The critical retirement cost many advisers aren't discussing with clients

Transportation is one of the highest expenditures for older Americans, yet many advisers aren't pushing the mobility conversation with clients

Oct 12, 2015 @ 1:20 pm

By Greg Iacurci

When advisers think about the top expenditures for clients in or near retirement, many may not consider transportation. They should.

Transportation is the second-highest expenditure for Americans age 65 and older, behind housing and just ahead of health care, and is something advisers need to factor into a financial plan.

“Helping a client or a couple navigate their mobility needs in retirement is the new job of retirement planning,” said Joseph Coughlin, director of the Massachusetts Institute of Technology AgeLab and the New England University Transportation Center.


Transportation costs represent nearly 16% of expenditures for older Americans, while health care represents 13.4%, according to the Bureau of Labor Statistics. That's a shock to many advisers, who typically believe health costs take up a greater portion of a client's budget, said Mike Lynch, vice president of strategic markets at Hartford Funds.

For those age 45-54, the group with the highest annual expenditures, transportation is their third-largest expense.

Average annual expenditures by age
Source: Bureau of Labor Statistics Consumer Expenditure Survey, 2014
Notes: 45-54 year olds represent the highest expenditure group. "Other" category includes, among other items: Personal insurance and pensions, education, tobacco products, personal care products and services

“Transportation is one of the greatest under-discussed and under-planned things in retirement I've seen almost anywhere,” Mr. Coughlin said. “We think about health, wealth and housing, but not mobility. Before we do anything, we have to get there first.”

Many transportation costs are fixed, whereas other expenses tend to decline in later life, thereby giving transportation greater scale on the balance sheets of older Americans, Mr. Coughlin said.


As a client approaches retirement, going through bank-account and credit-card statements with clients to help determine how costs will change in later life is important, said Erik Carter, senior financial planner at Financial Finesse, Inc.

Transportation costs could include vehicle purchases, gasoline and motor oil, vehicle finance charges, insurance, maintenance and repairs, public transit, and vehicle rentals and leases.

“Even though maybe [a client] will have a car payment that's gone, [advisers] need to factor in maintenance costs that won't go away and that [clients] may need to buy a new car in retirement,” Mr. Carter said. “If you're living 20 to 30 years in retirement, you're probably going to need a new car.”

Indeed, vehicle purchases are the highest outlay for annual transportation costs for 65-plus year olds, followed by gasoline and motor oil and vehicle insurance, respectively, according to data from the BLS.

Average annual transportation cost by category for those over age 65
Source: Bureau of Labor Statistics Consumer Expenditure Survey, 2014

Early in retirement, people often treat themselves to a new car — and a car can be a necessity, especially for those in rural areas, but is also a symbol of reward and success in retirement, Mr. Coughlin said.

“It truly defines freedom and independence,” he said.


Asking a client where they want to live is the primary consideration for transportation and retirement planning, because that determines how clients will get around and the resources they'll need to live well in a particular area, said Mr. Coughlin. For example, can people walk around, and are there alternatives to a car?

Seventy-nine percent of seniors over age 65 live in car-dependent suburban and rural communities, according to a report by Transportation for America, an organization that lobbies for investment in local transportation.

Leading with that question is a more productive starting point than asking what a client's retirement objectives are, Mr. Coughlin said. “That's like asking a 20-year-old what they will do in a midlife crisis,” he said.

Yet many advisers don't factor this into retirement planning conversations. According to a 2014 Insured Retirement Institute survey, only 66% of advisers discuss retirement lifestyle issues such as housing and relocation with clients.

Further, there may be a time when a client isn't comfortable with or capable of driving, so advisers should think about a “mobility budget” for alternatives in a specific locale, Mr. Coughlin said.


Advisers can add value for clients in the area of transportation by broadening their centers of influence, according to Mr. Lynch from Hartford Funds. For advisers operating in a local area, that could involve becoming familiar with nearby car dealerships to help guide clients when they need to buy a new car. Often, taking time to get names and numbers of contact people is adequate, Mr. Lynch said.

It's a similar notion to an adviser taking tours of Alzheimer's care facilities, or referring a client to a few good regional accountants for tax help, Mr. Lynch said.

“Advisers' role is getting bigger and bigger. It's not just managing investments, but managing their lifestyle,” he added.

Mr. Carter, who doesn't engage in these types of services because he works with clients around the country, said these “concierge-type services” used to be geared more toward wealthier clients with a family-office relationship, but advisers are now offering them more to the masses.

“I think it's relatively new [as a practice]. As there's more and more competition in the financial planning world, it's one way financial planners can try to differentiate themselves,” Mr. Carter said.


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