3 Things I Do With Clients to Make Sure They Can Retire When They Want

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  • As a financial planner, helping clients reach retirement is a key part of my job.
  • To get them there, I start by factoring inflation, investment returns, and more into my projections.
  • This article is part of the “Re/Thinking Re/Tirement” series focused on inspiring financial planning for a different type of future than the 9-to-5 life allows.

Regardless of their age, about every client (and prospective client) of mine has stated that one of their primary goals is preparing for a secure retirement. Given that most of my clients are in their 30s and 40s, they do not know exactly when they want to retire because this event can potentially be 25 to 30 years from now. However, there is still much financial planning value to provide to clients as they make progress toward achieving their retirement goals.

Here are three ways I provide guidance to clients and help them stay on track as they build wealth for retirement.

1. I set reasonable assumptions within retirement plan projections

Within their service to clients, most advisors use some type of financial planning software, which has a feature that provides retirement plan projections (eg, probability of success). Many times, an advisor will show a client the projections based on what the client is currently doing and then subsequently show how the projections will improve with a recommended change (eg, client increases retirement plan contributions, client works more years, etc.).

An advisor must make several assumptions when doing this type of analysis for a client: investment returns on a client’s portfolio; inflation rates going forward; level of Social Security benefits; and length of an individual’s retirement (ie, how long they will live). My primary rule of thumb in this planning area is to lean toward being very conservative with these assumptions, which can provide clients with a more realistic picture of what to expect going forward. Take the following example.

John and Mary are both age 40 and have been married for 10 years. They have two children and are making efforts to save for future tuition costs, but also want to prioritize their own retirement planning. They hire a financial planner to do a detailed retirement plan analysis for them. Within these projections, their advisor specifically assumed investment returns lower than historical averages (for their risk tolerance in their investment portfolios) and higher than average inflation rates, which both had a negative impact on their progress toward their retirement goal. As a result, this analysis encouraged John and Mary to make more of an effort to save more toward retirement to counter these types of potentially unfavorable situations and still meet their goals.

2. I help clients understand that there will be constant changes going forward

Providing retirement plan projections to clients is a prudent exercise and provides much value to them, but every number and assumption that goes into this type of analysis will inevitably change. Even further, the level and timing of these changes are simply unpredictable. This can be frustrating to clients and advisors, but it is the reality of financial planning.

There will be both quantitative (eg, tax laws, market


volatility

) and qualitative (eg, personal situations, health) changes throughout the years approaching retirement, especially when the time horizon is far out. I encourage clients to understand that nothing is set in stone and to remain flexible, which will allow them to adjust to whatever changes they face going forward.

3. I make sure clients have the proper wealth protection in place

Insurance might be the least-discussed strategy when addressing retirement planning, but it is the most important. Having proper insurance in place ensures that retirement goals do not get derailed in the event of an unfortunate occurrence or circumstance.

Over the course of a long horizon of 25 to 30 years, many types of things can happen. Life can take many twists and turns. Maintaining adequate protection of wealth — in the form of insurance — is clearly a prudent decision, but it can also bring peace of mind to an individual who knows that their overall financial plan can withstand adverse events. The following example shows the impact of a wealth protection vehicle.

Mike and Beth are both in their late 40s and have been married for over 20 years. Their son, Joe, just graduated from college, and they have funded his tuition completely for him over the last four years, which is quite a financial accomplishment. In addition to no more tuition payment obligations, Mike and Beth also maintain sizable retirement accounts, which will allow them to retire early.

One evening, Mike gets into a car accident and is at fault. The person in the other car is seriously injured and is suing him for a substantial amount of money, which can be a real threat to the couple’s overall savings. Mike is found liable in court, but fortunately Mike and Beth followed the advice of their financial planner and purchased an umbrella insurance policy, which provided them the extra liability coverage needed for this situation. As a result, they still were able to maintain their retirement savings and continue forward toward their goal of an early retirement.