Michael Schulman
Michael Schulman
Too Soon Old, Too Late Rich
Many clients are too young to retire; too old to replace lost wages; too wealthy to qualify for government assistance and too poor to rely solely on today’s low interest rates for their retirement income. How can you help?

March 17, 2011
by Michael Schulman, CPA, PFS

For many adults, the biggest problem they face now is the loss of value in their portfolios. After the decline in the market, many investors got spooked and “sold out,” liquidating their positions and holding cash and cash equivalents. Even with the recent market rebound, these investors remain very conservatively invested. A $2-million portfolio is now $1 million, a $1-million portfolio is now $500,000. Financial plans and income forecasts made a number of years ago are now worthless; clients are concerned that the money they have will not last for the rest of their lives as was forecasted previously. For a client 55-, 60- or 65-years old, the problem compounds because they likely will not earn enough to replace the lost investments. They're frightened and they turn to us.


What are some strategies that they can use to coax more income out of their savings and portfolios?

One strategy is to increase their exposure to equities. When the market fell, many people “cashed out” and put their money in cash and cash equivalents such as bank certificates of deposit (CD). Even though the interest rates were low, they were comforted by the relative safety of their principal in comparison to their previous equity holdings. Meanwhile, for the year ended March 10, 2011, the Dow Jones Industrial Average (DJIA) was up 13.4 percent and the Russell 2000 is up 10 percent. Now these folks feel that they “missed the boat” and remain in their low-yielding cash assets.

Advisors have long preached the virtue of a diversified portfolio. In client meetings, this strategy should be discussed especially for clients at the younger age of the spectrum who have the time to weather the market’s ups and downs.

Another strategy is to move assets into fixed-annuity contracts that offer payment guarantees. Even though the payout rates of these contracts seem low, there is the comfort of knowing that the monthly income stream is guaranteed. (When we talk of an annuity’s guarantees, we refer to the guarantees of the issuing company. It is essential to shop around and research a variety of companies before investing.)

Due to the inherent limitations of fixed annuities, it is rarely the case that an entire portfolio be placed in these contracts. Nevertheless, many find the contracts appealing.


The specter of the long-term catastrophic illness also falls heavily upon these people. Please note that we are not necessarily talking only Alzheimer’s disease and other dementias that could necessitate lifelong care. For someone who needs three years of care at a modest $250 a day, such care will cost $280,000 over the course of three years.

While it is possible to pay for these costs on an out-of-pocket basis, this money is no longer available to provide benefits to the well spouse or partner. Nor are funds available when the patient no longer needs long-term care.

There are many types of long-term-care (LTC) insurance policies on the market with a variety of features. Some include a life insurance death benefit, while others give a chance to cancel the policy and get a full or partial premium refund. Adults interested in LTC insurance to cover all or part of an anticipated illness are encouraged to meet with a professional with expertise in this area.

There are other sources of assets and sources of income that clients can take advantage of: the cash value in their life insurance policies, the 401(k) plans from work and the individual retirement accounts (IRAs) that they've built up. A reverse mortgage on their principal residence is a way of providing monthly cash using the equity in the home. A word of caution however, reverse mortgages are very expensive and there are other considerations one must take into account. They are not for everybody.


Helping our clients cope with the current recession will be one of the greatest challenges that we CPAs will face in the next few years. For many of our clients this is not only a financial disaster but a great embarrassment. We have to be prepared to help them financially as well as emotionally.

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Michael Schulman, CPA, PFS is a CPA financial planner working with older adults and their families. He is a member of the AICPA's Elder Planning Task Force and speaks and writes on issues facing our older clients.

Securities and Investment Advisory Services offered through NFP Securities, Inc., Member FINRA/SIPC. NFP Securities, Inc. (NFPSI) is not affiliated with Schulman CPA, PFS P.C. NFPSI does not offer tax or legal advice and is not a Certified Public Accounting firm.

* The AICPA’s PFP Section provides information, tools, advocacy and guidance to CPAs who specialize in providing tax, retirement, estate, risk management and investment advice to individuals and their closely held entities. All members of the AICPA are eligible to join the PFP section. For CPAs who want to demonstrate their expertise in this subject matter apply to become a PFS Credential holder.