William and Sharon were driving home from a meeting with Alan, their financial advisor to talk about their retirement plans. William had decided that he would leave his work next year and Sharon would continue to work for another couple of years. The couple had been diligently saving for “the big day” when they could consider themselves fully retired and now they had actual dates in mind.
“I was a bit confused by our conversation with Alan,” remarked Sharon. “He spent all of the time talking about changing our investment strategy over the next couple of years and how we need to build an income plan for retirement.”
William agreed. “l don’t feel that I know anything more about retirement planning now than before we went in. It seems like Alan feels that if the financial plan is right then everything else looks after itself!”
The couple probably shouldn’t expect anything else from their advisor when it comes to retirement planning. After all, it has always been about the money and preparing financially for this next phase of life. But there is so much more. As Sharon remarked afterwards, “Alan didn’t even spend much time talking to us about what we actually wanted to do in retirement or the things we should think about.”
For your clients, retirement planning must go beyond building an income strategy or calculating a withdrawal rate. You can do all the Monte Carlo simulations you want and still not touch the day-to-day lifestyle issues that will have a direct effect on the retirement plans you make with your clients.
Financial planning for retirement requires context. It is hard to plan in a vacuum without understanding the many non-financial issues that your clients may not have thought about.
Here are the most common non-financial issues that clients must address with your help and coaching:
- How to plan to live longer than they might expect. According to the Stanford Center on Longevity, two out of three pre-retiree men underestimate the life expectancy of the average 65-year-old man. Of that group, 42% underestimate average life expectancy by five years or more. Roughly half of pre-retiree females underestimate the life expectancy of the average 65-year-old woman.
- The long-term costs of healthcare, housing needs and out-of-pocket medical expenses. All these can sabotage even the best retirement plans in a hurry. Many clients don’t want to think about negative things, yet skyrocketing medical costs can severely affect income plans and cash flow. The potential need for long-term care is increasingly becoming a likelihood in the later years of retirement no matter how financially set your client may be.
- Changing spending patterns over the life span of retirement. Most advisors develop income plans with clients. A better approach might be to develop spending plans instead and then work the income strategy around them. Advisors often use “rules-of-thumb” to determine income needs, such as replacement numbers or withdrawal rules. Retirement spending plans start with a budget, even if your client has never done one before. This will provide clarity on expected spending and how that might change over time. By the way, I recommend that you only prepare a three-year spending plan. You can then roll the plan each year after that to a new plan. Too much can happen in retirement to change the budget.
- Lifestyle issues that may be impacted by retirement. This may seem self-evident, but many advisors define holistic retirement planning in financial terms rather than in life terms. Have a frank discussion with your client about the areas of their life and what their priorities, needs, concerns and possibilities might be. A good place to start would be the 360 Discovery process with the Life Map.
Really, a retirement advisor is a coach. There are many areas that clients don’t fully understand or appreciate that will ultimately drive a retirement plan. Your opportunity is to become a guide, educator and catalyst for your retirement clients to help lead them through the later stages of their lives.