Facing up to, ‘Could I outlive my money?’
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This Reuters story on aging baby boomers, their money and their financial advisors is set in the future, but it’s already reality for some of the oldest boomers (who turned 63 this year), and it’s certainly true for many people older than that:
U.S. financial advisors are due for upheaval as baby boomers, controlling $10 trillion in assets, reach retirement age and shift their investment priorities, said a senior executive at asset manager BlackRock Inc. Baby boomers will move the industry’s main client goal from one [of] accumulation -- investing in assets that create the most value over time -- to one of ‘decumulation,’ said Frank Porcelli, who heads U.S. retail for BlackRock, speaking at the Reuters Global Wealth Management Summit in Boston. ‘The questions won’t be, ‘How did I do against the S&P 500?’’ he said. ‘It’s, ‘Can I meet these liabilities?’ ‘ Instead of a focus on building wealth and a retirement nest egg, those clients will soon focus on making the money last.
Since the markets’ crash last year millions of people already have become focused on how to preserve whatever they have left. That’s what individual investors’ hunger for bonds this year has been all about.
But Porcelli’s rhetorical question of ‘Can I meet these liabilities?’ is, ultimately, a question of investment performance, measured against the S&P 500 or any other benchmark.
If you risk your money in stocks, and the market crashes again, you may well outlive your remaining savings. But people who play it totally safe with their nest egg, and settle for rock-bottom returns, also run the risk of coming up short.
Unfortunately, many people may be looking for a magic formula that doesn’t involve hard choices. From the story:
Porcelli said research conducted by the firm found that 70% of retirement-age clients are willing to move their accounts to another firm, if the firm offered expertise on constructing portfolios to avoid running out of money during their golden years. This was a far different, and more complex service than aiding in asset accumulation, he said. ‘This is the equivalent of financial brain surgery,’ said Porcelli, adding advisors would have to manage clients’ spending expectations, as well as investment performance.
If you’re retirement age and your advisor hasn’t suggested strategies to avoid running out of savings, of course you ought to be looking for another advisor!
Porcelli’s point about managing spending plans is dead-on, though, in the post-crash world: Advisors may increasingly find themselves in the position of having to tell boomer retiree clients that they can’t have the lifestyle they had expected, because the capital just isn’t there.
That’s the most difficult conversation many advisers and clients will ever have.
-- Tom Petruno