Retirement Tougher Mentally Than Financially, Advisors Agree

Members of Dynasty Financial Partners opened up about retirement’s chief challenges in 2023 in a recent survey.

By Eleanor O'Sullivan

Overwhelmingly, retirement is mentally more challenging than it is financially.

So said financial advisors recently surveyed by their network, Dynasty Financial Partners, on retirement’s chief challenges in 2023.

“It can be very hard to go from working for the last 40+ years to no more working. Full stop,’’ said Brook Hart, CFP, of Presilium Private Wealth in Radnor, Pa.

“We’ve seen our clients navigate this by having one foot in, one foot out, perhaps in a consulting type role, until they feel completely ready to turn it off, or, reallocating their new free time to a hobby, interest, or endeavor they put on the backburner due to the lack of time in their working life, where they divided every free second between working, family, eating and sleeping,’’ Hart said.

So, what’s a client to do without the social network and lively routine of a job?

“It comes down to finding their purpose. We work to make sure that, from a financial standpoint, they are able to sleep easy at night knowing that they are financially in a great spot. But they need to find that new hobby or interest that gives them energy and makes them want to jump out of bed each morning,’’ Hart said.

The Dynasty survey — which included 13 questions ranging from “Is retirement planning more complicated today than for our parents/grandparents?” to “Do couples have shared expectations about retirement?’’ — found advisors in agreement on most issues. They said clients are bombarded with TMFI — too much financial information from too many sources 24/7, which leaves them confused and advisors scrambling to tamp down the noise and help clients make confident choices for their retirement.

Overwhelmed, afraid of mistakes

“There’s a paradox of choice — the countless options and sources of advice lead to confusion and often inaction. All of this increases anxiety and causes new clients to seek advice so they don’t make a serious mistake,’’ said Steven E. Tenney, CEPA, founding partner of Great Diamond Partners in Portland, Maine.

“Some retirees are afraid to touch their retirement accounts. Most retirees we work with leave the distribution methodology to us. We look primarily at the tax efficiency of distributions and long-term objectives. Taking the minimum from these accounts often makes sense, although clients we recently worked with agreed to liquidate their Roth IRAs due to the tax-free distribution. This, in turn, allowed their taxable unrealized gains to remain untouched, and ultimately receive a step-up in the cost basis at their passing,’’ Tenney said.

Longevity: a new ‘problem’

The survey respondents also emphasized that longer lives means planning retirement distribution so the money is there for clients at age 85, 95 and maybe 105.

“Retirement planning is much more complicated today than it was just a generation ago. In fact, I wrote and published a book on this exact topic called ‘Exploring.’ In my grandfather’s generation very few people actually retired, and those who did were typically dead a year or two after they retired. The idea of a 30-year retirement is a brand-new thing in society — there is no established blueprint,’’ said Erik Strid, Founding Principal at Concentus Wealth Advisors of Newtown Square, Pa.

The younger you are the more complicated your retirement will be, said advisor Patrick Swift, CFP, Amplius Wealth Advisors, Blue Bell, Pa.

Why? It’s all about more options and the end of the paternalistic system of defined benefits.

Swift said those born between 1928 and 1945 generally worked for one or two companies, or owned a business, saved money via a pension and owned a home. Employer retirement plans were defined benefit or pension plans so the risk and responsibility were on the employer. At retirement, the Silent Generation had a defined benefit payout, Social Security and a shorter expected retirement because of a shorter life expectancy.

“Today, the script has been flipped. Most baby boomers and almost all Gen-Xers have shouldered the risk of their retirement savings. Unfortunately, human nature doesn’t bode well for maintaining stoic discipline around these components. Furthermore, there is far more tendency to bounce around between companies and even industries for workers today, introducing more variability,’’ Swift said.

Benefit or curse?

Retirement planning is more hands-on and retirees have more direct control over the outcome, Swift said.

“That can be a benefit or a curse – if they are able to consistently manage cash flow, savings, take advantage of their employer benefits and account types, and maintain a disciplined, risk-adjusted investment strategy, their outcomes should be better than the last generation. That’s the psychological issue – research shows us that most people don’t have the behavioral discipline or expertise to control these inputs well, consistently,’’ Swift said.

Joe Savery, private wealth advisor, Americana Partners, Houston, said his firm routinely assumes clients will have a retirement of 25 to 30 years.

“To be safe, in the models we run for clients, we almost always plan on our clients living to 100. Additionally, lower interest rates have forced retirees to take on more risk and volatility to reach their investment goals, which can be tough, especially in years like 2022.’’

Rainy-day reminders needed

Echoing Savery, Mike Leverty says advisors had best be mindful of clients who forget that bullish years can turn into tough years like 2022. The survey revealed that advisors do see overspending of retirement portfolios when times are rosy.

“We need to remind clients that at some point, the markets will pull back (example 2022) and that we need to articulate how the overspending today could negatively impact their long-term objectives and needs,’’ said Leverty, ChFC, founder of Leverty Financial Group in Hudson, Wis.

Another major concern among advisors is helping clients decide where and how they will live in retirement. Houston-based Savery says clients with Texas roots plan to stay put near family and friends and familiar surroundings, possibly with a balmy, palmy second home, if money allows.

But Kilgroe says the decision can be dicey.

“It’s always much more difficult to work with a couple who have different expectations and different goals for what they want to do in retirement, and particularly where they want to live. It appears that there has been a significant rise in divorce later in life, and my suspicion is that this can actually be a contributing factor to a marriage actually ending. ‘’

Female clients face different challenges

Respondents were asked if women faced different challenges when they retired, and if they tended to provide financial support to their children more often than men.

Yes to both, most advisors said, although Leverty said, “it is not uncommon for one spouse to take the lead on planning, which could be either the husband or the wife.’’

Mostly, the advisors said that women who had worked outside the home had fewer problems handling the management of retirement planning. In particular, he’s found widows whose late husbands handled the finances were intimidated when they had to assume responsibility of their retirement portfolios.

“There are still too many men in ‘the driver’s seat’ when making financial decisions for the family. And women need to plan differently, but also think about what their late retirement years could look like if they’ve outlived spouses, friends and other family members,’’ said Swift.

Hart said, “I think many parents, men and women, support their adult children, and have a hard time saying no to this.  This can definitely impact retirement, especially when a child, or children, are living with/supported by their parents for longer than expected.’’

“However, again, to come back to planning, in earlier conversations, if this is discussed and planned for, even as a ‘just in case’ plan, you can be ready for it ahead of time. By doing proper planning and truly digging into the family picture, this possibility can be uncovered and headed off well ahead of time,” added Hart.

“The same goes for caring for elderly parents, which is something many, many people deal with today, and due to rising healthcare expenses, often costs far more than caring for a child in their young 20s,’’ he said.

Educating clients

To the query about how do advisors educate their clients about retirement planning, old-fashioned sit-downs are the preferred method, although Leverty said, “Our practice is word of mouth with a social media (LinkedIn) strategy designed to educate and inform.”

“We ideally engage and start working with clients a few years before their transition. It’s amazing ‘though how often the initial plan changes due to factors such as health or corporate layoffs,’’ he said.

Advisors can help plan a secure financial retirement, but the rest is up to the client. Kilgroe said one challenge advisors face is getting clients to see reality.

“Many people do have unrealistic expectations. Like many things in life, many people have a sense of deferred gratification, and, that happiness will finally arrive for them when they can cross the finish line and enter into retirement.”

“They may work a whole lifetime and become engrossed in the vision of this perfect lifestyle they will have when they retire. However, when that time comes, they may find that retirement is not necessarily all it’s cracked up to be,” said Kilgroe. When they leave their career behind, they are likely to also leave behind an important source of human connection and social network, as well as the meaning and purpose that may have come from their work. Many people struggle to find meaningful pursuits to fill their time when they get to this point.’’

In a four-decade career in journalism, Eleanor O’Sullivan has reviewed many books on best practices for financial advisors, has written for Financial Advisor and the USA Today network, and was movie critic for the Asbury Park Press.



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