Close Close

Retirement Planning > Saving for Retirement

3 Tips for Preparing Clients to Spend Their Retirement Savings

Your article was successfully shared with the contacts you provided.

Approximately 10,000 baby boomers will turn 65 today, and every day for the next 11 years. This Pew Research Center statistic drives home the importance of ensuring your baby boomer clients are prepared for retirement.

Ideally, your boomer clients should be crystal-clear about how their savings will be utilized to fund their lifestyles during retirement before they turn 65, not afterward. Your clients shouldn’t have to be the ones to call you to ask, “I’m ready to retire. What do I have to do to start the flow of retirement income?”

Retirement doesn’t just involve giving up work — it requires people to change the routines, schedules, priorities and daily personal interactions they’ve had for years, or even decades. It can also involve moving to different homes and communities altogether. In other words, retirement is a huge lifecycle event.

To make the adjustment easier, advisors should discuss decumulation — the process of actually deploying the retirement savings that clients have accumulated while they were working — at the start of each client relationship, or at least five to 10 years before clients are ready to take the plunge into retirement.

Below are some tips for how advisors can prepare clients for decumulation:

1. Incorporate decumulation into long-term financial plans: One way to begin the conversation about decumulation, and help clients understand the process, is to include a section in long-term plans about how the assets mentioned in those documents can be converted into income during retirement. This type of section in long-term financial plans should offer a comprehensive step-by-step timeline for when clients will begin to receive income from 401(k) savings accounts, real estate investments, diversified investment portfolios, and other assets if they decide to retire at age 65. Advisors can also take the initiative and leave 10 to 15 minutes of any client meeting to discuss decumulation in more detail.

2. Make sure couples are on the same page: Before a client’s nest egg can be put to the use it was accumulated for, both the clients making up a couple have to know and agree on the type of lifestyle they want to live, and fund, after they retire. It’s not uncommon for couples to discuss their retirement plans one time and assume they are on the same page going forward. With time, dreams and plans can change — particularly with the introduction of grandchildren, social status changes or other life milestones. Regular discussion about retirement plans is necessary in order to ensure that there are no surprises when retirement is becoming a reality. Many decumulation plans and discussions the client has had with their advisor can come crashing down as soon as they retire if advisors are not helping facilitate this conversation on a regular basis.

To avoid this type of situation, advisors should make an effort to nurture their client relationships and encourage clients to attend meetings as a couple, when applicable, in order to discuss retirement planning and decumulation.

3. Keep clients’ “return on retirement” top of mind: While return on investment (ROI) serves an important purpose, advisors can add far more value to their client relationships if they focus on helping clients achieve the highest “return on retirement” (ROR).

My colleague, nine-time New York Times bestselling author David Bach, pioneered the concept of ROR to help advisors help clients enjoy the assets they worked so long to save, and help make retirement the most enjoyable phase of their lives.

David demonstrates the value of ROR in an anecdote in his bestseller Smart Women Finish Rich. One of David’s former clients, a 72-year-old grandmother named Helen, came to his office with concerns about the ROI on her bank certificate of deposit (CD), which was coming due for renewal. Knowing Helen’s primary goal in retirement was to take her children and grandchildren on a cruise, and knowing Helen’s financial situation well, David encouraged her to spend some of her hard-earned money and finally go on the cruise she had been dreaming about. He knew she could afford it and that her “return on retirement” would be much higher if she took advantage of this opportunity while her health allowed.

Sadly, Helen passed away just two years later. Her children and grandchildren came to David’s office after her passing to show him photos of the cruise, and to thank him for helping encourage her to take the cruise.

For Helen and her family, the memories this trip created were far more important than extra capital from a CD renewal. By helping clients consider how to get the most out of their lives during retirement, advisors can get help clients — and their families — start thinking about decumulation in a more meaningful way.

“Decumulation” shouldn’t be a word that clients are introduced to on their 65th birthdays. Advisors can take proactive steps to prepare clients for unwinding their assets and beginning the flow of retirement income long before they actually retire.

— Check out The Advisor & The Quant: Is the 4% Rule Dead? on ThinkAdvisor.

Chris Radford is President of AE Wealth Management.


© 2023 ALM Global, LLC, All Rights Reserved. Request academic re-use from All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.