A 58-year-old client came to financial planner Michael Kitces’ office seeking a plan that would allow him to retire at age 65 with $1 million.
The client headed home “retired” that very day.
“He had more than enough for a partial retirement that would actually make him quite happy,” said Kitces, who went on to explain the clients’ viewpoint before the meeting as opposed to after it. “He was fixated on, ‘Well, my dad worked until he couldn’t work and retired.’ That was the mental model he had and the path that he was on, so he literally never questioned or considered another path.”
Kitces, however, did question the client, and the answers paid dividends for all.
The meaning of “retire” is changing and, as Kitces and fellow presenters discussed during the “Retirement Best Ideas Panel” at AICPA & CIMA ENGAGE 2024, it’s incumbent upon advisers that they change in response.
A word about the word ‘retirement’
“Is ‘retirement’ even the right term?” Scott Sprinkle, CPA/PFS, CGMA, asked. “I think a lot of times when we throw out ‘retirement,’ we just stress our clients out.”
Sprinkle, managing member at Sprinkle & Associates LLC, moderated the conversation featuring what he called the “Mount Rushmore of financial planning.” While Michael Finke, Ph.D., a professor at The American College of Financial Services, shared his research on keys to a satisfying retirement (see below), other panelists discussed what it means to retire in America today.
“My title is ‘head of retirement research’, but I really don’t like the word ‘retirement,’ ” said David Blanchett, Ph.D., of PGIM DC Solutions. “I don’t really want to become ‘head of financial independence research’ anytime soon, but I do think that the way that we talk about the goal and the objective maybe should change because the definition of what retirement means is changing radically for more Americans. People are working longer or are retiring earlier to work part-time.”
That speaks to how Kitces’ client came in thinking he still needed to save for retirement but left the meeting “retired.” Kitces, the self-proclaimed “Chief Financial Planning Nerd” of the popular Nerd’s Eye View blog, challenged the client’s traditional view of retirement, in the process learning that the client still enjoyed certain aspects of his job.
The new plan? The client rewrote his role at work to feature only the parts he still enjoyed – creating a reduced time commitment and a reduced paycheck to match but one that allowed him to semi-retire.
“I used to ask them their goals and then make a plan. Now I spend most of the time challenging them to get to what their real goals are,” Kitces said. “When you drill down into those conversations, you just get a completely different plan because all the goals change. Then you can still take it back and optimize for the plan – we did cool things for the client around how to fill in health insurance during the gap and coordinate with Social Security and all the rest.”
Explained Blanchett: “The word ‘retirement’, if you run surveys, has lots of emotional connections, but at the end of the day, we just want to be financially independent. I think that to me is the best word that describes what the objective is.”
A word about happiness in retirement
“You take a calendar out and you say, ‘OK, what do you want to do in retirement?'” Sprinkle said, playing out a typical pre-retirement meeting with a client. “They had been a hard-charging executive or whatever and they say, ‘You know what, I want to golf.’ “
Even the most devoted golfer has to take a break for weather – and darkness – so at the least they need a Plan B.
“One of the things I’ve studied,” Finke said, “is what makes people happy in retirement. What increases your overall satisfaction with retirement? The data really shows that there are what I like to call three pillars of life satisfaction in retirement.”
- Money is the first pillar, but as Finke puts it, “Money does not, in and of itself, make you happy. Money is an input into other things that can make you happy.”
- Health is the second pillar that – like saving money for retirement – requires a sacrifice with the future in mind. What good comes of sacrificing spending in middle age if you’re not healthy enough to enjoy that money in retirement? “Health is also an investment,” Finke said. “Our ability to enjoy the money is partially based on the decisions that we make before retirement to increase our capabilities, our physical capabilities.”
- The third pillar is relationships – surrounding yourself with people to spend time with or spend money on. “Friendships are an investment,” Finke said. “What is it that makes humans happy? It is very often interacting with other human beings. One of the things you get from going to work is the opportunity to interact with other human beings on a daily basis and to accomplish things together as a group. That’s one of those things that you lose when you retire.”
That’s also among the reasons more Americans are choosing to work after they “retire” and why financial advisers like the ENGAGE 2024 panelists are changing their approach with pre-retirement clients.
“They’re bored and they’re miserable and they’re going back to work again,” Kitces said. “I’m like, ‘Well, if you told me you were going to do that, I would have made a different plan for you.’
“Nobody really knows what retirement is or looks like because by definition, we’ve never done it for ourselves until we get there and get to that moment. I find that at best clients have no actual idea what retirement is going to look like and they figure it out when they get there. At worst, they weren’t even setting up the goals they actually wanted in the first place.”
AICPA resources
Guide
Guide to Practical Retirement Planning
Podcasts
Series: The new approach to retirement planning
How to reduce overwhelm for your clients
How to guide couples through their retirement quandaries
Editor’s note: Those who purchased an all-access pass to ENGAGE can view this and other archived sessions and a new lineup of live ENGAGE+ sessions on Sept. 18 and Nov. 14 for additional CPE. If you didn’t attend ENGAGE, you still can access this session.
— To comment on this article or to suggest an idea for another article, contact Bryan Strickland at [email protected].