler
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*Copyright 2011 Ed Slott and Company, LLC
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