In addition to the details of a comprehensive advanced planning strategy, clients may wrestle with such personal challenges as the best way to transfer assets to children and their preparation to manage them, which we examined last month. Another primary concern is retirement–how to live it and what it means to retire with significant assets.
The way that some affluent clients think about retirement is surprising. Advisors have observed how many clients with a high net worth still harbor some anxiety about their retirement income and expenses–although their standards of living would certainly be secure by most measures. A Northern Trust Survey of high-net-worth individuals averaging more than $5 million in investable assets discovered that 92% of pre-retirees were very or somewhat worried that the steep rise in healthcare costs would affect their ability to enjoy their retirement. Even though they have the assets to purchase substantial amounts of health and long-term care insurance protection, they're concerned about the uncertainty in their future.
Retirement planning for affluent clients "is like solving a puzzle. We need all the different pieces sitting on a desk," says Peter Carnathan, a planner with Fiduciary Trust Company International in Washington. The puzzle pieces include more than just assets and goals, however. In terms of client attitudes, he finds that more and more of them just think of retirement and age as states of mind unbound by biology and social convention. Those attitudes need to become part of the planning mix to create the strategies that will work for these clients.
Emotional ROI
Another high-net-worth advisor, Greg Kyde of Kyde Capital Strategies LLC, in Boulder, Colorado, sees a major issue arising as pre-retirees' transition from focusing on career and wealth accumulation to the post-retirement phase, which requires them to redefine themselves professionally and financially. "These folks typically spent their adult lives assessing and evaluating opportunities, calculating risks, comparing potential returns, all with an eye on creating wealth. Retirement sort of flips the switch. They begin to consider more heavily what I call the softer side of return, the emotional side."
Often, it's the first time that they've really delved into the emotional return on their assets and it becomes a challenge. Like many retirees, they question what they should do with the rest of their lives, although their accumulated wealth allows them a greater menu of possible answers than the average American.
Fears regarding dips in their retirement income stream can also affect how advisors plan for them. Before they retired, many affluent clients had regular salaries. Often, they want something to replace that paycheck–and they expect their investment portfolio to provide that safety net and income for them. They may have a $10 million net worth, but they still want to receive a "retirement salary."
Philanthropy and Retirement
Those with substantial assets often think about philanthropy and retirement together. In a survey of affluent individuals with an average of $11.78 million in investable assets, 21% cited retirement as the reason they would increase their charitable donations (Source: U.S. Trust Survey of Affluent Americans, April 2007).
For such a client, retirement and charitable planning could include helping them decide whether to make contributions to a community foundation or creating a family foundation of their own where loved ones participate in running the organization. As much as the financial aspects, the client may want to weigh the emotional return of each charitable avenue to see which best suits her retirement lifestyle. "It's a challenge at times to get someone actually to spend the time, slow down, and be introspective," notes Kyde.
Philanthropic interests often come to the fore in retirement, especially when driven by a client's genuine interest in a particular organization or cause. A client of Kyde's in his early 60s, for example, has a net worth of about $20 million and was considering retirement. He needed to decide what to do with assets in a way that would be meaningful to him. He found his goal: sending as many people to college as he could, starting with his nieces and nephews. The scope of his retirement and the source of his happiness during these years went far beyond personal comfort and leisure activities.
