Retiring gradually

Kristen D’Andrea, The Daily Record Newswire

When Michael Montuori began his career in the financial services industry in 2000, the majority of his clients celebrated their 65th birthday by submitting retirement papers and collecting their gold watch. Today's retirees paint a very different picture: Many are gradually cutting back their time in the office, working well into their 70s and living very actively into their 90s.

"It's changed the entire financial picture," said Montuori, first vice president and investment officer at the Alpert Group of Wells Fargo Advisors.

"We are finding that the successful retirees downshift into retirement," Montuori said. Rather than going from 60 mph to 0 mph in an instant, many professionals are choosing a gradual retirement, reducing the number of hours they work from 40 to 50 a week to 20 to 30.

"In most cases, it's healthier both financially and emotionally," Montuori said.

Clients who retire abruptly are not as happy, he said.

"Unless they have a hobby and their day is occupied, we often find clients who retire cold turkey end up in doctors' offices," he said.

The Alpert Group has a handful of clients in their 90s who don't need a job for financial reasons but choose to work part-time.

"It gives them a sense of purpose and accomplishment, and keeps their minds active," Montuori said.

Donald Conrad, president of Conrad Capital Management and general partner of CCM Partners, agreed.

"For me, you can only play so much golf and tennis," he said.

In addition to loving what he does, Conrad said he finds work very stimulating and, although he could financially retire, he doesn't see himself ever not working.

Conrad has noted a trend toward gradual retirement among the three generations of clients he has served since entering the financial industry in 1980.

"It's a recommendation or option that we throw out and suggest clients address their employers to see if it's a viable option to all or nothing," he said.

It's important for clients to work with financial planners who consider all aspects - both psychological and financial - of retirement. Montuori said clients are often surprised when he runs their investment plan and tells them they are financially ready to retire, but he doesn't recommend it.

"It's not all about the numbers," said Katherine Connors, a partner at Albrecht, Viggiano, Zureck & Co. "A portfolio can look great, but if you're unhappy with your retirement choices, your investments are not going to fix that."

The trend toward people electing to take a more gradual retirement route has coincided with a shift in asset allocation. While a longer working cycle is one reason for the recent increase in assets being allocated to growth, the low-interest-rate environment is another major factor, according to Lawrence Sprung, president of Mitlin Financial.

"Today, a 10-year bond will yield a percent of 2 and change," he said, noting that's not keeping up with the cost-of-living increases. "If they can, clients are taking on more risk to get an enhanced return."

The rule of thumb for equity exposure used to be 100 minus your age, Sprung said, noting a 60-year-old might create a portfolio comprising 40 percent stocks and 60 percent fixed income. Today, he said, people working longer, combined with longer life expectancy, have caused that equity exposure equation to change to 110 or 120 minus an investor's age.

What used to be a "no-brainer" - putting money into bonds - for investors looking for some portion of fixed income has become a challenging question, Conrad said.

"This is something that keeps me up at night: What are we going to do with that component?" he said. "Looking for those alternative, low-risk, coefficient options is very challenging."

Only a small percentage of people can put all of their money in treasury bills and live happily ever after, he said.

"The rest of us have to find a balance in how much risk we can take and what our portfolios will return," Conrad said.

Today's reality is that a lot of people might have to get comfortable taking more risk than they should, he added.

Downshifting into retirement seems to be a happy medium for some.

Still, planning is the most important piece of the equation, for the financial and emotional aspects.

"If you have 10 or 15 years before retirement, you can prepare for the financial end of things and start asking yourself if you're ready," Sprung said.

Published: Fri, Nov 06, 2015


  1. No comments
Sign in to post a comment »