When we ask about our clients’ financial goals, the one we hear about more than any other is retirement. Almost all of our clients are either:
- retired, and want to know how to stay that way, or
- planning to retire, often in the not-too-distant future, and want to know they are on track.
An article in the June issue of Financial Advisor magazine highlights seven of the most common reasons that some plans for financial independence go off the rails. The article by Evan Simonoff, with the unsettling title “Why Clients Fail at Retirement,” accurately describes some ways in which the best-laid plans can go awry.
- Simonoff spends some time explaining the causes for the increasing incidence of divorce among those near or in retirement. But the bottom line is that for most partners, the process of divorcing is costly, and it costs more to maintain two households instead of one.
- Second homes. In our professional experience, the most important and beneficial real estate clients can own is typically their own main home. For a multitude of reasons, real estate other than the primary residence tends to be more costly, often very much so.
- Supporting adult children. In The Millionaire Next Door, Ph.D. authors Thomas J. Stanley and William D. Danko point out one of the characteristics of people who made themselves unassumingly wealthy: “Their adult children are economically self-sufficient.” Simonoff’s sources likewise find that adult children who need support from their parents drain the parents’ ability to support themselves through retirement.
- Starting a business. While we haven’t seen this frequently among our clients, it’s true that starting a business usually takes substantial capital. Whether or not it’s a good idea to bankroll a new venture by raiding the investment portfolio is a question that, naturally, should be approached with some caution.
- Health care. “Perhaps the biggest wild card is health care,” says Simonoff. While, and in part because, new treatments are being developed every day, the risk of expensive health care and long-term care expense looms over most retirees.
- Overspending assets. The article’s sources rightly point out the importance of living within one’s means. This is one reason we prefer to see clients continue to save from their retirement income, just as they saved during their working years.
- Falling victim to fraud or abusive guidance. Simonoff correctly points out the risks posed by unscrupulous guardians or agents under a power of attorney. Equally risky are the unsuitable investments touted by those “advisors” whose main motivation is to make a sale that increases their personal income.
One of Simonoff’s sources, Greg Sullivan, sums up these types of threats, describing them as “the things you own or maintain responsibility for that are over 50 pounds that constantly need to be fed.” This brings to mind the advice I’ve heard from two of my mentors, financial planning pioneer Bert Whitehead, and Strategic Coach founder Dan Sullivan: “Never own anything that eats while you sleep.”
One item that’s notably absent: inadequate rate of return on savings and investments. And to us, that’s not surprising. On the Top 10 list of factors affecting your financial future, rate of return ranks 10th. There are 9 other considerations that are more important. What they are, and the source of that list, are the subject of next week’s article.