While today’s seniors—and the media—may not trumpet their retirement-related issues quite as loudly as the boomers, the challenges they face with regard to tax efficiency, retirement income, long-term care and inflation risks, wealth protection and wealth transfer are no less real and no less urgent.
Indeed, because they’re older and already in retirement, one could argue those issues are more pressing for seniors than for boomers.
The low-yield environment is prompting advisors like Freiburger and Porter-Medley to turn to alternative asset classes to generate fixed income for senior clients. “Some of these alternative investments put out a very consistent dividend in the 4 percent to 7 percent range,” notes Freiburger, naming real estate investment trusts (REITs), hedge funds, funds of funds, leasing deals and energy projects among the alternatives he uses most often. Commodities, along with real estate, are two alternative asset classes Porter-Medley favors for her senior clients.
Given the breadth and variety of these asset classes, and the complexity of some of these vehicles, due diligence is critical—and time-consuming, he says. “It takes a lot of work on our end to stay on top of [alternative asset classes]. It’s also a lot of work on the client’s end…to become comfortable with” alternative investments.
Investing in alternative asset classes is one way to meet the challenge. Today, alternatives come in a wide range of packages, many accessible to the mass affluent investor. For growth and diversification via more traditional vehicles, both Porter-Medley and Freiburger say they still often turn to mutual funds and ETFs, along with individual corporate securities. Each is a viable tool for gaining exposure to international asset classes, for example, Porter-Medley notes. Freiburger, meanwhile, says he’ll often use a mix of ETFs and mutual funds with senior clients to access the lower fee structures and passive management of ETFs in tandem with the active management of a mutual fund.
Diversification is also an important consideration with retirement accounts. For example, it may be wise for a person who is heavily vested in company stock inside a qualified retirement account to move at least some of that stock into another retirement account (such as a self-directed IRA), then perhaps to sell it and use the proceeds to fill another need. New tax rules governing the net unrealized appreciation (NUA) of company stock can make such a maneuver particularly tax-efficient, too, especially when it involves low-basis stock that has appreciated significantly.