Maton worked with a news broadcaster in his late 50s with $3 million to $4 million in investable assets and another million in property who wanted to stop the daily grind of his stressful job and needed to ramp up savings for that and test out living on the amount he and his spouse would need for a year. “We had some years to prepare,” she says. “Getting him to that place really was all about expectations of how much they really had to spend, which was less than they had been spending, and really ramping up being more aggressive about saving.”
Being mindful of spending is important for this kind of planning, Maton says. “If people can have that discipline earlier, that would be better.” Another question is what they are going to do with their time. “Work was their identity. They worked hard; they worked a lot of hours. What’s going to fill that time and purpose of life? So I spent a fair amount of time talking about that kind of thing.”
“I find women make the transition better than men,” says Maton, who has a lot of single female clients who often better find time for family and causes.
Unexpected Retirement
Sometimes early retirement isn’t the client’s decision. Diane Pearson of Legend Financial Advisors had a client couple—a physician and her husband, who was a business executive with an industrial materials company. They had their plans all set up with all their retirement projections in place when the husband got pink slipped five years ago. He was 60. To Pearson’s surprise, he said, “Nope this is perfect. I know exactly where we are financially. I know what we can and cannot do. I’d like to go out and start a photography business. What do you think?”
The fact that they had already gone through the full financial planning process allowed the couple to make the switch. The couple still had $3 million in net worth, including their house and $2 million in qualified retirement assets, and the wife’s income and benefits. The clients also had kids in college. Most of Legend’s clients are not “house heavy” in net worth, Pearson says. “They must have liquidity.”
Longevity must be a bigger part of the discussion now, Pearson says. “Cancer doesn’t kill you anymore, you can have a heart attack, you can have valves replaced. You can live another 20, 30 years. So we are spending a lot more time strategizing about Social Security and what is the best age to take that.
“We’ve even this year had the first two conversations about reverse mortgages that I’ve never had before.” She thinks that alternative income sources, including reverse mortgages, are going to have to be on the table, she says, since interest rates are still low. Salmon at Moisand Fitzgerald says that he has a couple of aces up his sleeve for retirees to make plans work—not only reverse mortgages, but also a plan to reduce a retiree’s spending in later life—by 10% at age 70, perhaps and 15% by age 80.
Much of the advice is common sense: If you want to retire early, start saving early. Jeremy Heckman at Accredited Investors in Edina, Minn., had a 20-year physician client who just retired at 55 with a net worth of $7 million—$6 million of that in investable assets, the rest in real estate. He and his stay-at-home wife and two kids hadn’t started off with wealth but through his decent income as a doctor, he early on created a vision of early retirement and wanted the flexibility to move away from work. So he accumulated.
“He was really engaged, but never did anything outside of the lines. Said no to a lot of risky types of investments. And yet also wasn’t so conservative [shunning equities] that he wasn’t going to be able to accumulate the level of wealth that they did at the age that they are.” Heckman says the couple had a consistent savings plan and lived below their means. They also saved in advance of large purchases for cars and a home remodeling. The couple had $100,000 in cash reserves and that grew to $200,000; these were used to invest for market pullbacks. A second house offered a small bit of seasonal rental income. The growth-oriented portfolio was 80% tilted toward equity, and comprised mutual funds, then later on ETFs.