As you guide your client toward retirement, you’re like an air traffic controller putting the pilot on the glide path toward a smooth landing. If your client is overconfident or simply inattentive, they can blow up their retirement. That’s why retired clients need you by their side even after retiring.
Let’s look at 12 ways your client can blow up their retirement, and how you can save them.
1. Drastically underestimating their retirement spending
They might have told you how much they anticipate spending in retirement, but actual outflow is typically much higher. This could be for many reasons. Perhaps they simply want to live it up. They run up their credit cards as they run out of money in their checking account.
Someone needs to be the “adult,” even though the retired client might be much older than the advisor. Certain weight loss programs work because there is accountability. They need to show up and step on a scale in front of others on a regular basis. You should provide gentle oversight.
2. Underestimating their lifespan
There is an old joke: “At the end of your life, you don’t want your last check to empty your checking account, you want your last check to bounce.” The logic is, “What do you care? You won’t be around anymore.” People live longer if they don’t have underlying conditions, take care of their health, get regular checkups and live in areas with excellent hospitals. If your client ticks all these boxes, they might be one of those folks who lives past age 100.
Remember running a retirement planning analysis projecting when their money will run out? Keep doing those on a regular basis. They should understand they need to throttle back on their spending.
3. Confusing COLA with inflation
Social Security has a built in Cost of Living Adjustment (COLA). Few other sources of your client’s retirement income include this feature. Even if some do, the rate of increase is rarely as great as the day-to-day increase in prices your client sees at the supermarket.
Remind your client that their expenses fall into two categories: fixed and discretionary. As their fixed expenses increase because of inflation, they’ll put the squeeze on money available for discretionary spending. As their advisor, can you get their assets to work harder? Take advantage of higher interest rates when available.
4. Not keeping track of their spending in retirement
You know these people. They have no concept of budgeting. They run up credit card debt. When they were working, their annual bonus bailed them out of trouble, although this happened at the expense of saving for the future. In retirement, there is no annual bonus. They are digging themselves into a hole.
We all know that holiday favorite, “How the Grinch stole Christmas.” Sometimes the advisor needs to be Mr. Grinch. As the credit card debt starts to pile up, ask, “How are you going to pay this down?” Help them to develop a realistic budget and stick to it.
5. Treating their retirement account as a piggy bank
As a financial advisor, you have seen many types of clients. Some tap into their home equity line of credit (HELOC) when they run short of cash. Before long, they have a gigantic debt. They can eliminate it by downsizing their housing. What about the client who depletes their retirement savings? It is much harder to get that back on track.
Your periodic review meetings can make them aware of the problem. You have projected how long their assets will carry them on their retirement journey. Rerun this analysis each time you meet.
6. Unrestrained generosity
Helping others is a good thing. Your client might be approached by many nonprofits, especially if they are perceived to be wealthy. They might want to live up to this image, writing large checks and entering pledge commitments for capital campaigns.
Charitable giving should be set apart from their regular expenses. Setting up a donor advised fund could be a way of committing a certain amount of money to charitable giving, funding the account accordingly and disbursing contributions from that account. This helps form their tactful answer when charities come calling.
7. Not anticipating the impact of healthcare costs
Once upon a time, your pre-retired and retired clients were young and likely healthy. They had few prescriptions and they were often low-priced generics. They assumed they would stay healthy forever and not need healthcare. Meanwhile, their healthcare premiums march upward. Why? Because they are getting older and healthcare cost increases often surpass the inflation rate.
From the moment you start educating clients on the retirement aspect of financial planning, you need to make they are aware that healthcare costs will balloon. You need to talk about “what-if” situations and how they might address them.
8. Deciding to do everything on their bucket list immediately
You and your client did a fine job of financial planning before retirement. They are looking forward to a three-month round-the-world cruise, skiing in Switzerland and traveling on the Orient Express. These are great lifetime goals, but your client decided to do them in Year One of retirement!
We are back to, “Someone needs to be the adult.” Talk about other fun vacation options like “sailing soon” pricing on cruises and road trips to visit relatives. Suggest they space out the bucket list items over several years. It gives them something to look forward to in the coming years.
9. Trying to maintain their pre-retirement lifestyle
Back when they were working, your client leased a luxury car. Maybe two. They were “keeping up with the Joneses,” spending on expensive vacations and home renovation projects. Now they have a reduced income in retirement, but they have not moderated their spending.
Help them look at things from the practical side. How about owning a luxury car that is several years old but still looks new? How about gradually replacing kitchen appliances when they stop working, instead of doing a kitchen renovation? Transition to “keeping up appearances” without the big price tag.
10. Preferring dining out to eating in
Retirement can get boring. People often eat when they are bored. Your client is eating out almost every day. This sometimes involves lunch and dinner. They are getting together with friends. This is costing a fortune.
Take a step back. They have friends in the same situation. How about getting together at each other’s home on a rotating basis? This delivers camaraderie at a much lower cost.
11. Deciding to start a new business
This was not in their retirement plan! They were going to live a comfortable life, spend time with family, and travel. Now they want to sink all their money into a new business. They are going to take on debt.
Can they realize their dream without risking everything? Can they partner with someone, work for them, or make some money in a consulting role? Remind them to consider the failure rate of new business startups. If that were to happen, what next?12
12. Deciding they no longer need advice
Perhaps some clients think retirement means collecting a monthly income instead of a paycheck. They have planned for retirement. They earned it. You helped them along, but now they have arrived. They don’t need your advice anymore. Or so they think.
The previous 11 examples looked at “what-if” situations. Many could start off small and get out of control. If your client spent their career in the corporate world, they know the importance of keeping an eye on the numbers and staying within budget. This required expertise in their life in the corporate world. They need similar expertise in their life in retirement.
Many people look at their spending and assume “costs will never change.” Others look at a blue sky and think “no storm in sight.” They need to be prepared for the unexpected, otherwise they can find themselves in a dangerous situation.
Bryce Sanders is president of Perceptive Business Solutions Inc. He provides HNW client acquisition training for the financial services industry. His book “Captivating the Wealthy Investor” is available on Amazon.
