Journal of Financial Planning: August 2016
Bob Rall, CFP®, is founder and president of Rall Capital Management, an independent financial planning and investment management firm located on the east coast of Central Florida. He serves as a co-host of the FPA Retirement Planning Knowledge Circle.
When I saw the number on my caller ID, I knew how the conversation was going to go. Her calls had become pretty predictable. My firm had been managing her investments for a couple of years and she was calling to ask us to process a distribution from one of her accounts. That’s not unusual; we process distributions from client accounts all the time. The issue with this distribution was that it was just the latest in a long string of frequent requests from Jane (obviously not her real name).
A Red Flag?
When Jane first became a client, we worked with her to develop a financial plan that included a budget and a distribution plan that would provide the cash flow she said she would need now that she was retired. Just before becoming a client, she retired suddenly because of a disagreement with a co-worker. That’s not the best way to enter into retirement and I should have recognized it as a red flag.
During her working years, she had done a decent job of saving money. She was divorced several years ago, but had managed to accumulate a modest nest egg. I felt that she had enough to live comfortably, but certainly not enough to live extravagantly. And for a while, things went according to plan.
But then the calls starting coming in pretty regularly. Her car was acting up and she didn’t want to put more money into an older model, so she wanted the funds to buy a new one. We had anticipated the need for a new car in her plan, but we hadn’t planned for the need so soon. We sent her the funds for the car. Then she called and said she wanted funds to pay for a vacation for her and a friend. She had never been to Times Square to see the New Year’s Eve ball drop. She said that it was a bucket list item, but she had not mentioned it as a goal when we worked on her plan. We sent her the money she wanted for the trip.
The calls kept coming. She needed money to put up a new fence. Then she had to have some funds to pay off a big credit card balance she had let run up. She wanted a distribution so she could help her son with the down payment on a new home. She needed cash to pay for a top-of-the-line generator for her home. Now, we live on the east coast of Florida, and it was hurricane season, but I don’t know many other folks who have an $8,000 generator. We sent her the requested funds each time.
Run out of Breath before Money
Each call followed a pattern. I would let her know that, while it was her money and that she was the one who would ultimately make all of the decisions, it was my job to advise her on how the size and frequency of her distributions were affecting her plan. Like many planners, I felt that one of my main roles in my work for her was to make sure that she would not run out of money before she ran out of breath. When putting her plan together, I used the standard life expectancy tables and then added a few years for good measure. During our calls, I would warn her that, if she kept going with her current rate of spending, she would run out of money way too soon.
But Jane ended up teaching me a very important lesson. Within the space of a few short months, she was diagnosed with esophageal cancer, went through some painful treatments, and ended up passing away shortly after a surgery that attempted to remove the diseased tumor.
Lesson Learned
My lesson? Actually, Jane just reinforced something that I already knew and that we all know. In trying to ensure we are doing the right thing for our clients, we want to make sure that they stick with their plan and have money left if they live into their 80s, 90s, or beyond. But we know that there are no guarantees; an accident or illness can take us well before our “expected” time. We need to make sure that we don’t live so much for the future that we miss living for today. Jane didn’t plan on passing away at such a young age. While she was here, she made sure to live in the moment.
Every time I think about Jane’s story, it takes me back to a conversation I was a part of at the 2014 FPA Annual Conference—BE Seattle. In Seattle, several members of the FPA Retirement Planning Knowledge Circle had the opportunity to get together in person to meet and share ideas. One of the conversations focused on how we might frame the retirement conversation we have with our clients a little differently.
As planners, we’re almost always focused on making sure the plan doesn’t end up with the client running out of money before they pass away. But we should also make sure we consider the possibility that the client won’t live until the “average” life expectancy; we might have been able to have helped them retire a year earlier, or take one more trip to visit their grandkids, or whatever else might be important to them today.
Thanks Jane, for reminding me of that.