Family Ties

Generational Planning
Like the Allens, the Wynnes signed up for McIntosh’s fee-only services based on a referral–from their daughter Allyson. After hearing Allyson’s glowing stories about how her planner was helping with important financial decisions, the Wynnes set up an appointment. It was the late 1980s and Vivienne, a recently retired American Airlines employee, says she needed to roll her corporate retirement account.

“Whomever American Airlines was using to allocate my retirement plan wasn’t meeting my expectations,” recalls Wynne, whose husband worked for the Los Angeles fire department for 30 years. The pair originally used the financial planner’s portfolio management capabilities, but over time have added other services. “Having successfully rolled over Vivienne’s retirement plan, the Wynnes called on me to manage other assets and handle additional financial issues for them,” says McIntosh. Take estate planning, for example. While not necessarily on the Allens’ radar screen right now, the Wynnes are taking measures to ensure that their hard-earned assets are distributed appropriately after their deaths. “We’ve reached that age where we have to start considering the tax implications and other issues involved with estate transfer,” says Vivienne, who also relies on her financial planner to help make prudent decisions regarding retirement distributions. “At age 71 you have new considerations, based on what Uncle Sam says you can and can’t do with your money.”

McIntosh says the Wynnes planned their retirement before becoming his clients, and that they have since rebalanced and reallocated their investment accounts in order to reduce overall risk, while at the same time improving their returns. “These changes protected their assets during the last two market downturns,” says McIntosh, who believes that the Wynnes are well-braced to sustain their retirement lifestyle, despite threats like inflation. “I keep them aware of the impact of inflation, and let them know that their portfolios must be managed in a way that keeps pace with it,” says McIntosh. “Because they are retired, for example, they can’t invest solely in fixed-income options. Instead, we put a percentage of their portfolio in equities, which historically provide more protection against inflation.”

According to McIntosh, the most significant difference between the Allens’ and the Wynnes’ financial situations is that the latter are focused on making sure  their portfolio carries them through retirement, and that they “don’t run out of money.” Living in the same home they raised their children in, the Wynnes are relatively debt-free, and enjoy a simple lifestyle that is characteristic of their generation.

The Allens, on the other hand, have young children who they intend to send to college, a mortgage, and other financial responsibilities that Allyson’s parents are without. Even with two full-time incomes, McIntosh says the Allens have to pay careful attention to budgeting and cash management. “When you have a four-person household in Los Angeles it’s easy to rack up a lot of expenses,” says McIntosh, who calls the Allens’ financial planning needs “much greater” than the Wynnes’. “They have to worry about meeting current household expenses, funding their kids’ college educations, saving for emergencies, and planning for retirement all at once. That can be daunting.”

The Allens may be able to learn from their parents’ generation, who paid off their homes and cars, and didn’t readily sign up for financial burdens like credit cards. McIntosh agrees, reminding consumers that mortgages alone can curtail a family’s retirement plans. “If someone has a mortgage of $2,000 a month going into retirement, they’ll need about $600,000 in retirement funds to cover that expense alone,” says McIntosh, who sees satisfied mortgage debt as a “big plus” for anyone looking to retire in the next five years. “Someone whose home is paid off needs far less at retirement than the person with a mortgage.”

Allyson credits her early decision to pay a fee-only planner for ongoing services with helping her and Harold work through life’s financial challenges. Now aware of the differences between fee-only and commission-based financial planners, both Allyson and Vivienne feel they made the right decision to go with the former. Allen expects the third generation of her family to participate once they begin investing and planning for retirement on a regular basis.