5 Steps to Help Clients Stay on Track for Retirement

During his stretch in the Oval Office, President Dwight D. Eisenhower kept a tight grip on his time. He asked his staff to separate requests that reached his desk into two categories — important matters and urgent matters. When asked about his strategy, Eisenhower said, “What is important is seldom urgent, and what is urgent is seldom important.”

But if you tried to apply the Eisenhower matrix to a tall stack of current retirement surveys today, you’d quickly find that American workers’ important savings goals need urgent, deliberate attention. Nearly seven in 10 American workers say they are not saving adequately enough for retirement, according to the 2022 Global Benefits Attitudes Survey conducted by Willis Towers Watson.

In a separate survey, T. Rowe Price found that the retirement savings gap in the U.S. is close to $4 trillion. For perspective, U.S. workers’ savings shortfall, in terms of real dollars, is about the same size as Germany’s entire estimated economic output this year and the fourth largest in the world, according to data from the International Monetary Fund.

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Still, the conversation between financial advisors and clients about how to prepare well for retirement extends beyond just savings metrics. It takes a clear understanding of how your clients envision their time in retirement: How are the people your clients care about, the experiences they want to have in retirement, and their values incorporated into your conversations with them about retirement? What makes your clients tick? And why would they be ticked off if the vision they have for retirement didn’t materialize?

Eighty percent of American savers say they want help throughout retirement – in other words, far beyond retirement itself, according to data from BlackRock. Put another way, clients want to know that you get them, and can help them get to where they want to go with the people they love, the experiences they want to have, and supporting the values that make their journey meaningful.

Here are five steps to help clients retire on their schedule, both when and how they envision it:

— Help clients visualize retirement plans and progress.

— Focus on big-picture goals for retirement.

— Personalize retirement conversations.

— Have clients “meet” the retiree version of themselves.

— Plan for setbacks in retirement saving.

Help Clients Visualize Retirement Plans and Progress

Emily Balcetis, associate professor of psychology at New York University, suggests in her book “Clearer, Closer, Better” that there are certain perceptual habits and practices that, when adopted, can effectively help individuals reach their goals. For example, when individuals click through financial apps and integrated software, like MoneyGuide Pro and the Fidelity Retirement Score, they can visualize and track their progress toward retirement savings goals.

As a consequence, individuals are also more likely to stick with concrete savings strategies they can visualize. Visual tools allow you to “see where you stand and how far you have to go at any moment that you log in, rather than relying on your memory of your financial health,” says Balcetis.

While spending needs in retirement can vary based on lifestyle, a reasonable goal is for the client to save enough to replace 60% to 80% of his or her pre-retirement work pay. To start the replacement conversation, add the client’s projected, annual Social Security benefit (it’s common for Social Security to replace about 40% of pre-retirement income) and pension amounts together. How closely do these benefits replace, say, 70% of the client’s current pay? If there is a shortfall, multiply this amount by 25 to arrive at a ballpark savings goal for retirement.

But what if the client is still in the early phase of his or her career, and simply wants to get started on the right track? Fidelity suggests setting incremental goals of saving 1 times their current salary by age 30, 3x salary by age 40, 6x by 50, 8x by 60 and 10x by 67.

Focus on Big-Picture Goals for Retirement

Another strategy that Balcetis recommends in her book is to “widen the bracket” for any goal in view. It’s easy for clients to get distracted by short-term events, such as a double-digit drawdown in the market. But what if you could shift your clients’ focus to a fully digested financial plan that outlines important milestones, such as how they can retire on time and also fund other priorities throughout retirement? These priorities might include travel experiences or long-term-care expenses later in life, for example.

It’s better to see the forest beyond just the trees. “A wide bracket leads us to make decisions that better align with our long-term objectives, and helps us avoid temptations that seem great now but which we’ll regret later on. A wide bracket can also reveal broader patterns that are less apparent when we consider decisions or events in isolation,” Balcetis says.

Personalize Retirement Conversations

Discuss at length what, or better still, who the money is for in retirement. What do your clients want to do with their time in retirement? Where would they like to live and what are some places they would like to visit?

Also ask to what extent your clients want to support loved ones or charitable causes. Clarity on these issues can help you personalize retirement strategies for your clients. Retirement savers “are looking for more focused personalization,” says Michael Doshier, senior retirement strategist for T. Rowe Price. “They are also looking for retirement savings to be put into context of broader financial wellness considerations.”

He adds that clients are “seeking an answer to the specific question, ‘Where should I place my next dollar across retirement, student loan debt, emergency savings, health care and general expenses?'” and they are looking for this information to be delivered in a simple and integrated way that is easy to digest.

To enhance the personalization a bit further, take inventory of your clients’ specific retirement benefits at work and offer tax-smart, alternative strategies to them where appropriate. According to a recent study conducted by AARP, nearly 57 million American workers, or 48% of U.S. private-sector employees ages 18 to 64, work for an employer that does not offer a traditional pension or retirement savings plan.

“The single biggest driver of the savings gap is access to workplace savings plans,” says Doshier.

Have Clients “Meet” the Retiree Version of Themselves

Research from UCLA’s Anderson School of Management shows that financial choices can improve if savers reboot their vision of what they may look like in retirement. What age comes to your clients’ minds when they think about the latter stage of retirement? Can they imagine living to 100?

Consider these figures: According to the U.S. Census Bureau, there are over 90,000 centenarians in the U.S. today; by 2060, this demographic is expected to reach about 600,000, a growth rate of roughly 570%. Longevity is an important variable of a financial plan, so any steps you can take to help your clients assemble priorities associated with living longer are helpful. For example, taking into consideration out-of-pocket medical expenses or the desire to preserve their dignity as they age will lead to strategies that mitigate longevity as a potential blind spot in retirement.

Plan for Setbacks in Retirement Saving

Did you ever expect to see earnings expectations for global equities in the mid-to-high single digits? Recent capital-market assumptions from firms like Vanguard have lowered the bar for equity returns over the next decade, due to a wide range of prevailing factors that transcend business cycles. These include an aging population and broader integration of technology within the workforce.

For example, Vanguard’s 10-year return projections for non-U.S. equities are in the range of 7.5% to 9.5% and somewhere between 4.7% and 6.7% for U.S. equities. Historically, equities across the globe have provided investors with average returns in the 10% to 12% range.

Do lower capital-market assumptions preclude innovation and grit? No, of course not. The market eagerly rewards companies that work a little harder — and more efficiently — than their peers. What the forecasts do signal, however, is that retirement savers need to be prepared for lower-than-average market returns.

According to T. Rowe Price, 78% of American workers rely on their workplace for guidance on how to reach their lifetime financial goals. Given the current shortfall in retirement savings, more work is required to help individuals prepare effectively for retirement.

Financial advisors are in a unique position to help their clients understand their retirement benefits more fully, so they can make concrete adjustments to their planning strategies that allow them to retire on schedule and with confidence.

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5 Steps to Help Clients Stay on Track for Retirement originally appeared on usnews.com

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