For many Americans, the thought of retirement is stressful. Do I have enough money? How much is enough? What if I have an emergency? What if I finished? There are many contributors to this concern, from the virtual abolition of pensions to a financial meltdown, from wage inequality to the dire state of financial literacy in America.
Trustees have an obligation to put the best interests of their customers first. Most people take this to mean that a financial advisor must manage a client’s money responsibly and should always use their clients’ assets for that individual’s benefit, not their own. It’s all true, but maybe it’s time to look How That’s what we do… and how we involve our customers in making that decision.
How much is enough?
Many customers get fixed on the number. How much have I saved? How fast is it growing? Is there a better way to invest it? Do I have enough for retirement?
That last bit is tricky: What is “enough”? There are different rules of thumb. For example, Fidelity aims to save 10 times your annual salary by age 67. This is certainly informed by the 4% rule.
There has been a lot of talk recently about the 4% rule and its demise, but theories differ as to what it means.
The problem is that such rules of thumb tend to turn an incredibly complex and constantly changing discipline into an easily digestible formula. Save X dollars until age X, then spend X% of that money every year until you die. Easy.
But “simple” does not mean “right” or “best”. As Income Lab’s CEO, Johnny Poulson, says, “When it comes to building a portfolio … the simple rules are deeply flawed. Investors who choose to follow the rules of thumb do so at their own risk. Huh.” One size does not fit all.
Retirement Income Vs. retirement savings
So what is the solution? There isn’t just one. that’s the point. Robert Conzo, CEO and Managing Director of The Wealth Alliance, uses cash flow analysis to tailor his approach to the needs of his clients. “Cash flow analysis allows us to focus on what the customer really needs, which in this case concerns cash flow and, secondly, planning for the rate of return,” explains Conzo.
The idea is to focus less on ROI and more on what customers might need with that money. What non-negotiable needs are expected in retirement? What does your customer want to be able to do on top of that? How much money will your client need regularly to meet those goals? It’s “How do I help my client reach X number?” About becomes less. And more about “How can I help ensure that my client’s income will be sufficient to meet their spending goals during retirement?”
Conzo also advocates taking the time to educate clients: “For true financial planners, not all roads have insurance products or investments – but clients may not realize it.”
Life During Retirement – Emphasis on ‘Life’
Mitch Anthony, founder of the Financial Life Planning Institute, developed a concept called “return on life”. As Anthony puts it: “As consultants, we are conditioned to make sure our clients have enough money…
With the emphasis on saving enough, ROR and ROI, it is easy for customers to forget why they are saving to spend in retirement. The idea isn’t that you have a huge pile of riches like a dragon from a story book; It’s about living your best possible life and enjoying the fruits of your labor.
On her blog, “Known Unknown” economist Alison Schrager criticizes traditional income structures for their lack of sophistication: “The problem with spending rules is that they assume that the purpose of spending in retirement is not simply running out of money. Actually, the purpose is… well, spending – and making some guesses around one’s income. Not running out of money is a hindrance, not a purpose.” Some things in life, and even financial In schemes, too, can’t be boiled down to just hard numbers.
Managing ‘Wealth’ Instead of ‘Asset’
When you look at your clients in the context of managing assets, it’s easy to focus on assets in the void, forgetting that those assets belong to a human being, and that they aim to help humans live their best lives in retirement. To help live. , Money, on the other hand, is owned by someone, and exists to serve someone.
In a January LinkedIn post, Michelle Richter, executive director of the Institutional Retirement Income Council, addresses some of the toxic thoughts that result from focusing too much on accumulation. She explains the difference between management properties and management estateSubmitting that we retire “the really bizarre premise that from a financial standpoint, there can be such a thing as ‘living too long’.”
As consultants, our job is not just to ensure that our clients’ wealth increases as much as possible. our job is to give advice They also manage their money for them. Not only are we obliged to help them build a large enough retirement portfolio, but we also offer advice on how to best deploy their funds in retirement.
And this is nonsense: for the rest of their working lives, our customers are focused on savings. But, ultimately, they have to spend; Otherwise, what’s the point of saving it in the first place? Good savers are often bad spenders, because spending that money they worked so hard requires a fundamentally different mindset than saving.
Low-cost income annuities, for example, can establish a floor of guaranteed payments to add some certainty and peace of mind that at least some basic expenses can be covered. Cash-flow analysis can also help identify customer needs and initiate discussions about aspirations.
We need to develop other tools and frameworks that help these conservative spenders (and others) spend more boldly. Our customers come to us because they need help making sure they are looked after after years of work. That’s why the shift from ROI to ROL, and emphasis Expenditure So important in retirement. Let’s make sure we’re helping them live their best lives: where they can spend confidently without succumbing to the dreaded fear of “living too long.”
David Stone is the founder and CEO remove oneAn independent platform for fee-based insurance solutions including Constance CDA
