I have been amazed over and over again at how often financial advisers focus solely on managing the money in the market as they approach retirement. Nothing good happens to retirees without a proper income plan, and yes, it does involve growing assets, but it also requires careful consideration of cash flow and expenses.
Yes it is important to have assets, and yes it is important to get a satisfactory rate of return. Yet if spending is not properly balanced against the amount of assets people own, the end result can be disastrous. Unfortunately, I don’t see most advisors taking the time and effort to review their clients’ budgets to determine whether or not asset expectations are adequate.
I meet people regularly and rarely find that they are on a budget. Even though they have worked with a financial advisor for years, they are still guessing how much money they really need in retirement to cover not only their basic needs, but also the lifestyle. they wish. People come to my office, usually as great savers. Professionals who have faithfully set aside hundreds of thousands of dollars (often millions) in their 401 (k) s, and yet they aren’t sure they have enough.
Why is that? Well, there can be many reasons, but they have at least one thing in common: no budget. I’ve seen people with $ 5 million, and it turns out it’s not enough – because their spending is too high for the assets they own. Yes, they have enough to “get by”, but a person or couple who has saved so much often has a lifestyle they want to maintain in retirement. If they had just looked at and created a budget, they wouldn’t be so surprised that they couldn’t live the lifestyle they are used to now that they are entering retirement.
Their current financial advisor systematically looked at the rate of return on their investments, but rarely went beyond that. They never checked the “what ifs”. What if I die too young? What if I live too long? What if my taxes increased in retirement? What if the market drops dramatically when retirement begins? What happens if my partner moves into a retirement home or if we divorce? How much pension is left if my spouse dies?
I think you understood me. It starts with a budget and moves forward from there.
Retirement is all about cash flow! When a spouse dies, the taxes of the remaining spouse increase. How do you keep the cash flow intact? Cash flow, cash flow cash flow.
Investments are only part of the equation. Managing risk to cash flow is another part of the equation. Knowing and managing spending is part of the equation. Unfortunately, it is generally ignored by financial advisers. If yours ignored it, lift it yourself. Address your concerns and, for heaven’s sake, get a budget.