1 NorthBay biz Reprint from October...

1 NorthBay biz Reprint from October 2018

W hen people first meet with Ylisa Sanford, a private wealth advisor with Spectrum Private Wealth Advisors in Santa Rosa to discuss

retirement planning, they’re typically full of questions and concerns. “They don’t know if they’re saving or investing enough, or making a return that’s appropriate,” she says. “They have a lot of disparate goals they may not feel are connected—college, education for children or grandchildren, retirement or estate planning, tax reduction. Then, they think about their portfolio. Are they saving in the right locations, in the right amount? Are they paying more or less than they should be for advice and investments? What happens if they’re disabled or pass away? What if the market crashes?” Add all that to the thought of advancing age and approaching retirement and you could develop a case of anxiety.

But Sanford walks them through various interactive scenarios of what their lives could look like, based on decisions they have the control to make. This opens their eyes. Clients begin to understand that adjusting an allocation and the portfolio may result in a higher statistical likelihood of never running out of money, based on different modeling scenarios, explains Sanford.

TheJourney to Retirement

How to plan a strategy for the retirement of your dreams.

By Bonnie Durrance

Suddenly, the idea of planning for the future becomes almost exciting.

Sanford factors in the variables such as age, health history, parents’ dates of death, morbidity tables, where they live, inflation rate, income tax rate, savings levels, risk tolerance, guaranteed income, pension, social security, health, disability, life insurance, and more. After reviewing all the considerations, she’s ready to look at the future. “We can say, ‘Here’s the path you’re on. Here’s the path you want to be on. Here’s a list of 15 things you need to change, and my team and I will help coach you through to make those adjustments.’”

She compares the journey the client is about to take to driving from Santa Rosa to San Francisco. “You know you’ll need a certain amount of gas. You know how long it takes and how much gas you’ll need. But if the car runs out of gas, you need to adjust. If the car breaks down, you need to adjust.” That’s the way planning for retirement works. “It’s not a static thing. You don’t make a plan in 2018 and place it in a drawer. We do annual reviews with our clients because babies are born, people get married, change jobs, benefits change and people pass away. It’s an evolving process that needs to be an up-to-date reflection of what clients want to do.”

Reprint from October 2018 NorthBay biz 2

Step one “The first step is to think about what you’d want to change,”

says David Brown, founder and chief executive officer of Encore

Wealth Management in Santa Rosa. “Would you want to stay

at status quo and stay living here in Sonoma County? Would

you want to think about moving closer to family? People may

say they want to travel the world.

But, is that really what you most

want to do? Getting down to the

nitty gritty: you want to keep the

lights on. What’s important to one

person is not necessarily important

to another,” he says. “Some people

want to save to give something to

their grandkids.”

Confronting obstacles One of the first obstacles Brown

faces is human nature. “A lot of people want the quick fix,”

he says. “There is no quick fix. You just have to know where

you are, know what you have now, know what you can afford

to risk and what you are going to need to continue on in the

way you desire, then begin to plan.” According to Brown,

younger people, with retirement far in the distance, may be too

conservative; and older people, with retirement upon them and

no savings for the future, may become too aggressive. “They’ll

put money in the riskiest investments, thinking, ‘I’ll double

down and catch up,’ but it doesn’t work like that,” he says.

For Brown, the biggest pitfall is putting off thinking about

retirement until some magic future date or event. “People may

say they’ll start to save when the youngest starts school, or

when the kids graduate and there is more available cash,” he

says. “This doesn’t work. There’s always something out there

screaming for that money.” His advice is to start early. “Nobody

can go back in time. You can’t get younger again”.

Getting started“Clean out their junk drawer!” Brown says. “Pull out all those

old IRAs.” The point is to dig down and get the concrete

evidence of where you are right now. “What’s the first thing

you do when you’re lost in a shopping mall?” he says. “You go

to a map and see where it says, ‘I am here.’ The big red dot.”

That’s where you start.

To create a picture for a desirable retirement, Tim

Delaney, wealth advisor and founding partner of JDH Wealth

Management, LLC, helps his clients determine and assess where

they’re at right now, creating a realistic picture of what they

have and what they spend, plus what they want to have and

spend in the future. Then, he helps them create a plan to get

there. To start, he steers them away from the question they

usually come in with, which are

about investments and portfolios

and how to grow them—that will

come later, he tells them. Instead, he

helps them to focus first on where

they are right now, and where they

want to be.

“If you’re spending this amount

of money now,” Delaney asks his

clients, “when you’re in retirement,

what do you want to do? What’s

important to you? Is it your family, your friends, your legacy?”

He helps them to see the investments as tools in servicing those

goals. “We reframe the conversation to being client-centric

rather than investment-centric.”

Estimating your spendingDelaney looks at all the typical materials people bring in––

their investment statements and tax returns are usually easily

retrievable. But then he gets to the first hurdle—their spending.

“They’ll have the routine items in their heads: PG&E, phone

and gas. But the big-ticket items—vacations, sicknesses, car

repairs, home remodeling—all these are underestimated 20

to 30 percent.” His experience is that people aren’t realistic

about estimating their spending. “Generally, clients estimate

25 percent or more below what they’re really spending. It may

not be the necessities, but those addictive ones like Amazon,

Starbucks and restaurants.” How does Delaney find the truth

about spending? He reviews their tax return. There, he sees

the disposable income. Whatever’s not shown as being saved,

is being spent. He laughs. People will always say, “No way I’m

spending that much.” Delaney introduces them to grim reality:

“Either you’re saving it or spending it.”

After making a complete assessment of where they are

right now, with all of their assets—retirement fund, income,

investments and all their spending—he creates a projection

which will show in a graphic how long their income will last

at a given rate of spending. “If your income and assets are

David Brown, founder and CEO, Encore Wealth Management

Ylisa Sanford, private wealth advisor, Spectrum Private Wealth Advisors

“We do annual reviews with our clients because babies are born, people get married, change jobs, benefits change and people pass away. It’s an evolving process

that needs to be an up-to-date reflection of what clients want to do.”—Ylisa Sanford, private wealth advisor, Spectrum Private Wealth Advisors


this, and you’re spending per month is

that, then when you retire, here’s your

probability of not running out of money

before you die.” It’s only a graph. Only

a probability, but it is an eye-opener. “To

try to get a handle on spending is the key

item,” says Delaney. “Then, getting them

on a budget [and helping them to] stay

there.”

InvestmentsDelaney compares the power of spending

and investments as a car with two gas

pedals. “The big one is your spending,”

he says. “So, take an extreme example: If

you have $1 million and you’re spending

is $1 million a year, your pedal’s to the

metal and you are out of money in a

year or so, guaranteed. We need to get

your spending in line with the amount of

cash coming in from outside third parties

(i.e., Social Security and rental income)

and fill in the remainder of spending

with periodic distributions from your

investments.”

The “little pedal” is your asset

allocation. The allocation can be

adjusted to be more aggressive or more

conservative, provided your spending is

in line first. “You can be aggressive, but

that comes with more risk,” he says. “Or,

you can be more conservative because

you don’t need to take the risk if your

spending is in line with what you have

available to spend.” The “little pedal”,

the investment portfolio, is where you

can play, but, he cautions, investments

are irrelevant if your spending is out

of line. Understanding what you’re

spending now is key to planning for

what you can spend in retirement. Most

people, he says, when they face reality,

will have to “throttle down their level of

spending, once they retire. There can be

a little bit of sticker shock.”

How to throttle downDelaney is a pilot. When he visualizes

slowing down for retirement, he sees

it from a high vantage point. When

looking into the distance, he likes to

see big debt cleared away. “As people

go into retirement, their mortgage on

Planning for Long Term Care Most Americans living beyond age 65

will need long-term care at some

point in their lives, according to a 2016

report from the Office of the Assistant

Secretary for Planning and Evaluation

(ASPE) in the U.S. Department of Health

and Human Services.

Long Term Care Services and

Supports (LTSS) involves assistance

in the daily tasks of living for people

who develop a temporary or long-

term disability. The report suggests

that people tend to underestimate the

likelihood of the need or the cost of

such care. The report points out that

health insurance typically does not cover

LTSS. Medicare and Medicaid cover only

some LTSS costs, such as, for Medicaid,

those with chronic disabling conditions.

Private LTSS insurance is available

but expensive, it states, to the point

where projected LTSS expenses could

contribute to retirement deficits.

The report concludes that

approximately half the population, after

reaching the age of 65, can expect to

need LTSS, on average for two years,

with an average cost of $138,000. This

cost naturally rises with the cost of living

and the length of time for the need for

care. “Even average long-term costs can

be out of reach for many Americans

without some kind of financing system in

place,” the report concludes. “Medicaid

is an important payer for LTSS, but

because it serves only those who meet

income and asset criteria, many families

pay for LTSS out-of-pocket.”

For more information, visit:www.aspe.hhs.gov/basic-report/

long-term-services-and-supports-older-

americans-risks-and-financing-research-

brief

www.aspe.hhs.gov/system/files/

pdf/106211/ElderLTCrb-rev.pdf

their home should go into retirement,

too,” he says. “As you’re coming in for

a landing (retirement), your mortgage

should ideally go to zero when you land

and enter retirement.” Cut the engine.

Nice and easy, if you can do it. “I’ve

had too many clients say that having a

mortgage in retirement is one of the big

millstones,” he says. “They’ll say, ‘Oh, if I

just didn’t have that mortgage payment

every month!’ Then, they generally will try

to refinance one final time and then carry

that mortgage to the grave.” He counsels

clients to make a plan for paying off the

mortgage. “It takes a lot of discipline to

do that,” he says. “I’m telling them to

pay an extra chunk of cash every month

to get out of mortgage debt by the time

they retire.”

Types of investmentsDelaney describes two standards

for how a financial advisor works

for clients. Registered investment

advisors, work under what is called

the fiduciary standard, which says you

have to put the client’s interest first,

that you can’t recommend a product

that is not in the client’s best interest.

Registered investment advisors do not

make any money from the investments

they recommend. Under the fiduciary

standard, advisors such as Delaney get

paid on the basis of a fee charged on the

amount of assets under management.

“We are extremely transparent with

our fees,” he says. “We get paid by

the client and by the client only. We

have no remuneration from any third

party. The more the clients’ accounts go

up, the happier they become, and the

happier we are as our fee is based on

a percentage of the account.” A law,

passed during the Obama administration,

declaring the fiduciary standard to

be required for brokers working with

retirement plans, to put their clients’ best

interests first, was overturned this year,

by the 5th U.S. Circuit Court of Appeals,

in March, on the grounds that it was too

burdensome.

The other standard, which broker-

dealers operate under, is the suitability


Lauren Galbraith, family wealth attorney, Farella Braun + Martel

Estate PlanningEstate planning, whether it’s a simple will or more complex

planning trusts, ensures that your wishes will determine how

your assets will be disposed, and by whom, at the time of your

death. Lauren Galbraith, a family wealth attorney at Farella

Braun + Martel LLP, who practices in the firm’s Wine Country

Office in St. Helena, offers a general view of the main options in

the complicated landscape of estate planning.

The simple willA will allows persons of any level of wealth to name their

executor and state their intention of how to distribute their

property in the event of death. “Tangible personal property is

an area where there can be a lot of conflicts and arguments

about who gets what,” says Galbraith. “You can plan for that.

You can’t guarantee that everyone will be happy, but you can

make specific gifts of certain items or set forth procedures

where people pick what they like.” The will sets out in writing

how a person’s assets and possessions should be distributed, but

distribution is not automatic. “If you die with a will, your named

executor goes to court; there’s a court proceeding. With the

supervision of the court, the executor handles the disposition

of your assets,” Galbraith explains. Other options will allow the

process to go forward without the encumbrance of the court.

The living trustThose with assets in excess of $150,000, or any real estate, who

want to avoid involving the courts can choose to create and

fund a revocable living trust. A living trust is a legal document

that, just like a will, contains a person’s instructions for the

disposition of his or her assets. To fund the trust, a person must

retitle his or her their assets into the trust such that the property

or assets are no longer owned by the person as an individual,

but as trustees of the trust. The advantage is that, at the time

of death his or her affairs can be handled and distributed by

the named successor trustee without court involvement. The

successor trustee is also empowered to manage the trust assets

and act on behalf of the person who created the trust in the

event of his or her incapacity,

akin to use of a power of

attorney, which is another

recommended estate planning

document. “If they move their

assets into a revocable trust

during their lifetime, they can

be planning for incapacity at the same time as they’re planning

for death,” says Galbraith.

When to consider estate planningYounger clients may wish to nominate a guardian for their

children should something happen to both parents, while

people nearing retirement age may need help deciding the

best way to distribute assets among grown children. Galbraith

says that often people come in to revise their documents from

time to time, as their circumstances change and in response

to changes in tax law. They also seek advice when they need

particular help making personal decisions—for example,

whom they should name as executor, if it’s one of the children,

in which order their children should be named, or, if they

don’t have close family, who might the appropriate person or

persons be to serve as executor. Estate planning also includes

documents relating to incapacity, such as powers of attorney

and health care directives, and potentially strategies for making

gifts during life. All of these issues can be individually tailored

and set forth in a comprehensive estate plan.

Putting your affairs in orderEstate planning is a complex process given individual wealth

structures and circumstances—including new tax laws—and

personal wishes. She advises that when you begin thinking

about estate planning, to make sure you have someone with a

depth of expertise in all the appropriate legal and tax levels to

guide you. Most importantly, don’t avoid the issue. “For people

with no plans at all, even a simple straight forward one can just

save your loved-ones headaches later,” she says. “I hope people

who might be fearful or hesitant about the process can view

it as something that will give them peace of mind. It shouldn’t

be a scary process, it’s housekeeping,” she says. “Getting your

affairs in order.”


standard, in which the first

allegiance is to the employer, not

to the client. A broker dealer will

have an array of mutual funds to

offer, each carrying a different

potential upfront fee, different

expense ratio and a potential exit

fee. They may also get paid by the

fees generated in each transaction.

A disadvantage to those who

do not keep sharp track of their

investments is that they tend not

to know what they’re paying in

fees.

So, how do you know what you are paying—and how

your advisor is getting compensated? “You can tell by the fee

structure,” says Delaney. “If it’s transactional—if the broker gets

paid by the transaction—it’s not in your favor.” If advisor gets

paid on the value of the account, it is in your mutual interest

that the account should grow. Then the only question is, what

is the fair fee? “It generally starts out at around 1 percent of

the assets managed, and decreases based on a sliding scale as

the assets under management increase.”

Preparing for Catastrophe

Tim Delaney and his wife lost their house in the Tubbs Fire,

in October 2017. Now, he is zealous about counseling his

homeowner clients to make sure they have sufficient insurance,

including with earthquake insurance. “If your house falls down

and doesn’t burn down, what does that do to your retirement?”

For many, it could be, as he says, “a game changer.”

As Ylisa Sanford pointed out, the best-made retirement

plans can be interrupted by all manner of the unexpected, from

flat tires to major catastrophes. Your retirement counselor or

family wealth manager can help you imagine and prepare for

the possibilities that could set you off course, from physical

catastrophes such as fires, earthquakes and floods. Your health

insurance professional will help you imagine and prepare for

the possibility of health catastrophes such as accident or sudden

debilitating illness. While your professional advisor will have the

information relevant for you, here are some helpful information

can be found on the following sites:

For earthquake risk in California, visit: www.earthquakeauthority.com

For information on flood insurance, visit: www.fema.gov/

national-flood-insurance-program; www.homeinsurance.com/

blog/how-to-know-if-you-need-flood-insurance/

For fire insurance information, visit: www.cfpnet.com

Tim Delaney, wealth advisor and founding partner, JDH Wealth Management, LLC

Look out for taxesKeep in mind, Delaney tells his clients, that where you put

your investments between taxable and tax deferred accounts

determines how they’re taxed. The new tax law will bring

changes and your advisor will be able to guide you where to

put your investments for maximum tax advantage. “We’re a

tax-oriented firm,” says Delaney. With 40 years of experience

in tax, accounting and financial services, having an eye toward

tax comes naturally. “When you buy a stock, you’re hoping it

will go up. And if it goes up,” he says, “you’re going to pay tax

on it.” So watch out. “If you buy it in your IRA, when you pull

that money out, it’s going to be taxed as ordinary income. If

you put it in your taxable account, and you held it for at least a

year, it comes out as a capital gain.” The difference in tax rates

between ordinary income and capital gain income can be as

much as a 20 percent difference in tax rates. Saving 20 percent

in taxes on the gain can add up to a lot of money.

Last words of advice“When you’re looking for an advisor, you need to see if they

are client-centric or investment centric,” says Delaney. “If it is

investment centric, they’re probably not looking holistically with

you as the center of attention. That’s what’s so important. Being

client-centric instead of investment-centric.” And don’t wait

too long. “It’s never too soon to start planning for retirement,”

adds Brown. “You can’t go back in time. You can only deal

with right now.” Think of it as part of your life. Or, as Sanford

puts it, “It’s life planning.” n

northbaybiz.com

rEPrInTfrom October 2018

Pages 46-52

1410 Neotomas Ave., Ste. 200Santa Rosa, CA 95405

707-575-8282707-546-7368


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