‘It’s all relative’: Why lifestyle, not wealth, drives retirement strategy

Speaking at an ifa roundtable, partnered with Resolution Life, Emerald Private Wealth director Rachna Chandna said the most important step in understanding longevity risk is understanding that everything is dependent on the client’s existing lifestyle.

“Even though they have a lot, it's all relative because their spending patterns are equivalent to their capital,” Chandna explained.

“Once we've got that established, I go back to the old bucket approach strategy. We do a lot of the bucket approaches. We protect the immediate term, so short term in cash, then fixed-term annuities or bonds and so forth before we look at the long term.

“The long term is the capital growth-oriented investments, but we definitely have that short to medium term in protection mode so that regardless of what the market does or Donald Trump does or anything else that the market wants to throw out in terms of wars, Covids, that is protected.”

She added that this is where an ongoing advice relationship in retirement can be valuable for the client, as it enables the reassurance that they don’t need to be worried about their money running out.

“We do spend a lot of our time with our clients showing them, not just initially when we do the statement of advice, but year on year at every single point of touch with them to show them they have enough to live on,” Chandna said.

“We actually encourage our clients to spend more money because they have a lot … I'm a big believer of yes, you have to have enough money for the future, but live now, because tomorrow may not come.”

Spectrum Wealth Partners principal financial adviser, Ashley Tilston, noted a similar experience, where for some clients a million dollars can be enough in retirement, while for others $10 million isn’t enough, making the individual plan vital.

“It's all relative to how much money the client actually has,” Tilston said.

“I also have clients where you encourage them to maybe fly first class, not go business class unless they want to give lots of money to their children.”

In many cases, he added, the restraint is much more psychological than financial, noting that products such as annuities can help reduce clients’ resistance to spending their money.

“There is a psychological benefit that comes from having that guaranteed amount of income, as long as the rates are good enough to justify the investment,” Tilston said.

John Stallman, principal adviser at StallmanIQ, agreed that it all comes down to “what's in the client's mind”, which is often driven by the cultural background.

“Worrying about not having enough money because they're older people and they came from adversity, you know, World War II, depressions, things like that, their parents and their upbringing, different cultural aspects,” Stallman explained.

“So one of the things I'm really excited about for 40 years there’s been all these rubbish risk profiling techniques. One of my pet hates is, ‘oh, you come out balanced’. Well, what's that supposed to mean?”

Importantly, he said there needs to be a clear understanding of what risk actually is, rather than conflating it with volatility.

“Volatility isn't risk, volatility is volatility. Volatility does have consequences though if you're in retirement,” Stallman said, adding that he generally is not in favour of holding depreciating assets like cash, even for clients in retirement.

“[Cash] is just dead money getting devalued because there's more money being printed every year. It's only real assets that go up, land, gold, things like that. Bonds go down in value every year,” he added.

“It's what's in the client's mind. This is where the cash and the bucketing does work because it doesn't matter what logic we have about appreciating assets is, it's nothing like that. Cash declines, but if that's what they want, that's what makes them feel comfortable.”

For Stefano Duro, co-founder and principal adviser at Pure Private Wealth, many clients are searching for an understanding of what they need in retirement and evaluating what balance means for them.

“I'm a big goal person. I reverse engineer people's goals for a living, that's what I believe I do. But in saying that, you've got to set somebody's expectations based on where they are and, in return, that becomes sacrifice or it becomes opportunity,” Duro said.

“I like to utilise a lot of technology in my practice that allows my clients to be reminded more about those types of things because the more engaged they are in my information that I share with them, the more value they have, both from my meetings, but also in between them.

“Life is 365 a year. You talk to me three, four times a year. In between that, that's their mind and the media and everything else. Realistic outcomes, great goals, but keep reminding them of why they're doing what they're doing and where they're going towards and tick them off.”