What we call “seniors” actually includes multiple generations with a vast spectrum of historical experiences. The senior in her 80s will have lived through the Great Depression, which likely instilled in her frugal behavior. Meanwhile, the recently retired senior may be more optimistic and less likely to have experienced severe financial hardship.
What does this mean for the financial advisor? Simply, we can’t advise all seniors in the same way. People who lived through the Great Depression and those who did not require different guidance.
Memories of the Great Depression
Take the client in her 80s who was afraid to eat out, even though she could afford it. She could remember what it was like not to have money for food, and she was concerned the economy would get worse. She was pessimistic and wanted to save every penny, just in case.
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Meanwhile, she had a five-figure sum in a money market account that she was afraid to move because she didn’t want anything to happen to the principal. Her solution was to keep the money safe and not spend it.
My solution centered on gently making my recommendations:
- My primary goal was to help her get better returns. I offered her guaranteed interest rates in a fixed annuity that were higher than those offered by her local bank. I then added some other investments with low volatility. This gave her growth plus liquidity, which was of comfort to her.
- I created a budget for her, gently showing her how she could afford to transfer a certain sum each month to a checking account for her to spend. This way, she felt she had permission to enjoy the fruits of her labor and savings. She didn’t realize what her true financial situation was — she just feared running out of money.
- I connected with her children. This made her feel confident in the strategy, getting a second opinion from someone she could trust. Also, the elderly are often vulnerable to unscrupulous advisors. By getting the children to buy in, I covered myself as an advisor. It also allowed me to build relationships with them for the future.
The takeaway: With this age group, decision-making is not going to happen right away. A relationship needed to be built, and trust needed to grow. Also, this age group likes to read documentation and educational material to support your recommendation and provide evidence that what you’re saying is a good decision for them. The main thing is to take it slow. Don’t go in and try to take over all their assets because you feel you could manage them better. Deal first with what they need right now, and as the relationship develops, make further recommendations that would be helpful to them.
Baby boomer optimism
On the other hand, consider a client in his 60s with a money market account that had about the same amount. He was optimistic overall and felt things had already hit bottom. But he had hoped his money market account would have grown more than it had. He was concerned that at the current rates, he was behind on his retirement savings plan and would eventually run out of money. He wanted to put the money in a financial instrument with higher risk and higher returns. At the same time, he had never been truly without and was continuing to spend as he had in the past.
In a nutshell, he said he was afraid, but he wasn’t acting it. He wasn’t factoring in the possible impact of inflation, taxes and health care costs in 20 years time. He wanted his lump sum to last a lifetime, but he wanted to maintain his income of $8,000 a month, since that provided his current lifestyle.