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3 things I do with clients to make sure they can retire when they want

  • As a financial planner, helping clients retire 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 kind of future than the 9 to 5 life allows.

Regardless of their age, almost all of my clients (and prospective clients) have stated that one of their main goals is to prepare for a secure retirement. Since most of my clients are in their 30s and 40s, they don’t know exactly when they want to retire because this event could potentially be 25 to 30 years from now. However, there is still much financial planning value to provide clients as they move 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 make reasonable assumptions within the projections of the retirement plan

Within their service to clients, most advisors use some form 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 projections based on what the client is currently doing and then show how the projections will improve with a recommended change (for example, client increases retirement plan contributions, client works harder years, etc).

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

John and Mary are 40 years old 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 analysis of the retirement plan. Within these projections, your advisor specifically assumed lower-than-historical investment returns (because of their tolerance for risk in their investment portfolios) and higher-than-average inflation rates, which had a negative impact on your progress toward your investment goal. retirement. As a result, this analysis encouraged John and Mary to make more of an effort to save more for retirement in order to offset these types of potential downsides and still reach their goals.

2. I help clients understand that there will be constant changes in the future

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

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


volatility

) and qualitative (for example, personal situations, health) change throughout the years close to retirement, especially when the time horizon is distant. I encourage clients to understand that nothing is set in stone and to remain flexible, allowing them to adapt to any changes they face in the future.

3. I make sure that clients have adequate wealth protection

Insurance may be the least discussed strategy when approaching retirement planning, but it is the most important. Having adequate insurance ensures that retirement goals are not derailed in the event of an unfortunate event or circumstance.

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

Mike and Beth are in their late 40s and have been married for over 20 years. His son Joe just graduated from college and has had his tuition paid in full for the last four years, which is a huge financial achievement. In addition to no longer having tuition obligations, Mike and Beth also maintain large retirement accounts, which will allow them to retire early.

One night, Mike gets into a car accident and is at fault. The person in the other car is seriously injured and is suing you 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 luckily, Mike and Beth followed the advice of their financial planner and purchased an umbrella insurance policy, which provided the additional liability coverage needed for this situation. As a result, they were still able to maintain their retirement savings and continue toward their goal of early retirement.