Overspending Assets
Most clients with more than $1 million never imagined they would have that kind of money when they were young adults. All sorts of rules for retirement spending exist, from Bill Bengen’s 4% rule to the old saw that retirees need to replace 80% of their pre-retirement income to maintain a comfortable lifestyle.

For many individuals, these rules are unrealistic. “I don’t have a single client who spends less in retirement than before,” says Linda Lubitz Boone, who runs the Lubitz Financial Group in Miami. “There is more time to spend at the mall and people spend money in retirement to replace happiness.”

Advisors say it’s understandable for new retirees to live large in the first year or two after they leave the workforce.  Pond says he budgets excess funds for that first year when a client will want to take their dream vacation, remodel the house or do something else that is special.

The problem is that the overspending habit is very hard to break. “Once you set a certain spending level in retirement, it is very hard to reduce it later,” Pond notes.

Sullivan has encountered this phenomenon even among clients with very substantial assets. When you think you are rich, and you are, it’s easy to outspend one’s assets.

Wealthy clients often are charitably inclined and, coming out of the brutal 2008-2009 recession, there were no shortages of charities needing help in most communities. There is no reason for any client not to engage in philanthropy, as long as they stay within their means.

“They get so much in the way of accolades that they get a rush from it,” Sullivan says. Fortunately for affluent clients, this is often an area where a spouse can step in.

For the less affluent with limited resources, reverse mortgages are an option. And more leading financial advisors are recommending fixed annuities to clients with several million in assets so they receive steady predictable income and don’t have to worry about selling assets on a regular basis to cover expenses.

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