Accumulation vs. Preservation Strategies

Accumulation vs. Preservation Strategies

“Change we can believe in.” That was the choice of words by which President Obama led his 2008 campaign. America was indeed ready for change, but not the kind of change we have experienced and are yet to live through. As Americans, you are on your own, and the sooner you understand that, the better off you will be. The days of your grandfather’s stock market, buy and hold strategies, lifetime pensions, high CD rates and good old American made are gone.

We are in a new economy, a global economy, an economy that you must be willing to acknowledge and adapt to accordingly. We must take a different approach and use a different set of strategies to make retirement, and our golden years, truly golden. I have written this article to help you understand three simple things:

  1. The state of the economy
  2. Why retirees could be getting the wrong advice
  3. Why change is necessary

There is an old saying:
“Know when to get off a dead horse.“

Know when your horse is dead and to get off it before it falls over, and get on a new horse to take you where you want to go.

Your personal freedom is increasingly tied to your financial freedom.

Surveys provide eye-opening data showing the vast majority of Americans have almost no savings. In 1982, the U.S. savings rate was 12 percent, but in July 2017 it was 3.5 percent.1 As a consequence, a recent survey found that 47 percent of respondents had less than $25,000 in savings, and 24 percent said they had less than $1,000 in savings.2 Rather than planning for the future, the majority of people in the U.S. and most Western economies have followed the Pied Piper of easy credit and mindless consumerism into a trap of lifelong servitude.

It gets much, much worse. That’s because the baby boomers – a massive population bubble – are hitting retirement age, shifting the financial burden of a rapidly aging population onto the back of the already bankrupt government.

Put another way, a downward spiral of government debt, currency debasement, higher taxes (at least for those people still paying taxes) and government interference in the economy is only just getting started.

Anyone not paying attention or failing to deploy strategies to grow and protect their assets in a global economy headed for a progression of worsening crises is at very real risk of losing everything.

While no one can say with certainty when the next shoe will drop, it could literally be any day.

That makes it more important than ever to step back from your daily routine and update yourself on the hard realities of living in a new economy. That's the overarching purpose of Legacy Advisory Services, to immerse ourselves in the latest research on the powerful economic, political and investment trends rushing our way.

Given the complexities of today’s economic and investment challenges, even extremely experienced investors need help achieving the clarity needed for effective retirement planning.

Meanwhile, the taxes required to cover all this social spending keep ratcheting higher: According to the Pulitzer Prize-winning fact-checking organization PolitiFact, President Obama proposed over 240 new tax hikes while in office.3

As a consequence, we’ve seen taxes rise in recent years, including the dozens of new taxes and surcharges triggered by the Affordable Care Act, and a recent analysis predicts 20 percent of Americans would owe more taxes under President Donald Trump’s tax reform proposals.4

Like deer in the headlights, most people will try to ignore the rising tide until it's too late. Legacy Advisory Services seek to educate our clients on how they can have a financial plan that helps them navigate this turbulent economy. At Legacy Advisory Services, we help our clients achieve success by having a complete plan in place:

  1. Investment plan
  2. Income plan
  3. Estate plan
  4. Health plan
  5. Tax plan

Most retirees have no plan.  They have a will, brokerage and bank statements, maybe an annuity or two that was the result of a product sale (retail).

There are five key things you need to know about investing at any age:

  1. Safety
  2. Liquidity
  3. Risk/return
  4. Income
  5. Taxes

Most likely, you already know this about investing, or you wouldn’t be at this stage of life and have a retirement savings. What you don’t know is the connection between an Accumulation Specialist and a Preservation/Distribution Specialist, and how their advice is different. This difference could be leading you down a path of success – or financial ruin.

The old saying goes,  “What you don’t know can’t hurt you.” 

That is false! What you don’t know can kill you.

Accumulation Specialists and Preservation/Distribution Specialists look the same but are 180 degrees different! They wear the same clothes, they work in nice offices, they send out birthday cards and Christmas cards, they build wonderful relationships with their clients. Here’s the difference.

Accumulation Specialist
You need an Accumulation Specialist when you are between the ages of 20 and 55. These are some of the services and characteristics of an Accumulation Specialist:

  • Help you set up a savings plan and budget
  • Dollar cost averaging (invest the same amount each month, buy when the market is high and low)
  • Invest into the market and are held to a standard of “suitability”
  • Hopefully know the best stocks, mutual funds and bonds to buy at the time
  • Help rebalance your portfolio passively and tactically
  • Seek out buying and selling opportunities for you to grow your portfolio
  • Sell variable annuities (many times this is attempt to look and sound like a retirement specialist)
  • Mostly captive agents working for “all things to all people firm” – a generalist
  • Tendency toward their own products, creating a potential conflict of interest
  • Use the 1958 allocation model “Modern Portfolio Theory,” developed by Harry Markowitz
  • 1 strategy is to GROW your money for retirement

Preservation/Distribution Specialist
From age 55 and up, you need the help of a Preservation/Distribution Specialist to help you transition from working to retirement. If you are in retirement and not working with a Preservation/Distribution Specialist, you need to heed a word of caution and get a checkup. A Preservation/Distribution Specialist:

  • Provides investment advice
  • Provides comprehensive retirement planning
  • Is held to a standard of “Fiduciary Duty”
  • Provides a consultative process to establish a close relationship with clients
  • Offers customized choices and recommendations designed to fit each individual’s needs
  • Helps you choose the Social Security election strategy that ties into your income plan; this, many times, will put thousands of more dollars into your retirement
  • Helps you understand the pros and cons of the different kinds of annuities
  • Helps you craft an income plan that will meet your monthly budget. This income plan will be built as a tool to help you understand what you can spend every year in retirement as if you’re going to live past age 100 and never run out of money.
  • Understands how to effectively transition from a “Modern Portfolio” to a “Modernized Portfolio” preserving a lifetime of work and savings. The aim is to grow money in the market at a rate of 5 percent to 10 percent without blowing up your retirement nest egg in a downturn.
  • Helps to have the right kind of estate planning done to avoid a Medicaid spend-down
  • Helps you have the right perspective on estate planning (wills, powers of attorney, trust, etc.)
  • Strategizes for efficient tax strategies today and after you pass away. These strategies can help minimize taxation on your Social Security, take advantage of tax breaks and pass your assets to your beneficiaries in the most tax-efficient way.
  • Helps you choose your Medicare plan (Part A, B, C or D and supplemental insurance). There are a lot of pros and cons, and you had better make the right choice. Your health care is at stake.
  • Helps you understand how to qualify for Medicaid and use government funds to pay for your long-term care while preserving and protecting your house and money from the nursing home spend-down. There are two sides to Medicaid (welfare and nursing home). Nursing home Medicaid is an entitled benefit you paid into just like Social Security and Medicare. You can receive nursing home Medicaid if you meet the qualifications.
  • No conflict of interest

Here is the problem! The Accumulation Specialist is never going to tap you on the shoulder and tell you he or she got you to retirement and now it’s time for you to see a Preservation/Distribution Specialist. 

Why? The Accumulation Specialist does not want to lose the retail fee you are paying to him or her.

Said differently, the guy who got you to retirement may be the guy who blows up your retirement simply because he is not a retirement specialist.

Accumulation Specialists don’t care to know anything about Social Security, long-term care, Medicaid, Medicare A, B, C and D, capital preservation, etc. Their job is to grow money in the market. You can’t be a specialist at both. It is impossible to be really good at both.  You are either really good as an Accumulation Specialist or really good as a Preservation/Distribution Specialist.

If you ask an Accumulation Specialist what to do about Social Security and long-term care, this is what mostly likely you will hear. Elect Social Security at 62 or at full retirement age. (Most Accumulation Specialists don’t know any other answer to give you.) Buy a long-term care policy. (They don’t have any other answer to give you, or they might tell you to see an attorney.) The point is, they’re an Accumulation Specialist and not a Preservation/Distribution Specialist.

You have one retirement. Get everything done right and truly enjoy your golden years. Retirement should be a reinventing of yourself and having a great life. Many retirees have made decisions over the years to keep using the services of an Accumulation Specialist after retirement because that’s all they have known over the past 30 to 40 years of working and investing.

That Accumulation Specialist may have done his or her job correctly (meeting suitability standards) but may have also blown up a retiree’s retirement nest egg in the market, cost him thousands of dollars in poor Social Security election timing, sold him the wrong annuity, not advised him on proper estate and long-term care planning, Medicaid spend-down and Medicare, and literally cost the retiree the family farm.

Be smart and understand that your family needs a retirement specialist. It’s a family decision to get on a new and promising path. Don’t stay with an Accumulation Specialist just because you have had a great relationship over many years of service and ruin your retirement years. Those years of investing services were what the Accumulation Specialist was supposed to do for you.  It was never meant to be a lifelong investment path.

Some seniors and boomers have been retired for a while and have been to several Accumulation Specialists only to find they keep running up against the same brick wall. They’re approaching retirement or already retired over the age of 55 or 60 and still working with an Accumulation specialist.

There is an old saying:
“Know when to get off a dead horse.“

Know when your horse is dead and to get off it before it falls over, and get on a new horse to take you where you want to go.

1 YCharts. “US Personal Savings Rate.” Accessed Sept. 7, 2017.

2 Lisa Greenwald, Craig Copeland, Ph.D., and Jack VanDerhei, Ph.D. Employee Benefit Research Institute. March 21, 2017. "The 2017 Retirement Confidence Survey." Accessed Aug. 31, 2017.

3 Angie Drobnic Holan and Tim Ryan. PolitiFact. April 22, 2014. “Obama has proposed 442 tax hikes, says anti-tax group.” Accessed Sept. 7, 2017.

4 Emmie Martin. CNBC. July 28, 2017. “Report: 20 percent of Americans could pay higher taxes under Trump’s plan.” Accessed Sept. 7, 2017.

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