When too much is not enough

As baby boomers retire, advisers will be dealing with many clients who have insufficient assets to fund the lifestyle they expect.

Eventually, these clients will have to opt either for a reduction in lifestyle or the probability of imminently running out of money. If the stock market tumbles, the problem only grows worse — yet many of the asset-challenged boomers won’t acknowledge their strained circumstances.

But what about clients with the opposite problem? These are clients who have sufficient assets, regardless of market conditions, but refuse to accept the fact that they are in good shape. How do we help these clients, especially when the stock market declines and they become even more anxious?

Separating pretenders from the real worriers is the first step.

Pretenders are clients who complain that they don’t have enough money but spend anyway. A pretender could be someone looking for their adviser to validate a purchase or absolve them of a sense of guilt for buying a luxury item they know they do not need.

Worriers are different from pretenders. Worriers truly believe their assets are insufficient. They won’t spend money despite having more than enough. Regardless of how often you show them your conservative-retirement-plan projections, they still are loath to spend, and border on panic when the stock market declines. No matter what you say, they don’t believe that their assets are sufficient to get them through retirement successfully without major lifestyle cutbacks.

In trying to deal with clients who truly believe they don’t have enough, it is helpful to try to grasp where their concerns might come from.

Do they feel pressure to provide financially for other family members? If so, are these pressures real or perceived? Many clients feel obliged to help children or grandchildren even though their offspring are fully capable of taking care of themselves and in some cases are better off financially. Peer pressure from social circles, ideas about money learned during childhood or a sudden accumulation of wealth also can be driving a client’s anxiety.

Reviewing a client’s goals and showing them how to reach those goals can help a client stop worrying about the short term and feel more confident about the long term. Providing clients with a historical perspective of market performance also may help them focus on the bigger picture.

Finally, for many clients, funding short-term goals with money not invested in the stock market can help end worries about market declines. By putting the money in a separate psychological “pot,” any decline in equity values would have little or no effect on the client’s perceived ability to achieve short-term goals. This can mean significant peace of mind for many unnecessarily anxious clients.

But what if none of the above works?

At the point where all rational thinking ends, it may be best to take a temporary pause. For many clients, a brief respite from the volatility of the stock market will do no long-term harm. While the tax ramifications and potential transaction cost of leaving the stock market should be discussed and explained, the sense of relief that many clients feel when they are out of the market helps them regain perspective. In fact, taking a vacation from the market and its anxieties may provide some much needed breathing space.

Once fear abates and perspective returns, advisers can discuss when and how to get back into the market more rationally.

Ironically, it’s not just high-net-worth clients who worry about having enough. Many clients with modest assets may have pension or Social Security income that covers a good portion or all of their living expenses, as well as adequate medical insurance and long-term-care coverage. Even when conservative assumptions project a perfectly fine retirement for such clients, many still may be concerned that their assets won’t be adequate.

Understanding where concerns originate — no matter the level of client wealth — and then helping clients refocus on longer-term goals should help both very affluent and modestly affluent clients weather the inevitable short-term stock market declines that will occur in the coming years.

Howard Hook is a certified public account and certified financial planner with Access Wealth Planning LLC in Roseland, N.J. He can be reached at [email protected].

For previous Retirement Watch columns and the online column, On Retirement, go to investmentnews.com/retirementwatch and investmentnews.com/onretirement.