Advisors must lead the policy risk conversation

Retirement planning has always involved contemplating uncertainty. That unknown isn’t only about market performance, investment returns or lifestyle in retirement, it’s also about the potential for policy changes.

The rules that shape Social Security, Medicare, Medicaid, and federal and state taxation are constantly evolving. Changes in those areas, both big and small, can have a direct impact on clients’ financial security and on their ability to live the life they want in retirement.

Recent research on Policy Risk conducted by Jackson, in partnership with the Center for Retirement Research at Boston College, takes a closer look at how both retirement investors and financial professionals view these potential changes and where there’s room for better communication. The findings reveal a clear opportunity: Financial professionals can play a pivotal role in helping clients turn policy uncertainty into preparation.

Understanding policy risk

At its core, policy risk is the chance that changes in laws or regulations could negatively affect a financial plan. It’s the link between government decisions and household outcomes. It’s the connection between what happens in Washington or a state capital and what happens in a client’s retirement account — or to their lifestyle.

Nearly half of investors in Jackson’s study believe current government actions will reduce their retirement security. This is a striking percentage that underscores how much policy uncertainty weighs on people’s minds. For retirees and those nearing retirement, these concerns are especially real. Policy shifts can influence their income sources, tax obligations and health care costs.

A confidence and communication gap

The study also found a clear separation between how investors and financial professionals view the economy and the broader policy environment. Although 62% of financial professionals express confidence in the long-term strength of the economy, only 32% of investors feel the same way.

Additionally, investors are far more likely to expect higher taxes to support federal programs. More than half believe they’ll pay more in state taxes to make up for federal funding shortfalls.

Despite these concerns, policy discussions often take a back seat in client meetings.

Of the policy areas highlighted in the study, Social Security is raised most often by financial professionals -- about two-thirds of the time -- but topics like Medicare, Medicaid or long-term care funding are discussed far less frequently. Many financial professionals admit they hesitate to broach these issues because they are worried about appearing political or making clients uncomfortable. More than half say they raise policy topics only when it’s important, while 35% neither avoid policy topics nor seek them out. Only 12% say they enjoy discussing policy issues with clients.

Apprehension around discussing policy may help explain why investor perceptions haven’t changed much, even among those who work with a financial professional.

Bringing clarity to complex topics

Interestingly, both investors who work with financial professionals and those who don’t show similar levels of awareness about policy issues. That suggests the challenge isn’t just how often these topics come up but also how they’re framed.

Clear, calm and nonpolitical conversations can go a long way toward helping clients understand why policy matters without feeling overwhelmed. Keeping discussions brief and fact-based can make them more approachable. When major policy headlines hit, investors may ask how proposed changes might affect their long-term outlook, while financial professionals can provide simple, scenario-based context.

The goal of financial advisors should be to help clients focus on what they can control and prepare for a range of possibilities rather than predict specifically what will happen next in Washington.

Turning policy risk into planning opportunities

One effective way to do that is through “what-if” illustrations (scenario planning). Showing how a plan might adapt to rising Medicare premiums or adjustments to Social Security benefits can help clients see that potential changes are manageable when their plans have flexibility and include contingency options.

Of investors surveyed, 46% expect Social Security benefit reductions, 68% expect Medicare premiums and copays to rise, and 65% anticipate cuts to Medicaid. More than half of investors say these types of changes would have a major impact on their financial future, according to the study.

These findings highlight an opportunity for financial professionals to use planning conversations to help clients maintain perspective. Even small adjustments can make a big difference when policies shift. The focus moves from predicting change to building resilience, showing clients that flexibility is their best defense against uncertainty.

A call to action

The message from Jackson’s Policy Risk study is clear: Financial professionals can strengthen relationships and boost client confidence by leading open, informed discussions about policy risk. These conversations don’t need to be political or speculative. Instead, they can simply focus on facts, probabilities and planning implications.

By making policy awareness a regular part of retirement planning, financial professionals can help clients build understanding and flexibility that foster long-term confidence and successful outcomes, no matter how policy evolves.

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