RETIREMENT
agement in Los Angeles . “ A lot of homeowners budget 1 % of home value annually for maintenance , but the actual number can wind up being quite a bit higher for older homes .”
Healthy Skepticism Another common mistake that inexperienced advisors might make is “ believing everything your client tells you ,” says Skylar Riddle , an advisor at Fort Pitt Capital Group in Pittsburgh and Harrisburg , Pa . “ They are not being intentionally deceitful , but it is your job to question and scrutinize their budgets and goals .”
For instance , he says , a retiree homeowner who no longer has a mortgage might forget to budget for property taxes . “ It ’ s safer to overestimate than underestimate ,” he says .
“ Don ’ t assume you have all your client ’ s money ,” adds David Byrnes at Security Benefit in Topeka , Kan . “ To establish an appropriate retirement plan and the right income strategy , you need to know where all investments and other assets are situated , plus all potential income sources .”
As a rule , clients assume they can live on less in retirement , though most don ’ t want to change their lifestyle . “ They fail to realize that once you retire , it is unlikely you will be satisfied staying home all the time and reading library books ,” says Kate Yoho at TBH Advisors in Brentwood , Tenn .
“ In retirement , the one thing you have is time ,” as Harold Evensky at Evensky & Katz / Foldes Wealth Management in Miami and Lubbock , Texas , puts it . “ Time can cost money .”
Managing Risk Risk management is another often overlooked area , says Michael Green , a managing director and senior wealth advisor at GYL Financial Synergies in Parsippany , N . J ., citing market volatility and inflation .
Clients might also underestimate how long they ’ re going to live and how long
“ No one spends the exact same amount every month . Everyone should take into account the circumstances that make their retirement unique .”
— Ken Robinson , Practical Financial Planning
their retirement savings may need to last , he says . They often don ’ t optimize their Social Security either , he continues , “ claiming benefits too early or failing to consider spousal or survivor benefits , [ which ] can significantly impact overall retirement income .”
To make retirement budgeting more accurate , Lisa Featherngill , national director of wealth planning at Comerica in Winston-Salem , N . C ., suggests a close examination of the client ’ s spending using apps or programs like Credit Karma and Quicken . Some expenses won ’ t be recurring in retirement , such as tuition , but others such as travel may increase , she says .
She says advisors should evaluate how a client ’ s expenses “ will change in retirement and come up with a preretirement run rate and an expected retirement run rate .” A careful analysis of each client ’ s situation , run periodically , is better than employing a rule of thumb such as the standard 4 % withdrawal rate to “ determine how much of the portfolio needs to be liquidated each year to cover expenses ,” she says .
“ No one spends the exact same amount every month ,” says Ken Robinson , founder and president of Practical Financial Planning in Rocky River , Ohio . “ Everyone should take into account the circumstances that make their retirement unique .”
Sticking To A Budget
Most clients find making a budget hard . But sticking to it can be even tougher . “ It ’ s similar to working out , dieting , or anything else that requires hard work and discipline ,” says Charles Weeks Jr ., founding partner of Barrister , an investment advisory practice in Philadelphia .
Client habits are often ruled more by emotion than practical considerations , says Matt Wion , a senior vice president at New York Life in New York City , and advisors “ would do well to tune into the behavioral biases driving their clients ’ financial decision-making .”
Client resistance to budgeting suggestions can cause some advisors to shy away from the necessary in-depth conversations , says Kelli Smith , director of financial planning at Edelman Financial Engines in Raleigh , N . C . But retirement budgeting isn ’ t about being strict , she emphasizes ; it ’ s about guiding clients to become more self-aware .
“ A budget is a tool of empowerment ,” she says .
50 | FINANCIAL ADVISOR MAGAZINE | JUNE 2024 WWW . FA-MAG . COM