Once upon a time, people retired at 65 with a reasonable expectation they could live out their remaining 12 to 15 years comfortably, thanks to their pension, Social Security and a steady flow of dividends and interest from safe, conservative stocks and bonds.
No more.

It's not just the volatile stock market, rock-bottom bond yields, potential Social Security and Medicare cutbacks, rising health-care costs and the phasing out of pensions in favor of 401(k)s that've changed. We're living longer, more active lives than ever before; the average retirement could last 30 years or longer, and is more likely to involve jet skis than rocking chairs.
Is it any wonder the No. 1 concern among many retirees is simply making ends meet?

"This is the single biggest fear for virtually all Americans over the age of 50," asserts Charles Lewis Sizemore, chief investment officer at Sizemore Capital Management in Dallas. "We've all heard nightmare stories about elderly people being reduced to eating dog food in retirement. While most people don't go so far as to worry about a scenario that bad, they do worry about running out of money and being a burden to their children."

How can financial advisors-used to retirement planning aimed at a future event-help clients manage their money better during retirement?

Depleting Principal
Basically, there are two sides to the issue. One is asset management; the other, budgeting. "Baby boomers are spenders," says Zach Parker, director of annuities and insurance at Securities America in Omaha, Neb. "They aren't as concerned about keeping their principal intact as their parents were; they're more concerned about fulfilling their spending needs."

They are, he adds, accustomed to a lifestyle they can scarcely afford when their earnings power shrinks to near zero. "A baby boomer who's been making $300,000 a year for the past ten years has grown used to a certain standard of living that, in retirement, his or her assets might not be able to support," says Parker. "Studies show that less than half of them have enough to meet their spending needs."

Telling a spender who is saving but still spending much more than they will be able to afford in retirement to start budgeting may not be easy. But Parker insists that's exactly what advisors must do. "If they don't-if they let somebody go down in flames-they could be in big trouble. This is the next big risk facing advisors," he says.

Confronting Spendthrifts
There are many ways of handling these difficult situations. But the savvy advisor must first take into account each unique situation. "There are a lot of different scenarios we're working with in the current economy," observes Graydon Coghlan, CEO of San Diego-based Coghlan Financial Group. The retirement might not be voluntary; it could be a layoff, or the result of an early-retirement offer. Perhaps the retiree is depleting principal to help an adult child who's been laid off.

Yet such modern-day challenges can also be a springboard to constructive dialogue. "The suddenness and severity of the financial decline brought these issues home for people," says Sue Brauner, vice president of the Brauner Co., a financial advisory in Redwood City, Calif. "It's opened the door to some tough, heart-to-heart conversations."

Brauner says many retirees are already tightening their belts as a result of the economic crisis-learning to distinguish between wants and needs-but others aren't. She tells of a retired widow who spent her assets down to $150,000, then bought a Corvette. "It feels great to drive, and all the guys look at me!" the retiree explained.

With clients like that, Brauner relates, she almost has to "shock them, get them to feel for a moment how awful it'll be to run out of money-then talk about taking corrective action," she says.
For her, the talk often begins like this: "You are on track to run out of money. What will you do when you no longer get a check in the mail? Do you have family you can move in with? Do you have friends who will help you? How are you going to keep a roof over your head?" It's hardball, but she says these questions "get clients' attention in a way that a spreadsheet of numbers won't."

At times, such a direct approach produces tears. That's a good sign, says Brauner. "It means I've reached them. If I can get them to change their behavior, I feel like I've saved their financial life."

Bringing Bad News 
Other advisors make the point with graphic, interactive demonstrations. "I have a computer monitor in my conference room," says Brent Lindell, an advisor at Savant Capital Management in Madison, Wis. "I pre-fill in the client's information and then run multiple live 'what-if' scenarios using different rates of return and amounts of annual distributions. I'm trying to give my clients a range of expectations [for what] can result from the decisions they make today."

Discouraging frivolous purchases such as sports cars, boats or vacations is one thing, but for clients who are supporting charities or loved ones, a different tack might be called for. "Clients with spending issues often are big givers to children," says John Burke, president of Burke Financial Strategies, in Iselin, N.J., who discourages withdrawing from principal as much as possible. "We explain to them that they run the risk of running out of money, and if they do they would become a burden to their children."

Staggering Distributions
Making money last through retirement isn't only about slashing spending. Equally important is how clients' assets are distributed. Many do best with regular distributions in predictable amounts. "It instills a budgeting mentality," affirms Jason Whitby, senior financial advisor with Miami-based Investor Solutions. "The amount can vary up or down as time goes on, but it should be managed and [in] small increments."

To set up regular withdrawals like this, advisors should work with their clients to develop a custom plan. "The first step is to help clients create a detailed financial plan based on their core values," says Michael Kay, president of Financial Focus, in Livingston, N.J. Discussions should zero in on "the financial 'musts' in their lives," he adds, and then ensure that "cash flow is appropriate to those needs, with sufficient reserves available to get through difficult markets."

Clarity is key, but that doesn't mean rigidity. An oft-quoted rule of thumb is that retirees may withdraw 4% of their assets in the first year of retirement, and then increase that number as necessary to keep up with inflation. Kay insists such formulas only sound rational but could be "dangerous for those who don't fit the exact situation consistently. Each client's situation must be analyzed and applied to his or her circumstances."

Indeed, in bull markets that 4% will mean a larger cash amount, which could undermine the spending discipline. Many advisors suggest it's better to reinvest excess returns as a cushion against the inevitable downturns.

On the other hand, the current recession could leave retirees feeling underfunded. "It is here that investors must be conscious of the balance between risk and return," cautions David Katz, senior portfolio strategist at Weiser Capital Management, in New York City. "We would certainly not suggest that clients take on unnecessary risk when retirement budgeting in order to reach for yield. A sound and well-allocated plan can weather the volatile times while providing for income needs."

Asset Allocation 
Yes, asset allocation is as important during retirement as it is in the pre-retirement, wealth-building phase of life. "Clients should diversify their income sources just as they do investment asset classes," says Judith McGee, CEO and chair of McGee Financial Strategies in Portland, Ore. "A strong mix with consistent cash flows is what we look for."

That strong mix should be selected with an eye to the calendar. "Utilizing a strategy that segments the client's assets for the short term, midterm and long term" is what Jim Easterling, a family wealth director and senior vice president in the Atlanta-based Petra Wealth Management Group of Morgan Stanley Smith Barney, recommends.
What once could be accomplished by "laddering" bonds with staggered maturities-to live off the returns-is no longer sufficient. "It's why we've gone to time-segmented withdrawals," explains John Jenkins, president, CEO and owner of Asset Preservation Strategies in San Diego. "We generally use single premium immediate annuities for each five-year segment of income withdrawal. The money that needs to replace this income, beginning year five, is invested conservatively in income funds or income-oriented portfolios and can include annuities with living benefits."
For the longer-term horizons-funds needed in ten, 15, 20 years and beyond-Jenkins recommends "balanced, growth and income, growth and aggressive growth" investment strategies, respectively. "These segments are given the benefit of time," he explains.

In addition, Jenkins suggests maintaining a sort of rainy day pool, just in case. "We recommend retirees keep eight months of living expenses in cash. It allows us to stop withdrawals during black swan events for up to six months and gives the portfolio breathing room to recover with the market before withdrawals resume," he says.

Annuities Vs. Growth
Of course, clients' asset allocations will depend partly on their risk tolerance. For clients who prefer a sure thing, some advisors favor annuities even for the long term. "Deferred annuities are methods clients can utilize to guarantee a payout in the future," says Kyle Fatoullah, a financial representative at Forest Hills Financial Group in New York. The cost, he says, "depends on the amount of future payout the client wishes to guarantee and the client's age. These products make the most sense for clients who wish to lock in current amounts they've accumulated, are risk-averse and value guarantees."

But at the same time, most portfolios should allocate a portion to growth. "If you're in your 60s, let's say, and you have 25 years or more ahead of you, you must have a growth component or you won't be able to make your cost-of-living adjustments," asserts Coghlan.

Portfolio Reviews
Like all asset-allocation strategies, a retiree's portfolio should be re-examined and rebalanced annually. "If I have a portfolio that's half equities and half bonds-or at least that's the target-I should rebalance those assets every year to make sure I maintain that 50-50 split," says Dan Yu, managing director at EisnerAmper Wealth Advisors in New York. 

If equities have had a good year, he explains, the allocation might have shifted to, say, 60% equities and 40% bonds. "Don't go spend that extra 10%!" he says. "Rebalance! Not every month or quarter, just once a year. By rebalancing, you reduce risk and even out the fluctuations."

Other Options
Another choice for guaranteeing income well into one's 90s is longevity insurance. Though not widely used, it involves making a large up-front payment in exchange for monthly income that starts only when the client reaches a certain age. In the meantime, the funds are locked away and cannot be withdrawn.
Here, health is the major issue. If your client doesn't reach the specified age, the initial investment is lost. "It might make sense for someone in excellent health at retirement and who has a family history of longevity," says Joan Antoniello, vice president of corporate and personal insurance planning at Weiser Capital Management in New York. "In addition, it does give someone the freedom to spend down or use their retirement assets knowing that the longevity insurance will kick in at a later time."

Most retirees and advisors, however, don't like the added expense and lack of liquidity. Whatever choices are made, advisors should remain vigilant. If anything changes-especially if your client is running out of money-it's important to act swiftly. "Ultimately, there are only two or three levers that clients can move," says A.J. Sohn, managing director at Antaeus Wealth Advisors in Boxborough, Mass.
They can change their savings rate, spend less money or try to generate better returns by raising their risk tolerance, he says. "A lot of people go for that third lever, which can get them into trouble. So to play it safe, it comes back to living within your means and re-evaluating what those means are."