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Retirement Planning > Saving for Retirement

Maybe It's Time to Gut Check Your Risk Tolerance

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Whenever there is a shake-up in the market, there are stories shared and lessons learned. Market downturns are the place where a client discovers, for better or worse, if the financial advice they got from their advisor was the right advice.

When things are going well, and the bulls are running, bad advice gets obscured amid the excitement. Sometimes even the most incompetent and untrustworthy planners look good as long the moon is waxing.

An oft-quoted adage says, “A rising tide lifts all ships.” But the real test of whether the advice they are getting is sound or not is what happens to their money when the market goes off track.

(Related: Finke, Blanchett: Retirement Advice for Clients in a Crisis)

Because the human brain hates uncertainty, risk, and bad news, we have a kind of collective amnesia when it comes to the carnage of the last recession. The longest bull market in history has caused many people to forget how much they lost and how badly it hurt.

Once the bruises of 2008 healed, a punishing environment for savers had some advisors nudging even their retired clients back toward Wall Street to chase returns and take on risk.

While there were indeed indications that we may have been ready to enter a bust cycle before COVID-19, the pandemic certainly has hastened the end of the bubble in dramatic ways.

It also created a golden opportunity to help clients re-evaluate their risk tolerance levels. Having been in a bull market for so long, most people don’t even know what their tolerance level is or where it should be. They haven’t had to worry about it, until now.

Many of my clients remember 2008 very well. But some of them have gotten so used to getting significant market returns that they’ve forgotten how it feels to be on the losing end of things.

As I think about the best way to help navigate my clients through these post-virus uncertainties, my golden rule about money comes to mind. “Lyle, what are you doing with your money”?

Having lost my life savings in the market in the early ’90s, I learned very quickly how foolish taking too much risk can be.

I like to remind my clients that I lost almost everything I had, late in the game. I was lucky that I recovered by implementing the safe money habits I now encourage them to adopt. Unfortunately, most older people won’t be that fortunate. They really can’t afford to lose a single penny in retirement.

If you genuinely want to stand out among other advisors, particularly as the pandemic winds down, then you need to take a stronger stance when it comes to protecting retirees from risk.

You could begin by surveying current clients and prospects, asking them relevant questions regarding their attitudes toward risk.

For example:

  • Can you be content in retirement with the income you have? Should you even consider risk at all?
  • How are the fees charged by your broker impacting your retirement?
  • Is putting your retirement at risk to possibly gain a few more dollars truly worth it?
  • Does the idea that “Every day I stay in the market means a little bit more growth added to my account,” keep you in denial about the amount of risk you’re taking?
  • How important is it to you to have liquidity, use, and control of your own money?

Understanding exactly how much risk your client or prospect is willing to tolerate is critical to helping them design a retirement that is comfortable and secure.

I believe that just after a market downturn is the very best time to discover these answers. You will prove to your clients your devotion to protecting and preserving their savings. Show that you are listening to their concerns, and can provide solutions like a no-fee hybrid fixed indexed annuities that will address those critical risk concerns.

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Lyle BossLyle Boss has taught estate planning and asset preservation for more than 20 years, at the University of Utah and other places. He has also taught more than 200 senior retirement consumer education workshops in Utah, Idaho and Wyoming.


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