As financial advisors we devote an enormous amount of time and energy crafting financial and estate planning strategies for our high net worth clients. While our wealthier clients provide us with interesting problems to solve, many of us take great enjoyment in helping clients with fewer resources and options to realize their retirement dreams. Unfortunately, most middle income clients are ill-prepared to retire and are not a target market for the majority of financial advisors.
Middle class clients face many of the same risks that our wealthier clients do: outliving their money, poor stock market performance and rising health or long-term care costs are near universal concerns. Others such as inflation and the death of a spouse may be particularly impactful for those with limited resources. So what are some simple tips that middle income clients might consider in planning for retirement?
Clients with more modest means should first focus on compiling an accurate budget and identify those costs that are truly necessary, those that are not, and those that may be added or deleted over time. From there, identify income sources in retirement- Social Security, pensions, savings, home equity, etc., whether they are guaranteed or variable, and whether they increase over time to account for inflation.
The next step is to develop a dynamic income plan that may be adjusted over time. Clients should use guaranteed income sources such as Social Security or pensions to cover their fixed expenses and variable sources to cover discretionary expenses. If sufficient assets are not available they may consider deferring Social Security benefits, working longer or looking at alternate income sources such as home equity.
Investments may be segregated using a bucket approach so that short-term discretionary expenses are paid for with less volatile assets such as bonds, while more aggressive assets like stocks are devoted to future expenses. Clients would simply replenish their short-term bucket as needed. They may also consider the purchase of “longevity insurance”, which pays a guaranteed income stream at some future date if the client is still alive. Both strategies may help protect clients from the ravages of inflation.
Middle income clients should be realistic about their lifestyle in retirement and prepared to make adjustments to their income plan as needed. Retirees are asked to make many important decisions such as when to claim Social Security or pension benefits, when to retire and how to provide an income and manage expenses over an extended period of time. Having a plan can greatly improve the chances of success.
We hope you found this content helpful; if we can be of service to you or a loved one we would welcome the opportunity.
John Male, CFP®
The Gassman Financial Group
G&G Planning Concepts, Inc.
9 East 40th Street, Suite 1500
New York, NY 10016