Three Retirement Planning Conversations Financial Professionals Can't IgnoreContributor Katherine Roy
Many people feel overwhelmed when it comes to saving and investing for retirement, particularly as the transition into this new life stage is imminent. Financial professionals play a critical role in supporting clients through their retirement journey, with the planning decisions made in the lead up to retirement having a significant impact on outcomes.
In my role at J.P. Morgan Asset Management, I’ve seen first-hand the pitfalls and opportunities associated with guiding people through to the retirement finish line. Below are what I believe to be the three most pressing conversations financial professionals need to have with their clients to adequately prepare them for retirement.
Manage expectations around longevity and ability to work
One of the most common mistakes made by those planning for retirement is underestimating how long they will live. Recent J.P. Morgan research reveals at least one member of a 65-year-old couple now has a 90% chance of living to 80 or beyond.1 Living longer affects key retirement decisions such as how to make the most of your time, how to invest, when to claim Social Security and whether you might need long-term care.
Beyond longevity, many are overly optimistic as to how long they can work, often resulting in a gap between anticipated retirement age and actual retirement age. While more than two-thirds of retirees expect to continue working until age 65 or older, in reality, less than a third are actually still working at this age.
Given the mismatch between assumptions and actual events, it's critical for financial professionals to be proactive with the clients to manage expectations around the probability of living much longer than they expect. This means investing a portion of their portfolio for growth to maintain purchasing power over time, and having a back-up plan in the event they exit the workforce sooner than expected.
Consider the impact of sequence of return risk and spending behaviors
Educating clients on the concept of sequence of return risk and taking proactive steps to mitigate this risk in advance of the retirement transition is critical. The return sequence experienced just before and after retirement when wealth is greatest can have a significant impact on retirement outcomes, as outlined in the below chart from the recent Guide to Retirement: