- Key insight: Analyzing retirees' cash flow is one way advisors can help make them more confident in spending their savings.
- Expert quote: "It's such a tough conversation for me to have with them because I'm like, 'You can afford 100 of those vacations in a year,' but they don't think that way." — Alicia Fuller, founder of Coastal 360 Capital Advisors
- Forward look: As retirement time frames lengthen, there are more opportunities for unexpected expenses to pop up, but planning ahead can help.
Clients spend their entire careers working to save. When retirement finally arrives, making the shift to actually using those hard-earned savings can be difficult.
Advisors can help clients gain confidence in what they can afford through budgeting and cash flow analysis. Even wealthy clients might need guidance on feeling comfortable with spending.
The challenge of spending too little in retirement is more common than that of spendthrift clients, in the experience of Alicia Fuller, founder and managing director of Naples, Florida-based Coastal 360 Capital Advisors, which partners with registered investment advisor Steward Partners.
"I have clients that come to me with a vacation plan, and they might have $20 million, and they'll ask me if they can afford it, and it's such a tough conversation for me to have with them because I'm like, 'You can afford 100 of those vacations in a year,' but they don't think that way," Fuller said. "That behavior is kind of what's gotten them to the point of having that kind of money. … But now it's very, very difficult for them to switch gears and go, 'All right, I've made it.'"
When spending too little becomes the challenge
Fuller said she sees even wealthy people engaging in "very conservative spending habits."
Fuller suggested budgeting a fixed amount of retirement withdrawals for each year but staying flexible about spending more, such as on a vacation or home remodeling project, if the client's investment portfolio has performed well.
Charles Failla, principal and founder of Stamford, Connecticut-based registered investment advisor Sovereign Financial Group, described how he helps clients with cash flow analyses so they can plan their expenses and feel comfortable spending and enjoying their savings.
"We have a number of clients where we're like, 'Really, you should spend more money. You have the ability to spend more,'" Failla said. "One of the nice things about putting together a cash flow analysis is we could show them, 'Here's your income. Here are your expenditures. But if you add a few more trips each year — enjoy yourself — you still have plenty of money to last you for the rest of your life.'"
The cash flow analysis should drive asset allocation and risk levels for shorter and longer time frames, he added.
Failla said cash flow analysis gave one couple he works with the confidence to plan a $150,000 world trip.
"They would not feel comfortable taking $150,000 out of savings unless they saw how that impacted the long term, and we were able to show that to them," he said. "Then they became comfortable, and then they did it."
