Get a retirement plan ready so there's no nightmare for your clients.

Complicate it all you want. Feel free to perform analyses of portfolio overlap, study P/E ratios, and develop the ideal glidepath for each of your clients’ portfolios. 

These are all valuable exercises for a financial advisor. However, for a retirement advisor, we’d better be laser focused on one thing.

What is it that our clients really want, and how can we, their advisors, help them get it? Simply put, retirement clients want effective “Income planning”. 

Study after study reveals that the greatest fear people wrestle with as they approach retirement is running out of money during their lifetime. This fear trumps the fear of death itself. The fear of becoming a burden on others for financial help is hard-wired into all of us. This probably shouldn’t be the primary focus of the retiree’s thinking, but it usually is.

A quick history lesson will reveal that this phenomenon is a new one. Until recently, pensions and Social Security have ensured a basic income for life for those who committed themselves to a long career. The risk was on the employer to ensure paychecks lasted until the end of life. Prior to that, what did people do? 

In short, they worked until death. Shorter life-spans equated to little need for retirement planning. And here we are, shifting the financial risk from employer to individual. As an advisor, this is an amazing opportunity to serve the retiree, to give them the one thing they truly want: financial security.

So how do we do this? First let me suggest how not to do it. Do not add a lifetime income benefit rider to every annuity you offer and do not place 100% of your clients’ assets into annuities. An income rider is not a substitute for real planning. The cost of the rider, when not utilized properly, can harm your client just as too much salt will ruin a favorite recipe.

A retirement planning session should begin with a question such as: “If you were to retire next month, how much income would you require each month to maintain your current lifestyle?” Depending on the client, they will either know to the penny or they will have no idea. 

Part of your role is to encourage and equip them with tools to arrive at their number. There’s no way around this. Once you determine that number, subtract guaranteed income sources like company pensions and Social Security. The resulting number is your income gap or liability.

The income gap should be solved for, linking this liability with the amount of money to be generated by retirement savings. Depending on the disposition of the client, you may link that liability to a guaranteed income strategy including annuities or you may maintain a risk-based portfolio designed to generate consistent and reliable income. 

Forcing either approach on a reluctant client means you either need to educate them further on the advantages and drawbacks of each approach or you must admit that you’re heavily biased toward a particular approach. Either scenario requires that you grow as an advisor.

In my firm, we call this process “achieving enough.” As simple as that sounds, it’s fairly complex and incredibly meaningful to our clients. It’s the very issue that they’re wrestling with in their heart and mind, right? “Will we have enough?”

Once “enough” is determined, the methodology of achieving that number is where your study of the various approaches to income planning is incredibly valuable. 

Do you offer the client all three of the distinct approaches: systematic withdrawals, flooring (essential versus discretionary), and bucketing (age-banded)? Are you skilled and equipped to support all three or are you always using one because you lack the product access or staff to deliver on the promises you’ve made with another approach? It’s okay to be honest here.

Retirement planning is an enormous undertaking for each and every family we serve. Thus, it should be an equally enormous process for us to deliver sophisticated solutions, but in a clear and easy-to-understand manner. 

Guaranteed income products have never before been as valuable to the families we serve than they are now. Equally, we have never been as valuable as advisors. 

When we help our clients achieve “enough” and build true financial security into their retirement plans, we open up the possibility for them to focus on other activities like spending worry-free time with family, considering their legacy, and telling others about the work we have done to help them live more fully. 

That sounds like a win-win-win to me.