Cash Flow Concerns

As the recession has claimed jobs, investment income, and consumer confidence, Americans have tightened their belts and learned how to do without.

Retirees, many of whom live on a fixed income, have a worry set all their own—and local wealth managers say that even those with sizable nest eggs have felt the pinch and, in some cases, scrambled to make more cash available.

“Cash flow ends up being the concern at the end of the day,” says Jose Peris, senior vice president of the wealth-management group at Minneapolis-based U.S. Bank. Peris typically works with clients that have portfolios in excess of $10 million.

“It has become chic to be cheap,” he says. “In the old days, if you were a CEO of a company and you belonged to the major [country] clubs in town and you retired and maybe went to Florida, you still kept those memberships because there was a certain prestige accumulated for it.”

Not anymore—and memberships aren’t the only things that he’s seen snowbirds going without. Some are also canceling their phone lines and utilities while they’re away for the winter, although some phone companies have responded by lowering rates for months when lines are not in use.

Whether the recession has really made it necessary for wealthy retirees to worry about cash flow is a different matter, says Kristine Merta, a financial principal at wealth management firm Lowry Hill in Minneapolis, whose clients have a $10 million minimum portfolio.

“Even if the person had enough money to meet—even in a depressed market—their lifestyle at a level for many, many years . . . the psychology of the recession held them back from doing things they otherwise were capable or able to do,” Merta says. “People set a new bar of their comfort level.”

A small number of her clients have sold collectibles such as artwork to make cash immediately available amid liquidity worries—a knee-jerk reaction to a level of fear that she had never witnessed before the recession. She says that clients don’t want to sell their stocks and realize the losses, but some have been eager to turn illiquid assets into cash—a move that she advises against because some collectibles are taxed at ordinary rates and don’t benefit from the capital gains tax.