When it comes to retirement, a lot of human beings look for
tricks and tips, but we should be honest with our clients approaching and
entering retirement: there are really no shortcuts. In fact, thinking about
retirement is a deeply intense process. Retirement, especially in 2021, means
very different things to different people. To that end, we should be authentic
with the clients we serve, and understand their motivations and psychology
To begin, it is incumbent on advisors to assess spending
needs in a very straightforward way: how much does the client need for their
current, pre-retirement lifestyle? How much will they need when they are no
longer working (or working part-time)? Then, we need to help clients evaluate
those spending needs in the context of present and future resources: what will
they have when they plan to no longer work? How long will that money last?
That’s where introspection begins on strategies advisors should consider: spend
less (or more), save more (or less), invest differently, work differently, find
other sources of capital (or give capital away).
In my experience, many times humans suspect they know the
answers to these questions, and they just need to ask themselves why they
haven’t addressed them head-on. Oftentimes it's fear of uncertainty. But once
uncertainty turns into opportunity (because now they know what the future could
look like!), they can more productively collaborate with their advisor and
their spouse or partner to make small, incremental changes and get to a
fundamentally different place. That’s where the true surprise comes in: many
times it’s actually small, systematic behavioral changes in strategies that
lead to sustainable, meaningful changes in outcomes.
Spending in retirement is generally predicated on resources
that retirees bring to bear on the situation. The key is that all resources are
not created equal. For example, many people will note that they can spend from
a combination of social security, pension-like income, annuities, a 401(k)-like
plan, Roth IRAs, traditional IRAs, cash, bonds, stocks, and the list goes on.
These resources often have different implications, from guarantees to growth
patterns to taxes. Working with professionals like you who understand these
implications will help retirees and pre-retirees plan and organize their wealth
in a way that supports their spending in the most empowering way, and make the
money last. This is particularly important since people are living longer and
longer — it’s not surprising these days to live well into your 90s. It’s
critical to note there are gender differences as well, where women live on
average longer than men. This creates a different set of considerations when
evaluating retirement resources and spending patterns, and something that
partners and spouses should have at the top of mind.
Reframe 'the Family Bank'
One of the biggest pitfalls with respect to retirement
spending and saving is prioritizing giving to family and the community over
one’s own retirement savings — remember, education for children and
grandchildren counts as giving to family! Paying for two kids to go to school
can easily make the difference between being solvent and insolvent in
retirement. Putting family first needs to be reframed. As advisors, we should
encourage parents and grandparents to ask themselves: if my family knew that by
paying for this or giving to that I would run out of money in retirement, would
they still want me to do it? Being a burden on the very people you are trying
to empower and give a head-start to in life is something to be deeply
introspective about before acting as the “family bank.”
Most people are not financial experts — and even the experts
find retirement income a difficult problem to solve. That’s why letting our
clients know that feeling a lack of confidence about retirement is not a
deficiency — and is nothing to be embarrassed about. In fact, if a pre-retiree
or retiree is asking themselves “do I have enough?” and does not have a
concrete answer to the question along with a plan to get to “yes” — then that is
the key sign that there may be more work for us to do as advisors to evaluate
if the client is ready to retire.
Indeed, this is where an advisor can add value: there are so
many ways to evaluate spending, organize resources and evaluate retirement
readiness that I’d really encourage every advisor to proactively examine the
“retirement readiness” of their clients. The information will resolve that
uncertainty and help you to take action to get to a better place with your
client — and their family. While it may require clients to make tough
decisions, like working longer, delaying social security, spending less in
order to take advantage of catch-up contributions (401(k)s; IRAs) — you can
work with your clients to employ key tools to boost retirement savings. But the
one that can be really critical is spending right after retirement. There is
evidence that humans have a tendency to “over spend” right after they retire
which can damage retirement readiness. Keeping a keen eye on this tendency can
make a huge difference in retirement outcomes.
Here are five steps to guide clients when helping them
reframe their thoughts on — and readiness for — retirement.
1. Find a collaborator that your client trusts who can join
your meetings — that could be a spouse, partner, or family member. It can help
your client stay honest with themselves — and with you — about the reality of
2. Clearly define spending needs with your client before and
after retirement, and hold them accountable.
3. Establish which resources your client will have available
to them in retirement, and whether those resources are allocated and positioned
correctly across a variety of different retirement solutions.
4. Compare resources and spending using analytical planning
software to determine if there is enough to support your client’s life through
5. If they’re on track to support their life through
retirement, revisit at least annually to stay on track — do not “set it and
forget it” — things change (think: pandemic)! If they’re not on track, work
with your client and their key collaborators to determine what small,
incremental changes can be made to potentially get to a better place.
Click here for the