Helping a Professional Couple Enter Retirement with Confidence

The Challenge

A professional couple in their mid-60s, a lawyer and a doctor, seeks advice about their upcoming retirement. The couple has saved almost $6 million in financial assets invested in PMA’s moderate-risk portfolio, and they are apprehensive about transitioning from a lifestyle based on stable salaries to one where their living expenses will be covered by their investments. They want to review their current risk profile and spending habits to determine whether a change is needed.

PMA’s Process

In this scenario we would: 

• Ask the couple to approximate how much money they currently spend to live.
• Discuss whether they intend to continue spending this amount during their retirement, and if they would be able to adjust their spending in response to a downturn in the markets.
• Use financial planning tools to illustrate that spending 5% or $350,000 a year would increase the probability of depleting their assets during their retirement, as compared to spending $275,000 a year.
• Present the client with a choice: We could increase the equity allocation (and therefore the risk level) of their portfolio to increase potential return, or we could keep the same level of risk to which they were accustomed and they would need to plan to spend less in retirement.
• Advise the client that we would revisit their plan on a yearly basis because life circumstances can change.

*This scenario represents a composite of discussions with a number of different clients. It is not reflective of one particular client’s experience.