Test-driving retirement plans

Help clients think about how they will spend their money and time

Jul 22, 2012 @ 12:01 am

For many preretirees, the idea of post-career living, where every day is like Saturday, is tantalizing.

In reality, nearly half of retirees find it difficult to adjust to the lack of structure, loss of identity and boredom.

The problem is inadequate planning. And that is where financial advisers can help.

Rob Pascale, co-author of “The Retirement Maze: What You Should Know Before and After Your Retire” (Rowman & Littlefield Publishers, 2012), knows firsthand about the challenge of finding fulfilling ways to spend the days, having retired at 51 from the market research firm that he founded. So he decided to put his research background to work to help others avoid making some of the same mistakes.

Together with co-authors Louis Primavera, a psychologist, and Rip Roach, managing director of his former firm, Marketing Analysts LLC, Mr. Pascale conducted an online survey of 1,500 retirees and 400 older workers to explore the struggles of building new lives outside the workforce and to compare preretirees' expectations with retirement realities.

The researchers found that people experience a range of emotions in retirement, starting with a euphoric honeymoon phase that is often followed quickly by disenchantment. After a period of reorientation, most find stability.


Increasingly, advisers are taking a more holistic approach to helping their clients prepare for this new phase of life, coaching them to think not just about how they will spend their money but how they will spend their time. The process often begins with a cash flow analysis that serves as a reality check.

Richard Jackson, a fee-only adviser with Schlindwein Associates LLC, said he is amazed by the number of pre-retirees who don't have a good handle on their expenses. Even those who think that they know where their money goes in terms of big-ticket expenses such as mortgage payments, insurance costs and taxes often fail to take into account incidentals such as car repairs, vacations or gifts to family members.

“We do a little coaching to get a better handle on all of their costs and then project them over their life expectancy and inflate those figures to account for future losses in purchasing power,” Mr. Jackson said. “We add up all their sources of income and compare it to their needs, and then figure out how to create income from their nest egg to fill the shortfall with the least amount of risk.”


For those clients whose account balances come up short, advisers can help them work through the decision about working longer to boost their savings, trim the number of years they will be dependent on their nest egg, and delay collecting Social Security benefits until they are older and benefits are worth more.

Joy Kenefick and Marcia Tillotson, partners in a Charlotte, N.C., financial advisory practice that is part of Wells Fargo Advisors LLC, take retirement preparation a step further by enrolling clients in their retirement boot camp program.

They encourage clients who are within two years of retirement to test-drive their future budget. For example, if clients expect to live on 85% of their preretirement salary, they should cut their spending by 15% now and save the rest, preferably by maxing out their tax-deferred retirement savings.

This year, individuals can save $17,000 in a 401(k) and another $5,500 in catch-up contributions if they are over 50. That means that a 50-plus working couple can stash up to $45,000 in their 401(k)s this year.

The forced saving boosts the couple's retirement nest egg, reduces their taxable income and helps them stick to a budget. If they need extra money, it is better to tap their cash reserves — which the advisers require clients to beef up before starting the boot camp experiment — than to cut back on their 401(k) contributions.

“For people who have been good savers, it's hard for them to turn on the spending spigot. We want them to get accustomed to living on their cash reserve so they know what it feels like to harvest their savings before they actually retire,” Ms. Tillotson said.

“On the flip side, for people who find they can't hold their expenses down enough to make the budget work, it serves as a gut check,” Ms. Kenefick said. “Some of them decide that they're not ready to retire and will plan to work a few more years.”


As the leading-edge baby boomers prepare to retire, many of them will be looking for help in this new phase of life. Many financial services firms are stepping up adviser training to support an expanded focus on retirement income, according to the Hearts & Wallets 2012 Retirement Income Competitive Landscape Survey.

“Firms are responding to investor needs to assess their entire financial picture from when to take Social Security benefits to real estate, taxes and health care, reversing a pullback we saw in 2010,” said Hearts & Wallets principal Laura Varas.

This year, 77% of surveyed firms rated retirement income as vitally or very important to strategic planning initiatives, up from 57% in 2010.

Mary Beth Franklin (mbfranklin@investmentnews.com) welcomes your comments and suggestions for column topics. Twitter: @mbfretirepro


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