PARAGON designated as a Premier Advisor in Northeast Florida by NABCAP

7 08 2012

PARAGON Wealth Strategies,LLC Designated as Premier Advisor in Northeast Florida by the NABCAP

PARAGON Wealth Strategies, LLC announced today that they have been recognized as NABCAP Premier Advisors, an exclusive group of financial advisors who represent the best in quality wealth management in Northeast Florida.





PRLog (Press Release)Aug 07, 2012
Jacksonville, Fla – PARAGON Wealth Strategies, LLC announced today that they have been recognized as NABCAP Premier Advisors, an exclusive group of financial advisors who represent the best in quality wealth management in Northeast Florida.  

The designation is awarded annually by the National Association of Board Certified Advisory Practices (NABCAP), a nationally-registered 501(c)(3) nonprofit organization, established to serve the needs of the investing public by helping identify top wealth managers.  The selection process is based on a proprietary system whose ultimate goal is to provide investors and advisors a trusted standard of excellence to help guide them within the financial services industry.

The evaluation process assesses 20 categories of practice management, which include areas such as customer service, risk/investment planning philosophy, credentials, team dynamics, fee/cost structure, and average AUM per client among other areas.

The NABCAP Premier Advisors were announced in the August 2012 edition of 904 Magazine.

PARAGON Wealth Strategies, LLC is an independent, fee-only Wealth Management firm staffed by CERTIFIED FINANCIAL PLANNERTM professionals specializing in successful retirement strategies.  PARAGON uses a unique 5-step process to help successful, retirement-minded individuals make the smart decisions about their money necessary to achieve their most important goals.  With its network of outside professionals, PARAGON’s team helps guide their clients to prudent decisions regarding Wealth Enhancement, Wealth Protection, Wealth Transfer, and Charitable Giving strategies.  Since PARAGON and its advisors earn no commissions, fees, rebates, or bonuses on any recommended product, clients can move forward with confidence that the recommendations they receive are based only upon diligent research and state-of-the-art financial analysis, tailored specifically for their unique situation.

The National Association of Board Certified Advisory Practices (NABCAP) is a nonprofit organization created to establish mutually understood standards and practices among both investors and advisory practices.  Their primary mission is to educate and inform the investing general public with reliable, unaffiliated, unbiased and completely objective educational resources and information. NABCAP Premier Advisors lists are a powerful reference for investors to identify the top wealth managers in their local market. Visit for more information

10245 Centurion Pkwy N Ste 105

Jacksonville, FL 32256


Meet Little Johnny – Your NEW Business Partner!

5 06 2012

Jonathan N. Castle, CFP®, ChFC

Steve and John had been friends for a long time. They were the best of friends since the fourth grade when Steve had helped John face down the school bully. They had played high school basketball together, gone to college together, and had even proposed to their future wives on the same night. Soon after, they went into the heating and air conditioning business together – an “Even Steven” partnership, they called it.  Steve, as
president and COO,  ran the crews and supervised the contractors while John, as CEO, pounded the pavement for business and coordinated the jobs.

Over the years their business grew. Before long they had 12 crews dispatched every day.  John’s business acumen and sales skills had the company’s services in high demand, and Steve’s people skills and work ethic kept customers loyal and crews productive. After 22 years, the business was worth 4 million dollars and generated revenues of over a million and a half dollars a year.  Then Steve and his wife were killed in a car accident by a drunk driver.

John was crushed – in addition to losing his best friend, he had also lost a huge part of his business and livelihood – the man who made things happen where the rubber met the road. Sure, there were good men on the crews, and with some training, one of them might be able to step up and shoulder some of the burden of being the big boss, but it would take months – even years – to train a replacement.

John sat in his office, head buried in his hands. There was a knock at his door, and in stepped what was to become his worst nightmare: Steve’s son Johnny. Johnny, John’s own namesake, was a 20 year-old high-school dropout with a known drug problem and expensive tastes. With a sinking sensation that bordered on nausea, John realized he was looking at his new business partner. As 50% owner of their joint business, Steve’s entire stake in their business now belonged to his only son – Johnny.

In the months that followed, Johnny did little to help the business other than demanding 50% of all revenues generated. Feeling he wasn’t getting enough money, and with little understanding of economics, he soon inserted himself into every business decision, from hiring to firing to bidding for contracts. Soon, loyal crews began departing to the competition.  No-show rates of employees skyrocketed.  The work that actually did get completed was rarely finished on time and rarely passed inspection.  Before long, the company was barely surviving – hanging on by a thread as it fought tooth and nail for each piece of business it landed.

Why did this happen? Was it fate? Hardly. Steve and John had simply made the same mistake that many business owners do – failing to realize their own vulnerability. With simple planning, the destruction of the business could have been avoided. Granted, nothing short of clairvoyance could have avoided Steve’s death in a car accident – but some simple business succession planning would have gone a long way to keeping the
business strong and viable during the months following Steve’s death.

All closely held businesses should consider business succession planning. While there are many solutions to a problem such as this, Steve and John would have been well served to create a buy-sell agreement. This agreement, which is a legally enforceable contract, would have given John the ability to buy out Steve’s stake in the business for a predetermined amount should Steve die or become incapacitated, leaving Johnny with no power to influence any business decisions whatsoever.

There are two basic types of buy-sell agreements: a cross-purchase agreement, and an entity purchase agreement. In a cross-purchase agreement, each business partner owns a life insurance policy on the life of the other partner – providing immediate cash with which to buy out the partner’s heirs, such as Johnny. In an entity purchase agreement, the business itself owns the life insurance policies on each partner. Typically, if there are three or more partners, an entity purchase agreement is the most inexpensive option for
all involved.

An additional benefit of this type of business succession planning is that the agreement can be structured in such a way as to allow the owners – through the business – to stuff the policies full of tax-deferred cash values. In the event that none of the partners die – which is usually the case – they can use the cash-fat policies as retirement bonuses or to provide supplemental income and tax-free death benefits to their families once they ultimately enter retirement.

Given Steve’s role in the business, it would also have made sense for the business to own a “key man” insurance policy on Steve’s life. In this case, had this protection been available, John would have had enough money to immediately search for, and probably recruit, an experienced foremen already performing Steve’s critical duties in another company. While the insurance would not have mitigated John’s pain of losing his best friend, it would have helped him replace Steve’s business skills in a relatively short
period of time.   While the premiums for the insurance policy would not have been taxdeductible
to the business, the death benefit would have been received tax free by the company.

As business owners, our businesses are often a large part of who we are.  The sacrifices every business owner makes to create and nurture a successful business are great – too great to have the results of those sacrifices disappear in a moment by failure to plan. Please consult with your financial planning professional on the steps necessary to protect and preserve what may well be your biggest legacy – your business.

Jon Castle

This blog is for informational purposes only.  This is neither an offer to purchase nor sell any securities.  All investing involves the potential of loss – including invested principal.  Indices quoted are general barometers of security price movement.  You cannot invest directly in an index.  All information is obtained from sources deemed reliable but not guaranteed.  Past performance is not a guarantee of future performance.  No tax or legal advice is given nor intended.

Investment advisory services provided by Paragon Wealth Strategies, LLC, a registered investment advisor.

10245 Centurion Pkwy. N. Ste 105, Jacksonville FL 32256   (904) 861-0093  Certified Financial Planner Board of Standards Inc. owns the certification marks CFP(R), CERTIFIED FINANCIAL PLANNER(tm) and federally registered CFP (with flame logo) in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements

How can I protect my 401(k) from the European Debt Crisis?

25 04 2012

Jon Castle, CFP, ChFC

What a question, huh?  This question seems to be on the minds of many investors these days.

Most economists are predicting that the European zone will suffer a period of slower than usual growth – or even short periods of shallow recession – as they try to work their way out of the debt crisis that they are currently in. Since we are, in reality, a global economy, this means that markets both here and abroad will likely be volatile and moderately stagnant for the next several years. It may well feel like we take 3 steps forward in the market, only to be followed by 2 steps backwards – for a while.

Morgan Stanley did a wonderful study called “The Aftermath of Secular Bear Markets” in which the authors of the study tracked the 19 major bear markets over the last century (only 4 were in the US). All major bear market corrections (defined as a market drop of 47% or greater) were followed by a rebound rally, (2009) then a mid-cycle correction (2010 & possibly 2011), followed by a period of 5-6 years of volatile, sideways behavior, before a new bull market started. So, based upon that historical precedent – we are about 2 years into the sideways part. (if you Google this study, you can read about it directly. Here is a link to see it visually:  Trading Range.  Note that the chart on this link was published in 2009, so the “we are here” mark is has moved 3 years to the right .  It was right on as far as predicting the mid-cycle correction(s) in 2010 and 2011.

The sideways part (the trading range of 5.6 years, on average) is the period of time where the economy heals itself, and goverments try to “unscrew” what went awry in the first place.  This is where we are now.  Likely you see daily evidence of this natural process – Democrats and Republicans squabbling over policy but not really changing anything, the Fed printing money, banks hoarding cash and trying to get their books in order, finger-pointing, governmental gridlocks, and daily predictions of great bull markets or terrible bear markets. While difficult to live through – this is actually part of the NATURAL healing process of a free-market economy. Once you realize where you are in the cycle, then it becomes much easier and far less confusing to stay the course.

So – to answer thequestion – the secret to being a successful 401(k) or other retirement plan investor in which you have to save money over time, and have, say,  10 or 12 or more years to retirement, would be:

1)  Build your portfolio to a risk tolerance that even if the market drops 20 or 30%, you will NOT freak out and will NOT stop investing.  That means you may have to have 30%, 50%, or even 70% of your money in the “safer” investments like government bond funds, or even cash.  A good rule of thumb is – whatever percent of your portfolio you have in the stock market – that is the percent that it will go down when the market corrects. So – if the market drops 20% (which it does every 3 years) – and 50% of your money is in stock funds – then your portfolio will drop by about 10%. (50% of 20% is 10%.)  If you can hang through a drop like that – but no more – and keep investing, then that’s your risk tolerance threshold (limit).  If your personal limit is more like 20%, you can build your portfolio more aggressively – like 70% stock funds, or maybe even a little bit more.  With 10 or 12 years to retirement, you’ve got plenty of time to make it up, so you can afford to be more aggressive.

2) KEEP INVESTING.  When the market goes down – and your portfolio goes down – but you keep investing – you are buying up shares of the funds ON SALE.  If you see a sale at a store – you wouldn’t throw away everything you bought previously, would you?  Then why do people do this with stocks or mutual funds?  If they are on sale – buy more!! Keep buying over time – during that volatile period that I mentioned above – and when the steady bull markets DO come back (they will – we just don’t know when) then you will likely be extremely pleased with your investments.

This blog post is not personal investment, financial, or tax advice.  Please consult your financial professional for personal, specific information.  Indexes mentioned are a general barometer of the stock or bond market they represent.  You cannot invest directly in an index.  Past performance is no guarantee of future results.
Certified Financial Planner Board of Standards Inc. owns the certification marks CFP(R), CERTIFIED FINANCIAL PLANNER(tm) and federally registered CFP (with flame logo) in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.

Investment advisory services offered by Paragon Wealth Strategies LLC, a registered investment adviser.

The Market feels a bit… “Toppy.”

5 03 2012

Jonathan N. Castle, CFP®, ChFC®

Where does the time go?  It is already nearly the end of February and it seems like 2012 is speeding along faster than last year!  So far this year, the financial markets have been reasonably good to all of us, with the S&P 500 up about 8.5%, the Dow up 6.6%, and the NASDAQ up an eye-popping 13.9% as of this writing.

The Dow Jones Industrial Index has broken through the psychological barrier of 13,000 – the highest it has been since March of 2008 a few times now.  In fact, the markets have been remarkably – almost eerily – calm for the last 3 months, quietly marching upward, shrugging off the occasional bad news (such as the Greek bailout nearly unwinding last week and the ever increasing tension over oil in the mideast) with little more than an occasional flinch. 

As we have said for the past 8 months, we remain cautiously optimistic.  “Moderately Bullish” is a term that I have used in the past.  Based upon historical behavior of Secular Bear Markets, we expect that over the next 3 years or so, we will see substantial ups (and downs) in the markets with a slight overall uptrend.  

As it pertains to the current rally, we believe this leg of the rally is probably due for a drawback of some kind.  The next chart shows our reasoning for this.  When the market approaches a point where it had difficulty breaking through previously (such as the Dow’s 13,000 level), this is known as “resistance.”  Typically, as a market index approaches a resistance level, it generally will pause, draw back, and then, IF the level is to be broken, will punch through that level to achieve new highs.  Similar to a person drawing back before breaking through a door, the market will generally draw back before “breaking out” to a new level.  As we are at that resistance level now, a drawback would be a natural – even necessary – part of a normal market rally. 

Despite the recent market rally, we do not feel it is time to break out any party hats on a new sustained bull market just yet.  There are a number of reasons to remain cautious about the markets:

  • According to the Investment Company Institute – the total inflows (new money) going into equity (stock) mutual funds from February 1st through February 15th was a little over 4.6 Billion Dollars.  While this seems like a lot, compared to the inflows to bond funds, which netted 15.2 Billion – it was just a trickle.  Clearly, investors are not ready to assume lots of stock market risk just yet, and the recent rally did not have the market breadth that would indicate the start of a new bull market.
  • The price of oil is going up.  Part of the reason is that US refineries shut down every May to retool to EPA requirements, so oil nearly always rises during this part of the year.  However – increased tensions in the mideast are also driving oil prices higher.  Higher oil prices mean slower economic growth.  As businesses must pay more for energy, they spend less on payrolls and other things which drive growth.
  • Europe’s financial situation is still quite a mess.  While it seems that the European Union is working feverishly to keep from imploding – and they may well succeed – the fact is that Europe is already mired in what appears to be a deep recession.  This will have a global impact, slowing growth in emerging markets as well as within the United States.
  • Our National Debt is a significant problem – and only getting worse.
  • We are in an election year, so significant economic policy will likely not be passed until next year.  Given the uncertain outcome of the 2012 elections, it is anyone’s guess as to whether any new policies will be helpful or harmful.
  • The Bush tax cuts are set to expire this year.  This expectation is curbing business spending.
  • And the list goes on… given the recency of the 2008 market crash, investors are not yet hungry enough for returns to take additional risks and dive head first into the markets. 

However – there are numerous reasons to be bullish as well.  Institutional investors are slowly beginning to see the opportunity in stocks – and have publicly stated their plans to acquire more stocks in their portfolios over the next several years in preparation for a future bull market.  Some reasons to own stocks – and to expect the market will go up are: 

  • Stock valuations are more attractive than they have been in decades.  Based upon the price of stocks compared to company earnings, stocks are cheap.  In the past, investors who loaded up on stocks at current valuation levels were handsomely rewarded over the next 10 years.  Institutions know this – and their demand for stocks during this period may well keep the market afloat.
  • We are seeing a new “flurry” of IPO’s (Initial Public Offerings).  New companies – such as Facebook – offering publicly traded stock for the first time.  Historically, when there are a lot of IPO’s, the market does well.
  • We are seeing a significant increase in companies buying back their own stock.  Not only does this activity boost the stock market – but it is also an indication of what company insiders think of the future prospects of their companies.  Who would spend good money to buy their own company stock – unless they believed the company woud do well?
  • Corporations are hoarding more cash than ever.  While initially this might seem a bad sign – it is a an indicator of the huge potential that exists.  Eventually, this cash will be deployed.  When it is – there is enough of it to have an enormous impact upon virtually all parts of the economy.
  • Currently, the dividend yield on the Dow Jones is a very attractive 3.07%.  So, hypothetically if the market only goes up 5%, an investor who owned the Dow Jones would reap over 8% in total return.  It is only a matter of time before return-starved pension funds, institutions, and corporations currently investing in Treasuries earning less than 3% begin to move money to other assets to seek greater returns.  When this begins, the market has the potential to move up very quickly.

This balance between bullish and bearish factors is a normal part of the recovery process, but makes for a challenging investment environment. In summary, we remain cautiously bullish, with an expectation for occasional market corrections which may exceed 20% or more.  Likely, it will feel like taking three steps forward, only to take two steps back.  However, we feel that reasonable gains are available with the correct strategy.  The most successful investors that we have worked with have carefully chosen their risk tolerance, and then invested in portfolios scientifically designed around that risk tolerance – and remained focused on the long term.  

This blog post is not personal investment, financial, or tax advice.  Please consult your financial professional for personal, specific information.  Indexes mentioned are a general barometer of the stock or bond market they represent.  You cannot invest directly in an index.  Past performance is no guarantee of future results.   

Certified Financial Planner Board of Standards Inc. owns the certification marks CFP(R), CERTIFIED FINANCIAL PLANNER(tm) and federally registered CFP (with flame logo) in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.

Investment advisory services offered by Paragon Wealth Strategies LLC, a registered investment adviser. 

Our Expectations for 2012

19 01 2012

Jonathan N. Castle, CFP, ChFC

2011 has come and gone and we are rapidly working our way through 2012.  It seems that so far, a general sense of cautious optimism has taken over where only a few months ago, all we heard was gloom and doom.  We applaud what appears to be slightly more balanced reporting on the economic front.  While not all of the news is good, neither is it all bad as it seemed to be several months ago.  A sense of doom and gloom serves no good purpose for our economy, and we are pleased the mood appears to be lifting somewhat.

After reviewing a great deal of economic analysis and often conflicting opinions from our research providers, we have come to some general conclusions about what to expect for performance in the financial markets in 2012.  We have stated over the last several months that we are “cautiously optimistic,” or “moderately bullish.”  There is no substantive data that suggests we should change this outlook (details at the end of the article) – but that does not mean that we believe the road ahead to be easy, particularly for investors.  Nor does it mean that we are wearing rose-colored glasses, or our cups are always “half full.”  It simply means that we believe we will continue to improve – with occasional interruptions – from where we currently are NOW.  We also believe that it will take years for the economy to fully recover – but recover it will.

Our Major Concerns at this time are:

European Debt Crisis and Likely European Recession – Some experts believe that the European recession has already begun. Recent data points indicate that Germany’s economy contracted slightly last quarter, and it is likely that other economies will soon follow.  As we enjoy a globally integrated economy, European recession likely means slowing economic growth in the US and difficulty in achieving meaningful returns in international markets.

Rising Dollar – As the Euro weakens, other currencies, (including ours) strengthen against it.  A strengthening dollar makes it more difficult for US companies to export goods and may make it more attractive for US companies to outsource jobs overseas.  However, a strong dollar does have the benefit of making US debt more attractive to foreign investors looking for security.

Political Stagnation – The past 2 years have been a display of an embarrassingly dysfunctional government. Unfortunately, with 2012 being an election year, we believe it unlikely that any real policy change will occur until 2013 or beyond.

Overwhelming US Debt – this may be the most dangerous long-term economic issue we have to face. At some point, we must face the inevitable belt-tightening that will be necessary to keep the US afloat.  Either government spending must decrease, or taxes must increase – or both.  Neither option is good for the economy or financial markets.

The Fed is Out of Bullets – The Fed has reduced interest rates to the lowest that we have ever seen, and pumped trillions of dollars into our economy trying to stimulate economic growth.  However, the damage done to the economy during the Great Recession was so severe that most of the Fed’s actions served only to limit damage – not to create the opportunity for recovery that we were hoping for.  At this time, it appears that the Fed is nearly out of ammo and has few options left.  Fortunately, inflation has not been severe; if it were, the Fed would be forced to raise interest rates again, which would slow economic growth even more and investors holding bonds would see the market values of their bonds decrease.

US Consumer Belt-Tightening – A large part of our economy is based upon the American consumer.  While it is a bit embarrassing to say that our economy runs on us buying things we don’t really need – it is partly true.  As more Americans learn that they can, in fact, live without many of these luxuries, these dollars no longer stimulate the economy.  On a personal level, a reversion to thrift is positive and one that we wholeheartedly support.  On an economic level, however – especially as a service based economy, consumer thrift forebodes even slower growth than previously hoped for.

Rays of Hope and Sunshine

Receding Unemployment – ever so slowly, and certainly not in a straight line, unemployment figures are receding. This is a fact; there are jobs out there to be had.  Many are in small businesses where people are hired one at a time.  Some disbelievers say that unemployment is dropping “only because discouraged workers have given up looking for jobs.”  This argument is hogwash – new workers enter the job market on a daily basis, which offsets discouraged workers leaving or retiring early.  While the jobs may not be the premium top paying jobs that were available before – they ARE indicators of economic expansion from where we were two years ago.

Increased Home Sales – According to the most recent National Association of Realtors (NAR), housing sales appear to have stabilized.  Total housing inventory fell from an 11 month supply to a 7 month supply during 2011. Housing starts and permits are increasing, albeit slowly.  As the housing sector directly impacts over 17% of the entire US economy, this news – however tepid – is hopeful.

US Corporate Profits – US corporate profits are at a high not seen since before the tech-bubble crash.  While much of the profit results from cost-cutting, it is still meaningful. Increasing profits mean that most of the major US firms are on a solid fiscal footing, and are in a much better position to pay attractive dividends to shareholders and fund future expansions.  From a yield perspective – high quality stocks are now more attractive than bonds at current levels.

Improving Manufacturing Data – The December Manufacturing Institute for Supply Management (ISM) Report topped expectations with the factory sector barometer (known as the PMI) increasing to the best level in six months. The raw data of the PMI also indicates that the manufacturing sector has grown for 29 consecutive months, which is generally a good indicator of the future direction of the economy. ALL 3 major US automakers reported profits for 2011.

What to do?

“Buy Low, Sell High.”  We all know this.  Yet, many people are only comfortable investing when the economy is humming along smoothly and all the news is positive.  Unfortunately for these emotionally driven investors, periods of economic boom are often the most dangerous times to invest, because by then, markets are usually overvalued. (Buy High, Sell Low).  Remember – when everyone is already invested, there are no new investors to bid prices up further.  Being invested in portfolios designed to your personal risk tolerance – especially when markets are undervalued – has been proven to be a key to long term investor success.

Typical Bear Market Behavior

For the last 100 years, based upon a study done by Morgan Stanley in 2009 called “The Aftermath of Secular Bear Markets,” major bear markets typically behave as follows.  (Dates for our current bear market in parentheses).

  • Market Crash/Bear Market: -56% for 29 Months, on average (Oct 2007 – Mar 2009)
  • Rebound Rally: +70% for 17 Months, on average (Mar 2009 – Apr 2010)
  • Mid Cycle Correction: -25% for 13 Months on average (Apr 2010 – Aug 2011)
  • Trading Range: Sideways (but slightly UP) with 15-20% whipsaw behavior for 5.6 years, on average (Aug 2011 – ?)

Our current bear market appears to be slightly shortening the cycles, but, in light of current political dysfunction and the European Debt Crisis, we believe the “trading range” portion of the market cycle will likely last several years at a minimum.

For 2012, we believe the following:

  • Markets will continue to be choppy, sometimes uncomfortably so
  • We DO expect to see some growth out of stocks, but not particularly impressive growth
  • Larger, dividend paying stocks should play a large role in the equity portions of portfolios (as compared to mid- or small-cap stocks)
  • US markets will be less volatile, and return more, than developed international markets. Emerging Markets will suffer from the European recession.
  • Interest rates (and bond prices) will remain relatively stable
  • The US Dollar will strengthen compared to the Euro

Our suggestion is that investors focus on other issues over which they have control:

  • Maximize IRA, 401(k), Roth, and other retirement plan contributions.
  • Reduce debt wherever possible.
  • Cut back on unnecessary luxuries (cook at home more, examine utility bills, etc).
  • Examine opportunities for mortgage refinance or other strategies to lock in low interest rates.
  • Closely examine your tax strategies (Roth Conversions, capital gains realization, business sales, etc) to include the expectation that taxes will be higher in future years.

While this list is certainly not exhaustive, it is a good place to start.  If we can offer you assistance in making the decisions necessary to maximize your odds of success during these uncertain times, please don’t hesitate to give us a call.

This blog article is for informational purposes only and does not constitute legal, tax, or personal financial advice.  Please consult your own financial professional for personal, specific information.  PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.

Certified Financial Planner Board of Standards Inc. owns the certification marks CFP(R), CERTIFIED FINANCIAL PLANNER(tm) and federally registered CFP (with flame logo) in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.

Investment advisory services provided by Paragon Wealth Strategies, LLC., a registered investment advisor.

A Financial Planner’s Favorite Question: How Long are you Going to Live?

8 11 2011

by Michelle Ash, CFP®, CDFA™

Any financial planner who’s been helping clients plan for, or live, in retirement will tell you that a discussion on longevity can be an interesting conversation. There is no topic which has caused as many clients to outright laugh in my face when I tell them our standard planning assumptions as this one. You see, a financial planner’s job would be quite easy – an exercise in mathematical computations alone – if only a client could reliably provide one critical piece of information: how long they are going to live. Sometimes I joke and ask my clients to look into their “personal crystal ball” and tell me what they see there in regards to their own longevity. In response, sometimes they squirm, sometimes they get real quiet, other times they won’t even give me a straight answer. It seems the idea of talking about this critical piece of information – how long we’ll live – or its inverse – when we might die – can be quite the taboo subject.

At times people comment that “young people” – a term that’s always a relative description, of course, don’t have difficulty talking about this subject because the young believe they are invincible, thinking they’re never going to die. I have had this comment said to me by 60’s-something clients a few times as well. Perhaps it would be helpful to explain my outlook on this topic, so my attitude won’t seem cavalier, ignorant, or insensitive.

At the age of 38, I have only one grandparent left. The first died at age 52, a few years before I was even born. The other two both passed at their age of 65; I was about age 16 at the time. All three of them died from “the big C”, or Cancer, for those of you not acquainted with the term. I have an aunt and an uncle (one on each side of the family) who died in their 50’s also, from the big C as well. My remaining grandmother is going strong at age 81, showing signs of being around for years to come. She ballroom dances competitively, just retired (for the third or fourth time) last month, and is someone whom I’ve long told friends has more energy than two of me – a feat I can’t fathom since she only sleeps 3-4 hours per night. She is the role model I aspire to and I hope I’ll be blessed with her presence for a long time to come. Despite what I sometimes think of as “bad genes”, my parents, too, are thankfully quite healthy. They are conscientious of being so in their lifestyle choices, which I have long believed helps them overcome their own parental genetic history.

But given the grandparent longevity, or lack thereof, and given the fact that I personally have a chronic illness I was diagnosed with two years ago which will be with me the rest of my life, I unfortunately cannot claim to be one of those people with expectations to live to 100. I haven’t ruled it out, believe me; I am going to try, especially since my condition isn’t one that usually leads to significant implications on mortality. However, I think much in the way that clients in their 60’s sometimes realize there might statistically be only 20 or so years ahead of them, I too have to factor in that, at least based on three of my direct lineal relations, I may have way more time behind me than in front of me.

So from that perspective I stare, head on, with clients, into the reflecting pool of longevity, realizing one absolute: that none of us can escape the eventual fate of having a finite longevity.

How can an individual doing retirement planning think about the issue of longevity? What factors should they consider, and once they do, how should they use that information? What are the impacts longevity – good or bad – plays on the retirement planning? These are the questions we must discuss when considering this topic.

Longevity Factors to Consider

When it comes to factors to consider in deciding a longevity assumption, there are three major items that come to mind:

1) Family history
2) General statistics
3) Personal lifestyle choices

When I talk with clients, we generally talk through these three items. I’ll ask them how long people in their families tend to live. The answers range widely: some people will say no one’s ever lived beyond the age of 75. Others will tell me they’ve got four or five immediate relatives at or near age 100. Many will tell me one parent’s side of the family lived long lives, and the other side lived short or average lifespans. Only when the answer is at either extreme does it really provide any clear planning decision.

Next, we discuss general statistics. In the United States, at present, a 65-year-old man can expect to live to age 82.1; a 65-year-old woman to age 85.(1)   However, ethnicity, race, and country of origin do play roles in this discussion. World-wide, the United States is 36th in terms of life expectancy, with an average life expectancy from birth (not gender specific) of age 78.3. By comparison, the Japanese have the longest longevity, with average non-gender-specific longevity from birth of age 82.6 – more than four years greater than the average American. Countries including Australia, Canada, and the UK are all ahead of the U.S. on the longevity scale.(2) Regarding race, in the United States the average Asian-American has the longest life expectancy at 84.9 years. After that, the average Caucasian has a life expectancy of 77.9 years, the average African-American 72.9 years, and a Native American’s averages 72.7 years. This is a span of more than twelve years’ difference between the various racial groups.(3)

But beyond statistics and even family history, one’s personal lifestyle choices likely have a tremendous influence on longevity. Do you regularly jump out of airplanes and race motorcycles without a helmet, or are you a person who prefers a safer, less adventurous lifestyle? How’s your diet and nutritional intake? Do you get regular exercise? Do you see your dentist and doctor regularly? Do you manage your stress? We could spend hours and pages on these items and each of their likely impacts on our life and longevity.

But do those theories always prove to be true? We all occasionally hear about a little old man who lived to age 104 who smoke, drank, and gambled all his life. Sometimes, the crystal ball is fuzzy and you just never know when the end will be.

How to use Longevity Considerations in Retirement Planning

After exploring issues of family longevity, statistics, and personal lifestyle with a client, I like for us to decide together what longevity they feel is realistic to use. As planners, we start with a baseline assumption of age 95, adjusting upwards for those clients whose families demonstrate a proclivity for age, or those clients who want to assume a longer age as a safeguard. But, for those clients who would prefer to use a shorter longevity, I always caution them that doing so, and then living “too long”, could cause undesirable consequences.

You see, here’s the importance of longevity in retirement planning: the longer you live, the more money you are going to need because of the compounding effects of inflation on expenses over the long term. Here’s a simple illustration of what I mean:

Longevity to age 95 versus Longevity to age 85:

In the fact pattern illustrated above, keeping all other facts, figures, and assumptions the same, the top chart – longevity to age 95, shows the likelihood of a significant spend-down in assets. The bottom chart, longevity to age 85, on the other hand, seems to indicate that the client is never dipping into principal. In fact, their portfolio would be projected to grow and be larger at death than it is at present.

Now, extrapolate that into trying to advise a client on how to spend their money in retirement and invest: with the forecast at the top (to age 95), I would be counseling my client to be prudent with their expenditures over their lifetime, realizing that investment returns are just as unpredictable as longevity. What if the client on the left has unforeseen increases in costs due to medical events, or the need for long term care? If these aren’t included in our current planning, running out of money might well be within the realm of possibilities.

Advising the client with the projection at the bottom (longevity to age 85), however, might cause an advisor to tell the client they can likely spend more money than they currently do, should consider gifting strategies over their lifetime, endeavor tax and estate planning techniques that will mitigate the likely increase in taxes that is coming from this future forecast of an ever-growing portfolio, or invest much more conservatively because it looks like they’ll have plenty of money no matter how long they live.

See the drastically different advice that comes out of one seemingly small assumption?

How to Decide Which Assumption to Use

Generally, the only clients I’ve met who can provide me their longevity with reasonable predictability are those whose longevity is relatively short, often from some terminal illness now beyond their control. For everyone else, sooner or later, a choice of assumption must eventually be made. I tend to see three schools of thought clients use to decide:

Conservative approach: Use a long life expectancy, even beyond what might be reasonable for them personally, because not running out of money is more important to them than the financial flexibility a shorter life expectancy might provide.

Moderate approach: Assume an average, or even slightly longer than average, life expectancy, to account for the majority of likely longevity implications. Act according to those results. If money runs out, have a contingency plan (ie- the kids will have to take care of me), but have an expectation that the contingency probably isn’t necessary.

Aggressive approach: Some clients want to spend it all. Sometimes I hear people say, “I want my last check to bounce.” They may request the most aggressive (short) life expectancy assumptions, even if their family history and personal circumstances would indicate otherwise, because their intent is to spend down assets. Sometimes they have a backup plan if there’s more life than money; other times they think they’ll figure it out if and when they get there. Personally, as a planner, I like this method the least. I encourage against it and I document like crazy as a future CYA measure in case the worst does come to pass.

But ultimately, which approach will prove right? Truly only time will tell. Until it does, here are three mitigating suggestions:

Mitigating Suggestions

1) Use different longevity assumptions and see what the planning outcomes are for each. This approach can be helpful if you’re really not sure which assumption to use. At least then you can know the results and begin to get a sense of different outcomes. Doing so might also help you with other actions you need to take, regardless of deciding a specific longevity. For example, if you want to invest really conservatively in retirement for fear of market volatility, but doing so means you only have enough money to age 70, you may instead want to consider working a bit longer so that you can give yourself the freedom to invest the way you are comfortable. In this example you don’t need to decide a longevity, because the planning assumptions you are using make the other decisions for you.

2) Use a blended spending strategy in retirement. People who aren’t retired often see retirement as this one large life event: you retire and that’s it. Retirees will tell you that retirement is often a more complex life event. In fact, today four stages to retirement are recognized:

a. Newly retired (first 6 months): discovering who you are without your work world identity
b. Recently retired (6-24 months): exploring all the new hobbies and ideas you may want to pursue as you enjoy retirement
c. Retired (2 years – 20 years): Life as a retiree has developed a routine; enjoyment of the lifestyle chosen occurs in this phase
d. Late Retirement, Elder Issues: Life slows down considerably as age and illness related issues often occur

As financial advisors, we often see that clients might desire to spend a greater amount of money when they first retire as they are exploring the newness of retirement. Once the explorations have occurred and a routine develops, expenditures may slow down until later when elder issues enter the picture and raise costs again. A financial plan can account for these different spending levels, if planned in enough detail.

3) Revisit your longevity assumption periodically. This is actually a recommendation I’d make no matter what the planning scope is. Planning – financial or otherwise – inherently requires assumptions. Assumptions are, by their very nature, just guesses and are sometimes wrong. Revisiting the longevity assumption you make over time can be very helpful. If a client chose to use a short life expectancy upon initially retiring, but now realizes there might be many more years ahead, they may be able to alter course to continue a comfortable retirement. If a client chose a long life expectancy but has developed a health issue that changes that forecast, they might decide it’s time to accelerate spending or gifting their assets.

Choosing one’s longevity assumption can be interesting, thought-provoking, or even sometimes scary. In my mind, though, there’s only one thing scarier – making no assumption at all, having no plan at all, and then hoping the results are ones you can live with.



1 National Vital Statistics Report, Volume 56, Number 9, December 28, 2007 U.S. Department of Health and Human Services, Center for Disease Control and Prevention (CDC). Year 2004 data.

2 Wikipedia:

3 “Health News: Race, Income, Geography Influences US Life Expectancy”, by Tom Harrison, 9/12/06

This blog article does not constitute legal, tax, or personal financial advice.  Please consult your own financial professional for personal, specific information.

Certified Financial Planner Board of Standards Inc. owns the certification marks CFP(R), CERTIFIED FINANCIAL PLANNER(tm) and federally registered CFP (with flame logo) in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.

Investment advisory services provided by Paragon Wealth Strategies, LLC., a registered investment advisor.