29 July 2021

5 Steps to Reframe Retirement for Clients

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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 behind money.

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.

Reframe 'spending 

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.”

Reframe “confidence” 

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 the situation.

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 retirement

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.

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