One perk of being a financial advisor is that of also getting to be a vacation sales consultant.
I am not saying the vacation sales gig is easy but it is rewarding, and often necessary to help clients follow through on their retirement plans. I have been fortunate enough to work with many retirees who are A+ savers and careful decision makers. These laudatory qualities can lead to retirement surpluses, financial freedom, and occasionally trepidation over much deserved vacations. Retirees or those approaching retirement are often fantastic at accumulating wealth and at the same time absolutely frightened to enjoy retirement savings.
The academic research available regarding retirement distribution theories are abundant and ever expanding. Planners have embraced sophisticated financial technology that can provide all the number crunching needed for retirement projections. For some retirees these projections, based on the growth of an optimized portfolio, indicate that they will not run out of money in retirement. The planning information, research, and calculators available today are great first steps to help retirees live their dreams, but Advisors should also be prepared to deliver behavioral coaching and reassurance to clients who are hesitant to spend.
One of the largest obstacles to overcome in retirement distribution planning is Mental Accounting Bias. Mental Accounting Bias is a behavioral bias that causes investors to separate money into different accounts or “buckets” based on subjective ideas or factors. During a financial planning review with clients (we can call them Jack and Jill) I found myself pulled into a discussion about risky and unneeded income opportunities. Jill wanted more yield by any means necessary out of a brokerage account so the interest could be transferred into the money market account before the end of the year. After asking a few questions I found out that the money market account needed to get to a certain point before the couple was going travel to Germany for a dream vacation. For Jill, portfolio risk was re-defined as the risk the investment portfolio would not produce the interest necessary to travel to Europe during the Christmas season. Jack and Jill had a pension that met almost all their lifestyle needs, with significantly more invested assets than they were ever going to use. Their hesitancy to take a dream vacation came from a reluctance to spend money from an “investing bucket” earmarked for vacation funds. It took a while to agree on some flexibility to Jack and Jill’s retirement plan and sell some appreciated investments for the vacation, finally though we agreed that the recent market growth and their plan surplus made it a reasonable time to take a distribution and go cruising down the Danube.
As financial advisers we know many of our clients have fared well in their investments relative to their unique personal goals and objectives. There is much research to show that a flexible distribution plan is preferable to a rigid draw-down strategy, and that it makes sense for retirees to spend more during good return times and less during bad return times. For many clients, right now may be a wonderful time to draw from investments that have performed well in order to fund a dream trip or a long desired Harley Davidson, or some special purchase for a loved one. Planning guidance often involves the behavioral coaching necessary to overcoming the entrenched biases that can be a roadblock to clients achieving goals and dreams.
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As an Executive Vice President with Planning Solutions Group Paul leads a team of professionals serving affluent clients in the areas of investment, retirement, estate and tax planning. In addition to providing comprehensive planning to his clients, Paul serves as a member of the PSG Investment Policy Committee, where he helps shape firm wide investment policy.
Paul holds the CERTIFIED FINANCIAL PLANNER TM (CFP ®) designation and the internationally accredited CERTIFIED INVESTMENT MANAGEMENT ANALYST (CIMA®) designation, which he completed through the University of Pennsylvania-Wharton Certified Investment Management Analyst executive certification program. Paul graduated with a Bachelor’s degree in Political Science from the University of Richmond.