Are financial specialists giving short shrift to client spending as a key retirement planning issue?
One Wall Street investment guru thinks so.
Ben Huneke, investment solutions head at Morgan Stanley Wealth Management, told the audience at the Investment Company Institute's annual conference last week in Washington, D.C. that "client "spending" is the big issue in retirement savings - not investment portfolio performance.
Huneke said that if a client is significantly overspending on a monthly basis, that will severely curb cash flow in retirement - and that issue needs to be a priority for financial advisors.
While the topic doesn't get much play in the financial media, some advisors say it's a topic that advisors should be addressing much more often.
"You need to focus on what you can control versus what you can't control," notes Matt Gulbransen, owner of Callahan Financial Planning Corporation in Minneapolis. "You can control how much you save and how much you spend relative to assets. You can't control what the stock market does. So, yes, I believe that it's definitely more important to focus on spending versus market returns."
Gulbransen says he likes to share an analogy with his clients. "During our lives, we're focusing on climbing up a mountain - saving for retirement," he explains. "Retirement is the top of mountain. And now it's time to climb down the mountain. Since market returns are never consistent, we must come down the mountain safely and make adjustments when markets underperform, to help preserve our wealth long term. To make those portfolio adjustments, you must be flexible and make adjustments to your spending as well."
Others agree, adding that, due to historically underperformance in most retirement funds, clients must make up the difference somewhere, and spending cuts fit the bill.
"Most investment managers underperform their index so we focus on index (global) investing with low costs as a strategy, but we target a reduction in spending is key, as well," states Genti Cici, founder of StandUP Advisors, LLC, in Baltimore, Md.