In my 15 years as a financial planner, I’ve seen how jarring the transition to retirement can be for clients as they navigate major lifestyle changes, tackle difficult family dynamics, and adjust to a dramatically different relationship with money.
Sometimes that transition results in decision-making or behaviors that adversely impact financial growth and well-being. As a wealth advisor, my goal is to identify and eliminate these problem areas and ensure financial plans reflect the clients’ true wishes — while maximizing the potential for wealth preservation and accumulation. But it’s first helpful to understand the emotions at play and the triggers behind them.
Family Dynamics Change—Trusts Need To Change Along With Them
Family dynamics can change dramatically over time. Children grow into adulthood, some marrying, divorcing or having children, while clients experience their own evolutions, with new marriages, blended families or other transformations. That means clients can end up with a trust drafted years ago based on a family tree of relationships that bears little resemblance to the family they have today.
Clients often neglect to address the outdated plan because they may be trying to avoid potentially contentious issues. For instance, a couple who initially chose to divide assets equally between two children may later decided that division no longer makes sense because one child became wealthier than the other.
In other cases, clients may struggle with how best to distribute their estate when they pass away. For example, a couple may disagree over how to allocate to children, other relatives or philanthropic causes.
While we can’t prevent strained relationships as financial planners, we can ensure the estate plan is updated to reflect the clients’ wishes, based on current family dynamics. That’s why it’s imperative to first read through the initial trust to ensure it’s still relevant.
What’s more, we can use this opportunity as a fiduciary to convene meetings of all the family members, along with their estate attorney, to review and update the trust. These meetings can become enlightening sessions that help us better understand the clients’ intentions and complex family dynamics we wouldn’t ordinarily see.
Saving Money Is Good, Hoarding It Can Backfire
If clients struggle with anything once they begin drawing from a limited pool of assets, it’s generally with saving or overspending. But occasionally they “hoard” assets in retirement, becoming far more frugal than necessary.
A client may, for instance, hold onto $25 million in assets, forgoing a more lavish lifestyle, simply because it provides a sense of security. Some may see money as a source of comfort, while others might struggle to overcome a thrifty upbringing or mistakenly believe they will run out of funds. I have seen how this habit can take a psychological toll on clients who fixate on preserving wealth while ignoring the joy it can bring.
Hoarding money could cost millions, of course, if clients fail to pass on assets ahead of expected tax law changes, which could include an estate tax exemption reduction and a capital gains rate hike. By giving to heirs or donating to charities now, clients may be able to minimize taxes while also seeing their legacy take flight with younger generations or causes they care about.
Transitioning to retirement often involves striking a balance between the anxiety that comes with saving and the pleasure that comes with spending. As advisors, we can help remove distortions by running simulations with sophisticated financial planning tools that help clients identify their overspending or underspending.
Giving Is Good As Long As It’s Not Too Much
Our goal as financial planners is to protect our clients’ financial well-being and ensure their financial security. Sometimes that means protecting them from themselves and their inclination to give away too much money.
In my practice, I’ve encountered supportive parents who insist on covering any number of expenses for their children, whether monthly living expenses or down payments for homes. That flowing generosity might extend to the grandchildren in the form of private school tuition.
Sometimes, overly generous parents give beyond their means and compromise their own financial security. Some may feel they need to provide for their children so their children will care for them as they age. Others may act out of a sense of guilt, compensating for hardships their children may have endured growing up.
As planners, we can again use financial planning tools that show reality by forecasting scenarios that demonstrate how their funds will be depleted over the years. We can show them how giving at their current rate will leave them unable to cover healthcare and living expenses, perhaps leaving them to depend on financially insecure children for support. Understanding family dynamics allows us, as advisors, to point out blind spots when it comes to damaging spending behaviors.
Ultimately, clients may be reluctant to share details of problematic relationships, reveal fears about the future or disclose insecurities over their income. It’s not easy to divulge sensitive information over casual conversations. That’s why it’s our job as financial advisors to build trust and give them room to express exactly how they feel so we can clearly understand their intentions. It is in this role of trusted advisor that we can help our clients execute a plan that offers the peace of mind they are searching for.
Grace Apuy is a wealth advisor for Kayne Anderson Rudnick, an investment and wealth advisory firm managing assets for corporations, endowments, foundations, public entities and high-net-worth individuals. She can be reached at firstname.lastname@example.org.