Recently, I read an article of a couple who “failed at retirement.” It turns out they were just an active couple who took their retirement funds and their passion for business and people and started a bed-and-breakfast. While they were successful, it got me thinking, what would be “failing at retirement?”

Of course, my short answer is, “running out of money.” A financial adviser’s number one goal is to ensure that clients don’t outlive their assets. However, despite guidance and carefully crafted plans, sometimes a client will make a decision without consulting their plan—after all, the thought is that it is their money. Advisers can only project an outcome of a decision and adjust the plan accordingly.

For example, I have encountered investors who retire at 65 because they feel like they deserve it. Once they’ve retired, they come to me for a financial plan. Without a previously created plan, these investors do not know how much they spend or how much they need in retirement to maintain their lifestyle. They simply go to a financial adviser with a retirement balance and expect them to make it work. We use very conservative estimates for market growth, inflation, and taxes when we develop projections to determine a client’s max spending. We also assume a long life span to ensure the assets last. Unfortunately, there have been times when I have had to tell a client he cannot continue to spend at his current level and that he must pare back expenses to have a successful retirement.

As you may guess, underestimating retirement costs one of the leading way seniors fail in retirement. Just because your 401(k) balance shows you have $1 million, doesn’t mean you have $1 million—most of that money is likely pre-tax, so any withdrawals will be reduced by ordinary tax rates. Part of your Social Security benefit will also go to pay for Medicare, and your Medicare premium may be affected by how much you “earn” in retirement withdrawals, pension payments, capital gains, etc. Not to mention, there are a vast number of services that are generally not covered by Medicare, from preventative dental and vision care to home health aides or nursing homes.

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William G. Lako, Jr., CFP®, is an Executive in Residence at Kennesaw State University’s Coles College of Business and a principal at Henssler Financial and a co-host on Atlanta’s longest running, most respected financial talk radio show “Money Talks” airing Saturdays at 10 a.m. on AM 920 The Answer. Mr. Lako is a Certified Financial Planner™ professional.

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