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Whether you’re part of the RIA part of the industry or not, the breathless consolidation happening there—2018 was the fifth straight year that a new record was set for M&A activity—is worth watching.

For this week’s Q&A, Barron’s Advisor sat down with an authority on the movement: Dave DeVoe, who leads an eponymous investment bank in San Francisco. DeVoe told us that the emerging mega-firms won’t simply be bigger versions of their rivals: They’ll have the scale, clout and resources to “potentially start to change the complexion of the RIA space.”

Read the wide-ranging interview here. In other news this week:

FIRE extinguishers. Seasoned financial advisors are urging caution about the FIRE movement, which has generated lots of hype and inspired some millennials to live like paupers in order to exit the workforce before their hair goes gray. (FIRE is an acronym for “financial independence, retire early.”) These advisors say there are plenty of risks for those planning on a 50 plus-year retirement.

Just passing through. The government shutdown didn’t prevent the IRS from releasing a package of rules on the pass-through tax deduction. That’s a good thing, because advisors and their clients had been seeking clarity on the deduction, which is part of the sweeping 2017 tax overhaul. There’s some good news – and some bad – in the IRS package.

BlackRock’s blunder. Nefarious hackers aren’t the only causes of data leaks.Sometimes corporations make mistakes.That was the case recently with asset management giant BlackRock, which accidentally revealed information about thousands of financial advisors on its website.

A painful quarter for
UBS

. All that market volatility in the fourth quarter hurt UBS Group’s results, which fell shy of analysts’ estimates. Of note, the company’s wealth management business reported a 22% drop in adjusted pretax profit from a year earlier. Not all the numbers were bad, though. Wealth Management Americas reported a record fourth quarter.

Hot ‘Lanta. Rockefeller Capital Management sees opportunity in Atlanta and is recruiting wirehouse advisors based in the city. The wealth management boutique has brought on board two former Merrill Lynch teams after scooping up two brokers from UBS last month.

ALSO IN BARRON’S ADVISOR

“To improve is to change; to be perfect is to change often.” — Winston Churchill

Ah, retirement. The “Golden Years.” Once we’ve earned our fortunes, we can sit back, relax and not think too hard about what we’re doing with our money—after all, the hard part of earning it is over…

If only it were that simple.

As Churchill so eloquently illustrates for us, change is not only good, it’s necessary if we want to stay one step ahead of life’s pitfalls—including the financial ones. That’s a lesson I’ve felt increasingly compelled to impart to my clients lately as they head into retirement. So many of us believe that once we’ve earned our nest egg, we can leave it largely undisturbed throughout our decades of retirement, and everything will work out as planned.

But that’s a huge mistake. The ideal investment approach and financial needs of retirees change significantly as they move from their 60 into their 70s, 80s and beyond. In other words, change is the only constant in every stage of our financial lives.

Before we dive into exactly how you should be differentiating your investments in retirement, it’s important to understand the three stages of life through which every member of the earning public moves: accumulation, protection and transfer. These stages are the same for everyone, regardless of how much money you make or what your life goals are.

The accumulation stage is—as the name implies—your time to earn and accumulate as much money as you can. You work for your dollars, you gain equity in your home, and you contribute to your retirement accounts, all with your next stage of life in mind. And, ideally, you’ll be thinking of that next stage as financial independence, not retirement. After all, we aren’t aging machines to be decommissioned off the assembly line due to lack of usefulness. Rather, we’re vibrant human beings seeking to be financially independent because we desire more freedom to explore and enjoy new adventures in our lives.

Once you transition to the protection stage, you’ll no longer be working for your dollars—they’ll be working for you. In this stage, the most important ingredient is investing wisely, and not losing what you spent your whole life accumulating. Investors at this stage would be wise to look into building a recession-proof portfolio (which absolutely can be done) and always steering clear of emotional temptation to make sudden moves in the markets.

In the transfer stage of life, many folks will shift their energies to creating a lasting legacy, and exploring how they can transfer wealth to family, friends, or a charity of their choice. It sounds easy enough, but this stage can actually be the trickiest. A recent BlackRock study uncovered that nearly 20 years into retirement, most retirees are still hanging on to 80% of their pre-retirement savings. Simply put, many of us are afraid to spend—we get nervous that we’re going to outlive our money, and we stop living life.

But failing to regularly draw down on our savings—and banking the resulting liquid assets—could be a huge mistake. Unfortunately, we might not fully realize that mistake until we’re in our 90s and we’re in need of a large deposit to move into a retirement home. If we don’t have that money liquid, it’s going to result in an enormous tax hit, that many of us may not be able to bear. The solution is easy enough — you can do wonderful things with a whole life insurance policy—but retirees have to prepare early, in the transfer stage.

In order to make it successfully through all the stages, retirees have to plan ahead, and be ready to make changes in every decade to ensure their money is positioned where it needs to be, and that it’s working for them. Here’s a look at some of the things you should be thinking about as you move through each decade.

In your 60s…

Devote some time to thinking about Social Security. It’s going to take a while to navigate the maze of more than 800 rules and claiming options that are part of the system, so starting your research early is the way to go. Many people assume Social Security is a simple, guaranteed benefit, which is why so many of us claim as early as we’re eligible, at 62. But that can be a costly mistake. For every year you delay taking Social Security–from age 62 to age 70—benefits increase by 6%-8%. Try beating that guaranteed rate of return anywhere else in the market!

In addition to social security, folks in their 60s should look at establishing portfolios that will support their income needs. (For more, check out my article on how to arrange a secure set of portfolios that can ensure your finances will weather any economic storm.)

In your 70s…

Now it’s time to start thinking about those required minimum distributions (RMDs). This is the stage where many retirees realize that to some extent the government now controls their wealth, which is why you should focus on minimizing taxes, including the Medicare surtax called the “income related Medicare surtax” (IRMA), which in a single year can shift your income tax bracket from 22% to above 40%. This is why it’s so important to have both taxable and non-taxable accounts in retirement so that we can adjust our withdrawals to ensure we’re as protected as possible from Uncle Sam. While it’s true that most of us will be earning less in retirement than we did during our accumulation stage, it’s oh-so-easy to underestimate how much we’ll owe in taxes as we take our RMDs. And, through all of this, you must make doubly sure you’re setting aside enough liquidity for your next stage of life.

In your 80s…

Now’s the time when you begin to realize that the only thing that matters is liquidity, and having a safe place to shelter your money that’s not going to result in your getting hit with more taxes. For example, as much as you might like to give your IRA away, you can’t do it without paying taxes unless you give it all to charity… And you also can’t protect it from creditors unless you pay taxes. Think about it this way: moving into that nice retirement community with your friends will be twice as expensive if you have to pay the lump sum entrance fee with IRA money. No, these equations aren’t fun to run, but imagine how much worse you’ll feel if you put off doing the math until it’s too late, and you don’t have enough cash set aside.

As you move into the next stage of your life—whatever it may be—remember that Wall Street’s retirement goals are not necessarily yours. Wall Street will always be singing its siren song, luring you in to focus only on growth and accumulating more assets for the future. But who cares about beating the S&P 500 when it’s time to focus on your family and legacy? No matter what stage of retirement you’re in, make sure you give yourself permission to enjoy your money… It really is true what they say — you can’t take it with you.

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 John E. Girouard is the author of Take Back Your Money and The Ten Truths of Wealth Creation, a registered principal of Cambridge Investment Research and an Investment Advisor representative of Capital Investment Advisors.

Retirement planning is a complex problem we can simplify by first focusing on what matters most. The key is getting the big decisions right.

The “big picture” retirement finance problem definition is straightforward. How can we work for perhaps 40 years to pay our household’s living expenses and simultaneously save enough that, when combined with Social Security benefits and pensions, we can maintain our desired standard of living for one to perhaps 35 more years?

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Straightforward, but daunting, right?

The most important step, often given too little consideration, is defining the goals and challenges for your unique household. Identifying and agreeing your retirement financial goals with your spouse and planner is a critical first step before the financial strategy even comes into play.

Sometimes, one spouse wants a total return investment plan and the other just wants a guaranteed monthly check for life. On occasion, I even find a client who has self-conflicting goals of his or her own, like wanting to maximize retirement spending and leave a large bequest (a perfect example of wanting to have your cake and eat it, too, by the way). It’s difficult to solve a problem when no one agrees what the problem is.

Once the goals are resolved, we can attempt to meet them financially. There are many factors we might consider but some are far more important than others.

The most important factor in determining retirement outcomes is how long we will be retired. Nearly anyone can maintain their standard of living throughout a retirement that lasts a year or two but far fewer households could fund one that lasts 40 years.

We can’t predict how long a healthy retiree or retired couple will live, what we call “longevity risk,” so the safest bet is to plan for a long, expensive retirement. But, you may not want the safest strategy. Perhaps you’re willing to take a little more risk hoping to spend more. This should be clearly evident from your agreed goals. If it isn’t, your goals need more work.

If you’re with me so far, then the most important decision of retirement planning is how to deal with longevity risk and that is largely determined by the funding strategy we choose.

Many funding strategies have been proposed in the research literature so even this first step can seem intimidating. Wade Pfau and Jeremy Cooper identified eight proposed strategies ranging from safety-first (expensive but safe) to probability-based (less expensive but riskier). If you haven’t heard of most of them, there are good reasons. Some are too complicated for retirees and advisors to grasp, some are challenging to implement, and some are not broadly palatable, like using a triple-leveraged risky portfolio for the Floor-leverage rule.

How should we choose from this extensive menu? Actually, I suggest that you don’t.

I’m going to make a claim that may sound a bit outrageous: there is only one grand retirement-funding strategy. That strategy is to allocate some amount of retirement plan resources to generate a floor of safe lifetime income, to invest the remaining assets, if any, in a risky aspirational portfolio, and then to decide how to spend the risky assets throughout retirement. The correct balance will depend on how willing you are to risk losing your standard of living for the chance of having an even higher one.

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This may simply sound like the strategy we call “floor-and-upside.” But, choose to allocate nothing to the safe income floor portfolio and to spend 4% of the initial value of the risky portfolio and we have a “sustainable withdrawal rate” strategy. Change the “4% of initial portfolio value” spending rule to “4% of remaining portfolio value” or RMD-spending, for example, and we have one of Pfau and Cooper’s variable-spending strategies. They’re different takes on the single grand strategy.

Retirees who fund part of their spending needs from a risky portfolio will also need a spending strategy. For them, this will be important decision number 1(b).

By making the important decisions first instead of selecting from a list of strategies, you can simplify the planning process. Decide how much risk you are willing to take with your standard of living in exchange for the possibility of improving it and allocate retirement resources to your floor and risky portfolios accordingly. If you decide to fund a risky portfolio, then also decide on a spending strategy that equally fits your risk tolerance.

These decisions will have a far greater impact on your outcome than say, tweaking your equity allocation 5% or worrying about whether equities get safer the longer you hold them. You may find that this process provides a better high-level understanding of your retirement plan. You may even be able to describe the important parts of your plan in a couple of sentences.

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“Honey, what’s our retirement plan?”

“Glad you asked! Here’s the big picture in two sentences. . .”

How sweet would that be?

Identify your goals, get the big decisions right, and your plan will be 80% to 90% of the way home.