JUST PLAIN TALK: Be wary of unexpected retirement pitfalls

Buz Livingston
Buz Livingston

Having enough money for retirement is the biggest problem most people face, but other things can make retirement difficult. For decades, the financial services industry has focused primarily on savings, with less attention on spending. While the emphasis has been on accumulation, decumulation can present a unique quandary. Advisor fees, for instance, are tied to assets, and when clients spend them, the billable assets pile drops.

A retiree may behave differently in a down market than when they were working, and that's logical. Spending down your nest egg is poles apart from someone whose retirement is years away. A retiree who "panic sells" during a bear market could knock their retirement plan off course. To minimize client concerns, we include a "worst case" scenario in our retirement projections. Alternatively, look at spending and see if you could live on lower withdrawals. Of course, that means you have to know how much you spend and where it goes.

Pimco recently surveyed over 700 wealthy individuals near retirement or already retired. Almost 90% of them viewed themselves as above-average investors. Statistically, that's highly unlikely. Confidence is good, but overconfidence could be a deal-breaker. At age 70, cognitive ability drops dramatically, but confidence remains the same. If you don't believe me, in the same survey, Pimco found over 55% of the same group had unrealistic spending goals.

In his book, "Retirement Fail-The Nine Reasons People Flunk Post-Work Life and How to Ace Your Own," Greg Sullivan leads with the Big Three — divorce, adult children, and lavish spending on second or third homes. With real estate prices soaring, it's possible to pay too much. Trust me; it's happened. Second homes can also be money pits. In Florida, soaring insurance premiums shocked many homeowners. It depends on your goals. Suppose you're buying solely for the lifestyle. In that case, it's a different dynamic than for someone who needs a return on their investment.

Adult children mooching off their parents or grandparents can drag a retirement plan down. It's not a fun conversation for the advisor either. Fortunately, it doesn't happen often. Maybe I've been lucky, or maybe people who use financial planners are money-savvy. Unfortunately, though, boomers are more likely to divorce than younger generations. Historically, people divorced after few years of marriage. Now the divorce rate for couples over age 50 has doubled. A nest egg that could maintain a single household has to support two. Math, like science, matters.

A subset of retirees has a unique situation, underspending. Some are reluctant to spend even with plenty. It's pleasant to tell clients they can spend. Take their dream vacation. Instead of waiting five years, do it now, something an assets under management advisor will struggle to admit.

Efficiently unwinding a retirement nest egg is challenging. Simplifying your investments and organizing them helps. You won't get a second chance.

You can't always get what you want, but Buz Livingston, CFP, can help you figure out what you need. For specific advice, visit livingstonfinancial.net or drop by 2050 West County Highway 30A, M1 Suite 230.