Wealth Management: The End of the Rainbow

What does heaven look like to you? Is it a dream home at the beach, with golf every afternoon? All the time you want sprawled out on your living room floor with your grandkids? Traveling all over the world, just you and your spouse? Or is it volunteering at your local library, consulting with a few select clients, and meeting with young businesspeople in a community college classroom, telling them how you made it?

For many hard working, stressed out businesspeople, retirement and heaven can seem synonymous – as far-off and idyllic as a sunset nimbus. But wealth management professionals agree that visualizing your ideal retirement scenario is the first step to making it happen. At SunTrust, where the financial planning group works with clients who have $1 million to invest, the first stop before beginning a retirement plan is often a “relationship manager,” who helps assess goals.

“We have a questionnaire that evaluates both objectives and resources,” says SunTrust Senior Financial Analyst Eliot Brandy. “Investment, salary and expenses out. We find out when would you like to retire, how much would like to have, how much you want to leave, and what you want to do with your business,” among many other questions.

As president and CEO of Synovus Financial Management Services, Drew Klepchick works with clients who can invest $500,000 or more (as well as private clients with $5 million or more to sock away). “The first question is mandatory,” he says. “We ask about their expectations for lifestyle.”

Anthony Guinta, principal at Atlanta’s Homrich & Berg, evaluates risks and returns for those with $2.5 million or more to invest, and also begins with “a net worth statement so we can build in all their expenses, along with long-term cash flow assessment.”

Robert Osborne, executive vice president at Augusta’s Georgia Bank & Trust, says the smaller-town atmosphere and knowledge of a client’s family might result in more flexibility with their $500,000 guidelines for wealth-management services. However, he says that even with his highly successful client base, “It’s amazing how many people you would think have planned – have not planned” for retirement.

Alfred Dingler, an independent financial “coach” and CEO of his own Fayetteville company, Prime Financial, finds that some hard-driving professionals may have trouble thinking past their own careers. To get them started, he says, he asks, “If it was Saturday, and you were with somebody you loved and you had a little bit of money, what would you do?” He also suggest clients complete a $40 personality survey, called Kolbe (at www.kolbe.com) to help them evaluate their ideal retirement goals.

His clients’ answers, he says, have inspired the decor of his office, where antiques encourage contemplation on another place and time, from the bagatelle pool table to the hunter’s den. His wife Jolene’s office contains over 100 dolls from her collection. “Sometimes people just think of work,” Dingler says. “You have to encourage them.”

However, Guinta says most of his clients want him to run a projection that lets them know: “What would happen if I didn’t work another day in my life?” Many, he admits, may say they want to play golf and bridge for the rest of their lives, but will often end up working longer than they say they will, and after a year or two off, go back to consulting or philanthropy or board memberships. “But until you run the numbers, you just don’t know” where you stand, he says.

“The saving part is hard,” Guinta says. “If you’re at a cocktail party, people aren’t talking about their 401(k)s. They’re talking about their new house or car. You have to think ahead – will this $80,000 be more valuable to me now, or to finance my retirement?”

Of course, every financial planner urges the importance of savings, and the need to begin putting money away as soon as you can. “The average person doesn’t start saving until age 30, then might save from 30 to 60, retire, and live from 60 to 90,” Klepchick says. “It can be like that old saying, ‘If I’d known I was going to live this long, I would have taken better care of myself.'”

All investment professionals stress that much smaller dollar amounts, begun in your 20s, will mount up more quickly than higher rates of savings begun at age 35 or later. They also recognize that many, especially the self-employed with businesses and unpredictable incomes, may not have been saving the way they should have, despite a high net worth.

“Typically, our clients are saving,” Guinta says. “But we do have some cases where they’re spending every dime they’re making.” Many have put everything back into their businesses as their main investment, and look forward to a big lump sum on selling it.

Some, Dingler says, have earned a good income, but feel they have little to show for it. He says one client told him, “I just feel poor and kind of embarrassed,” because he had virtually no savings. “I told him that in reality, most people don’t really get any money until the children leave the house. Our society says you’ve got to put all this money into a 401(k), but in-between, you need a dishwasher and a minivan and clothes and you want to take the kids to Disney World. This guy was so depressed, but in reality, with the $300,000 equity he had in his home, he was way ahead of his peers.

“I don’t mean to minimize the importance of being analytical,” Dingler says, “but I think this is a huge mistake financial planners make. What mathematical formulas do not score is the passion, quality and enjoyment of life.”

Any financial planner would agree, however, that a conservative approach is the safest way to assuring that enjoyment. “It’s not rocket science, it’s just a lot of detail,” says Osborne. “But I’ve seen million-dollar IRAs go up in smoke because the beneficiaries weren’t assigned correctly.”

Of course, the number one question in most people’s minds is: How much money do I need to retire? It all depends, according to the financial analysts we contacted.

Again, envisioning your ideal situation is key. Will you be living in the house you now own, or buying another retirement property? Do you plan on slowing down, or speeding up your enjoyment? And what do you want to leave behind, for your spouse, your children and your community?

A retirement calculator can be a helpful benchmark, many of our analysts say. (You can find several, from respected organizations like Schwab, Bloomberg, Money magazine and others, by typing “retirement calculator” into your Internet search engine.) Most use variables such as how much savings you currently have, how many years until you retire, the expected rate of inflation and your anticipated rate of return on your savings.

However, Klepchick says that even the financially savvy can easily miscalculate what they’ll actually need. “Let’s say you’ve saved $1 million,” he says. “You might assume you could earn 7 percent on that, and have $70,000 annually to live on. That’s the wrong way to think about it. Seven percent is your maximum rate of return” – even on a diverse portfolio. Most analysts suggest using a far lower rate – 4 percent, or even 3.5.

On their own, Klepchick says most people break even on their investments. “One percent is historically what most people earn, and minus taxes and inflation, they don’t earn anything.” He cites “emotional” investing as one problem: “They take their money out before they should, and either miss opportunities or end up taking on more risk than they should.” He says, “I’m a big believer that a large part of your holdings should be index-type investments,” in which a collection of investments are tracked. With index funds as core holdings, “you wrap around these to increase your rate of return.”

At SunTrust, Brandy employs a “Monte Carlo” evaluation, which takes historical rates of return and applies them randomly, to simulate years in which markets are down, then up. As he points out, a low rate of return in your early years of retirement, when your nest egg is biggest, will hit hardest. “What if you have to dip into your principal in those first years?” he says.

Your savings and portfolio might be so adversely affected that it will significantly reduce your return for the rest of your life. “Once you tap into your capital, you have less and less money working for you,” Guinta says.

Another potential error is assuming your expenses will wind down after you retire. “They may say, ‘I’m really looking to cut back on travel and eating out,'” Klepchick says. “But there’s an old saying: Once you drive a Jaguar, it’s hard to drive anything else.”

Brandy quotes an old magazine article for the three stages of retirement for those with money: “From 65 to 75, it’s go-go. Your expenses are higher, because you’re doing more.” Suddenly, you have time to take a trip to Europe, eat out more, spoil the grandkids. “From 75 to 80, you go from go-go to slow-go. From 85 to 90, it’s from slow-go to no-go.”

Clients often underestimate their expenses, Guinta says. “If they tell us they’re spending $100,00 a year, we’ll plan on $120,000.” They may also overestimate annual raises at their jobs, so instead of a 10 percent increase, it might be safer to assume 7 or even 5.

The self-employed aren’t able to take advantage of now federally mandated corporate savings plans, which often come with matching rates. So Klepchick recommends that business owners “get to a predictable level of income. Watch changing your lifestyle in the ‘good’ years, because of the greater volatility of income. Live on a consistent level, and in the good years, save that surplus.”

Your family history of longevity will be an issue in retirement planning. “The biggest problem is underestimating how long your life will be,” Klepchick says. Health care costs have been spiraling faster than almost any other, and after retirement, you may not be covered under your former employer’s plan. Wealth management and retirement planners will assess the need for health care coverage.

Homrich & Berg’s Guinta stresses the importance of “fee-only” firms like his: “We’re never selling anything,” he says, such as the insurance the firm may recommend. “That way, we can also be the watchdog,” an independent eye to evaluate brokers’ and salespeople’s pitches.

“We are not compensated or paid by the products,” Brandy says. “The advice we give is solely to establish your goals.”

And how about that house at the beach? With boomer-friendly retirement sites getting gobbled up fast, is it smarter to go ahead and buy your landing pad?

Sometimes, it seems, you can plan too far in advance: Unless you’re simply buying it for the enjoyment and satisfaction as a vacation spot, Klepchick says, “You should look at it from an economic standpoint. Usually, the cost of carrying the second home outweighs the appreciation. It would be more expensive to hold and own it than to use the money to live there fulltime.”

But before all the estate-planning, insurance adjusting, will preparing and savings analysis, all agree that knowing what you want is the first step. “I’ve helped a couple thousand people into retirement,” Klepchick says. “One thing is consistent about the people who are happiest. They not only have a financial plan, but a picture of what they want their lives to be. Those are some long days. You’ve got to know how to fill them.”

Brandy says he sees more clients who want to remain active, and “give back” more to their families and communities. “I don’t know if 9-11 brought it out in us,” he says, “but I hear more of, ‘I want to teach an entrepreneurial class, I want to be an adviser, or sit on a nonprofit board.’ You should think of this as a retirement journey. Maybe it’s more about your family and grandchildren.”

Part of his calculations include this one: “You don’t want someone to have so much money at the end that they didn’t enjoy their lives.”

Dingler says he often encounters clients like the one who had put everything off until retirement – including enjoyment. By being extremely frugal on her modest income, she had considerable savings. But she was unable to cite one example of something she’d enjoy in retirement. “What if you die tomorrow?” he says he asked her. “You will have never lived your life.”

The most solid investment, it seems, is the dream you can begin living now.