Craig Fasano, J.D., Managing Director at Sontag Advisory, in New York, NY, talks about his approach to helping clients as they prepare for a long and secure retirement. With more than 15 years of wealth management experience, Mr. Fasano works with high-net-worth clients to develop, implement and oversee solutions that integrate investment, insurance, retirement, tax and estate planning into a comprehensive financial/investment strategy.

Partnership as Fiduciary

The fundamental idea of our business is to help clients make rational decisions. Because the investment side of our business has become somewhat commoditized, we focus on the planning side as we help our clients navigate the world. As a fiduciary and partner to our clients, we sit on the same side of the table in providing personalized wealth management that assesses their needs and delivers objective, professional service.

Shift the Retirement Conversation

Pre-retirement planning is an important topic of conversation with our clients. In many cases, it's shifting the conversation from saving and accumulation to spending and retirement. Even though people may grumble about their jobs, especially those in well-paying jobs, many aren't retiring at 65 but deferring their retirement instead.

We also have clients who come to us in their mid-50s and really want to transition out of what they've been doing and move into the next phase of their life—maybe something more entrepreneurial or something that's not a normal paycheck. Then, the conversation becomes: How are you going to replace your paycheck? And really, the portfolio becomes their paycheck at that point.

Sophisticated Cash Flow Analysis as Key Tool

For those clients in their 50s or 60s who are contemplating a career change or retirement, we start the conversation with a comprehensive cash flow analysis. Our program looks at projected savings and spending—beginning with a baseline scenario then moving to stress tests with negative returns in bad market years and a Monte Carlo simulation. By doing this type of analysis, we can calculate the probability of success for clients to meet their goals and objectives in retirement.

And when clients are really ready to make that break, we sit down with them as retirement nears and review the plan we have put in place—from investment allocation to risk tolerance—so that we can give them the confidence of knowing they will have the income they need in retirement while also aiming to outpace or at least keep pace with inflation.

Level Set Spending Plans

The time to talk to clients about spending plans and needs begins well before retirement. We look at what clients are planning to spend each year and that becomes our baseline to start the conversation. What follows are lots of questions to give a better sense of it all:

  • What have you accumulated and what do you want to spend in retirement?
  • What do we need to project between now and the time you want to retire?
  • How do we need to structure the portfolio so that on a real-return basis it can generate enough—so that there's a good chance you will not outlive your assets, given the knowledge that we can all expect to live longer in retirement?

Once in retirement, we link portfolios to a client's checking account, so that the money automatically is sent there. With this approach, clients figure out very quickly—usually within the first six to eight months of retirement—whether or not they’re actually spending what they thought they would. We believe that making smart choices about retirement requires a plan that is regularly reviewed and updated.

Transition to Retirement

For some clients, we talk about what kind of transition they will make before full retirement. That could mean moving to part-time work as part of an incremental retirement strategy, or a shift from full-time employment to consultancy or board membership, where a client is still intellectually engaged and the benefit of outside cash flow takes the pressure off the portfolio.

3 Pre-Retirement What-If Scenarios

What if the cash flow projection comes up short and your client is going to run out of money in his 70s? It's time to look at some what-if scenarios:

  1. Look at the current allocation and risk tolerance and think about your client's comfort with a shift to a more aggressive portfolio, as an example.
  2. Ask your client about the possibility of working another few years.
  3. What if your client lowered spending assumptions or staggered spending assumptions. Think about the stages of retirement—spending more in the initial five to six years and then spending less as the client moves through retirement.

The information obtained from this research is derived from third-party sources deemed reliable, and is provided to you for educational purposes only. BlackRock cannot guarantee the completeness or accuracy of the information provided.

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