Personalisation is key to planning for life after work

Careful tailoring to clients’ needs is vital for success

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Long term: Susan Kaplan says many of her clients still work part time

Financial adviser Susan Kaplan sees herself as much as a life planner as a financial professional.

Her retiree clients, who represent a large portion of her roughly $1.3bn practice, come with the usual questions any other customer might.

“Should I invest more heavily in stocks or bonds in the current market?”; “How much can I afford to spend, and when can I stop working?” But they have other, often more pressing, concerns.

“One of the biggest vulnerabilities of my clients is gifting to their children,” says Ms Kaplan, whose customers’ accounts often face more risk from grandchildren’s summer camp expenses than from market volatility. “Unless the kids are desperate, it’s best to leave the assets to the kids when you pass away, rather than gifting.”

Medical costs, long-term care, inflation and housing changes are uppermost in retirees’ minds, say advisers who serve this population.

Many of their customers still work part time, fearful of losing income after realising that they have underestimated how much it costs to live to 100.

“Of my retirees, probably 85 per cent of them are doing some type of consulting or part-time work. It gives us some time to come up with what the number is that is necessary to support their lifestyle,” says Ms Kaplan, whose Newton, Massachusetts practice serves clients with at least $1m in assets.

“I urge them to step down gradually for just that reason,” she says.

At Charles Zhang’s fee-based advisory business in Portage, Michigan, personalisation is the theme. Too often, people think they will need retirement income equal to 80 per cent of their final working salary, a figure that does not fit everyone, he says.

Mr Zhang constructs comprehensive plans for clients that include anticipated medical and long-term care expenses. He advises a drawdown rate of 3-4 per cent a year – though the dollar amount increases every year in order to account for inflation.

“Once you retire you pretty much live on fixed income,” Mr Zhang says. “We always tell clients to be conservative and take 3 per cent out.”

Inflation impacts on living expenses more than most people think, he adds. While inflation might rise by 2 per cent or less per year, food costs rise faster than infrequently purchased items, such as consumer electronics, which often decrease in cost.

The transition into retirement can be psychologically jarring, and the change from accumulation to decumulation of wealth requires substantial guidance, says adviser Laila Pence, whose California-based business works with high-net-worth clients.

“It is quite a transition. Psychologists say it’s the second most serious thing to happen to people after [someone close] dying,” says Ms Pence. “You’re used to working. You’re used to having income, and now you’re in retirement having to live off of your investments.”

When a person stops working, their assets need to go to work instead, Ms Pence tells clients.

In the current market, that can mean investing in dividend-paying stocks, real estate investment trusts, master limited partnerships or other financial products that can generate cash flow.

Life expectancy is constantly increasing, and the risk of running out of money in retirement follows, she says.

“We have many clients in their 90s – our oldest male client died at 101. The days of thinking you’re going to retire [at 65] and die at 76, 78 or 80 are gone,” she says.

The majority of adviser John Gill’s client base can afford to stop working entirely at retirement, but some realise on approaching pension age they have saved too little.

“A small minority of my clients don’t have the assets to accommodate their lifestyle,” says Mr Gill, senior managing director at the Virginia Beach office of BB&T Scott & Stringfellow.

“You try to educate them about how long [their assets] will last. Since you can’t predict when you’re going to pass away, you have to be careful with that number.”

Long-term care can cost retirees $5,000 or more a month, and many end up selling their homes to fund the expense.

It is a number Ms Kaplan brings up when clients ask whether they should buy a home when relocating.

“People need a financial adviser who will co-ordinate all those pieces, even to the extent of, if they want to move to be near their grandchildren, whether they should buy or lease,” she says.

“The odds of one at least having to go into assisted living are high. Do you really want to buy a house that you’re going to need to liquidate?”

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