Tell Me a Lie: Retirement Planning and the High Net Worth Boomer

You would like to think that we are all truthful. But that may not be the case. Are Baby Boomers, more specifically those considered high net worth, telling a story about their retirement that isn't quite truthful?

Oscar Wilde probably said it best: "What we have to do, what at any rate it is our duty to do, is to revive the old art of Lying.” Nowhere is this resurgence in the falsehood more prevalent than when we tell a surveyor about our finances. When they look extremely bleak, we tell them they look even worse. When they look okay, we tell them they are really good. It is in our natures to tell lies considering we do it when we smile.

Evidently, a group of wealthy Baby Boomers told a survey group from Bank of America/Merrill Lynch that their retirement not only looked promising but was much better than their parent's retirement was. This is pretty lofty talk from a group that just a couple of years ago was not one bit happy with where their portfolios had gone in the wake of the financial meltdown. Now, $250,000 in investable asets is enough to warrant such retirement superlatives as "freedom" and "relaxation".

What changed? True the markets recovered over the ensuing couple of years. But I doubt that this had anything to do with it. many of these folks, like all age and wealth groups did, panicked at the sudden rebalancing of their portfolios by market forces. Unaccustomed to an all-inclusive debacle, many moved into much more conservative type investments and in the process, created their own mini-bubble in the bond market.

The rest of us moved into target date funds, a sketchy hybrid of funds designed to rebalance our aggressive natures for us. If you are older, the fund you plopped the remaining balance of your 401(k) is close to your age - so you too may have benefited from the updraft of conservatively invested enthusiasm. I wrote about this relationship with the bond market a couple of days ago suggesting that if their isn't a bubble in the bond market, it is because it won't pop when it reaches the end of its run; it'll hiss itself into normalcy.

It may be that this group has a better restructuring plan in place or they are simply lying to themselves - and the surveyors. Consider this: $250,000 in investable assets was consider the borderline between the rest of us schmucks and the high-net worth individual. I'm sure that this number is not even close to the actual investable assets these people had. It is our carrot.

One thing that stands out with the group surveyed is the change in attitude about what retirement is. They mostly believe working in retirement is a way to stay physically and mentally engaged. And for many, it is. For those with less than $250,000 in investable assets, it often isn't the case.

But these high-net worth folks worry about the same things you do: the cost of health care, the cost of children still living at home and that there portfolios, no matter how well managed, might not be enough. So they smile when they say they have it better than their parents and do so while lying about how much better.

And these high-net worth folks are not short on advice, even if they didn't take their own. Get a financial adviser as early as possible, they suggest and of course start early. Good pieces of hindsight advice that they were told as they began their working careers - and didn't follow.

About this advice to use financial advisers earlier. Then there was a survey conducted in 2006, when things were going great: housing values were appreciating, the markets were humming along, and early retirement was well within reach or it was assumed to be. And the results show a complete turnaround in thinking from then to now.

Back then - keep in mind these were the good times - another survey was published: In it, the following: "According to a new MyWay Investment Advisors (MWIA - an independent financial planning and investment advisory firm) survey, 98% of respondents would change the way they work with their advisor with 43% saying they wanted to change the amount they paid for the financial advice and services. This compares to only 13% of advisors who would look to improve how they currently operate, including pricing for clients.. The survey focused on how individuals would like to be treated by their financial advisor or investment professional and how they would like to pay for those services.

"The survey targeted the individuals with annual incomes greater than $75,000 and $150,000 to $600,000 in invested assets, including 401Ks. A duplicate survey was sent to financial planners, investment managers, insurance sales people and other financial industry professionals to compare responses." Why has this advice changed? Pricing and the way pricing is structured has evolved. Yet the higher the net worth, no matter what you pay, you pay more than you should.

So which is the truth? Are they happy now or were they happy then? The most telling piece of info coming from that survey: "When it comes to financial advice, however, financial advisors isn't where most of those surveyed go for information. Only 27% utilize financial advisors while over half (56%) get advice from a friend, publications or on their own.

"Of those that have a financial advisor, only 18% are happy with him or her. a whopping 56% say they are dissatisfied and 23% still have not made a decision."

This means one thing. We can no longer look to those we consider net-worth wealthy for guidance in how to become net-worth wealthy ourselves. Retirement has become a reality and an illusion. It is something we want and fear, something we strive for and are repelled by, something that is both possible and impossible. Yes it is a conundrum.

But it is your puzzle to figure out. And the simplest way to do that is figure out if you are willing to live on less than you have now. You don't need a financial adviser to tell you that you probably haven't invested enough. You know that you are probably wrangling more debt that you would like. You know that your contribution to your 401(k) is les than it should be. And you know that your goals concerning retirement are lofty than they are on paper.

Your balance sheet needs to be revisited and often. You need to double your 401(k) contribution now, no matter what age you are. There are numerous, almost painless ways of doing this including channeling the tax relief on your Social Security payroll tax (2% for the next two years) or simply increasing your contribution by 1% for every month of the upcoming year. You have the pieces to solve this puzzle. It all depends on how much you want to lie. The rich can. So can you.

Paul Petillo is the managing editor of Target2025.com/BlueCollarDollar.com

Staying: The New Retirement Planning Consideration

In the not-too-recent past, you could expect the equity in your house to provide not only a portion of your future retirement nest egg but also the distinct possibility that you had enough to move, possibly even to another location and have your new home paid-for.  Not that those dreams are necessarily dashed completely.  In fact, if you currently own your home (I must say that calling a home with a thirty-year mortgage as something you own has always struck me as ironic.), you might still be able to do what you had planned.

But some things have changed.  Let’s start with the dream of moving to downsize. In most areas of the country, with a few notable exceptions, home prices have stabilized and have even begun to modestly recover. More on this new retirement plan consideration.

More from Paul Petillo, Managing editor of Target2025.com

Retirement Planning and Advertising

I have always marveled at the ingenuity employed by companies looking for your retirement dollars. They have portrayed it as a nest egg, picturing people wheeling around giant replicas of what they have amassed to secure their future. Although between you and me, retirement planning is more about the nest you build than the contents of what you put in it. Yet the image definitely has a certain stickiness to it.



Now the Dutch banking giant ING Groep has entered into the fray with their latest advertisement picturing a wide variety of people carrying around dollar based numbers. This new guilt trip offers a speculative look at how much money you will need in retirement. The bank’s message is designed to prompt everyone who has yet to save a nickel for retirement to take action.

The idea that some “hypothetical” number will prod you into saving more is not anything new. The advertising world has been very active in formulating the right spin on the topic. But I wonder if the costs of such campaigns, which are passed on to you in the form of fees, produce better investors.

I have spent a great deal of time talking about the high costs of investing in your future. My current book, the inspiration for this blog and the soon-to-be-launched website that accompanies it, looks at the numerous ways each step forward is taxed. Not in the sense the federal government taxes you but by the very companies that seek to make you rich – but not before they themselves take a cut of the action.

With mutual fund advertising, the 12b-1 fees offer a relatively straightforward assessment of what you will be charged by the fund company. You can pick among funds that charge their shareholders for campaigns to attract new investors by choosing the companies that charge little to nothing.

But once those funds get tucked inside of corporate sponsored retirement plans, the fee structure becomes more opaque. You should always ask: “why does the mutual fund offered in my 401(k) still charge a 12b-1 fee?”



Each fraction of a percentage point levied against your retirement savings means that, to achieve a target like ING suggests, you will need to save more. But saving more is only part of the equation. As I mention in the book, it takes a great deal of financial coordination to get where you think you should be (which I take the time to break down, one by one).

There are numerous forces at work chipping away at the effort and the fees, which ING does not mention in the ad – and why would they, are just a part of it. Beware the dangling carrot. It offers you the opportunity to chase what may never be yours.