I recently attended the American Institute of CPA’s’ (AICPA) annual mega conference ENGAGE, which is a consolidation of several different technical conferences. My focus is always on the Advanced Personal Financial Planning track, but with sessions on Advanced Estate Planning and Tax Strategies for High-Income Individuals, there is an incredible amount of high quality content crammed into just a few days. Much of that content is technical in nature and more suited to practitioners, but I had a number of takeaways to share:
The new IRS commissioner made a great first impression - One of the first keynotes of the conference was from Charles Rettig, the newest commissioner of the Internal Revenue Service. As the first former tax practitioner to lead the IRS in 20 years, he came across as an incredibly down to earth leader who will always put his people first. As someone who has painfully sat on hold with the IRS for hours waiting for a representative, his stories about the government shutdown’s impact on the IRS employees and the 1.6 million phone calls IRS operators handled on behalf of FEMA really put things into perspective. He has a tough job ahead of him but I think he’s up to the task. Here’s a more detailed summary of his presentation.
More people should be considering fixed annuities in retirement - There are many financial products which are sold as an “annuity” that give that term a bad name. These are typically high-cost tax-deferral investments that don’t make sense for many of the people who buy them. Unfortunately that means many others who could benefit from a low-cost fixed annuity, like a single premium immediate annuity (SPIA), don’t explore the option. I attended two different sessions with some of the top academics in the financial planning world who made a compelling argument that adding a SPIA in place of bonds in a portfolio can improve outcomes for retirees, particularly in the current era of very low interest rates. The key is the mortality credit, which is essentially an additional return you earn by pooling your assets with others. There are pros and cons to any financial product but more people should at least consider a fixed annuity in retirement.
Simon Sinek continues to inspire me - This was the second time I’ve seen Simon speak at a conference and again I came away truly inspired. He is an author and organizational consultant who has worked with Fortune 50 companies and the Navy Seals. He explains that every person and organization needs a reason to exist, what he calls your “why”. We think about our “why” as a firm often and use that to define our vision and common purpose. If you’ve never heard of Simon, I highly recommend you check out his books “Start with Why” and “Leaders Eat Last”, or watch his immensely popular TED talk.
With tax rates very low, Roth conversions still make sense - We often recommend doing partial conversions of regular IRA’s into Roth IRA’s when clients have low income years and are therefore in a low tax bracket, particularly those years between retirement and age 70.5, when required minimum distributions begin. This strategy can feel counterintuitive because you need to pay tax on the amount converted at the time of conversion, and nobody likes to pay tax sooner than they have to. The success of a Roth conversion really hinges on whether you pay a lower tax rate now than you would in the future. We don’t know what tax rates might look like in the future, but one could make the argument that rates will need to go up at some point. If you think that’s the case, it might make sense to do conversions even if you aren’t in the lowest tax brackets.
Financial planning is about a lot more than numbers - We write about this and discuss this with clients all the time, but it’s a point that can’t be emphasized enough. As CPA’s we are trained in the numbers, but to really have an impact on our clients we need to see beyond the numbers. Mitch Anthony told a great story about a conversation he had with someone he sat next to on a plane, who happened to be a successful businessman. After briefly discussing what he does for a living he asked this total stranger what his earliest memory of money was. The response was a blank stare, then a story about sitting on a couch in the front yard with his siblings, while friends from school drove by and laughed. The man had grown up poor, often moving from home to home, and that feeling of having nothing had driven him his whole life. It was also the driving force behind how he approached his finances, yet he had probably only ever told a few people that story. Have you ever thought about your money story and how it has impacted your life? Check out this article for more on this topic. I also recommend reading Mitch’s book, “The New Retirementality”.
If you spend money the right way, it really can make you happy - Elizabeth Dunn, the author of “Happy Money; The Science of Happier Spending” gave a great presentation outlining 5 basic principles to spending that will make you happier:
- Buy Experiences
- Make it a Treat
- Buy Time
- Pay Now, Consume Later
- Invest in Others
Health care costs can’t continue to increase at the current rate so don’t assume they will - In our long-term financial planning, we typically use a higher inflation rate for health care expenses than other living expenses. While the consumer price index has seen an average increase of about 3% historically, health care costs have averaged an annual increase of about 7% since the 1970’s. However, Carolyn McClanahan, a former doctor turned financial planner, argues we shouldn’t assume that 7% will continue, because if it does then in 30 years health care costs would take over 50% of GDP! She is not sure what will happen to healthcare in the future, but it’s clear we will reach a breaking point and something will have to change. Carolyn knows our healthcare system inside out and is a leading thinker in this space, I recommend checking out this interview/article in Morningstar with her for more.
While I learned a lot from each of the presentations I attended, I learned even more from the other CPA’s and financial advisers I spent time talking to throughout the conference. With so many incredible people gathered together in one place, I try to have conversations with as many of those people as I can. As Ralph Waldo Emerson wrote:
In my walks, every man I meet is my superior in some way, and in that I learn from him.
-Chris Benson, CPA, PFS
The views expressed represent the opinions of L.K. Benson & Company and are subject to change. These views are not intended as a forecast, a guarantee of future results, investment recommendation, or an offer to buy or sell any securities. The information provided is of a general nature and should not be construed as investment advice or to provide any investment, tax, financial or legal advice or service to any person. Please see Additional Disclosures more information.