It’s been a year and a half since the global pandemic began, and many people’s lives have changed unimaginably. For those in their 50s and 60s, the ramifications of COVID-19 may have prompted a profound rethinking of their future — not just when they plan to retire, but also how they intend to live in retirement.
After quarantines, stay-at-home orders and social distancing, what people want from retirement might now involve more ambitious (and more expensive) explorations and experiences — or at least more travel to see family and friends. At the same time, the concepts of risk and uncertainty feel more tangible and real, and considerations around financial protection are taking on added weight.
Of course, the needs of your clients evolve over time. As we work our way through the changes taking place at a societal level, many of you are meeting with clients to conduct retirement checkups.
The goals for these conversations are clear: Your clients need a firm understanding of what they want their retirement to look like as well as what the financial requirements will be to fully realize that vision. Now is an especially good time for these checkups because what your clients had in mind for retirement may have changed considerably. Even for clients who had a solid financial plan in place, new directions they might be taking could mean that a rework is in order.
Retirement planning involves both financial and non-financial considerations. As you connect with your clients for a retirement checkup, here are a few critical questions for you to think through.
1. How can I help my clients define their vision for retirement?
As you work with your clients on their retirement planning, at some point you will likely ask them this fundamental question: What do you want to do with your retirement? After living through 18 months of a pandemic, this follow-up question has become an important add: And how has that changed?
We’ve been hearing many COVID-related client stories from the financial professionals we work with. One client, a 70-year-old New Yorker in the financial services industry, has decided that the new remote work possibilities created by the pandemic have given her the opportunity to keep working. Another client, a 63-year-old schoolteacher in Florida, decided to retire earlier than originally planned because of the new stresses and challenges brought on by COVID.
From a financial planning perspective, COVID can be incredibly disruptive. Fortunately, many of the tools that have helped you assess your clients’ needs prior to the pandemic are still very useful today.
When you sit down with clients, you can go through the “who, what, when, where and why” to make sure you’re aligned on the basics. Who will you be spending time with? Who will you be supporting once you retire, and who will you be able to lean on when you need support? What will you do with your time? When do you want to retire? Where are you planning to live and where do you want to travel?
These next two questions are similar to the fundamental one above that helps define your client’s vision for their retirement: Why do you want to retire? What are your true motivations and what will be your sense of purpose?
Starting with these non-financial questions can allow you and your clients to thoroughly explore how they are picturing their life in retirement. In our Future of Client-Advisor Relationships research with the MIT AgeLab, we found that clients want to have broader conversations with their financial professionals that involve many non-traditional topics, such as housing, physical health and identity theft. The questions suggested above fit well with this aim of exploring a wide range of concerns with your clients.
2. How can I help my clients turn their retirement vision into reality?
This “how” question is where you have a special opportunity to demonstrate your value. As a retirement checkup transitions from the non-financial questions to financial ones, it’s vital to be ready to provide advice on retirement income.
For decades, many of your clients have been thinking primarily about investing for the future. Now, they may need to adopt a new mindset — changing from one that prioritizes savings and investments to one that emphasizes income.
To foster this income mindset, many financial professionals will lead their clients through a careful examination of their expected expenses and the income levels they’ll need to meet these expenses. We have outlined a program called the Income Floor Approach, which can help you work effectively with your clients to define what their income needs will be and how they can be met.
First, help your clients determine their income floor — or the minimum level of income needed to cover essential expenses. Each client will, of course, have a different understanding of what is truly essential, but basic needs like housing, food, clothing, transportation and healthcare are a good place to start. After defining your client’s income floor, determine if those expenses can be funded with income from guaranteed sources, such as Social Security, pensions and annuities, or lower-risk investments such as bonds or certificates of deposit.
The schoolteacher who decided to retire early because of COVID needed to re-do this part of her financial plan. First, her financial professional found some assets to shift around to make up for a few years of lost salary. Next, the client took steps to lower her income floor to better match her revised expected income levels, including downsizing and moving to a less expensive city. Even with these changes, the teacher could still accomplish her main retirement goal — spending time with her grandchildren.
The focus on income makes protection an important part of retirement portfolios, and annuities can play a powerful role by providing guaranteed income, principal protection or a combination of the two, depending on the type of annuity purchased. In fact, a recent study from the Alliance for Lifetime Income found nine in 10 investors surveyed say it is important that their retirement income plan is designed to provide a guaranteed income payment or principal protection.
After addressing essential expenses, you can then identify the more discretionary lifestyle expenses and any legacy plans, which may be more flexible in nature. The earlier steps you took with your clients around the non-financial side of retirement can make this part of the planning process more specific and detailed. The discretionary expenses can be covered by a combination of guaranteed and non-guaranteed income, based on client preference and comfort level and legacy plans may involve the use of life insurance, trusts and other wealth transfer strategies.
3. Where and what are the common shortcomings with retirement checkups?
Our research with the MIT AgeLab shows not only how important it is for financial professionals to engage with their clients around retirement but also how vital it is to return to the topic multiple times. More than eight in 10 (85%) advisory clients said that they want to continue having discussions on retirement with their financial professional. It’s a topic that is high on the priority list and worth returning to, especially now that your clients may have experienced significant changes 18 months into a pandemic.
Where some financial professionals may fall short is to miss the opportunity to do a full retirement checkup. Our research with the MIT AgeLab shows the value of having very broad conversations around retirement. In fact, the No. 1 driver of client satisfaction for clients ages 46 to 75 is having financial professionals understand both their financial and life goals.
When the conversation turns from non-financial to financial, we are strong advocates for putting the income discussion front and center. Many individuals nearing retirement may be wondering how to turn their savings and investments into the income they’re going to need. Here is where a financial professional’s expertise can do an especially good job of easing concerns. When a client knows their income is protected for the long term, that can bring peace of mind.
The 70-year-old who is extending her career in financial services had already included annuities as part of her income plan for retirement because she valued confidence and security in her retirement years. Now, she and her financial professional are having legacy planning conversations about what to do with the additional assets she’s building beyond that foundation. Additionally, she’s exploring whether it is now financially possible to have two home bases, one in New York and another in West Palm Beach for the winter months.
No matter what stage of planning your client is at — whether they’re beginning retirement or a decade away — a client’s overall vision for retirement is an excellent starting point for your conversations. Engaging around these topics can strengthen client relationships and can put you in a stronger position to build the appropriate retirement portfolio.
It is such an understatement to say that much is different because of the global pandemic. Still, while many things have changed, some have not. This is a great time to schedule a retirement checkup with your clients to find out whether they have transformed their retirement perspective, where they are in their journey and how their retirement portfolio aligns with their retirement vision.
Tina Haley is senior vice president, AIG Life & Retirement. AIG Life & Retirement consists of four operating segments: Individual Retirement, Group Retirement, Life Insurance and Institutional Markets. It includes American General Life Insurance Company (AGL); The Variable Annuity Life Insurance Company (VALIC); and The United States Life Insurance Company in the City of New York (US Life) — all members of American International Group, Inc. (AIG).