Life, as one learns soon enough, rarely rolls out according to plan. A stroke of luck, good or terrible, can change things in a flash. Life during retirement is no exception.
Meet affluent clients Connie Green of Neptune Beach, Fla., and Wendy and Michael Hale, who live in a suburb of Portland, Ore. Working with veteran financial advisors based on opposite sides of the country, these seniors saw their first retirement years shift in a direction they surely had not anticipated.
Green's FA is John C. Barrett, 44, a senior vice president with Merrill Lynch's private client group in New York City. In Portland, the Hales' advisor is Bob Haley, 60, an independent whose Advanced Wealth Management is affiliated with Commonwealth Financial Network. Retirement funds account for about half the $1 billion in assets managed by the six-member Barrett Group. Haley, a solo producer, manages assets of about $70 million, of which 60 percent are retirement monies.
With Merrill for 21 years, Barrett caters to high-net-worth and ultra-high-net-worth clients. Haley, a former Dean Witter advisor, has been in the business for 25 years. He opened his own shop in 1990 and serves a wide range of clients, about 30 percent of them with a net worth greater than $2 million.
Barrett considers his role in the retirement-planning scenario to be that of partner. "We enable clients to envision their ideal life style, help them to understand the likelihood of achieving those dreams and goals, be disciplined, and make sure they don't overspend in retirement. We put a lot of focus on risk management."
According to Haley, the biggest challenge to advisors tackling retirement planning is managing retirees' expectations. That's typical of working with all clients; but when it comes to retirement, "one aspect is how much they can spend; the other is what they have a right to expect from their investment portfolio."
Apart from investment expertise, Barrett and Haley bring an additional, deeper dimension to clients: sensitivity.
"We help our retirement clients prepare emotionally for the financial issues," says Haley. To be sure, notes Barrett: "We're part of our clients' lives. We develop a deep bond. Our hearts are intertwined with theirs."
An Unexpected Twist of Fate
That became abundantly clear when Connie Green's story-book retirement was suddenly turned upside-down. Her husband, Stanton, former chief of orthopedic surgery at St. Vincent's Medical Center, in Jacksonville, Fla., opted to retire at 57. "After a certain age, you're not allowed to operate anymore, and he couldn't see himself sitting on the sidelines," says Green, youthful and energetic at 69.
But Stan didn't want to just relax and kick back. He wanted to buy a ranch and become a cowboy. Connie, a Jacksonville socialite with a master's degree in literature who was the first female board president of the city's symphony, was reluctant. "I didn't grow up riding horses; I grew up with the ballet! But Stan saw this as his future. He loved adventure -- and I loved Stan," says the one-time English teacher.
So the Greens sold their considerable assets -- including a historic Georgian home on the river -- and bought a 5,000-acre Colorado ranch and rights to another 25,000 acres for grazing. In 1994 they relocated there to raise cattle. "Financially they could certainly afford it, and I fully supported it," says Barrett, who acquired the Greens as clients through the couple's ex-Merrill Lynch advisor son.
The two dug in, working their 350-head commercial angus operation 24/7 -- roping, branding, breeding, feeding cows and bulls three-and-a-half tons of hay a day -- not to mention castrating steers ("Stan's medical background," says Connie, "stood him extremely well.")
Before long, they were able to make a modest profit selling calves. Then, just seven years into "retirement" -- two days before Christmas 2000 -- Stan died. Connie had preceded him to Jacksonville to spend the holidays. Stan, coping with last-minute work at the ranch, planned to follow in a few days. The night before he was to leave, he was beset with stomach pains. Just the flu, he thought. Airlifted by helicopter to a hospital, in flight he suffered cardiac arrest. The probable cause, Connie says, was an infected lesion, the result of a ruptured appendix years before.
Her husband of 42 years gone, she turned to work for salvation and carried on raising cattle -- all by herself except for one hired hand. Two years later, when the huge tractor she was driving, loaded with a ton-and-a-half of hay, slid down a snowy hill one day, she thought: "Why am I still here?"
So she sold the ranch and sent the lump-sum proceeds to advisor Barrett in New York. Though she'd handled bookkeeping for both the ranch and medical practice, Stan had overseen the investments. So "I wasn't equipped to deal with that amount of money [from the ranch sale]," she recalls.
She moved back to Florida, bought and rebuilt a house on the ocean and started over. During the transition, Barrett "was a life-saver. We would talk on the phone constantly," she says.
But Green's financial upheaval occurred at a bad time: the 2000-2002 market correction. "Had we put all that money from selling the ranch into the stock market, it would have been a catastrophe," says Barrett, who looks after Green's account on a transaction basis.
"We needed stability and protection, especially with what Connie was going through. Her other strains were so great that I wanted to make sure her financial strains weren't. First and foremost, we had to be certain that her accounts preserved the principal and gave her income and that she was able to recover from those life-changing events," he says.
Previously the Greens' portfolio was balanced between stock and bonds. Now Barrett overweighted bonds, putting Connie mostly in tax-exempts. As the market improved, he gradually increased the percentage of stocks.
Two Phone Calls, Unexpected Income
Meanwhile, at about the same time, diagonally across the country, the Hales were going through major changes of their own. In 2000, the couple, both then 58, decided to retire. Like Dr. Green, Michael was starting to feel a tad uncomfortable at work. A middle manager in database marketing at the Bank of America, he'd survived three company mergers in 18 years. But "the reality was that my job was going to go away in the next couple of years -- Portland is not a major hub for Bank of America," says Hale, 63, who was investing in a 401(k) plan.
He met the bank's rules of retirement: age plus length of employment. "Essentially," he says, "I negotiated being severed into retirement."
That was in December 2000. The following month, Wendy retired from her job at the City of Beaverton's public library, where she worked in technical services. The Hales sold their house and bought a smaller one in a planned community in suburban Hillsboro. Then they took off -- day trips to the mountains, the desert, the ocean -- and they made five sojourns to California.
Another big change at this juncture was their decision to work with a financial advisor. "We had [money] all over the place -- in this account, that account," says Wendy, 64. "I thought, God forbid, if anything happens to Michael, I wanted to get everything under one person in one place, improve [our returns] and actually have a plan."
Michael says candidly that what he expected, in part, from an FA was "to respond to any wild idea I may have and then help me understand how it [might] fit in the context of what we have. It's always a question of balance and long-term goals."
A neighbor referred the Hales to Bob Haley, who had practiced law before joining Dean Witter for a year, just after its merger with Shearson. "They wanted guidance on a reasonable way to approach retirement. Although Michael is very capable of managing the investments himself, he decided he'd like to use my strategy and style," says Haley, who opened a fee-based account with the pair.
"We had to clarify what their cash-flow needs were going to be -- whether they would immediately need to take money from their investment assets or if we had some time to allow things to grow," recalls Haley. In general, "I encourage clients to invest in high-dividend stocks, bonds and other income-type securities and to spend only what they need or only their net cash flow -- whichever is lower. The industry believes that people can safely withdraw 3 percent to 5 percent a year from their investment accounts. I disagree."
The bulk of the Hales' assets are in IRAs and Roth IRAs. Wendy was attached sentimentally to some stock she'd inherited; but Haley recommended that she sell at least part of it. She took the advice, and the holdings are now in a joint account. There is also some Bank of America stock that Michael left with the bank to continue servicing.
Then: A year after Michael retired, he received a pleasantly surprising phone call. Would he return to the bank to work half-time for 12 months? His replacement had been called up in the military.
"The pay was very good," notes Hale. So for the next year, he happily worked part-time. Later -- he was back in retirement only four months -- the phone rang again. Would he return to B of A for one more year, this time as an independent contractor? A major conversion project was underway, and his skills were needed.
Yes! "The big advantage was that I didn't have to take any money out of our retirement investment account. I hadn't expected this to happen. We would have been OK without it, but it was nice to have the income. Both those jobs were a very good stroke of luck," says Michael, who went into full retirement in 2004.
During the periods that he was back at the bank, value-oriented Haley invested some of the couple's assets "more for growth, but still with an eye that income was going to be needed."
Today, they are elated. "Our assets have gone up 50 percent. Wendy has a state pension, and we both took Social Security at 62. So," says Michael, "we have a guaranteed cash flow; and the rest is income off the investments. We haven't touched the principal at all."
He watches the markets carefully and stays in touch with Haley. When he wanted to buy Apple -- a company he really likes -- about two years ago, Haley pointed out that he was already invested in tech. Nonetheless, the FA bought the stock because Michael had "an emotional involvement" with the company.
However, this past winter, when Michael raised the question of perhaps "capturing some profits and building up a cash" reserve, Haley reminded him that he "had a big cash cushion and was generating good cash flow. Also," says the advisor, "Michael and I had earlier talked about the fact that the market can drop at any time. So we made no changes."
When the market did take a slide in February, Michael asked, "Should we be buying anything now?" Recalls Haley: "Basically we had the same conversation," as before. And the two agreed that where the Hales were was "just fine."
Financial Peace of Mind
Whether clients are investor sophisticates, like Hale, or not as financially savvy, like Connie Green, "people's emotions are very similar, and they need stability in the retirement years," notes John Barrett. "You don't want to look up at 70 and see that all your assets are tapped out. So sometimes I feel like I'm playing 'Spending Police.'"
These days, both Green and the Hales are enjoying their retirements to the max. Connie, who self-published a memoir, You've Got to Be Kidding! From Mending Bones to Mending Fences, plays tennis, takes European holidays and this summer plans to head back to the ranch to ride horseback. As for her investments, she says, brightly, "Despite fluctuations in the market -- like [this past February] when the stock market went boom -- I had a profit."
The rain-loving Hales take long strolls in Portland, dine out a lot and see plenty of movies. They even host their own Oscar parties every year. As for finances, Wendy says she feels "a real sense of peace and comfort. Bob has done very well for us. Michael is into the nitty-gritty of investing, and the two of them have great conversations. My goal about putting our money under one person and improving our investments was met. So we both reached our goals. And that's a really good thing."
Retirement Advice Critic Offers Advice of His Own
Boston University economics professor Laurence Kotlikoff wants folks to have "a smooth ride" -- a stable standard of living -- when they retire. That objective is based on economic principles. But Kotlikoff's research suggests that investment companies' calculators and most financial-planning software are leading to inappropriate recommendations that make people over-save -- usually four times too much for a standard middle-class household -- and many low-income consumers under-save. This makes for a bumpy ride.
Not only that, he insists "it represents systematic financial malpractice, pure and simple. The next step is telling people to invest in higher yield, riskier securities in order to raise the probability of meeting their target, which is too high to begin with. That's soliciting risk. They want to sell securities that generate higher commissions. Anybody that's both selling product and giving advice has a conflict of interest."
Kotlikoff is hardly an impartial observer: The economist is selling patented software that he says provides more precise and realistic recommendations as to how much should be saved for retirement (www.esplanner.com). The programs are available to individuals and to advisors under a licensing agreement.
"I have a vested interest here," he admits. "But traditional methodology to calculate savings has very little to do with economics, and it's getting people to take on more risk than appropriate. We want to strike a balance."
Jane Wollman Rusoff is a Los Angeles-based contributing editor of Research and is the founder of Family Star Productions.