Nobel Prize winner William Sharpe puts it best: the risk of running out of money in retirement is the “nastiest, hardest problem” to solve in finance.
Indeed, advisors spend significant time plotting retirement saving strategies, however, developing sustainable income strategies for the distribution of savings is just as critical.
According to Dan Moisand, CFP and principal at financial planning and wealth management firm Moisand Fitzgerald Tamayo, advisors are devoting more time on retirement income strategies than ever before, which he says began when baby boomers started retiring en masse, amplifying the number of people facing retirement challenges.
“Advisors have two hurdles to overcome,” says Moisand. First is the technical aspect of how to generate cash flow in retirement while sifting through all the options. “Advisors face lots of assumptions, variables and moving parts.”
Secondly, there’s a psychological element where retirees who have saved their whole lives are now faced with spending their savings, a difficult transition for many.
“It’s a hard switch, because they are adjusting to not working and seeing the value of their ‘nest egg’ change more in a month than they spent on their first house.”
Jamie Hopkins, CFP agrees. “It’s a rude awakening for individuals to start spending down their assets and making withdrawals.”
Hopkins, who is Director of Retirement Research at Carson Group, has written extensively on retirement strategies and is a finance professor of practice at Creighton University’s Heider College of Business.
“Income planning is getting more traction as we move away from pension plans and the onus of generating retirement income has shifted to the retiree,” adds Hopkins. Advisors are evolving their retirement income approach as well.