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Financial Advisor Talking To Senior Couple At Home

Gentle Ways to Persuade Clients to Heed Your Words


Retirement planning could be your client’s primary financial planning need. For younger people, retirement seems so far off. For other clients, they may avoid the topic because they feel so far behind. As an accounting professional, how can you bring up the subject, not embarrass your client and give them hope for the future?

18th Jul 2022
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"Retirement planning" sounds like industry jargon. The term is used so often, clients tend to tune you out. Try repositioning the goal as financial independence. When clients think of retirement planning, it’s often in terms of something that happens at age 65 or 70. They go onto Medicare.  They collect Social Security. There is a big party at work. They don’t go into the office anymore, living off their savings for the foreseeable future.

Financial independence is similar, but much more appealing. Set Medicare and Social Security aside for a moment. Imagine your client, through discipled saving and wise investments, could reach a time in their life when working becomes a choice, not an obligation? For a person in their 20’s, could they see this happening at age 55 or 60? Since they might feel they will live to 100, that can be an attractive goal, something they would work towards achieving.

Now, what about the client further along in their working career that hasn’t given much thought to financial planning? They have a 401(k) plan at work. They make the maximum allowed contribution. Maybe they are starting to get their Social Security projections in the mail. They have some investments in taxable accounts but aren’t actually saving much at this time in their life. How do you create a need for retirement planning?

Let us talk a little about creating a need. You aren’t “creating” anything. You are uncovering a problem that might not have been on your client’s radar previously. Your client now has two choices. They can address the problem or ignore the problem. If they choose to ignore the problem, the problem doesn’t go away. Often it gets larger. If you went to your doctor for your annual checkup and they said “I saw something I don’t like. We need to do more tests” you know there is a problem. You will want to address it, not ignore it. 

Here's the scenario. You talk with your client, asking “Are you confident you will have a comfortable retirement when the time comes?” They give a yes or no answer. If the answer is no, they recognize there is a problem. They might say “Yes, I suppose I am confident I will have a comfortable retirement.” You ask another question: “How confident?  100 percent?  50 percent?  20 percent?” They will probably not have an answer and would be open to helping you find one, getting to a probability.

Next, you gather data on their retirement assets and taxable assets. (Hard assets are good to know about too, but they can be difficult to value.) How much do they think they will be spending in retirement, expressed in today’s dollars? You have an idea of their after-tax income, since you prepare their tax returns. They might have a number in mind. If they don’t or if the number sounds incredibly unrealistic, you can mention retirement spending is often estimated at 80 percent of your pre-retirement income. Fidelity Investments gives a range of 55 - 80 percent.

You will want to use the retirement planning tools known within the financial planning world as Monte Carlo simulations. What they do is take those numbers and gross them up with inflation assumptions (and historic investment return rates) to the point when you would be ready to retire. They also include your future retirement savings, such as your 401(k) and IRA contributions. They assume your withdrawal drawdown rate, which is often considered 4 percent annually. That is your starting point. FYI: If that point is age 65 or greater, Social Security and Medicare are included in the analysis. If not, you would be needing to factor in health insurance, too.

The analysis produces a table, showing your income and drawdown year after year, along with estimated growth in both investments and expenses. If your client has saved well throughout their life, the analysis might have reached age 100 with plenty of assets in reserve.

At the other extreme, your client might have reached the line labeled “age 75” and run out of money! A serious problem has been identified.

The Monte Carlo analysis can also consider extremes: Suppose the stock market has a long run of very good returns? Suppose the opposite happened and returns were poor? How would the client’s results be impacted? Are the probabilities of these outcomes based on history? Because inflation is on everyone’s mind, you should be able to vary the inflation rate in these calculations too.

Does your client have options? Yes, there is hope. They can choose to work longer, reducing the number of years they spend in retirement and adding additional years for retirement saving. They could reduce the dollar amount they are expecting in retirement, meaning they are drawing down their assets at a lower rate. They could also direct more money into savings before they retire in addition to their current, planned retirement savings. They might own hard assets like a vacation home, which could be sold to provide additional capital, an additional base to produce income.

The composition of their current retirement assets should also be addressed. There are probably few people who have directed their 401(k) savings into cash or cash equivalents yet changing their asset allocation to provide more equity exposure could potentially increase their returns, especially if they are young and can take a long tern time horizon. Their tolerance of risk is an important consideration.

Having identified a problem, your client should be receptive to taking steps to address it. The important things to consider are expenses rise because of inflation and some expenses, like health care rise much faster than inflation. It is likely your client needs to take action

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