ment budget crisis were among the subjects discussed at the Horizons retirement conference, hosted by the American College of Financial Services in Coronado, Calif., in early March. Despite the financial independence many advisors helped their clients achieve, there was an undercurrent of fear about troubles in the macroeconomic environment.
Michael Finke, a professor of wealth management at the American College, observed that the capital market assumptions of Wall Street’ s finest minds had been“ consistently pessimistic. No one has any idea.” On the positive side, he noted how advisors had come to focus on areas of specialization where they could tangibly enhance people’ s lives, areas like Medicare planning and when to claim Social Security, and better help people evaluate retirement lifestyle choices— like whether to stay in their homes or move into a continuing care community.
What’ s keeping most of these clients up at night?“ They don’ t want to screw up once-in-a-lifetime decisions,” he said.
Recency bias makes it easy for clients with plump portfolios to succumb to overconfidence and complacency. Several advisors at the Horizons event viewed the big 16 % to 28 % gains in U. S. equities in five of the past six years as a potential sign that sequence-of-returns risk could lie in wait for new retirees.
The last time the U. S. stock market strung together two back-to-back years as good as 2023 and 2024 was in 1998 and 1999. That was followed by two 50 % declines in the S & P 500 over the next eight years, the only time two such setbacks have occurred in the same decade since the 1930s.
“ Thirty years is a really long time,” noted Michael Kitces, publisher of the Kitces Report, who along with Finke spoke on a conference panel about retirement sustainability and resilience.“ There is a big difference between what happens over 10 years and over 30 years,” Kitces said.“ I’ m assuming the next [ several ] years will be bumpy.”
As 2025 began, signs were surfacing that some of those bumps in the road might be nearer than anticipated. From all indica-
“ I don’ t think it’ s a good idea to push all this wealth into a client’ s 80s or 90s. Don’ t hold the early years of retirement hostage. Spending for most retirees goes down” as they age.
— Michael Finke tions, officials in the recently inaugurated Trump administration, including the Treasury secretary, are no longer looking to the equity markets for affirmation in the way the president did in his first term.
In the second half of last year, more than a few advisors asked clients, many of whose portfolios had returned 30 % or more after the 2022 bear market, if they wanted to rebalance and derisk their portfolios. Several advisors said it had taken the 10 % stock market correction in early March to capture clients’ attention and open them up to a conversation about reallocation.
The choices aren’ t so clear-cut, as the conversation between Finke and Kitces revealed. Many advisors like to model success rates of 90 % or more into client portfolios using Monte Carlo software. But this could prompt clients to live below their means, almost as if they were planning to enter an extended“ lost decade” like the 2000-2009 period or even worse.
Longevity assumptions also play an important role in modeling— since more advisory clients are likely to live into their 90s. A financial plan that envisions a client living to 100 could leave“ a lot of life on the table,” Finke said.
He openly questioned this strategy and remarked that an initial spending level at 5 % of financial assets( not the commonly accepted 4 %) might be more appropriate for newly minted retirees.“ I don’ t think it’ s a good idea to push all this wealth” into a client’ s 80s or 90s, he continued.“ Don’ t hold the early years of retirement hostage. Spending for most retirees goes down” as they age.
However, a client’ s health issues can be just as powerful a constraint as declining wealth when it comes to their quality of life( and their ability to complete their bucket lists). Kitces noted that his aunt and uncle, both in their early 80s, were headed on an African safari this summer despite his uncle’ s“ really bad knees.”
Retirement Failure Or Adjustment?
It’ s important to realize that most new clients haven’ t experienced retirement“ so they are not very good at it. Neither have their advisors,” observed Jamie Hopkins, the CEO of Bryn Mawr Capital Management, who also spoke at the Horizons conference.
That’ s why framing retirement in terms of success or failure is a major mistake, said Kitces, who said advisors should stop referring to the“ probability of failure” altogether and instead“ start calling it the probability of adjustment.”
“ I tell people there is a 10 % chance they’ ll have to sell their vacation home in their 80s or 90s,” Kitces said.
Finke urged advisors to use optimism to map out the future.“ The No. 1 thing consumers are looking for when they hire a financial advisor is,‘ How much can I spend in retirement?’” he said.
If there is a severe economic downturn, clients may have to spend 20 % less, Kitces observed. But the pain likely will be widely shared— their friends might not have the money to spend on fancy dinners or other expensive outings at all.
David Blanchett, managing director and head of retirement research at PGIM,
Continued on page 59
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