Five Questions for the Top Retirement Income Advisor

Do you face any frequently occurring retirement planning mistakes with
prospects?

The continuing mistake that people make is not understanding what the money truly means for them. So many prospects focus instead on the idea that it’s about the money. It isn’t.

When someone begins the process of really articulating what money is about for them in their lifetime, it’s an empowering process to get clear on what they should be doing with their money. For example, I had a retired prospective client call me recently who had heard about our solid investment portfolio management results and wanted to have us to manage ‘some’ of his money.

The person asked me how much investment return we could get on a growth portfolio. I asked this person, how little return could you get away with and still be completely financially secure?” There was silence on the other end of the line. After about 10 seconds, and I didn’t say anything during his silence, he said he’d never been asked that question before. “I never thought about it that way,” he said.

So I asked him, “Well, why would you take any investment risk that you don’t need? If you could get an investment return of 5% over the next twenty years and get everything you want out of your life, why wouldn’t you want to do that? I think the biggest mistake that we continually see is that investors really don’t understand how the money needs to work for them so there comes a day that they don’t have to work for money.

What challenges do you face when modeling or forecasting clients’ retirement
income and cash flows?

In mapping out the achievement of complete financial independence it is absolutely necessary for the advisor and the client to collaborate on completing a Retirement Income Cash Flow Analysis. This means first identifying all of the client’s monthly committed and discretionary expenses. Then, looking at each expense and asking, “Will you go up, go down, go away, or simply stay the same during retirement?” And then, there’s deciding on a number.

It isn’t rocket science. We’re simply having a conversation about what happens to each expense when this person wants to be no longer earning an income and begin enjoying the envisioned lifestyle during retirement. For example, travel might go up 40% for the first five years of retirement, and then 20% thereafter, and then continue on as they were before retirement. Social Security tax withholdings go away. Food stays the same.

We’re thoughtfully working together through a process to determine how much money a person is going to need to enable their lifestyle during retirement. This conversation is pouring the cash flow foundation upon which we can build cash flow projections and make adjustments over time. We can also, in building the foundation, articulate that there may be several years early in retirement when certain expenses will be greater during that period than they will be later in retirement.

We can build all those different variations and dynamics into our cash flow projections and give a person a meaningful and realistic picture of what their Income and Expenses Statement in not only the first year but also for the fifth, tenth, sixteenth, and so on. The process is dynamic, and so it requires keeping the conversation going — that is, to review those assumptions, make certain that the projections are proving valid, and see if there are changes required to refresh the projections and determine the implications of those cash flow needs on investment policy.

What mix of products and solutions do you use most often and why?

First and foremost, it’s incumbent upon any financial advisor to be beholden only to the client in determining investment vehicles or other financial instruments that are appropriate for our clients particular financial situation. That means that a financial advisor ought to not be employed by any single financial institution.

I think the profession needs to draw a line in the sand and insist on nothing other than that kind fiduciary independence. No matter how good hearted and how much integrity someone might have, human beings are human beings and there are inherent, deeply imbedded conflicts of interest when an advisor is employed with a particular financial institution. I know this. I’ve been there. I’ve done that. I’ve experienced all the models and it’s no mystery what is the right thing and what is everything else.

So, a financial advisor must be able to reach out into the marketplace and prescribe whatever is an appropriate instrument or vehicle for our client’s situation.