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March 31, 2014 at 08:00 PM
As clients get closer to retirement, advisors need to turn their attention to not just accumulating and protecting assets, but helping them transition into a new phase of life.
“Retirement is just like your health as you go into your 50s and 60s. You need to have a physical every year,” said John Bucsek, managing director of MetLife Solutions Group, in an interview. “You need to see what you’ve done and where that is taking you.”
For clients close to retirement, there’s a significant mindshift that occurs. “We’re talking about that year while making that transition from working to retirement,” Bucsek said. “One of the biggest changes is as an investor. There’s a certain psyche when you talk about being in the accumulation phase, and there’s a different way that you look at your investments. When I retire, now I’m in a distribution phase. Some of the variables that didn’t really affect me in the accumulation phase certainly could affect me in the distribution phase.”
One of those variables is sequence of returns, Bucsek said. “Over the last 25, 30 years, the S&P has averaged around 10%, but very rarely has it gotten 10% in any particular year. If I’m up 18% one year and down 20% the next, then up 30%, if I’m accumulating money, it doesn’t really matter because I’m averaging 10%. In the distribution phase, there are two things I know: I know we’re going to have another bear market. The other thing I know is that I don’t know when that’s going to occur.”
Another variable is longevity. “One of the cool statistics I heard the other day is that the person who’s going to live to 150 has already been born. Longevity is really a factor in retirement,” Bucsek noted.
Here, planning for retirement doesn’t just involve accumulating assets, but preparing for what life will look like once clients stop working. “It’s understanding the three stages of retirement: my very active stage. That’s when I could have a part-time job, do charitable work, that’s when I’m going to go on that vacation around the world,” Bucsek said. “In the next stage you start to slow down a little; you’re more tied to your residence and you see your family a little more often. The third stage is the stage when you’re very inactive, and statistics are showing that the need for expensive personal care is of great likelihood for everybody.”
