Finances, Tax Planning, Wealth Management

Expert Interview Series: Phillip Christenson of Phillip James Financial About Retirement Financial Planning


Phillip Christenson is a financial advisor and portfolio manager for Phillip James Financial, an independent fee-only financial planning company in Plymouth, Minnesota. He works personally with clients on wealth management issues and was recently named one of the Top 100 Financial Advisors by Investopedia. We had a chance to sit down with Phillip to hear his thoughts on financial planning and how to protect your assets and savings as you embark upon retirement.

Tell us a bit about yourself. Why did you decide to co-found your own financial planning and management firm?

My partner, James Sexton, have known each other since the first grade. Growing up, we would share books about finance and trade stock picks in high school. Not many people shared our interest in the markets and investing. After working sometime after college, it was an easy decision for us to start our own business since we both knew we could do more with our own company compared to working for someone else.

We decided on a full-service wealth management firm as we were already helping many of our friends and family but wanted to do more. So we started Phillip James Financial to try to help as many people as we could with investments, financial planning, and taxes – and haven’t looked back since.

Finish this sentence: “The most common question I hear about retirement funds and savings these days is…” 

The tax code is getting more complex, and many of our clients have higher incomes. Almost every one of them asks what they should be doing to save on taxes. There are many “quick fix” short-term strategies, but the real tax-saving strategies are longer-term. For example, by setting up your portfolio in a certain way, a client can save thousands if not hundreds of thousands when it comes time to withdraw the money. Another great way to plan for the future is by getting more money into tax-advantaged accounts by utilizing a Back-Door Roth or Super Roth. Timing, vehicle choice for charitable donations, and wealth transfer can be very beneficial as well. Like most tax strategies, it depends on the client’s situation and goals.

What are some of the key wealth investment trends that people need to know about right now?

One big trend recently has been trying to predict the next bear market. Since the market has done so well for so long, everyone thinks we are due for a big correction. The problem is that people have been predicting this for years, and if they acted on it, they missed out on a lot of gains.

The point is that no one can accurately predict bear markets, and trying to do so by buying in and out of the markets will hurt your portfolio. Market corrections are inevitable, but cannot be timed. This is why a long-term strategy is still the best. If you are heading into retirement or already retired, planning out your future cash flow needs and allocating your portfolio to protect those cash flows is critical.

With the uncertainty surrounding tax reform in Washington, what advice can you give investors today if they want to minimize their tax burden?

General tax planning advice is difficult since everyone’s tax situation is so different, not only compared to other people but even from one year to the next. Therefore, the best tax advice is to ensure you are structuring your portfolio as efficiently as possible. This means using asset location strategies, utilizing tax-advantaged accounts when possible, tax-loss harvesting, and planning ahead for portfolio distributions. If you are drawing from your portfolio and the tax brackets change, make sure you know how much income you are generating each year through RMDs, distributions from 401(k)s and IRAs, and Roth conversions. By strategically timing these withdrawal decisions, you can save thousands and extend the life of your portfolio significantly.

As a manager of retirement portfolios, are there certain sectors or investment instruments that you tend to stay away from? 

Real estate is hot right now, so naturally, everyone wants to get in. Whether it’s through an over-allocation to REITs in their stock portfolio or an actual physical investment like a rental property, people want more exposure. It’s funny because it was only a few years ago when we were still recovering from the real estate downturn that no one wanted to get into real estate because it was seen as “too risky.” Either way, the prudent strategy is to maintain an allocation to real estate, not over-allocate or under-allocate. The real estate market cannot be timed (just like the stock market).

Given the apparent inevitability of the future Social Security shortfall and the accompanying reduction in benefits, how does this play into the retirement guidelines you provide for your clients?

We definitely want to be conservative when planning for social security benefits, as many times this is a big part of a client’s overall income strategy during retirement. However, the situation is not as dire as the media portrays it to be. If a client is already in their 60’s I don’t see much risk of losing or even having their benefits reduced. The real risk is for Gen X and Gen Y. But the risk is not that social security won’t be there, it’s that the full-retirement age may be extended to age 70, the COLA calculation adjusted, or the benefits formula tweaked.

If someone were to say to you, “I don’t like fee-only financial advisors because they make me pay a huge amount of money for their services, even when my portfolio doesn’t undergo any changes,” how might you respond?

Part of the problem with our industry is how we charge for our fees. Since the fees are usually based on the size of a portfolio, clients usually tie it to performance. In reality, the most beneficial service we provide is not the asset management but the financial planning. A good financial advisor is worth their weight in gold if during a bear market they ensure the client stays invested and can continue to draw from the portfolio without many adjustments to lifestyle. This, of course, is accomplished not during a bear market but by planning ahead before a correction occurs. The best financial planners are coordinating the client’s portfolio with their financial, tax, and estate plan. If the fee you are paying is strictly for asset management, then I would agree, it is most likely too much.

Since people are living longer, what kinds of challenges will they face regarding their ability to save for and enjoy retirement?

People are not planning far out enough. Medical and technological advances are helping people live well into their 80s and 90s. Unless there is a known life-shortening illness, we always plan to age 95. This means someone retiring in their 60s has a 30+ year retirement ahead of them. There needs to be a lot of planning up front to ensure a client does not run out of money, especially when factoring in the increasing cost of health insurance and the potential need for long-term care. Most people will not want (or won’t be able) to go back to work in their 80s if they start running out of money.

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