I have endlessly been amazed at how often financial advisers focus only on managing money in the market as people approach retirement. Nothing good happens to people in retirement without a proper income plan, and yes, that involves assets that grow, but it also requires intense scrutinization of cash flow and expenditures.
Yes, it is important to have assets, and yes it is important to obtain a satisfactory rate of return. Still, if expenditures are not properly balanced for the amount of assets the persons have, the end result can be disastrous. Unfortunately, I do not see most advisers take the time and effort to actually review their clients’ budgets to determine whether expectations for the assets are adequate or not.
Some Millionaires Can’t Afford to Retire
I meet with people on a regular basis, and rarely do I find them to have a budget. Even though they have worked with a financial adviser for years, they are still guessing how much money they actually need in retirement to cover, not just their basic needs, but also their desired lifestyle. People come to my office, usually as excellent savers. Professionals who have faithfully put away hundreds of thousands of dollars (often millions) in their 401(k)s, and yet they are not sure they have enough.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Why is that? Well, there can be many reasons, but they have at least one thing in common: No budget. I have seen people with $5 million, and as it turns out, it is not enough — because their spending is too high for the assets they have. Yes, they have enough to "get by," but a person or couple who have saved that much often have a lifestyle they want to maintain in retirement as well. Had they just looked at and created a budget, they would not be so surprised that they will not be able to live the lifestyle they are accustomed to now they are entering retirement.
Financial Advisers Sometimes Drop the Ball
Their current financial adviser consistently reviewed their return rate on their investments, but it 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 go up in retirement? What if the market drops dramatically early in retirement? What if my spouse goes into a nursing home or we get divorced? How much of a pension is left if my spouse passes away?
I think you get my point. It starts with a budget and goes forward from there.
Retirement is all about cash flow! When a spouse passes away, taxes go up on the remaining spouse. How do you keep the cash flow intact? Cash flow, cash flow cash flow.
Investments are just a part of the equation. Managing risks to the cash flow is another part of the equation. Knowing and managing expenditures is part of the equation. Unfortunately, it is commonly ignored by financial advisers. If yours has ignored it, bring it up yourself. Get your concerns addressed, and for heaven’s sake, get a budget.
-
Stock Market Today: Have We Seen the Bottom for Stocks?Solid first-quarter earnings suggest fundamentals remain solid, and recent price action is encouraging too.
-
Is the GOP Secretly Planning to Raise Taxes on the Rich?Tax Reform As high-stakes tax reform talks resume on Capitol Hill, questions are swirling about what Republicans and President Trump will do.
-
Social Security Is Taxable, But There Are WorkaroundsIf you're strategic about your retirement account withdrawals, you can potentially minimize the taxes you'll pay on your Social Security benefits.
-
Serious Medical Diagnosis? Four Financial Steps to TakeA serious medical diagnosis calls for updates of your financial, health care and estate plans as well as open conversations with those who'll fulfill your wishes.
-
To Stay on Track for Retirement, Consider Doing ThisWriting down your retirement and income plan in an investment policy statement can help you resist letting a bear market upend your retirement.
-
How to Make Changing Interest Rates Work for Your RetirementHigher (or lower) rates can be painful in some ways and helpful in others. The key is being prepared to take advantage of the situation.
-
Within Five Years of Retirement? Five Things to Do NowIf you're retiring in the next five years, your to-do list should contain some financial planning and, according to current retirees, a few life goals, too.
-
The Home Stretch: Seven Essential Steps for Pre-RetireesThe decade before retirement is the home stretch in the race to quit work — but there are crucial financial decisions to make before you reach the finish line.
-
Three Options for Retirees With Concentrated Stock PositionsIf a significant chunk of your portfolio is tied up in a single stock, you'll need to make sure it won't disrupt your retirement and legacy goals. Here's how.
-
Four Reasons It May Be Time to Shop for New InsuranceYou may be unhappy with your insurance for any number of reasons, so once you've decided to shop, what is appropriate (or inappropriate) timing?
