Clients Need More Advice As Retirement Nears, Advisors Say

By Brian O'Connell

Americans biggest fear heading into retirement isn’t death or not collecting Social Security. It’s running out of money in retirement.

Forty-three percent of workers age 50 and older fear going broke in retirement, according to a TransAmerica study. A separate study from Allianz found 60 percent of baby boomers worried they’ll outlive their retirement cash.

For investment advisors who see a client churning and burning through their retirement savings, the goal is to find ways to get ahead of what could become a problem. If they can’t do that, the advisor’s goal switches to helping the client rebound.

“If clients find themselves in this position, there are only a few options,” said Jadon Newman, founder and CEO of Noble Capital in Austin, Texas. “They can sometimes reposition non-income producing assets in their portfolio to utilize as income. A reverse mortgage is another common strategy used by retirees.”

Regardless of what assets they have left in their portfolio, it’s critical to have a comprehensive income plan and tax strategy, Newman said.

“A good adviser should have removed the risk of running out of money from the beginning by providing an income plan that showed the client exactly where their income was coming from and how much they could expect every month for the rest of their lives,” he said.

'Seek Professional Advice'

Often, it’s the moves that retirees don’t make that wind up triggering a cash flow crisis.

“You have to know when to take Social Security,” said Troy Bender, president and CEO at Asset Retention Insurance Services in Orange County, Calif. “If you don’t choose the most advantageous time … you could leave a lot of money on the table. Several factors can come into play here depending on your personal situation, so it’s best to seek professional advice.”

It’s also advisable for retirees to live by the “Rule of 100,” Bender said.

The “Rule of 100” states that the percentage of a person’s portfolio invested in stocks should be equal to 100 minus their age.

“So, for example, someone who is 60 should have 40 percent of their portfolio in stocks and the other 60 percent should be in bonds or other lower-risk investments,” Bender said. “If you aren’t living by the ‘Rule of 100,’ you should be, especially if you are 50 or older.”

Investment advisors should also strive to uncover any underlying financial issues that could be curbing a retiree client’s cash flow.

“First and foremost, a deep dive into monthly spending is required,” said Jill Dillingham, founder and president of Senior Checks & Balances in Winnetka, Ill. “Many individuals continue with spending habits and levels, year after year, simply because that's the way they've always done it. A budget tune-up is a good thing at any stage of life.”

Advisors must also be diligent about also spotting red flags that may indicate cognitive issues for their client.

“Even if a neurodegenerative disorder is not present, many individuals have issues with financial management,” Dillingham said. “In today's digital age, communications, statements and bills can become confusing and cumbersome.

“If your client does not have a power of attorney or estate plan set, they need to do so immediately. Any further changes or action can create tremendous liability and further damage to the portfolio.”

Meeting Face To Face

Getting in front of clients when hearing there could be a retirement cash problem is also necessary.

“When we identify that a client’s spend rate will deplete their portfolio sooner rather than later, we begin with a face-to-face meeting,” said James Demmert, founder of Main Street Research in Sausalito, Calif. “We ask the client what they think they are spending on an annual basis and then we show them what they are actually spending.”

Hopefully, that leads to a discussion to identify spending habits to determine what can be reduced or cut, he added.

This exercise is difficult, Demmert said, but it’s a real eye opener in trying to put the odds in their favor of a successful retirement.

“We then check in with the client on an annual basis to determine if they are staying on track,” he explained.

In some difficult situations, simply reducing spending will not solve their problems Demmert said.

“When faced with the reality of the situation most people get motivated and appreciate the input,” he said. “As we explain, it is important to take pressure off of their current asset base to give it more time to grow. This can often be achieved through part-time work, taking roommates, reverse mortgages, or downsizing a home.”

Helping a client rebound from a retirement cash crunch is well worth the effort. In fact, it might be one of the most important services an advisor can provide a client.

“Each situation is different,” Demmert said. “As long as a client can be motivated to take action to protect their future, then they will always appreciate having a partner help keep them on track as they navigate through life.”

Brian O'Connell is a former Wall Street bond trader, and author of the best-selling books, The 401k Millionaire and CNBC's Guide to Creating Wealth. He's a regular contributor to major media business platforms. Brian may be contacted at [email protected].