In order for retirement planning to be a truly holistic endeavor, it must include all possible options available to a client. These include the tapping of Social Security benefits; tax strategies; investment accounts; long-term care; estate planning; as well as the many reverse mortgage options available under the Federal Housing Administration (FHA)’s Home Equity Conversion Mortgage (HECM) program.
This is according to Martha Shedden, president and co-founder of the National Association of Registered Social Security Analysts (NARSSA), in which she leads the development of the education and training program for all registered Social Security analysts (RSSAs).
Shedden offered her perspective in a column published by ThinkAdvisor.
“The traditional financial advisory service of calculating optimal portfolio allocations and focusing on measurement of alpha (the return of an asset) and beta (an asset’s historic volatility) no longer provides sufficient personal value for many of today’s investors, Shedden says in the piece. “Beyond alpha and beta, gamma is the term used by Morningstar academics to measure additional income realized as a result of holistic planning.”
When it comes to the service of holistic retirement financial planning, it becomes increasingly necessary to take into account a number of factors and an accelerating number of variables that become apparent as a client becomes older, she says.
According to a 2013 study released by Morningstar, there was a 22.6% increase in retirement income using only five strategies: total wealth including Social Security; withdrawal sequence strategy; incorporation of additional income products, such as annuities; tax-efficient decisions; and liability-relative asset allocation optimization.
This had an inherent shortcoming, Shedden explains.
“Morningstar did not examine all possible strategies, such as the long-term impact of Roth conversions when increasing taxes are expected, nor did they consider the use of the many [HECM] options such as reverse mortgage lines of credit,” she writes. “But the additional or increased retirement income can be significant when utilizing a holistic approach to retirement financial planning.”
However, Social Security should remain first in the proverbial line when discussing retirement financial planning, she says.
Read the column at ThinkAdvisor.
