Advising Retired Clients During a Market Downturn

Periods of stock market volatility as we are seeing so far in 2022 can be hard on all clients, but they can be especially unnerving for your retired clients. Even longtime clients who have been through periods of volatility with you in the past may need some reassurance that they are still on the right track.

In the gallery above are some thoughts on advising retired clients in a down market. All of your clients — but especially your retired clients — need you to be a voice of reason and stability during a down-market period. Your calm approach and your experience can be the difference between keeping them on course with the good planning you’ve done for them or having them make poor decisions out of panic that could potentially jeopardize their financial security in retirement.

Roger Wohlner is a financial writer with over 20 years of industry experience as a financial advisor.

1. Listen to your client’s concerns.

It's important to reach out to all of your clients during periods of market volatility. Your retired clients may be especially concerned about a significant market downturn as many are on fixed or semi-fixed incomes and are living off of their retirement savings.

Some of your retired clients may express concerns about the down market and related factors in the economy, such as the inflation we are currently experiencing. These same clients may never have expressed any concerns in the past. For whatever reason, this market decline is making them feel insecure about their situation.

Listen to your clients' concerns and let them fully express them. Regardless of what you might feel is best for them, working with a client starts by understanding their concerns. Once they’ve expressed any concerns they might have about this down market, then it’s time to discuss these concerns in light of their current financial planning and investing strategies.

Perhaps this conversation will lead to some modifications in their planning or perhaps what you’ve said to them has calmed their fears sufficiently to keep them on course. Either way, fully understanding your retired client’s concerns is a key starting point to serving their financial planning needs.

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2. Keep things in perspective.

While you want to listen to your client’s concerns, you also need to be their rock-solid voice of reason as well. Use your experience and knowledge of the markets to help these clients view this down market in perspective.

Even though we’ve only had one down year for the S&P 500 since 2008 — the height of the financial crisis — bear markets are not uncommon. A bear market is defined as a drop of 20% or more for the index. According to Ned Davis Research, there have been 14 bear markets between 1945 through 2021, or one about every 5.4 years. The last one was the brief — but steep — market decline in 2020 at the onset of the pandemic.

Your retired clients may wonder what a downturn at this stage of their life means for their ability to maintain their lifestyle in retirement.

A discussion about the fact that bear markets occur with some regularity, and how their plan is designed to provide a level of protection during these periods, can be a good idea to help clients keep this and future market downturns in perspective.

For clients that you have worked with for a number of years, show them that although the markets are down and their portfolio may have taken a short-term hit, they are still in good shape overall — assuming this is the case. Show them where they sit currently versus five or ten years ago. Show them that they have liquid assets to meet their current cash flow needs without having to sell equities at a reduced market value.

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3. Review their plan.

This is a good time to have a review meeting with your clients to discuss the financial planning assumptions that were used when developing their current financial plan. This discussion should include a review of the assumptions regarding periodic swings in the markets that were built into their original financial plan.

A key part of this planning is the client’s retirement withdrawal strategy. This is an aspect of their retirement planning that you will want to revisit periodically regardless of the direction of the markets, but especially so during a down-market situation such as we are currently experiencing. Adjustments may be needed in the amounts withdrawn and/or the accounts from which the withdrawals are taken. Taxes are a key factor in this decision.

This is likely a time when their portfolio will need to be rebalanced. Beyond that, this is an appropriate time to review the client’s asset allocation to determine if it is still appropriate for them on a long-term basis. You may decide that some adjustments need to be made.

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4. Focus on what can be controlled.

As with clients in all stages of their lives, emphasize to your retired clients that your planning for them is focused on things that can be controlled. These things include:

Asset allocation. Does their allocation still offer the right mix between growth to help ensure that they don’t outlive their assets and downside risk control?
Tax planning. There are always a number of issues for retirees including taxes and their RMDs. Taxes are a big factor in determining the appropriate withdrawal strategy as well.
When to claim Social Security. This is always a key planning issue for retirees and impacts many aspects of your planning for them.
Managing their retirement income streams. Revisiting and if needed revising your client’s retirement withdrawal strategy is key in all types of market environments, it is especially important in a down market environment.

What happens in the stock market, the direction of interest rates and inflation and the general direction of the economy are all beyond your client’s control and yours. The planning strategies you help them implement can help mitigate the impact of the volatility in the markets and the economy on the retirement finances.

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5. Look for opportunities.

One of the things to remind your retired clients of is that market downturns are generally followed by market recoveries. This isn’t to suggest that you approach buying the dip as you might with a younger client, but this is a good time to perhaps make a few changes to their portfolio. This can easily be done in the course of rebalancing.

This might involve a few simple things, such as allocating a bit more to a specific asset class. Or perhaps suggesting they look at TIPS or I-bonds as part of their fixed income allocation. Maybe there are holdings that have not held up as well in the market downturn as you would have expected. This might be a good time to make a change.

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5 Steps for Advising Retired Clients in a Down Market

Roger Wohlner

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1. Listen to your client’s concerns.

2. Keep things in perspective.

3. Review their plan.

4. Focus on what can be controlled.

5. Look for opportunities.

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1. Listen to your client’s concerns.

2. Keep things in perspective.

3. Review their plan.

4. Focus on what can be controlled.

5. Look for opportunities.

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