A key goal of every client is having enough money to have a comfortable and secure retirement, but their circumstances vary.
We gave a seasoned professional two hypothetical cases and asked her what initial advice she would provide.
Anja Luesink is a certified financial planner with an M.B.A. from Purdue University. Her fee-only firm, Luesink Stenstrom Financial, has an office on Park Avenue, New York City. She taught retirement planning at New York University.
Hypothetical A is a couple, both 55, who are 10 years from retirement. They have $500,000. Their children are grown and no longer the couple's financial responsibility. Their house will be paid for when they retire. When they retire, they will get a total of $2,500 a month from Social Security.
"When they decide to work with me, I want them to gather their documents, fill out my questionnaires and track their expenses," Luesink said. "I am a life planner, so I want to know all about their goals and what is really important to them."
For some clients, Luesink said she uses the Kinder questions. "I might use the new Web site, www.lifeplanning4you.com."
For others, she might just ask questions. "I always start with looking at the cash flow," she said. "Assume they spend about $80,000 a year. There is room for savings."
One or both could live to be 95. She would recommend continued tax-deferred savings and a Roth IRA. "They should save as much as possible, because they don't have
yet enough for a secure retirement," she said.
Luesink would make a detailed cash flow statement to make sure they are aware of where their money is going.
"The most common mistake that people make is that they think that a million dollars is enough to live on for 30 years," she said. "It may be, but for many people that means cutting down."
Assuming a sustainable withdrawal rate of 4 percent, they can withdraw $40,000 a year from $1 million. She thinks with their annual income, they would probably be getting more from Social Security than $2,500. With cost-of-living adjustments, the total would likely be $4,266 in 10 years, she said.
She would recommend waiting until they are 66 before taking any benefits. And they also should do a Social Security maximization analysis when they are 64.
Hypothetical B is a couple retiring now with $1 million saved. The children are grown and no longer the couple's responsibility. In addition to Social Security totaling $2,500 a month, the wife will earn $1,000 a month as a part-time bookkeeper.
At the introductory meeting, Luesink said she would want to know in detail about their goals in retirement. What are their expenses? How long does the wife want to continue working?
She always starts with a cash-flow statement. She would look at what expenses will change in retirement. "How much can they withdraw from their savings?" Luesink said.
She would do Monte Carlo testing and perhaps other tests. And a Social Security maximization analysis. "When should they start taking it?" Luesink said.
She would create a portfolio strategy. "In general, I would like them to keep cash available for at least one year spending," she said.
Depending on the client, she might put 35 percent into fixed income and invest the rest in diversified equity. "An important goal is that my clients will be safe in a down market," Luesink said.