Decisions made during times of uncertainty with a growing number of variables are adding new dimensions of complexity. “Don’t wing it—be prepared to change your plans,” Vernon told advisors.
Yet most clients have their own life stories that define their attitudes, like “My mother died at 54 and I want to enjoy life” or “My aunt lived to 97, ran out of money and had to move in with her daughter.” Baseball great Mickey Mantle, whose father and grandfather never saw 50 years of age, was famously quoted as saying, “If I knew I was going to live this long, I would have taken better care of myself.”
Science indicates there is a 25% to 50% correlation between genes and longevity, so it’s not linear. Many argue the correlation between life expectancy and education is a more accurate predictor.
Vernon argued that most people need to lengthen their planning horizons and frame out the rest of their lives. One way to achieve that is to think about how much their life has changed in the last 20 or 30 years.
Among the most important decisions are how and when to retire—a decision self-employed clients have a great deal more control over. How desirable and realistic is working part time in retirement? For affluent clients, working in a charity or nonprofit could be more rewarding, even if the income is minimal.
Vernon disparage s the idea of a magic formula. If one wants to use the 4% rule as a guideline, an advisor should build in some flexibility to adjust it up or down as circumstances change. The ideal situation is to create a retirement income stream that exceeds one’s living expenses but, with the financial markets offering anemic bond yields and interest rates, that’s a challenge for many people.
The age at which a person takes Social Security is another critical decision, even for clients with significant assets. Pensions are providing a smaller share of today’s retirement paycheck, and annuities, managed payout funds and other vehicles are trying to fill the gap. BlackRock and Microsoft formed a partnership to address the problem late last year, but both companies have been mum about what their plans are. Morningstar’s retirement research director, David Blanchett, says the best annuity is waiting until one reaches 69 or 70 years old to start taking Social Security.
Clients with larger pools of investable assets, those with $2.5 million to $5 million “have a shot at retirement where you don’t have to reduce your standard of living—if you make smart choices,” Vernon says. But most people have “unfinished business” reconnecting with old friends and relatives, ticking off items from bucket lists and going on travels. To the extent these goals can be factored into plans, they should be.
As one moves up the wealth scale north of $5 million in assets, Vernon says it becomes easier to deal with retirement challenges via investing and asset allocation decisions. “At that asset level, investing decisions become the most important decisions,” he maintains.
For all the talk among financial experts about a retirement crisis, there is little evidence to back it up. “Older people actually are doing better emotionally,” Carstensen said.