What to Tell Clients Who Want to Retire Now: Advisors' Advice

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Inflation is above 7% and Russia and Ukraine are at war. Clients who are ready to retire in the next three to six months may be wondering if their financial plans are strong enough to withstand whatever happens next if they stop working now.

So how are advisors instructing clients who want to retire in the very near future? Are they shifting portfolios to adjust for current volatility, inflation or new products? And are they telling clients to work longer to wait out the market volatility? We asked several advisors through the Financial Planning Association, XY Planning Network and FiComm Partners. See their responses in the gallery above.

Ginger Szala

@gingerszalaink

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What to Tell Clients Who Want to Retire Now: Advisors' Advice

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1. History shows that we should expect to see double-digit declines in the equity market in more than two-thirds of calendar years. Knowing that, we ensure that we have the right proportion of high-quality bonds in a client’s portfolio in retirement to provide stability during periods of equity market distress.

The one adjustment that we have made recently is to increase our long-term inflation assumptions. Each client’s situation is different so it is impossible to give blanket advice [but] given the increase in inflation expectations ... one of our recommendations would be that the client continues working to save more and improve their financial plan.

— Rafia Hasan, CFA, chief investment officer, Wipfli Financial Advisors, Chicago, Illinois

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2. The advice we have been sharing with clients who expect to retire in this year is, simply put, to stay the course. As these clients have approached retirement over the last couple of years, we have built robust retirement plans to account for many types of market environments, including the market correction we are experiencing today. Successful retirement plans need to account for market volatility, and the recent drawdown in markets is average by historical standards. We don’t think there needs to be an urgency to drastically change allocation because of the current environment. Additionally, as markets have appreciated materially over the last 18 months, and retirement has moved closer, it has been a prudent strategy to shift gains from longer-term investments into cash and income producing securities for the expected increase in cash flow needs from the portfolio.

— Chad Miller, CFA, advisor, SEIA, Newport Beach, California

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3. On average the S&P 500 has experienced an intra-year drop of 14% since 1980. It’s the price you pay to achieve greater long-term returns. But how much should you pay when retirement is in view? We have found that structuring our retired client portfolios around an asset dedication strategy provides peace of mind. Simply put, “When do you need the funds?” and align accordingly across three time-horizon buckets.

Short-term needs are invested in conservative positions, removing market volatility concerns and the possibility of selling at the wrong time. As time horizon grows, so does our confidence in equities. [We can] take short-term risks to achieve higher long-term returns. Each bucket has a purpose. When market volatility shows up, clients aren’t surprised.

— Thomas O’Connor, CFP, senior wealth advisor, Keel Point, Huntsville, Alabama

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4. ‘Keep working’ looks more appealing when the investing landscape feels risky. Investment asset allocation always involved tradeoffs. Current market volatility dramatizes that there is no free lunch, but working longer may allow for a predictable cash flow.

In a recent client meeting with a couple approaching retirement this year, we [went] over risk and reward tradeoffs with different asset allocations. Nothing felt satisfying to them because there was a chance they could run out money due to lack of growth or sequence of risk market declines. Finally I told them [to] consider spending time on finding acceptable jobs providing some predictable cash flow. They are exploring options.

— Rand Spero, CFP, president, Street Smart Financial, Lexington, Massachusetts

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5. Long-term investors should have buy/hold portfolio and not be knee-jerking in reaction to short-term trends. Our financial plans have a "bad-timing" scenario, which is two consecutive down years immediately following retirement, which is worst time for that to happen, so our clients' retirements should not be interrupted by stock market corrections which are routine, periodic and expected events.

If someone is waiting for their retirement accounts to peak in order to retire, then they are likely setting themselves up for failure.

— David N. Bize, CFP, First Allied, Oklahoma City, Oklahoma

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6. It’s important to focus clients retiring in 3-6 months and revisit the planning you’ve done with them over the previous one to five years. Particularly the cash flow planning: how much they’ll need to cover their monthly expenses, where that income is coming from, how much they have in a liquid account to draw from in the event something comes up.

During times of market turmoil [clients will] want to maintain control and do what they can to that extent possible. That may mean working longer in some capacity if that’s possible.

— Tracy L. Sherwood, CFP, president, Sherwood Financial Management, Williamsville, New York

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7. If retiring within the next 3-6 months, money expected to be spent within the first few years of retirement should be de-risked, if not already prepared.

Although inflation is a primary concern, even for short-term income needs, this money should not chase high yield from junk bonds or dividend-paying stocks since they are positively correlated with the stock market. I seek stable, short-duration, and negatively correlated bond funds beyond a portion of cash in the bank for my own short-term needs and emergency fund.

— Cody Garrett, CFP, Measure Twice Financial, Pearland, Texas

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