Planning a Confident Retirement:
The Top 5 Mistakes that Wealthy Families Make
Brown & Tedstrom, Inc.
2016
1700 Broadway, Suite 500
Denver, CO 80290
P 303-863-7231
F 303-863-7012
brown-tedstrom.com
Securities and Advisory Services offered through LPL Financial, a Registered Investment Advisor. Member FINRA/SIPC.
Mark R. Brown offers financial planning through Brown & Tedstrom Retirement Planning, Inc., a Registered Investment
Advisor. Peter F. Tedstrom offers financial planning through Brown & Tedstrom Estate Planning, Inc., a Registered
Investment Advisor.
As most Baby Boomers approach their sixties, the prospect of retiring successfully has
become a very important focus. Unfortunately, planning for retirement is not as easy as it
should be. Between volatile stock markets, low interest rates and greater political
uncertainty, the task of retirement planning has grown in complexity. The result for many
Americans is an exercise in frustration and confusion.
In the old days, a retiree could simply look forward to the defined benefit pension that
they received from spending their career at a large company. The financial planning, and
related investment risk, were outsourced to a former employer. A retiree merely had to
walk to the mailbox and collect their monthly pension checks. If only it were so simple
today; even wealthy families struggle to map out a clear path to success.
Because your retirement is now in your hands, and not in the hands of others, you may
be concerned. Your greatest fear realized:
You don’t want to be forced into becoming a blue-vested greeter in old age!
1700 Broadway, Suite 500
Denver, CO 80290
P 303-863-7231
F 303-863-7012
brown-tedstrom.com
Securities and Advisory Services offered through LPL Financial, a Registered Investment Advisor. Member FINRA/SIPC.
Mark R. Brown offers financial planning through Brown & Tedstrom Retirement Planning, Inc., a Registered Investment
Advisor. Peter F. Tedstrom offers financial planning through Brown & Tedstrom Estate Planning, Inc., a Registered
Investment Advisor.
Now for the good news: many of the mistakes that families make in sabotaging their own
retirement are quite fixable. In fact, there are several actionable things that you can do
to immediately to improve your retirement outlook. With the proper financial planning,
you can help prevent a return to the workforce in your golden years. The following are
the top 5 mistakes that people make—and how to make changes.
1. You haven’t completed a financial plan
If you haven’t taken the time to properly plan your retirement, you are not alone. In fact,
you are in the majority. According to a 2015 study by the Employee Benefit Research
Institute, only 48% of Americans have attempted to calculate how much money they will
need to have saved for retirement. Another 2015 study, this one done by Northwestern
Mutual, found that 34% of Americans had literally not done any financial planning
whatsoever.
The single most important step that you can take in preparing for retirement is to create a
comprehensive financial plan. You will address the following topics in your plan, among
others:
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How much do you need to have saved to retire successfully?
What is a reasonable spending rate in retirement?
Can you survive a large stock market correction?
Do you have the right kinds of insurance?
Do you have the ability to pay for major medical expenses?
Are you being smart about how much you pay in taxes?
Do you wish to give money to our children and to charity?
1700 Broadway, Suite 500
Denver, CO 80290
P 303-863-7231
F 303-863-7012
brown-tedstrom.com
Securities and Advisory Services offered through LPL Financial, a Registered Investment Advisor. Member FINRA/SIPC.
Mark R. Brown offers financial planning through Brown & Tedstrom Retirement Planning, Inc., a Registered Investment
Advisor. Peter F. Tedstrom offers financial planning through Brown & Tedstrom Estate Planning, Inc., a Registered
Investment Advisor.
Are you confident in your ability to retire successfully? The treadmill of working, saving
and investing has left many families unsure about where they stand, even those who have
accumulated great wealth. Brown & Tedstrom has created The Retirement Balancing
Act™, a proprietary tool to assist pre-retirees in clarifying their options.
2. You haven’t accounted for inflation
In 1986, the price of a Big Mac in the United States was $1.60. Today, a Big Mac costs
$4.93. In other words, a Big Mac today is literally three times as expensive as it was
thirty years ago. The difference? Inflation.
When you plan your retirement, you may have a dollar number in mind for what your
annual expenses might be. With the forces of inflation at work, the actual dollar numbers
to keep the same standard of living are likely to rise substantially over time. A good
retirement plan takes into account inflation, and keeping the same standard of living
throughout your older years.
1700 Broadway, Suite 500
Denver, CO 80290
P 303-863-7231
F 303-863-7012
brown-tedstrom.com
Securities and Advisory Services offered through LPL Financial, a Registered Investment Advisor. Member FINRA/SIPC.
Mark R. Brown offers financial planning through Brown & Tedstrom Retirement Planning, Inc., a Registered Investment
Advisor. Peter F. Tedstrom offers financial planning through Brown & Tedstrom Estate Planning, Inc., a Registered
Investment Advisor.
The purchasing power of the U.S. Dollar over the last 30 years
3. You claim Social Security too early
Today’s retirees first become eligible to claim Social Security payments at 62. The U.S.
government currently defines “Full Retirement Age” at 66. According to the U.S. Social
Security Administration, more than 40% of Americans choose to take their Social Security
payments at age 62.
The practice of taking Social Security payments at 62 can be one of the worst financial
decisions that you can possibly make. By claiming benefits before full retirement age,
retirees experience a 25% reduction in their monthly payments. The breakeven
calculation is surprising: even If you just survive into your 70’s, you are still better off
waiting to take your payments until age 66. If you survive into your 80’s, the difference
1700 Broadway, Suite 500
Denver, CO 80290
P 303-863-7231
F 303-863-7012
brown-tedstrom.com
Securities and Advisory Services offered through LPL Financial, a Registered Investment Advisor. Member FINRA/SIPC.
Mark R. Brown offers financial planning through Brown & Tedstrom Retirement Planning, Inc., a Registered Investment
Advisor. Peter F. Tedstrom offers financial planning through Brown & Tedstrom Estate Planning, Inc., a Registered
Investment Advisor.
in delaying Social Security can be cumulatively greater than $100,000. For every year
that you delay payments beyond full retirement age up to age 70, your Social Security
check goes up by 8%.
Social Security is the best, and cheapest, inflation-adjusted annuity out there for
individual citizens. By maxing out (delaying) your Social Security payment, you have
provided yourself with a government guaranteed stream of income that has historically
included a cost of living increase over time. Do whatever you can to maximize this
stream of income.
4. Your investments are not properly diversified
The old expression to “not to put all of your eggs in one basket” continues to hold true.
Despite the widespread recognition that we should diversify our risk, the majority of retail
investors still make overly concentrated bets with their personal wealth. The following
examples are well-known, yet continue to exist.
In a 2013 Morningstar study, nineteen blue chip companies in the U.S., including Exxon
Mobil, Chevron, McDonald’s, Colgate-Palmolive and Lowe’s had more than 50% of
employee 401(k) assets invested in their own company’s stock.
It is our belief that employees should never have their retirement assets invested in
company stock. Your job and livelihood already rely on the financial health of your
corporation—you shouldn’t be doubling that risk by betting all of your savings on the very
same company. Enron employees lost their jobs when the company went bankrupt more
than a decade ago. Those Enron employees who had invested their retirement savings in
Enron stock lost not only their jobs, but all of their savings as well. Former Lehman
Brothers employees can tell a very similar story.
If there was one lesson that came out of the 2008 housing crisis, it was that real estate
prices can suffer as much, if not more, than other asset prices. Housing prices can go
down, and in a manner just as volatile as stocks. But we still love owning our own homes,
and concentrate our wealth in our homes. According to The National Association of Home
Builders in 2013, the median American family still has 62% of their total wealth tied up in
the value of their principal residence.
The takeaway is that risky investments can, and do, lose their value from time to time.
Because of these inherent risks to investing, retirees must plan for such volatility and
properly diversify. A financial plan and a properly constructed asset allocation will go a
long way in managing these concentrated risks.
1700 Broadway, Suite 500
Denver, CO 80290
P 303-863-7231
F 303-863-7012
brown-tedstrom.com
Securities and Advisory Services offered through LPL Financial, a Registered Investment Advisor. Member FINRA/SIPC.
Mark R. Brown offers financial planning through Brown & Tedstrom Retirement Planning, Inc., a Registered Investment
Advisor. Peter F. Tedstrom offers financial planning through Brown & Tedstrom Estate Planning, Inc., a Registered
Investment Advisor.
Disclaimer: No strategy assures success or protects against loss
Brown & Tedstrom’s Retirement Shock Absorber™ is a proprietary model to help families
stay the course in a market downturn. By creating a portfolio that is built with the goal to
withstand a substantial drawdown in value, families can continue to fund their lifestyle
and not sell at the bottom when asset prices are low.
1700 Broadway, Suite 500
Denver, CO 80290
P 303-863-7231
F 303-863-7012
brown-tedstrom.com
Securities and Advisory Services offered through LPL Financial, a Registered Investment Advisor. Member FINRA/SIPC.
Mark R. Brown offers financial planning through Brown & Tedstrom Retirement Planning, Inc., a Registered Investment
Advisor. Peter F. Tedstrom offers financial planning through Brown & Tedstrom Estate Planning, Inc., a Registered
Investment Advisor.
5. You ignore taxes
For high net worth investors, taxes matter—in fact, they matter a lot. For families
approaching retirement who are currently in a high income tax bracket, smart tax
planning can be extraordinarily valuable.
Consider a family that is in the highest marginal Federal income tax bracket today at
39.6%. As that family retires and stops collecting a paycheck, the majority of income
from their investments will be taxed at a much lower rate: long term capital gains,
dividends and tax-advantaged bonds. Much was made of then Presidential candidate Mitt
Romney in 2012: The Wall Street Journal found that his effective tax rate was 22% when
running for President. The reason: he was retired and earning tax-advantaged income
from his investment portfolio.
What to do if you are currently in a high marginal income tax bracket? Three concrete
steps that wealthy families should consider taking at pre-retirement are: max out 401(k)
and other tax-deferred retirement accounts, defer any retirement account distributions
and defer Social Security payments. These choices alone can result in many thousands of
dollars in tax savings over time.
Maximizing tax efficiency is a focus of Brown & Tedstrom. The Brown & Tedstrom
Retirement Tax Filter™ helps clients evaluate their investment portfolios to minimize
taxes.
1700 Broadway, Suite 500
Denver, CO 80290
P 303-863-7231
F 303-863-7012
brown-tedstrom.com
Securities and Advisory Services offered through LPL Financial, a Registered Investment Advisor. Member FINRA/SIPC.
Mark R. Brown offers financial planning through Brown & Tedstrom Retirement Planning, Inc., a Registered Investment
Advisor. Peter F. Tedstrom offers financial planning through Brown & Tedstrom Estate Planning, Inc., a Registered
Investment Advisor.
Conclusion
Planning for retirement can be daunting. Along the way, there are many decisions that
can influence your success: saving, investing, budgeting for inflation, managing a stock
market collapse and tax planning are just a few. Many families are not on the right track
to a confident retirement. We have highlighted a few of the mistakes that retirees
typically make that, once corrected, can contribute to a higher rate of retirement success.
At Brown & Tedstrom, retirement planning for high net worth families is our focus. We
would welcome the opportunity to start a dialog with your family about these retirement
issues, as well as all other forms of advice related to your wealth. We hope to help you
avoid the greeter’s blue vest in your golden years, along with the financial confidence that
comes from a well-constructed plan.
1700 Broadway, Suite 500
Denver, CO 80290
P 303-863-7231
F 303-863-7012
brown-tedstrom.com
Securities and Advisory Services offered through LPL Financial, a Registered Investment Advisor. Member FINRA/SIPC.
Mark R. Brown offers financial planning through Brown & Tedstrom Retirement Planning, Inc., a Registered Investment
Advisor. Peter F. Tedstrom offers financial planning through Brown & Tedstrom Estate Planning, Inc., a Registered
Investment Advisor.