5-minute Finance: Securing Post-Retirement Finances

By PHILIP E. HARRIMAN
For AdvisorNews 

According to the Administration for Community Living, the number of Americans ages 85 and older will approach 15 million by 2040. While many of us would feel lucky to live a longer life, a lengthy lifespan requires a retirement plan that can cover the same amount of time as peak earning years. As financial advisors, we want to make sure clients retire with financial security and the opportunity to explore hobbies and dreams they may not have had time for during their working years. It is crucial for clients to have a flexible, yet strategic plan in place as clients reach or approach their desired retirement age.

Cover The Bases

Planning for retirement is like climbing a mountain. You work hard with your clients to help them reach the summit, then, when they officially stop working and make it to the peak, they feel a wonderful rush. Most of my new retiree clients spend about six months enjoying that rush. Inevitably, you’ll need to help them climb back down the mountain, and 80 percent of financial accidents happen during this phase of retirement.

Market volatility, longer life expectancy, inflation, tax reform and unforeseen long-term care needs are the most common threats to a client’s expected retirement income. A good financial advisor will encourage clients to prepare for these possibilities by working closely together to secure as much guaranteed income as possible with Social Security, pensions and different types of insurance, while making them aware of these potential threats.

Most clients will also draw on investments like 401(k) plans or IRAs for retirement income, which means they will face the sequence-of-returns risk. In other words, they run the risk of negative rates of return while they must withdraw money to live at the start of retirement, and this can permanently lower their living standards. To account for this risk, advise your clients to assume that the annualized rate of return over their investment period will fall short of long-term market trends.

Unlock Their Passions

After your clients’ ongoing liabilities are covered, help them ensure they’ll have enough to provide for life’s joys. Ask your clients to elucidate three things for you: people outside their family they spend time with, a place (or places) they’ll live and their passions. The rush that people feel after retirement does sometimes end for financial reasons, but it usually ends due to boredom and clients wondering, “Is this it?” By understanding what gets them out of bed in the morning, then making sure they can afford it, you can help them avoid retirement ennui.

With a clear view of your client’s desired lifestyle, you can work together to understand if that lifestyle is within their current means based on the guaranteed income you’ve secured. If so, create a sustainable plan to carry them through retirement. If not, adjust the plan so your client can keep living a fulfilling life within their means. This may mean they depend on non-guaranteed income for vacations or hobbies.

One of the key threats to non-guaranteed income is market volatility. It’s easy for clients to ignore market behavior when they’re still working and can rely on a regular source of income. But once a client approaches their desired retirement age, talk to them about moving at least a portion of their portfolio to a less aggressive stance. This will help protect their investments, and by extension their hobbies and getaways, from market corrections or recessions that happen in the run-up to or during retirement.

Planning for retirement with your clients inevitably means planning for post-retirement. Although a person’s lifespan is unpredictable, by working with your clients to proactively map out their lives as retirees, you can provide them with the tools they need to sleep soundly at night and wake up energized to tackle the mountain of retirement.

Phil Harriman, CLU, ChFC, is the co-founder of Lebel & Harriman, LLP, and has been an MDRT member for 37 years. He served as MDRT’s 2007 Executive Committee President. Phil is a member of the Association of Advanced Life Underwriting and was the 2000 recipient of the J. Putnam Stevens Award. He currently serves as a Trustee of Husson University and Vice Chair of Make A Wish- Maine Chapter.  He served four terms representing the 23rd District in the Maine Senate, and lives in Yarmouth, Maine.