ReZoom

If there's one person qualified to tell you what to do with your money, it's Michael Kitces, director of financial planning for Pinnacle Advisory Group in Columbia, Md. After graduating from the American College – one of the country's leadings schools in financial services education – he has gone on to become a CFP, a chartered financial consultant, a chartered advisor of senior living and a certified wealth preservation planner. A contributing columnist for "Wealth and Retirement Planner" magazine and a card-carrying member of MENSA, Kitces made quick work of our five questions.

1. How do you see boomers facing the prospect of retirement? Will they have to continue working past age 65? Do you foresee a resulting shift in the concept of retirement?

In our experience there is unquestionably a shift underway in the concept of retirement, and one of the most common elements of the new retirement vision is some form of work past age 65.

However, it is not merely out of financial necessity for the sandwich generation. Instead, many baby boomers seem to be finding that they want to continue working. Such boomers typically do not want to continue doing the same job for the same hours and the same pay, but are often very interested in doing a slightly or significantly different job – focused more on the job responsibilities they enjoy – for fewer hours and an appropriate associated (lower) pay level.

The purpose is not necessarily financial at all (although the additional income is enjoyed); instead, the focus is on the social and personal aspects of being an active and contributing member of society and maintaining connection to a social network of peers. Sometimes the work will be for the same firm the boomer previously worked for, but in other cases it may be a shift to the non-profit world, another firm, or to an independent consulting status.

For others still, the job shift is to walk away entirely from the former career and enter a new career, or turn an old hobby into a small personal business. But the common theme throughout is that baby boomers are entering their 60s healthy and active, and still finding a great deal of personal fulfillment from employment, as long as it's the "right" job that they have the flexibility to seek.

2. What do you think is the biggest financial challenge that boomers face? There are so many to choose from – paying for kids' education needs, caring for their aging parents, planning for an active retirement, credit card debt, health insurance issues ...

I think the greatest financial challenge that boomers face is to adapt to a world of increasing uncertainty. The trend from defined benefit to defined contribution plans has led to a world where the uncertainty of financial markets has a material impact on a boomer's capacity for financial independence. But the uncertainty challenges extend beyond merely the returns of the markets; medical advances have created dramatic new uncertainties for many boomers, who must plan for what may be years or, still, decades of life that will be experienced in an uncertain state of health.

The difficulties in planning for uncertain health and uncertain longevity, compounded with the uncertainties of the financial markets, leads baby boomers to a point of needing significant additional financial resources, simply to be available to fund contingencies and risks that may or may not ever occur.

The greatest financial challenge that boomers face is to adapt to a world of increasing uncertainty.

- Michael Kitces, C.F.P.

 

The first step to take for parents who are seeking "emergency-style" measures to handle the costs of college is to fully explore the opportunities available. This would include submitting the FAFSA [Free Application for Federal Student Aid] to see what, if anything, they can qualify for. Some parents are often surprised at the results and what they are eligible for, because they weren't aware that many significant assets they hold are not counted for financial aid purposes. It would also include reaching out to the specific schools that the child is considering or has selected to identify whether there is any institution-specific aid that may be available.

Beyond that, parents should explore whether the child might be eligible for any scholarships or grants based on their own academic or athletic merits. As a final step, parents should also consider the possibility of allowing the student to take on a modest student loan him or herself; not only can that help the financial equation, but it may actually help the child to take his or her education more seriously as well.

4. Which legacy products – trust funds, charitable trusts and the like – are you finding to be popular among affluent boomer-age clients?

Trusts designed to hold assets for children or other heirs are becoming increasingly popular, as baby boomers are seeing larger and larger account balances that may someday go to children that may or may not be prepared to handle such sums of money. For many affluent baby boomers, trusts have had a perception of being only for the super-wealthy and having negative connotations associated with irresponsible and spoiled children.

In today's world, though, they are a valid and valuable tool for the "merely" affluent baby boomer as well. Trusts can be used to control the ages at which children receive access to large sums of money, or to help protect those funds from the risk of divorce, or from potential creditors or lawsuits that the children may face. Planning of this type requires advisors that are more sophisticated, but allows for far more flexibility for baby boomers to optimally achieve their goals.

5. What experience did you have, personally, that made you want to dispense advice about personal finance?

Personal finance is an area where most individuals still have huge gaps in their knowledge, due to the lack of financial literacy education in our country. It has become so complex and dynamic that even many financial advisors have difficulty keeping all of the information straight. This has increasingly fueled my own desire to dispense advice about personal finance and to work with advisors to keep them fully and properly educated on the best strategies and techniques to help their clients successfully achieve the clients' goals and avoid mistakes.

Want more? To learn more about the questions and concerns of boomers and their retirement needs, check out "Great Expectations." Or to read another interview with another great financial mind, click here.