If you work with baby boomer clients, chances are that at least some of them have plans to retire in the next year. Like everyone who reaches this important milestone, they are likely hoping the economy (and the markets as well) will be in solid shape by the time they make the transition. Unfortunately, based on what we know today, the forecast is rather gloomy. With inflation rates at 40-year highs and the threat of recession growing each time the Fed raises interest rates, clients may be worried that their plans to retire couldn’t be coming at a worse time.
That’s where you come in.
As their advisor, you are in the unique and vital position to help your clients understand how their pending retirement will impact their financial situation in the context of current economic conditions. In doing so, you can give them the perspective they need to make informed decisions and alleviate fears that might otherwise keep them up at night. Here are four actions to consider taking with your clients.
1. Check in regularly
During periods of uncertainty, it’s common for clients to question their financial plans and investment strategy. This is when they need your professional financial advice the most. In good times, proactively checking in with them on at least a quarterly basis is ideal, but more outreach is needed when market conditions are uncertain.
To address this need, it’s critical you reach out to clients more frequently to review their goals and the progress of their portfolios. In fact, in a May 2022 Ameriprise Financial survey of more than 250 advisors from across the industry, 79% of respondents said they have increased the communication they’re providing to clients. If you’re not checking in with your clients regularly, this should serve as a wakeup call that they may be expecting more from you. Particularly in times of volatility, clients deserve to know that you care about them and are there to support them with valuable perspective and advice.
2. Help clients ignore the noise
Periods of uncertainty can lead clients to make decisions based on their emotions. This reflexive instinct can cloud their judgement and lead to avoidable mistakes that could have long-lasting negative impacts on their portfolios. As their advisor, it’s critical that you help your clients avoid this pitfall.
Help them see past the day-to-day negative headlines and reground them in a historical perspective that demonstrates the way markets have recovered ground lost during many prior setbacks and downturns. It may also help to revisit their comprehensive financial plans, which should have factored in different scenarios such as volatility and inflation. If this step wasn’t completed ahead of time, it may be necessary to make adjustments now.
Additional Reading: Bear-Market Techniques: How to Help Clients Stay Calm
Periods of volatility and market dislocation are often great opportunities for portfolio rebalancing – and at Ameriprise, we know our advisors are taking action. In a September 2022 poll of 140 advisors, we found the vast majority (82%) are helping clients rebalance their portfolios as a strategy to help weather the down market.
3. Reevaluate risk tolerance and time horizon
If clients are feeling uneasy about the current volatility, work with them to reevaluate their risk tolerance in accordance with their time horizon for retirement. If your clients have some flexibility with their retirement date, you may want to run scenarios to show how adjusting their timing could impact their portfolio projections in the long run. If they’re able and willing to work for a few more years, it may give them time to recover recent investment losses as the market rebounds as well as delay making portfolio withdrawals.
On the other hand, if they have enough money to withstand the ups and downs of the market — even if they retire tomorrow — it may be an opportunity to reassure them that they do not need to delay their plans. In that case, you can congratulate them on the wise planning they’ve done to put themselves on solid financial footing for their next chapter of life.
4. Embrace a bucket strategy
It’s no secret that retirees must view their portfolios through a different lens than during their accumulation years. Prior to the beginning of their retirement, you may have helped your clients structure their investments using a “bucketing” approach that divided variable assets like stocks into a bucket that went untouched during their working years, and a separate bucket of liquid assets to cover everyday expenses.
As they transition into retirement, it may make sense to encourage your clients to keep a portion of their retirement savings in fairly liquid assets — cash or short-term bonds. Particularly in volatile markets like we’re experiencing today, having a healthy cash or cash-equivalent reserve can help retired clients supplement other income sources like Social Security without having to sell securities at a loss. As a basic guideline, setting aside one-to-two years’ worth of living expenses is generally advisable.
In addition, it may be helpful for clients to set aside another two to three years’ worth of assets into short-term instruments that can earn a reasonable return but are still relatively liquid. This can include short-term bond funds and CDs with maturities of three to five years. As these instruments mature, they can be shifted into the liquid bucket to meet immediate income needs. Periodically, some money from the long-term pool of assets can be shifted into the short-term pool.
Dealing with today’s realities
The direction of today’s economy is unpredictable, and major events, as we have seen throughout the year, can change the underlying environment at a moment’s notice. Simply stated: Retirement isn’t just a goal; it’s an ongoing process. Quelling clients’ worries requires frequent check-ins, regular monitoring, and the flexibility to make changes if that’s what the situation demands. Although it may be stressful, times like these are when your clients need you the most and your value as their financial advisor shines brightest.
Marcy Keckler, CFP, is a senior vice president Financial Advice Strategy at Ameriprise Financial.
