Here are the seven areas where the baby-boom generation needs to be vigilant about their money—and it’s not all about picking the right stocks to trade, says advisor and author Jim Sloan. However, he also tells where he’s generating income these days for clients.

Kate Stalter: Today’s guest is Jim Sloan of Jim Sloan & Associates .

Jim, you are also the author of a book called The Financially Informed Boomer, and I thought we could begin there today, that being a very important topic for our audience who are listening today. Tell us some of the highlights of this book and what you found.

Jim Sloan: Well, that’s a good question. I would say that the reason I wrote the book earlier last year was simply because over and over, for the past 15 years, we see boomers in our office here. And they pretty much, most have the same concerns, the same issues, the same topics continually come up.

And then as we’re going through our discovery meetings, I get a lot of this quite often. They say, “Why haven’t I ever known about this before? Why haven’t I ever heard about this before?” And those kinds of things. So I thought, “What’s the best way to get this information out to people? Well, daggumit, just write a book.” And so that’s what I did.

There are just really seven chapters in this book. You can probably take less than two hours to read the thing, because I want to get right to the point, and I don’t want to put a whole lot of fluff in there.

The first topic that I discussed is know when to begin your Social Security benefits. You know, a lot of people, a lot of boomers, they just think, “Well, hey, once I hit 62, I can get early benefits. I’m going to go ahead and take it and at least have some income to kind of start my retirement with, and then I can add from there.”

I will tell everyone out there that if you think that taking early benefits at age 62 is in your best interest, you may be right, and you may be wrong. Here’s what we know: If you start taking Social Security benefits at age 62, and you live well into your 90s, you will leave hundreds of thousands of dollars on the table.

Now, that doesn’t mean that it’s not in your best interest to do so—I mean, if you have limited resources, you don’t have any other income, you’re not working—well, then you may need to begin early Social Security. However, on the other hand, if you’re working, you have substantial assets, you may be able to defer those benefits well beyond full retirement age. That could be a tremendous benefit for that particular segment of boomers. So that’s on Social Security.

The next item would be what we call: Know the investments you own. Another one of the big, big issues that we see routinely, Kate, and I’m telling you—every week, every week, last week was no different—I had a few prospective clients come in, and we discovered the same thing. And when I say, know the investments you own, most people, most investors, regardless of what they say—and I hate to say it like this—but they really don’t know the cost to own their investments.

What I mean by that is: Somebody comes in here with a mutual-fund portfolio—last week, I had somebody come in here with about a $300,000 mutual-fund portfolio—and they’re telling me, “Yeah, I’m paying probably a little bit less than 1% a year to own my funds.”

Once we ran some reports, and we figured out and looked at what the disclosed and undisclosed fees are for these mutual funds that he had, he was paying over 3% annually on these funds. And he hasn’t earned anything in the past ten years. So, he was saying, “I’m paying less than 1% a year,” but the truth of the matter is, he was paying over 3%. So most people don’t know the fees they’re paying.

Another prospective client came in last week. She said that she met with two other advisors, and one of them recommended that she put $1 million into a variable annuity. Take it out of your profit-sharing plan, put it in a variable annuity, and they were touting this 10% guarantee.

Once we looked at the prospectus, and we got a little deeper on that, a little closer, dug deeper into the details, she actually would have paid—are you sitting down? I cannot make this up—5.45% a year in total fees. Almost 5.5% a year in fees is what she would be paying.

Now, did she know this? Were they aware of this? The answer is no. I said, “How did you come about to know about this, anyway?” She said, “Well, it was somebody that was doing our profit-sharing plan, and they said, ‘Hey, we can put this money into a variable annuity for you.’"

And how they got around to not telling this person they were going to pay $55,000 a year in fees is because they gave her a prospectus. Again, when I say know the investments you own, that’s what you have to do.

And at our firm, that’s so important, because we believe in transparency and full disclosure. What we do is help our client put all of the relevant information, all of the missing facts on the table, so that before you make your financial decisions, you have all the information to become informed. Because you have all the information on the table about what’s in your best interest. And we’re not seeing that much out there at all.

The third chapter would be talking about creating a lifetime paycheck. That probably ranks right up there at the very top of the list of what concerns boomers. You know—“I’ve been working for 25, 30, 40 years, now; I’m getting ready to retire in a year or six months, or I’m already retired. How do I take this lump sum, this chunk of money, my nest egg and turn it into an income stream?”

Well, there are a couple of ways to go about that. One is, we can put it basically into a conservative income portfolio that avoids excessive declines, and can generate 5% to 7% a year net of fees. Even in today’s market, that can happen.

Or for some of those out there that want guaranteed income sources, we would use maybe a fixed annuity and add a lifetime income rider to that fixed annuity, just add an income rider to that. And there’s a fee of anywhere from 0.5% to 1% for that rider. And the end result is, they’re getting guaranteed income for life.

So it’s really which direction do we want to go. Do we want income, or guaranteed income?



Kate Stalter: One sounds better than the other, definitely.

Jim Sloan: I’ll tell you Kate, there is no “Everybody wants this or everybody wants that.” You’re going to have some on both sides of the fence, and we’re certainly prepared to go whichever direction they’re comfortable with, and certainly in their best interest.

The fourth item would be: Have a plan when your health fails. Again, being an advisor and wealth manager for over 15 years now, we have seen how most boomers do not have long-term care coverage. I would say, from the people I’ve seen, eight out of ten don’t have it; nine out of ten don’t have any coverage.

Their biggest concern is No. 1: First off, if you’re 60 years old, and you’re somewhat healthy, you don’t see long-term care as something you need to be concerned with right now, unless you have a parent or relative that’s went through or is going through long-term care services now, and is just wiping away their savings and nest egg, etc.

So they’re saying, “Hey Jim, if the cost is too much—we don’t want to pay $200 to $300 a month, and it’s going to increase as we move along—and if we never need it, well we’ve paid all these premiums for these years, and we never get our money back.”

For that person, what I look at, or what we talk about, is something called asset-based long-term care. Basically, it’s a life insurance policy. You put a single premium in there. You put a chunk of money in there, and there’s a chronic illness rider attached to this life policy. So basically it’s a life policy with a long-term care rider attached to it.

Example: You put in a $50,000 single premium. You can get that money back, that $50,000 back, any time you want—today, six months, six years from now. It’s a 100% money-back guarantee. Now, if they paid out any benefits, of course, they’re going to take the benefits out of that $50,000, and then they’ll give you the remainder.

The bottom line is you put $50,000 in—let me just throw some ballpark number here as an example—a 62-year-old female puts in $50,000, day one. She has maybe $90,000 of death benefit at day one. She also has about $200,000 to $250,000 of long-term care benefit. So she’s basically taking $50,000 from a savings or CD or something that they had tagged for long-term care purposes in the future, and put this into a life policy. Now you’ve quadrupled, just about, your money for long-term care purposes.

So that’s another way to go about protecting for long-term care, and it solves the issues of, “Well, I don’t want my rates to go up, and I don’t want to pay for something I’ll never use.” Well that solves both of those.

No. 5 would be avoiding costly IRA mistakes. Oh, my goodness. I wrote an entire book on how to avoid huge IRA tax traps back in 2006, and I wrote ten to 12 chapters on different IRA issues that people need to be aware of.

But the first mistake on IRAs is the belief that if you continue to divert taxes inside of your IRA indefinitely, that that’s the best route for your particular situation. Meaning, put money into your IRAs your retirement accounts, you take your tax deduction upfront, and then down the road, when you take it out, eventually you’ll pay your taxes.

Most people know that, but they never quantify it. They never understand really what happens. If I could take every boomer today or every young person today, and just fast-forward them all the way to they’re 60 or 65 or even 70 1/2 when they have to start taking out minimum distributions, and they see what happens to a lot of folks that come in through my office.

That is, “Jim, I’m 71. I have to take out $30,000 from my IRA this year because I’m required to, but I don’t need the income. Yes, I know it’s going to now make my Social Security income be taxed and push me in a higher bracket, but I don’t need the income. Can I do anything about that?” 

Well, no you can’t. It’s really too late at that point. So we see a lot of areas there where there are opportunities and different strategies to go about helping you maximize your IRA without having to go down that road.

The second thing on IRAs would be naming your children as beneficiaries. That’s a good way to pass wealth from one generation to the next, and that might be the case, and it may not be.

I had a husband and wife, both age 84, recently the husband passed away in February of this year. He had a $700,000 IRA, and you know, under most instances, most people would have just have the spouse just roll it over into her IRA and keep taking RMDs [Required Minimum Distributions] and go on down the road. Right.

Well they had two children, both age 61, and my idea was this—and it just turned out to be phenomenal, and you don’t run across this type of planning opportunity often, but when you do it surely looks really nice—the surviving spouse had no need for the income. And this $700,000 IRA of the deceased was throwing off about $50,000 of RMD. She had no need for the income, and she was already complaining that they were paying $17,500 a year in taxes as retirees.

So what we did is: We had her disclaim the IRA. Her two daughters inherited the deceased IRA, which is their dad, and they’re stretching it now over their lifetime. And now, the $17,500 of income tax bill that the surviving spouse has now drops down to about $6,000 a year.

OK, so from a tax perspective, from a longevity perspective, maxing out the IRAs, I mean, it was just a great opportunity there for that to happen. So, summing the IRA picture up, there are multiple ways to maximize and to strategize different ways of going about maximizing IRAs; you just have to know how to go about doing that.



Kate Stalter: I know we’re just kind of scratching the surface here today, but I know you’ve got a couple of more chapters you can tell us about quickly.

Jim Sloan: Yeah.. This is the sixth one—get a basic estate plan in order. Again, everything that I’m sharing today, Kate, is basically what I see on a routine basis, on a week-in and week-out basis.

Of the people that come through here, I would say 25% to 30% have a will, very few have a trust, the majority have nothing. “Yeah, I’ve been meaning to get around to do that, yeah we know we need to do that, yeah we’ve been talking about that.” Or “Oh, I’ve got a will, but it was done in 1980, and I know it needs to be changed,” and those kinds of things.

So what we do is, just introduce them to an estate planning attorney, and, “Yeah you guys can get this stuff done.” These are things that people put off. So get a basic estate plan in order, and make sure it has a medical and financial power of attorney.

The last chapter of the book is: know the difference between a broker and an advisor. There is a difference, there is a big difference, and the regulators are trying to make changes now.

There’s been a lot of news media about this over the past couple of years, but here it is: A broker is hired by a brokerage firm, and their allegiance is to their employer, and they only have a suitability requirement. “I can recommend something to you, and it just has to be suitable.”

From an advisor standpoint, where I fit, we have a fiduciary standard to our client, where we have to do what’s in their best interest. So that means we have a fiduciary standard as opposed to a suitability standard, and the differences between the two is basically quite large. In fact, the VA [variable annuity] example I gave you: This lady came in here and paid $55,000 a year for $1,000,000—well, that happened to be a brokerage firm that recommended that to her.

A lot of the things that we are seeing—brokers, brokerage firms are recommending variable annuities, high-expense mutual funds—and a lot of it is just not disclosed. I mean they give them a prospectus, but it’s just not disclosed because these people coming in, they don’t know what they’re paying. They have no idea.

And the last piece there, the broker and advisor, you know, just seek out a trusted advisor and just know what you’re dealing with there. So that’s the seven chapters, and again, I just tried to hit a couple of little notes on each one of those chapters, and I just think that’s ideas and strategies and techniques.

There are two types of people out there. You’ve got the uninformed, and the informed. And that’s what I try to do, is inform people. That’s why I wrote the book, The Financially Informed Boomer.

Kate Stalter: Speaking of being informed—let’s talk about where you are generating income these days. Obviously there has been a whole lot of attention on some of these very prominent stocks—Apple (AAPL) could be a big example, of course.

And then a lot of people from the other side say, “Well just try to benchmark to something like the SPY or maybe some kind of dividend-paying index, dividend-paying fund." What is your strategy for seeking income, and how are you generating that for your clients right now?

Jim Sloan: Okay, just to be clear: We have money managers for our clients, institutional-level money managers to generate income for our clients. And as you know, the current low-interest-rate environment is certainly penalizing those who save, by dramatically reducing the level of income, and the number of places they can find reasonable income return.

It also prevents the traditional retirement cycle from working. If you don’t have the ability to generate 4% or more of consistent readily accessible low-risk income, well, what’s going to happen? How do you go about that?

I’m here to say today that institutional money managers that we use certainly have been and are generating 5% to 7% yields, and they are attainable today, but you have to look globally and across different asset classes that may seem unfamiliar, such as global infrastructure stocks.

These are companies that operate seaports, toll roads, and utility lines. We mixed in some master limited partnership and real estate investment trusts that are paying 6% to 7% dividends. There are some substantial yields you can find in high-yield bonds and preferred stocks.

Now, I’m not saying that they go in and buy this stuff and hold on to it; these are actively managed accounts, and they are buying and selling throughout the day and week. So, there are ways to generate that you just have to know where to look.