I WAS BORN at Carswell Air Force Base in Fort Worth, Texas, to a Canadian mother and a father who was raised in a Catholic orphanage. My mother and father both had civil service jobs. I was fortunate that my father was, by then, retired from the military, so I never had to move while growing up. I benefited from a stable home life, loving parents and good public education.
In high school, my only brush with business was taking four semesters of bookkeeping—a head start for accounting classes. My father taught me how to play tennis and I made our high school team in the Jimmy Connors-Bjorn Borg era. My high school minimum-wage jobs were as a dishwasher in a seafood restaurant and as a heating and air-conditioning assistant, mainly wrapping fiberglass insulation around air-conditioning ducts in attics. These jobs were motivation to go to college and earn a business degree.
When I began college in 1977, I was undecided between accounting and finance as my business major. One path was the field of public accounting and the “big eight” firms. Another was finance and investing. I took many accounting classes but eventually was drawn more to investing, even though the stock market had been moribund for years, with the Dow Jones Industrial Average languishing below 1000.
My final class at the University of Texas at Austin was Modern Portfolio Theory. I did well enough that my finance professor suggested I apply for a job with the university’s endowment fund after graduation. This proved to be excellent advice. It started me on a 35-year career as a money manager, the first of my two professions.
Getting down to work. In 1980, at age 21, I was hired as a junior analyst at the Permanent University Fund, one of the largest college endowment funds in the country. The fund was initially seeded with enormous amounts of Texas scrubland, some of which turned out to be above huge oil deposits. The fund’s substantial assets drew brokerage-firm analysts to our Texas offices. During these visits, they would educate us—and try to persuade us to buy and sell stocks through their firms. Their employers would earn commissions from us and, in exchange, we would get investing advice over meals at high-end restaurants.
When I began my career, trading costs and interest rates were high, and retirement accounts were relatively easy to understand, unlike today’s bewildering array of choices. My first retirement investment was $2,000, which I invested in an IRA soon after the accounts became available to all workers. Since interest rates were so high, I invested in a Fidelity Investments’ money market fund paying more than 15%. Meanwhile, in my taxable account, I remember my first individual stock purchase was John Deere. I bought 50 shares and paid $1 per share in commission to purchase them through a full-service broker.
I have been a life-long learner. In addition to studying the investing business at work, I earned the Chartered Financial Analyst (CFA) designation, which takes a minimum of three years to complete. The CFA was starting to become a mandatory designation for those in the field of institutional investing. In 1983, I was one of the first 10,000 to receive the CFA, and it helped propel my career through several job changes with increasing responsibilities. Today, there are more than 175,000 CFA charter holders.
With my CFA freshly in hand, I took a job as a senior analyst at American National Insurance Co. in Galveston, Texas. I assisted in managing both the insurance company’s stock portfolio and its mutual funds. Mutual funds were not as common then, and our funds charged a 7% front-end load, or commission.
The load was waived for employees, however, so I started investing both my taxable and tax-deferred money in the mutual fund I was helping to manage. I also began managing an equity-income mutual fund for my employer just months before the Oct. 19, 1987, stock market crash, when the U.S. market plunged more than 22% in a single day. The weekend after the crash, I went to the office and made a buy list of the names in the portfolio that had declined to absurdly low levels. My assumption: If the market continued to decline, I’d lose my job anyway—so why not bet that stocks would recover? Fortunately, at the time, CNBC didn’t exist to whip investors into an even greater state of panic. The abrupt loss was a shock, but the market quickly rebounded, recouping almost all its losses by year-end. With the market on the mend and now that I was established as a portfolio manager, I felt confident to embark on family life. In 1988, I got married.
A few years later, I parlayed my investment experience and CFA into a new job, which took me to Oklahoma City, where I worked for the state’s largest money manager. When I left my home state with my pregnant wife in 1991, my only connection in Oklahoma was a co-worker from Galveston who recommended me for the position. My daughter was born later that year and my son in 1995, just six months after the Oklahoma City bombing, which took place a few blocks from my downtown office.
After I became the lead manager for a newly launched mutual fund, I once again transferred my investment account into the fund I was managing. I guess you could say I was eating my own cooking. But I did diversify my holdings a bit. When the firm set up a SEP-IRA, I began dollar-cost averaging into an S&P 500-index fund for my retirement.
After eight years in Oklahoma, I took a new position with broader responsibilities at another insurance company, this one in Cincinnati. I was the firm’s head of equity investing and managed more mutual funds. My move coincided with the beginning of the lost decade for stocks, which started with the dot-com bust of 2000 and ended with the 2008-09 financial meltdown. From 2000 to 2009, the S&P 500 turned in a cumulative total return of -9.1%.
Not only was the market unforgiving, but also I missed my home state of Texas. I wanted to raise my Oklahoma-born children there. In 2006, I kept my job with the Cincinnati insurer, but returned to the Dallas-Fort Worth area and became a pioneer in the “work from home” movement. I had hoped to work from home for perhaps two years. Nine years later, I called it a career and stopped working in active stock management. The stress of working from home and telecommuting was exacerbated by the 2008 financial meltdown, and my marriage ended in 2012. While I had witnessed setbacks like 1987’s Black Monday and the 2000-09 lost decade, it had overall been a great era for investors. I had seen the Dow rise from under 1000 to over 17000 during my time in investment management. Amazingly, the Dow has doubled again since then.
Switching gears. When I retired from money management, I was age 55 and felt I still had more to do, so I decided to set myself up for an encore career in retirement planning. My initial motivation: I was interested in researching retirement strategies and products that I might use myself.
To prepare for my encore career, I hit the books again. I researched the retirement planning certifications available and chose to pursue a Retirement Income Certified Professional (RICP) designation. I had to pass a three-part exam that covered all things retirement, including Social Security, Medicare, long-term-care insurance, annuities and portfolio withdrawal strategies. I soon realized I needed to become a licensed insurance agent if I wanted to sell the financial products about which I had just learned. I passed the health and life insurance exam, which allow me to sell life insurance, annuities and long-term-care insurance. All this education helped me to better analyze the investment and insurance offerings available to retirees.
What did I want to achieve with these products? Like many looking ahead to retirement, I had a handful of financial concerns. I didn’t want to outlive my savings. I was worried about the potentially crippling cost of long-term care. I wanted to leave behind some money for my heirs. I was concerned that I could face steep taxes in retirement, especially once I turned age 72 and had to start taking required minimum distributions from my retirement accounts.
To address these worries, I began experimenting with a host of products and strategies, using myself as the guinea pig. My first foray was to purchase a whole-life insurance policy, which gave me a promised death benefit twinned with a tax-favored investment account. I wanted to create a pool of money that would pass tax-free to my heirs upon my death. I overfunded the policy with the maximum legally allowed, so I would get the greatest benefit from the tax-free cash buildup. Today, seven years later, the policy’s cash value is growing at 3.5% annually. I tried to add a long-term-care rider to the policy, so I could tap the policy’s value to pay for at-home care and similar costs, but I was deemed too risky by the insurer. I suspect it was because my medical records included three different surgeries—on my rotator cuff, hip and neck.
My second experiment: purchasing qualified longevity annuity contracts, or QLACs. These deferred-income annuities were appealing to me. I could use money from my traditional IRA to hedge against the risk of outliving my money. For a comparatively small investment, these annuities provide guaranteed lifetime income, with the payouts beginning relatively late in life—potentially as late as age 85. I already had a life insurance policy to benefit my heirs, so I opted for annuities that simply paid income for as long as I lived. These annuities potentially kicked off the highest monthly benefit but left no residual value for my heirs and there’s a risk that even I won’t receive anything, should I die before the payment period begins.
This made my next decision crucial. At what age should the annuity payments begin? I hedged my bets by buying three policies, each starting payments at a different age. It was a bit like putting chips down on three different numbers on a roulette table.
I invested $25,000 in a payment plan that starts at age 85. This investment would give me a high potential payout. The $25,000 I invested will kick off $18,000 a year for life—provided, of course, that I live until 85.
I invested in a second policy that begins paying out when I’m 76. I wanted to generate $1,000 in monthly income from the policy. It turned out that could be accomplished if I invested $50,000.
With my third choice, I invested $50,000 to buy payments beginning at age 80. This will pay me $18,000 annually, should I live to receive it. That is the same amount of income I’ll potentially receive from the policy that begins paying out at 85, and yet I had to invest twice as much to guarantee the same amount of income because it’s scheduled to start paying me income five years earlier. After seven years, these QLACs are effectively worth twice what I invested, as interest rates have declined and there are seven fewer years before I start collecting.
Taking care. My next retirement experiment came about almost by happenstance. As part of my information gathering, I would often go to hear sales pitches for various retirement products. I received an invitation for a presentation in Dallas on Medicare products and long-term-care (LTC) insurance. The presentation centered on hybrid LTC insurance, which involves twinning either a tax-deferred annuity or a life insurance policy with an LTC benefit. These policies involve making a large upfront investment, with the potential to receive some multiple of that sum as an LTC benefit, should you need care.
I left the meeting intrigued, though also dubious about the presenters’ claims. Traditional LTC insurance has a terrible reputation, thanks to frequent and large premium increases. But according to the presenters, hybrid LTC was different. There would never be price increases. In addition, the presenters said that—if I changed my mind—I could get a full refund of the sum invested at any time. And they said insurers would accept candidates like me, whom a provider of standard long-term-care coverage would likely deny.
I felt I owed it to myself to investigate further. I took continuing education classes on traditional and hybrid LTC insurance. I questioned fellow professionals about the product. I even contacted former coworkers who worked for insurance companies that were offering hybrid LTC insurance. All this research eventually convinced me to purchase a joint policy for myself and my girlfriend. The “retirement smile,” made famous by retirement researcher David Blanchett, posits that spending through retirement steadily declines until—late in life—steep medical costs kick in and retirement expenses climb again. Now, I feel prepared for that possibility.
Thanks to the LTC policy, I also feel free to spend at a higher rate from my portfolio earlier in retirement. I don’t have to maintain a “what if” LTC contingency fund to pay for my possible long-term care. I have even written a short e-book about hybrid policies, which discusses different examples and benefits. The policy designs are, I’ll admit, a little confusing.
I now have multiple insurance policies in place: a whole-life policy, three QLAC purchases and a hybrid long-term-care policy. The next step in my experimenting was to decide how to maximize my Social Security benefits. I would receive the largest monthly payout if I delayed benefits until age 70.
I had read financial-planning expert Wade Pfau’s article about building a Social Security “bridge,” which is designed to replicate Social Security payments until benefits begin at age 70. I could use cash, a ladder built using certificates of deposit, or buy a period-certain annuity. It turned out the highest return would come from a so-called period certain annuity, which could provide me with monthly checks from age 62 to 70.
After spending $125,000 from my trusty IRA for the QLACs, I withdrew another $200,000 for the period certain annuity. It will provide me with $30,000 annually for eight years. I purchased the annuity four years before I turned 62 to lock in a higher payout rate. Now, at age 62, I’ve begun receiving payments. When they end at age 70, my Social Security benefit will begin.
There has been one other key element to my retirement plan. At age 55, I converted $1,000 from my IRA to my Roth IRA for one simple reason: I wanted to start the five-year clock on my Roth account, so I would be eligible to take tax-free withdrawals—if needed—at age 60. I subsequently converted more assets to my Roth account, thereby reducing the size of my traditional IRA even further. This will ensure smaller required minimum distributions starting at age 72, leading to lower tax bills in my 70s and beyond.
I wanted to get these Roth conversions wrapped up by age 62. Why? When Medicare benefits start at age 65, the premiums can be higher—sometimes much higher—if your income is above certain thresholds. The tricky part: These Medicare premiums are based on your income from two years earlier—the year when folks turn age 63.
What’s left on my retirement timeline? My next move will be to file for Medicare three months before I turn 65. I also plan to purchase two other insurance policies: a Medigap Plan G policy and Part D prescription drug coverage, which will supplement the coverage provided by Medicare. At age 70, of course, I plan to file for my Social Security benefit. Under current law, I will need to take distributions from my traditional IRA after 72. While I have reduced its balance substantially by purchasing insurance policies and through Roth conversions, I still have money in a traditional IRA. I may take advantage of so-called qualified charitable distributions to contribute that money directly to charity after age 70½ or, alternatively, leave part of the balance to my children.
Having spent seven years planning my retirement, I’m now turning my attention to enjoying the fruits of that planning, especially travel. Even though my grown children now live in Colorado, I enjoy taking them on adventures. So far, my children and I have been to the Amazon, Thailand and Egypt. I have taken my girlfriend to Aruba and to a coffee farm outside Medellin, Colombia. I have also traveled solo to Germany, the Czech Republic and Poland, where I taught English as a second language. My other retirement passion is playing pickleball, which is like the tennis I learned in high school, but easier on the knees. I’ve begun playing in pickleball tournaments and even volunteered at my local pickleball facility to be the pickleball commissioner.
What about the retirement planning business I launched? What began as an encore career morphed primarily into designing my personal retirement plan, while also advising friends and family on Social Security, Medicare, annuities and LTC insurance. I plan to continue helping others through my articles and books—and sometimes, in between games, on the pickleball court.