With the number of death rates decreasing, the life expectancy over the past 10 years has risen from 63 to 65. This also calls for more worries as many expect to work indefinitely post retirement.
A whitepaper on ‘The New Retirement: how advisors are meeting the challenge’ focuses on issues advisors will face while helping clients achieve a secure retirement. The research was conducted by WealthManagement.com and First Clearing (a US based financial solutions firm for IFAs). It sheds light on the changing view of retirement among advisors and their clients.
The whitepaper is based on a survey of over 300 financial advisors. Though the study was conducted in US, it has relevant insights for Indian IFAs.
Here are the major challenges:
- Clients have to outlive their money due to unplanned expenses, market volatility or inflation.
- A job loss could force them to begin drawing down retirement savings earlier than planned.
- Ability to maintain a comfortable lifestyle and not becoming a burden to their children.
- The rising cost of health care and medical/pharmaceutical expenses.
- Clients must work longer to meet the challenges of inadequate savings
Work Longer
To overcome the retirement barrier, clients may have to work longer. 63% of advisors indicate their clients retire at a later age now than they did 10 years ago, while 19% of advisors have seen no change in the average retirement age.
Working longer can provide a big boost to long-range retirement security, so open up a conversation with clients aimed at getting them to think carefully about retirement timing decisions.
Make sure extra years of work are accompanied by additional contributions to retirement accounts. However, keep in mind that working longer isn’t a reliable plan for all your clients. Almost half, (47%) of retirees leave the workforce earlier than they expected – health problems, layoffs or caregiving demands often interrupt plans to stay on the job.
Clients’ not confident savings will be adequate
Many advisors report that clients are somewhat confident that they have sufficient assets to last through retirement. However, clients are concerned that a job loss could force them to begin drawing down retirement savings earlier than planned. Current workers and retirees both cited job uncertainty as the biggest hurdle in their retirement planning.
Ensure that your clients start the retirement planning process early. Half of survey respondents say active retirement planning doesn’t begin until after the client’s 50th birthday. Research shows that the process of planning in itself makes retirement savers more likely to take steps to reach their goals.
Make sure clients take full advantage of workplace retirement plans. Guard against client raids on retirement nest eggs. Don’t let clients dip into retirement savings to meet other costs. Focus on building up emergency reserve funds to mitigate the need for using the retirement corpus.
Rising health, insurance and medical costs
Another challenge which clients are facing is the rising costs of health and insurance covers. Work with clients to incorporate a retirement health expense component into overall plans. A recent survey found that over half of current retirees, boomers and Gen Xers substantially underestimated retirement health expenses.
Consider individual factors that determine expense. Your clients’ actual health care expenses will depend on gender, longevity, health condition and even location.
Work with clients to ensure they make smart policy choices.
So how will you tackle these changes in the future?
Advisors need to improve communication and relationship management and take a more holistic view of the client than in the past. Here are some ways through which you can overcome these changes:
- A critical need exists to rebuild trust and communication with the clients.
- Advisors need to develop strong relationship and communication skills to help manage client expectations and guide them through difficult decisions.
- Gauge client confidence and compare it with your own.
- Focus on developing key skills, including relationship management, relationship marketing and practice management.
- Work to fully understanding family goals and needs develop a client-centric focus and provide timely, personal communication.
- You need to recognize that women are taking a much more active role in wealth management decisions and focus on relationship development with both spouses.
Reproduced verbatim based on the whitepaper ‘The New Retirement: How advisors are meeting the challenge’
