In an environment where uncertainty looms large, there are some certainties regarding retirement planning. For starters, it’s top of mind for many advisors and clients – sentiment that will assuredly be amplified this year.
Second, cookie cutter, generic and one-size-fits-all approaches aren’t going to get the job when it comes to boosting clients’ retirement confidence. After all, clients have different post-work goals, indicating that a plan that works for one may not be effective for another.
The good news for advisors is that developing confidence-boosting retirement strategies isn’t a daunting task. It’s actually easy, particularly when focusing on a few simple tips, which Michael Conrath, J.P. Morgan’s Chief Retirement Strategist, lays out. Let’s explore those ideas below.
Math Matters, So Does Planning
As advisors know, math is a major part of retirement planning and many clients aren’t doing that math on their own. That’s why they have advisors. On this front, important starting points include forecasting how much of a client’s expenses Social Security will cover, expected rates of return on investment portfolios and “appropriate income replacement rate—one that factors in how much needs to be funded from personal savings,” notes Conrath.
This conversation can serve as a prelude to discussing the benefits of delaying taking Social Security. It can serve as a foundation for addressing retiree’s spending habits, which are often prone to turbulence.
“J.P. Morgan research reveals that six in 10 retirees experience a 20% or more annual shift in spending during the first three years of their retirement,” observes Conrath. “Moreover, more than half of retirees between ages 75 and 80 continue to experience this spending volatility from year to year.”
That can serve as an entry to discussing guaranteed income options, such as annuities, which are increasingly popular among a broader swath of clients. Speaking of income…
“This may be a good time to discuss diversification and Roth conversions. Some practitioners think the relatively low tax rates in the U.S. provide a timely opportunity for clients to shift a portion of their tax-deferred assets to tax-free Roth accounts,” adds Conrath.
Consolidate and Keep Calm
Due to lack of employment income, retired clients are understandably jittery when stocks falter, but that’s a reminder for advisors to convey to them that market timing isn’t worth the trouble and remaining invested is the smarter move.
“Advisors are well positioned to help clients understand that market timing is extremely difficult, even for savvy investors, because it’s not just about being right once—as in knowing when to sell. A market-timing investor must be right twice—knowing when to sell and when to buy back in,” says Conrath.
Another retirement tip to discuss this year, particularly with married clients, is the benefit of consolidating various retirement accounts.
“Explain to clients that consolidating investment accounts under a single advisor can provide a fuller picture of their finances and allow more comprehensive and targeted retirement-income planning,” concludes Conrath. “Further, consolidation simplifies Required Minimum Distribution (RMDs) calculations, streamlines recordkeeping and makes beneficiary management easier.”