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Retirement Planning > Saving for Retirement

3 Topics to Discuss With Your HNW Clients in 2019

By Matthew Sommer

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Each year, Janus Henderson compiles the latest thinking for financial advisors servicing the high-net-worth marketplace. This year, we have identified three tactical strategies advisors may want to keep top of mind throughout the year.

1. The Decumulation Paradox

Despite the long-running narrative that Americans are not saving enough for retirement, new research has emerged that suggests some wealthier retirees are not spending enough. Specifically, retirees with investable assets greater than $250,000 are not systematically withdrawing money from their retirement accounts, but rather withdraw money on an as-needed basis. When faced with an expected expense, only 22% of retirees were found to draw the additional funds they need from their retirement accounts while about half adjust their budget and find other ways to cut back. In fact, among retirees with income greater than $100,000, approximately 38% are reinvesting their dividends, income, Social Security and other sources of income.

Experts in behavioral finance suggest that successful investors have developed good savings habits over many years, and as with any habit, these routines are difficult to break. Furthermore, some retirees who are comfortable spending their dividends and interest may feel a sense of discomfort when liquidating principal.

Investors with appropriate risk tolerance may feel more comfortable converting a greater portion of assets to income-producing investments such as annuities. Variable annuities are complex and should be considered long-term investments. Annuities are subject to investment risk and they limit access to the investment as a result of a surrender charges. They can have higher fees as well as tax penalties on certain withdrawals.

2. Detecting Financial Exploitation

In the U.S., financial exploitation is the second-most common form of elder abuse, after physical abuse. Approximately 5.2% of older Americans have reported being victims of financial exploitation within the last 12 months, and 60% of occurrences involved the misappropriation of money by family members. A key distinction regarding financial exploitation is that it concerns a single transaction, usually with a trusted person.

A group of researchers at Wayne State University, led by Dr. Peter Lichtenberg, have developed a Financial Decision Tracker tool (www.olderadultnestegg.com) that financial advisors can use to help detect whether a client may be subject to financial exploitation. Access to the tool is free; however, an advisor must first complete a short, online training module and pass a brief test (total time commitment is approximately 20 to 30 minutes). The Tracker asks 10 multiple-choice questions that are entered online and are used to generate an assessment report that includes recommended steps.

3. Search Globally for Dividend Income

According to our proprietary research, the average U.S. investor allocates 78% of their equity portfolio domestically. These findings are in line with third-party sources who have found a similar home country bias. Some advisors may be surprised to learn that 59% of MSCI World Index stocks that yield at least 3% are found outside the U.S. These global dividend payers not only offer diversification benefits, but also the chance to enhance portfolio income. What’s more, according to the fall 2018 Janus Henderson Global Dividend Index, which monitors the dividends of more than 1,200 companies, only two of the top 10, and five of the top 20 dividend payers are domiciled within the U.S.

While international investing presents a unique set of risks including currency fluctuations, and may only be appropriate for certain investors, it is important to have a properly managed portfolio that takes these risks into consideration.

Matt Sommer of Janus HendersonMatt Sommer is a CFP, CFA and vice president, Retirement Strategy Group at Janus Henderson Investors. He is also a Ph.D. student at Kansas State University, where his research focuses on behavioral finance. For a copy of this year’s Wealth Advisors’ Guide, please send an email to [email protected].

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