Your boomer clients are retiring, so they’re going to be spending the money in their portfolios.

Most clients need to stay invested—and do well—if they’re to meet retirement spending targets. But some can’t handle the risk needed to fund all their lifestyle goals.

Planning has to begin with a distinction between the client’s essential and desired spending, says Don Ezra, director emeritus, global investment strategy at Russell Investments. “What counts as essential varies from person to person. They’re things [clients] cannot imagine living without,” and that could mean a golf membership or annual European vacations. Desired spending covers things they’d be unhappy without, but getting them means risk.

Ezra uses a case study (see “Nediva and Jean-Pierre’s options”) to show that clients have two options when their starting asset base doesn’t cover planned spending: change goals or elevate risk.

He suggests advisors adopt a similar approach when clients’ drawdown plans are too lofty for their risk profiles.


To meet their five-year income requirements, the couple can invest one of three ways: ultra-conservative (100% fixed income), moderate risk (82.5% fixed income, 17.5% equities) or high risk (30% fixed income, 70% equities). But only the high-risk portfolio hits their income target. (Fixed-income investments generate 0% annual real return.)


The Clients



Originally published on Advisor.ca

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