September 30, 2013

What I Wish Every Prospect Had Considered Before Asking ‘Can I Retire?’

As an experienced wealth manager and retirement planning advisor, I find it very challenging when a prospective client somehow thinks I can answer their “Can I retire?” question in an initial one- or two-hour meeting.

I’m sure most fiduciary advisors have been asked the same question, which, as you know, entails a far deeper discussion, mostly driven by actions taken long before we ever meet the client. This important question — which is never easy to answer — entails lots of analysis, projections, assumptions, psychological questioning related to risk tolerance/investing and often turns into a history lesson on the family as well. Sometimes it’s a heart-wrenching answer to deliver.  

Let’s review some important questions most investors don’t consider when it comes to thinking about their retirement that fiduciary advisors wish they would.

Question 1: Have You Been Planning for Retirement?

What I find most often is that only a small percentage of investors have actually planned to retire. Most wait, and then start planning when their ages creep closer to 50, 55 or 60. Those that wait are most often the clients who I have to tell that they can’t retire, and that they’ll have to work until at least age 65 or 70 before they can. Investors who prudently and continuously plan financially for all future events are accomplishing more than half the equation for when it comes time for an advisor to answer that “Can I retire?”question. If you don’t plan far in advance, the odds become less and less that you’ll get the answer you want when the time comes.

Question 2: Have You Planned on Your Own or Have You Used a Professional?

Clients who enter my door having planned somewhat in advance for retirement are enormously better off than those who haven’t. However, that still doesn’t mean they can all retire when they want. Poor financial planning generally becomes brutally obvious to clients who thought they were investing/financial experts, compared to those who actually realized they weren’t and hired professional help along the way.

Clients need to realize that no matter how good a financial planner they think they are, they can’t compete with the expertise of AIFs, CPAs, CFPs or CFAs that are highly educated and do this every day for different clients in differening situations. The odds of retiring before or at their target date are much better if they’ve worked with a professional financial advisor. So unless the client is in the wealth management/retirement planning business with the necessary educational background and professional credentials, they should find an experienced partner they can trust.

Question 3: Did You Buy ‘Silver Bullet’ Products or Invest Directly in the Markets? 

Every client is different. Yet all require the same assessment questions and education as to what is a prudent and realistic risk/return strategy for investing their money. However, the most significant issue I find myself having to explain again and again is the so called ‘silver bullet’ option, which doesn’t exist and never will. So-called ‘guaranteed’ products from insurance companies prey on the emotions of uneducated investors, often carrying vast market return disadvantages and high expenses, while locking up investors’ money for years with high surrender charges.  

As you know, the theory is quite simple: the markets will always be at the top of the hierarchy with regard to returns, no matter who the investor is. From insurance companies to Wall Street no one has a ‘silver bullet’ beyond the markets that can actually outperform the markets without being somehow invested in the actual market. Buying an insurance contract such as an indexed annuity or guaranteed annuity is not directly investing in the markets. Therefore, clients need to realize that advertised guaranteed products will always be sub-par in performance as compared to the long-term benefits of investing fully in the markets. If clients make a poor decision in this area along the way, it could add years to their working life, before they can get an affirmative answer to the question, “Can I retire?”       

In a nutshell, the retirement planning process must start well before age 50, 55 or 60. For those who short cut the process, as many potential retirees have done, they’ll find themselves back to work later in life or still working at age 70, because they didn’t take the time to prudently assess the questions “How much do I need ?”or “When can I retire?” over and over along the way.

Stay tuned for part two in this series of blogs, where I break down specifics of the retirement planning process most investors don’t think about.

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