Offering alternatives to lofty retirement dreams

Our grandparents may not have had DVRs, frozen yogurt or Jacuzzi tubs, but they certainly had an easier time retiring and then enjoying the good life, relying on Social Security and pensions, especially if they'd saved a bit more on the side.

Today the word "retirement" can send the average pre-retiree's mind reeling with questions such as: Will I have to work forever? Will I outlive my money? Will I be a burden on my children as health-care costs consume all my resources?

Senior shocked
Jerome Tisne | Getty Images

These aren't irrational questions. Because we're living longer and few pre-retirees have pensions weighty enough to cover what Social Security doesn't, nest eggs need to be fairly large these days.

So financial advisors are sometimes left with the tough job of telling clients they simply cannot retire when and how they had hoped.

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The good news is that there's almost always a solution, whether it's spending less, spending less in stages, downsizing, working more or part-time, or a combination of these.

The key is to give clients several options. They may not love any of the scenarios, but providing choices usually leads clients to eventually embrace one.

Despite solid advice, some clients just spend too much. Others, like the married couple we'll call Matthew and Elizabeth, diligently save but still run into retirement-planning problems.

Matthew and Elizabeth became clients of Beacon Pointe Advisors a few years back, looking to manage their portfolio and put a retirement game plan in place. At 66, Matthew was considering retiring. Elizabeth could finally travel now that she was no longer the primary caregiver of her mother, who had passed the year prior. Together, we looked at their joint financial picture and analyzed the situation.

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Then came some bad news: They wouldn't be able to confidently cover living expenses if Matthew stopped working. They were shocked, because they'd done so much correctly—worked hard, lived within their means and consistently saved for retirement, putting away $2.3 million between retirement and non-qualified investments. Matthew even ran some preliminary retirement numbers online over the years to make sure they were on track.

Part of the problem was that Matthew's planning assumptions were too rosy. He didn't assume he'd have any variability on his portfolio returns, he didn't assume he'd have health-care costs once Medicare kicked in, and he didn't assume that retirement could last more than 20 years.

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Just including some variation in investment returns, reasonable costs for a Medicare supplement and prescription drug plan and making sure they'd be able to cover expenses to age 95 drastically changed their retirement picture.

It was projected that if Matthew retired at 66, the couple would only have about a 70 percent chance of being able to cover lifestyle expenses without having to make adjustments to spending over time; if either of them experienced a modest long-term care event that ate into their resources, they would achieve only a 65 percent success rate.

Their miscalculations aside, the other part of Matthew's and Elizabeth's retirement problem was that they, like many other people, put others' needs before their own, in traditional "sandwich generation" style.

When their kids asked for help with down payments on houses, they obliged. When Elizabeth's mom needed in-home help for a few years prior to her moving in with them, they covered it. Consequently, these unforeseen events ultimately put their retirement in jeopardy.

Working toward a solution

Matthew and Elizabeth weren't happy to hear they weren't on track to retire, but they appreciated having a framework from which to choose their solution.

Working longer would allow Matthew to defer taking his Social Security, resulting in his payout at age 70 being a little more than $600 per month higher than it would have been otherwise—for the rest of his life.

It would also allow him and Elizabeth to contribute another $90,000 into his 401(k) plan because he would be working longer and would have the funds to contribute into his employer plan.

We estimated that Matthew's working part-time for four more years could increase their chance of meeting their lifetime needs to 80 percent, while his working full-time would increase their success rate to 90 percent.

"As with all best-laid plans and good intentions, sometimes things go awry with retirement planning. However, by exploring alternative saving tactics, you can still achieve your goal."

Ultimately, Matthew chose to work 30 hours per week so that his company could continue to pick up their health-care costs (saving them about $1,000 a month in Medicare-related costs). The part-time work allowed him to take off every Friday, and that gave him the added benefit of "test driving" retirement.

He and Elizabeth also decided to downsize their home and buy long-term care coverage. The LTC insurance assured that their children wouldn't be faced with the possibility of someday having to assist them financially.

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As with all best-laid plans and good intentions, sometimes things go awry with retirement planning. However, by exploring alternative saving tactics, you can still achieve your goal.

Matthew and Elizabeth's road might have been a bit rocky, and they, like many others, certainly didn't foresee the flaws in their retirement plan. But fortunately they were still able to make the appropriate changes in order to realize their retirement dream.

—By Shannon Eusey, president of Beacon Pointe Advisors. Commie Stevens, J.D., managing director at Beacon Pointe, contributed to this article.