By Clay Gillespie
Most retired clients or those who are working towards retirement have only one question: How much money can they generate to last the rest of their lives?
This question ignores the fact that retirement is not an end-of-the-road destination, but the next journey in life. It is the advisor’s job not only to answer that question in a way that takes the client’s spending habits into account, but also to shift their idea of retirement as a whole and help them navigate through it.
Money and purpose: the biggest challenges for retired clients.
Retirement is an exciting time, but it can also bring about incredible stress. While retired clients can look forward to additional time for family and hobbies, the biggest fear they have is the possibility of running out of money. Some clients have a hard time translating their savings into a means of income because they are still in the mindset of needing to accumulate wealth. Not to mention, tying their retirement savings tied to the fluctuating stock market may also spark additional fears.
The transition from work to retirement can also be an unexpected source of stress. For 50-plus years, your clients’ lives have revolved around working to provide for their families. Now they must shift out of that role and define a new lifestyle. Creating this new structure with goals and purpose is vital for the longevity of your clients’ health.
Base retirement income on spending habits, not inflation.
It’s common practice for advisors to factor inflation into a retirement plan. However, using inflation as the primary planning benchmark for retirement income needs can cause clients to wait longer than necessary to retire, and disregards their spending habits in retirement. Think of those spending habits as having three stages; the “go-go” phase, the “slow-go” phase, and the “no-go” phase.
• Go-Go Phase: Most people view retirement as vacation, and that’s how they typically live for the first two years, which makes this an expensive stage. Clients tend to be very active during this phase, as they are usually young and healthy enough to indulge in their desire to travel.
• Slow-Go Phase: At this stage, clients are beginning to settle into their new retirement lifestyle. The impact of aging may bring about a decline in mobility, which transitions clients out of vacation mode and decreases their spending. For clients who don’t have pensions, this is the time to withdraw funds from their retirement accounts and buy fixed-rate lifetime annuities to help them cover day-to-day expenses. At this point, since they’re older and their general spending has reduced, the interest rates don’t have as much of an impact.
• No-Go Phase: The no-go phase is an expensive, but rare, stage, since most clients tend to pass before reaching it. This phase revolves around some level of extended care in which a client receives regular medical and nonmedical assistance. Most, if not all, spending during this phase goes to this care.
We want to shape our clients’ retirement income in a way that allows them to enjoy the bulk of their money when they want and need it. Unexpected purchases and medical expenses will always be ongoing conversations. By adjusting your clients’ retirement income to incorporate these additional factors, you provide better retirement planning and address fears of running out of money.
As you plan your client’s retirement income to cater to their spending habits, you help elevate fears and establish lifestyles beyond their early years in vacation mode. You hold an elevated level of responsibility to your retired clients that differs in many ways from your other ones.
About the Author
Clay Gillespie, BBA, CFP, CIM, FCSI is a Managing Director, Financial Advisor and Portfolio Manger with RGF Integrated Wealth Management. He has been helping Canadians retire for over 25 years. Clay is a Qualifying and Life Member of MDRT and a Top of the Table Qualifier. He lives in Vancouver, Canada.
The views expressed are those of the author and not necessarily those of RGF Integrated Wealth Management, which makes no representations as to their completeness or accuracy.