Late in 2006, we spoke extensively with six Merriman Capital Management financial advisors about the shift from earning a living to being retired. The following article is composed of edited excerpts from these conversations. Participants were Cheryl Curran, Jim Whipps, Aaron Spencer, Tyler Bartlett, Mark Metcalf and Laura Wood. Moderators were FundAdvice.com Managing Editor Richard Buck and Associate Editor Niki Hermanson.

Moderator: Most adults in our society eventually retire, each in his or her own way. Every situation is different, yet we believe there are some common challenges facing everybody who goes through the transition from working for a living (or being married to someone who works for a living) to being retired.

Our advisors have helped thousands of people through this process, and we want to tap this experience to help see why some people are very successful at retiring and others have more trouble.

Are we correct in assuming that there are both financial and non-financial components of this process?

Mark: Most definitely. When people are talking about transitioning to retirement, they are weighing a number of things in their lives – their finances is one of them. But there could also be something as far reaching as ‘I’m not so sure my husband and I are going to be able to stand seeing each other on a daily basis.’

Moderator: You hear some version of that remark in jokes from time to time, and it can seem funny. But it points to the magnitude of the changes involved in retirement. Some of those changes are financial, of course, but they’re also social, emotional and in a way intellectual. And it’s very easy for people who haven’t yet retired to underestimate how big the change will be. Lifestyles, dreams and finances are all interrelated.

Cheryl: The two questions we hear most often from people who haven’t retired are ‘When can I retire?’ and ‘How much money do I need?’ We have to look at the numbers in each case, because everybody’s situation is different.

We also talk with our clients about the emotional side of retirement, the non-financial side. What are they going to do in retirement? Do they have plans for once they stop working? Do they have other interests? How are they going to fill their days? Some people can retire and become very lonely because their ‘work family’ was the center of their social circle, and they might not have other family, or their family members are not nearby.

Moderator: I am hearing that you think the non-financial part of retirement is just as important as the financial part.

Cheryl: Actually it’s more important because it’s all about quality of life. There are some people who don’t like to spend money, and I may encourage them to do so. Often when they come in for their review I ask what they are not doing that they want to do, and I remind them they can safely withdraw more from their portfolios than they having been taking out.

The most important thing is to have a plan and make sure that plan allows for some fun. They have worked hard for their money, and I don’t want them to get caught up in being so frugal that they don’t bother to enjoy the rewards of a lifetime of savings.

Aaron: Frequently I find that people haven’t given enough forethought to retirement. I see the opportunity and sometimes the challenge of retirement in three dimensions: money, time and pleasure. Those are the variables to focus on. When you get them properly balanced and properly managed, you have the golden triangle of a good life. It takes time to figure these things out. This is a thinking process that should start early; the sooner the better, in my opinion.

An exercise that I sometimes suggest is to write down the answers to three questions: 1. What do I want to do with my free time? 2. What is likely to make me happy? 3. What can I afford? This is a good exercise for me personally as well as for clients. It’s like putting together a budget: Write it down and see what it looks like.

The most valuable asset that we have is time, and we all have the same amount of it. We have only one shot to live on this planet, and we need to make it count.

Moderator: This part of the discussion has a richness about it that is very appealing. But before we explore it further, let’s focus a bit on the financial underpinnings that make all the difference. As financial advisors, that is our primary job.

How do we help people figure out when they can retire and whether or not they have enough money to retire? Part of this process is mechanical: making the numbers work for each client. And a large part of it is an art: helping clients make good choices, both financial and non-financial.

Cheryl: Yes. You can’t take a cookie-cutter approach. Every client has a different set of needs, wants and resources. Our primary job as financial advisors is to make sure the client’s assets will last long enough so they don’t run out of money. Because each client is different, there are a number of ways we can achieve this.

Moderator: The ‘perfect’ retirement plan should avoid ever running into a situation where there’s a major problem? 

Cheryl: You bet. Some clients come to us with unrealistic expectations about how much they will be able to spend in retirement, given the amount of money they have. I won’t give clients a plan that is designed to ever run out of money. So we have to work with them to find the right balance.

Tyler: A critical part of our job is to help people identify the important issues they should think about and then recognize the difference between ones that will make an important difference to them and ones that won’t. For instance, what is happening in the market this month doesn’t really matter to you in the long run. But keeping your debts and spending under control, there’s something that can make a big difference. I want my clients to focus on the things that matter.

Cheryl: We can run spreadsheets and scenarios all day. We can fiddle with assumptions to try to get the result we want. But as Paul has often said, in the end, it comes down to this: If you don’t have enough money saved to meet your needs or your goals, there are only four main ways to solve the problem:

•    You can work longer.
•    You can save more.
•    You can get better returns.
•    Or you can reduce your cost of living.

Often the solution involves more than one of these things. Most of the time, reducing your living costs will have much more impact on solving the problem than anything else.

Moderator: I’m sure that people nearing retirement don’t always like to hear that, Cheryl. Sometimes we have to deliver news that the clients would rather not hear. But it is news that they need to hear so they can make decisions that are appropriate for them.

Education remains at the core of what we  do at Merriman. We work hard to get our clients to understand the “why” of how we do things. For some people, that requires a significant learning curve involving a whole new way of thinking about investments. The way we do things is not the same way it’s done everywhere.

Jim: Very true. The transition into retirement is more complex for people who have not yet implemented the sort of strategies that we recommend. Maybe they have only recently heard about proper asset allocation, being globally diversified and thinking carefully about how much risk they should take.

Moderator: It sounds as if retirement planning can be a balancing act between what is desirable and what is possible.  

Tyler: We do try to match those up. Of course it’s much easier when people begin serious saving when they are young. This gives them lots more options when they are older. For people with ample savings, retirement can become a time when you can work because you want to, not because you have to. But that requires aggressive savings habits that are very difficult for many people in their early earning years with growing families and careers that are just getting established.

Still, when they don’t give the proper attention to developing the right habits and the right attitudes toward their saving, their investing and their spending, there can be a high price to pay later on. When couples talk about these things openly over the years, they have a much higher chance of getting things right than if one person makes all the decisions and the other person simply trusts that the right decisions are being made.

Mark: I have two relatively new clients – a couple – who built their portfolio and their retirement plans almost entirely on the stock of the company he worked for. It was a very successful company for many years, but the stock fell on hard times. Unfortunately, he had not diversified his retirement plan much beyond this stock.

I think my initial consultation with them was the first time they had discussed this openly as a couple and actually listened to each other. The wife regarded me as an advocate for helping her voice her concerns.

In my opinion, they retired three or four years too early. If I had been their advisor then, I would have counseled them to keep working and keep saving. He retired thinking he could safely take 8 percent to 10 percent a year out of his portfolio because the stock was growing so fast. That was not a realistic expectation. At the same time, they were used to spending more money than they probably should have been spending.

This is a situation that didn’t need to happen if they had avoided making a few key mistakes. Now they are being forced to cut their standard of living.

Moderator: Ouch!

Laura: As advisors, I think we all realize that there’s no substitute for running retirement estimates and figuring out worst-case scenarios on all the major variables. Let’s see what happens if inflation goes through the roof. Let’s say the investments do poorly or your pension doesn’t have inflation protection. Let’s be really conservative on all those fronts and see what we come up with.

Tyler: Some people become too conservative when they retire. It’s easy for them to underestimate how long they can expect to live and the cumulative effect of inflation. Having all their money in CDs can feel comfortable, but it doesn’t make sense. I think too many people do that as they try to focus all their assets on income generation. Even in retirement, you need some capital appreciation. Inflation is a big enemy.

When I run projections, I like to be conservative by assuming lower rates of return, higher rates of inflation, higher spending than the client might anticipate – and by not assuming that their level of spending will drop down in later years. This gives me more comfort and gives the clients more comfort.

Moderator: That sounds like something Paul Merriman has said many times: Hope for the best, and plan for the worst.

It’s a fact of life that not everybody is going to retire with a lot of money. But if they make sensible use of the money that they have, life after retirement can still be very satisfying.

Aaron: Absolutely. We don’t know what the markets are going to do, but we can figure out what we want to do with our lives, what our expenses are, what we choose to spend money on and what we choose to spend time on. I tell people to manage the risks they have some control over and don’t worry about the things that are beyond their control.

I recently started working with a client with an extremely modest amount of money that we’re managing for her. She’s dependent on two of her daughters who are in their 40s to augment her Social Security income and what little she’ll be able to take out of her portfolio.

She is a widow in her late 60s, and I believe she could have been in a drastically different situation now if she had sought out counsel sooner or taken it upon herself to be involved in her family’s finances instead of allowing her husband to make all the decisions.

She’s in a position where she will have to either sell her home, which fortunately is fully paid for, and move in with one of her daughters or possibly have somebody move into her house with her to help with the expenses. Otherwise she is going to have to ask her daughters to help her pay the bills.

Even though this sounds very bleak, she will still have time and within her financial constraints she can identify what will make her happy. I am encouraging her to make the choice to do that rather than feeling she is a victim.

She has the same time and choices that we all have. She can get up in the morning, she can go volunteer at her church, she can be involved in a bingo club, take the bus downtown, enjoy being in the flow of humanity. These things don’t require a lot of money, but they require a little bit of thought and a little bit of three-dimensional thinking: What can I afford? What do I want to do? What will make me happy?

Laura: Sometimes I ask clients: ‘What do you do on the weekend vs. the week days when you work all day? What if every day was a weekend day, and you realized you had that whole day to do whatever it is you worked so hard all your life so that you could do?’

Moderator: A big part of the shift from working to being retired may have to do with structure. And the way it affects money and time.

When you’re working and you have paychecks coming in regularly, it can be easy to do whatever you want with the money that’s left over. There isn’t necessarily a firm financial structure in place, and you can tell yourself you’ll work a little longer if need be. But when you’re retired and you’ve set up your finances to last your lifetime, you may have a structure that has to be obeyed. If you withdraw too much from your portfolio year after year, you could be in big trouble.

And yet it seems as if the opposite shift occurs when it comes to the area of time. When you’re working, your time is typically quite structured. You know what you need to be doing most of the time. After you retire, much of that structure might vanish immediately.

Laura, I believe you experienced a little taste of that yourself, didn’t you?

Laura: Yes, but only a very small taste! When I transitioned from my former practice to Merriman, I needed a few weeks to wrap up some things for clients and to have just a little time off for myself before I jumped into something new.

It was really quite interesting. I am used to thinking that I always have so many things to do that I don’t have time for. But in this period of three weeks between jobs, I’d wake up and take time for granted because I felt like there was so much of it.

So in the beginning of this break, I had this strange feeling. What do I do? I quickly went from my work defining who I was to a state of ‘Oh my gosh, now I’m in limbo.’

It’s normal for me to have lots of things to do, but when you wake up and have all this time, it’s so easy to just hang out and figure that you’ll do those things later. That’s what I started doing. I was honestly almost depressed after three weeks. Once I started work here and had that structure back in my life, everything was fine.

I think your sense of who you are is just as important as your finances. You can sit alone and do nothing with all the money in the world, or you can have a fulfilling retirement. Just like a good marriage, if you want to have a good retirement you have to work at it, make plans and try new things.

I’ve seen this with the people in my own family who have retired. Some of them travel a lot and have various interests that keep them active. And they seem really happy. And then I think of others who literally just watch TV and argue with each other.

Jim: It has been interesting to watch some of my clients try to retire and essentially fail at it. Typically these people retire and pretty soon realize that ‘Wow, I wasn’t ready for this.’ And they go back to work. I try to prepare my clients for this and tell them they are not going to retire and three days later feel perfectly comfortable and have everything be hunky-dory.

Retirement is not just having a lot of fun things that you like to do. It is a transition to get comfortable with the fact that you no longer have a set schedule and routine. And you might start to feel very insecure because your whole life and your reason for existence and sense of being have been tied up with what you do at work, and now that’s gone.

So a part of our job, along with the financial projections, is helping our clients and their families get through this challenging transition period. Some people handle it much better than others.

One reality of retirement is that what you’ve been doing your whole life has to a high degree defined you as a person; your self worth, your value. Many people have to reinvent themselves in order to retire successfully. They have to come to grips with new visions and passions that aren’t built around their employment, that are now built around their personal lives.

The people who have the hardest time with this transition into retirement seem to be ones who have had little or no personal life. Their life was their work. When their role at work is gone, they have a hard time reinventing themselves.

I think most retirees do a pretty good job adjusting, but it doesn’t happen overnight. Retirement is a mental change about what’s important in your life, about what defines you, about what gives you a sense of purpose and meaning.

Moderator: How do people accomplish this, Jim?

Jim: It takes a lot of time and thought, often a series of heart-felt discussions between couples and with close friends so people can discover or invent what they want to do with the rest of their lives, how they want to invest their time and what their priorities really are. It may take weeks and months for them to get to that point where all of a sudden they feel fulfilled.

Moderator: This transition is obviously quite complex and personal. Advisors cannot prescribe a single path that will easily and always lead to the right answers. We have to find different approaches for different situations.

My understanding is that each Merriman advisor works closely with another advisor and that this ‘backup’ advisor looks over every set of portfolio recommendations before those recommendations are put into place. When an advisor has to convince another advisor that the plan is appropriate for a particular client, that is a very good way to make sure that the most important points have been considered.  

Laura: That’s right. For instance, when I set up a new account, that account doesn’t get processed until Mark looks at it, checks the facts and checks to see if my recommendation is appropriate. One thing he does is make sure the client and I have found a balance between risk and return that is right for that client.

Actually, inside the company we take this approach one step beyond that.

Each one of us has our own financial plan and our own portfolio. And each of us has another Merriman advisor to review our plans and our portfolios.

As advisors we know that even if we had all the knowledge and training in the world, we would still have emotions, too. And maybe we don’t always look at our own lives with total objectivity. For instance, I think that I tend to be probably too conservative for my age in relationship to retirement. Being conservative is what feels comfortable to me, even though I know I can afford to be more aggressive with my investments. It’s very valuable to have another advisor question my thinking and my assumptions.

Getting a second opinion is good for clients. It’s good for their advisors, too.