Many clients who have long planned for retirement are waiting for their advisors to give them the signal for when that major life change is about to start.

The advisor, after working up models and projections of costs, announces that the clients have finally arrived at the point in their lives where it’s time to actually start spending their retirement savings, and that there’s a plan for how to carry that out.

“I think it’s imperative to do it. I don’t even think there’s a question around it. It’s a foregone conclusion that people need to take money out of their IRA, take mandatory distributions,” says Merrill Lynch advisor Melissa Spickler. “Thus begins the decumulation stage.”

Advisors who focus on when to start the drawdown of a client’s assets, including retirement experts like Spickler, who runs a practice in Bloomfield Hills, Mich., 20 miles northwest of Detroit, insist it’s a critical part of their service to the client.

While some advisors consider a drawdown the opposite of wealth building, there are those like Spickler who still see opportunity both for her clients and her practice. Her approach, for example, identifies business prospects from her interactions with the relatives.

WORKING WITH THE GENERATIONS

Hugh and Cathy Diamond became Spickler’s clients 20 years ago. Their daughter Heather, 42, is now a client too. Spickler has become close to the family members, who refer to her by her nickname, Missy. “My husband was a very honest and ethical person, and Missy is the very same cut,” says Cathy Diamond, who is now widowed.

Hugh Diamond had also been a broker with Merrill, running his practice from the same office as Spickler’s. When he and his wife turned 50, they decided an early retirement was in order and handed over their book to Spickler. “They were spending income from their investments and probably not really drawing down the portfolio so much,” Spickler recalls.

She devised a drawdown plan that got the Diamonds started on the lifestyle they wanted. They traveled every year, hitting the Panama Canal, crossing Australia, jumping over to New Zealand. “We made two trips to Europe, and then Africa and China,” recalls Diamond, a retired CPA. “We tried to do everything on our bucket list.”

Cancer took Hugh Diamond in 2008, a year when his wife and Spickler also had to worry about the financial crisis. “Right after Hugh died, I went into the office and we discussed what we had to do next,” Diamond remembers of the meeting with Spickler. “She walked me through everything. I wasn’t worried about finances at all because I knew everything would be OK. And remember that it was 2008, when everything hit the fan. But I didn’t worry. Missy told me not to.”

PAYOFF IN CRISIS

Advisors say that the decumulation of assets is about timing. A husband and wife who had worked out a three-year plan to begin decumulating assets recently paid a visit to their advisor, Sheri Lucas, and announced that they had decided they would retire after only one year had passed. “I almost fell to the floor because they were really not ready,” Lucas says. She runs an independent practice, Wycoff Lucas Retirement of Cincinnati, which is affiliated with Raymond James Financial Services.

In their 60s, the couple had speeded up their retirement plans. The wife, a marketer, accepted a severance package that included her 401(k) and profit sharing. She also had more than 90% of her assets tied up in her company’s stock, which soon suffered significant losses.

Lucas went into action, restructuring the drawdown for her clients. “It’s going to be very lean,” she says with regret. “I think they’re going to be living on Social Security.”

Another client, a successful dentist, had not been so hurried about retirement. When he came last month to visit Lucas for his annual meeting with the advisor, he announced that he wanted to buy his teenage son a car. Lucas looked at the 62-year-old and suggested he consider a much bigger decision: starting his retirement. “I was looking at his assets and it just makes sense,” Lucas says.

Her approach on when to start a client’s decumulation takes into account a client’s net worth. “I look for a floor approach, where the floor will be your Social Security, your pensions, your guarantees,” she says.

It helped her decision to urge the dentist to start his drawdown that he already had an offer from someone who wanted to purchase his practice.

PLANNING CHALLENGES

Advisors, however, say the recommendation that a client begin decumulating assets doesn’t come easy, particularly with many who are likely to live longer lives.

A recent issue of the Raymond James Retirement Income Quarterly, which is distributed to the firm’s financial planners on both the employee and independent sides, points out that today for an  upper-middle-class couple who are both age 65, there is a 43% chance that one of them will live until 95.

That kind of longevity range has kept advisors busy making sure their clients have accumulated enough over the long term to enjoy lifestyles of their choosing and to have their expenses covered worry free. The usual course for advisors is focusing on spending and withdrawals. Many have used 4% as a good starting point for annual withdrawals.

They also must consider the current economic landscape and challenges that come with it. As expectations have increased that interest rates will start rising again this year, advisors say they aren’t going to react quickly or urge their clients to rush back into bonds.

“It has become almost impossible to generate cash from fixed income investments and fund lifestyles while trying to make sure that the assets will be sustainable for longer periods of time,” says advisor Harry Elish. “And the reality is that clipping coupons isn’t going to be sufficient.”

Elish, a managing director at UBS who says he manages about $930 million in client assets with an annual production of more than $4 million, says clients have increasingly adopted the “total return way.” Clients, he says, ask what their portfolios will generate and want to know the total of dividends and other cash they will have once they start to draw down assets for retirement.

NO MORE PAYCHECKS

Ultimately, he says, clients who are about to decumulate need to get used to the idea of “the absence of paychecks, when they start needing to fund that lifestyle.”

Elish says that he begins discussing a drawdown about six months before a client’s actual retirement to be sure the timing is right.

Another advisor, Rebecca Hall aims for an even-longer head start. Up to 18 months before an expected retirement, she starts the conversation with clients about a plan for a drawdown of assets. Hall, managing director of RBH Global Wealth Partners, a franchise practice at Ameriprise with offices in Reston, Va., and Washington, prefers to frame the drawdown in terms of reaping income from a client’s investments, and they discuss whether the prospective income will be sufficient. “If the analysis is that it’s not, then we have a serious conversation on why this is not a good idea,” Hall says.

Hall recommends that clients have a cash reserve sufficient to cover 18 months to two years of expenses and structure their investment portfolio to sweep earnings into their cash reserve so that it’s never really empty. Most of her clients, she says, if they have a defined benefit plan and pension are using the income from their investments. “We’re structuring a paycheck from the investments,” she says.

EMOTIONAL TRIGGERS

Some advisors have learned firsthand about how to start the drawdown from their experiences with family members. Hall, the Ameriprise advisor, developed her approach while planning for her own parents. “My dad retired from hospital billing systems programming, and Mom was a nurse,” she says. “Four months after I started my practice, they were the first clients to retire. It helped me realize all of the emotional decisions and aspects. It made me realize that the decision is so much more than, ‘Can I afford to retire?’”

Spickler of Merrill Lynch had a similar experience within her family. Her mother fell and broke her hip four years ago, on the same day that her father-in-law was rushed to a hospital for lack of oxygen. They were both beginning to suffer from dementia and were forced into rehabilitation centers paid by Medicare, but only for limited stays. “When these things happen, you really don’t know what the next steps are,” she says.

Spickler says she has learned to become an advocate for her mother and father-in-law, and this has helped her work with the children of clients filling the same role when their parents begin to develop ailments and health problems. “I communicate this to the children, most of whom were probably like me in the beginning — they ran the other way in denial,” she says.

She makes it a best practice to educate family members about their relatives’ investments, so that they see she’s watching those investments and overseeing the eventual decumulation of wealth. The knowledge can help turn the family member into an advocate for the client.

“I think it’s so very important to understand who the next generation is,” Spickler says. “As some of these issues begin to unfold before your eyes, you will have one of the children you can bounce ideas off of and bring into client meetings.”

Advisors may get to know other relatives, including some who will become future clients, Spickler says. “I’m developing relationships with the whole family.”

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