As a teenager living in Africa, I remember lightning striking very close to me a few times. One time, I had been on the phone and found myself on the floor wondering what had just happened. Another time, a tree standing 100 yards from my house blew apart with a loud, awesome explosion. I will never forget those moments, yet I have seen lightning a thousand times. What made those instances different? The reality is, the closer you are to a storm, the more threatening it is.
For people who have time before they retire, like Generation X and millennials, the current market volatility is uncomfortable, but it doesn’t feel nearly as traumatic as it does for those who are hoping to retire sooner, like many boomers. For boomers who have retired or are about to retire, market volatility is thunderous and deafening. And for boomers who thought they could squeeze into retirement a month ago, depression may be setting in.
Financial advisors are observing an aspect of human behavior that amplifies these challenges: people seldom make good decisions when anxiety is high. Stress often causes us to lose focus and misjudge important matters. And we all can become irrational when facing financial pressures. In financial matters as in other parts of life, the closer people are to the storm, the more anxious they will be.
Kim Blanton, with the Center for Retirement Research at Boston College, wrote about the options facing boomers. Some may find themselves out of work. Others may opt to receive Social Security benefits prior to their full retirement age (FRA), which could be a good or bad decision depending on their circumstances. And still others may begin looking for part-time work, scraping by to make ends meet. Making good decisions is difficult when anxiety is high. Many boomers would benefit from an advisor prepared to address their financial anxiety in an interactive, professional way.
A proactive advisor who is aware of the challenges facing boomers can transform the current market turmoil into an opportunity to deepen relationships with current clients and connect with new clients, especially in the boomer age group. Helping boomers identify and overcome their retirement shortfall, while engaging them in the process of reviewing possible solutions for retirement planning, will not only bring peace to mind to clients but also build trust in the advisor/client relationship.
The first key step in building these relationships is to help clients understand how they are situated for retirement. They need a clear picture of what their retirement looks like. Even a simple retirement income chart can illustrate how long their assets will last in retirement. This may serve as a valuable reality check. If there is a projected shortfall, interactive problem-solving can begin.
At this point, asking clients how they would like to address the shortfall may seem premature, but it is a good question to get them thinking about what they would like to change. Advisors should aim to help clients understand the problem and become a part of the solution. Asking difficult questions engages clients in the problem-solving and invites them to consider what they can do—and how—to overcome any shortfall. Give the client time to respond to the question. The ensuing silence may be awkward at first, but it is most likely a sign that the client is engaged in the process.
When clients identify possible solutions, they bring their values into the process. What is most valuable to them? Are they willing to work longer? Are they comfortable with less income? They might even have outside assets that they have not previously disclosed to you but are now willing to talk about if they really want to solve the problem. Some clients may propose “solutions” that are not actually solutions. This could be a sign that they haven’t been through this process before, and they may need more guidance to come up with solutions that have a real impact.
A typical client response might be, “Well, I guess I need to retire later.” Or, less commonly, “I have some other money in a CD. Will that help?” With a good retirement planning tool, advisors can respond to these comments by changing the retirement illustration almost instantaneously. An immediate, clear picture of how the adjustments affect retirement income allows clients to understand the impact of their proposed solutions on their shortfall.
After allowing a client time to suggest a few solutions, you may want to offer additional solutions that they have not yet shared. Consider anything from reducing income in retirement to working part time for a few years, but discourage your clients from buying into any single solution before they have seen the impact it can have on their retirement income.
Helping your clients who are closest to retirement may mean working with people who are more anxious than your other clients. After all, they are closer to the storm than many others. But these may be the people who are most in need of your immediate help, and they typically have more assets to be managed, which presents a great opportunity to grow your business.