How to Talk with Investors During Each Phase of Life

Written by CUNA Mutual Group Annuities

As you age, it’s easier to reflect back on the phases of life and appreciate the role each played in forming the person you are today. There were the awkward teen years, the aspirational college years, then a career, family and maybe even a dream home. Before you know it, retirement approaches and you wonder where time went.There are financial phases in life, too, and it’s important to encourage market participation during each stage to help ensure fiscal stability along the way. Not only are solid financial plans important for your clients to sustain comfortable lifestyles, studies show that the stress from not being fiscally responsible can lead to physical and mental health risks (Opens in a new window), too.

You’re helping clients live life more fully in more ways than one when you help them build strong investment portfolios that align with each of these three financial life cycles.

Strategies for the Three Financial Life Cycles of Life

Accumulation Phase. Typically occurring early in a person’s career, the accumulation phase focuses on building a foundation. “Easier said than done” for many because people just starting out in the workforce often struggle to balance their expenses and savings due to income restraints, student debt and a general lack of financial savvy.

Advisors may need to spend more time with clients to establish a budget, find ways to set up an emergency fund and tackle debt. But talking about investing needs to be part of the conversation, too. Some young people believe they should wait to get started in investing until they can “afford” it. It can be a challenge to convince them that even a small amount each month is better than none. Using examples of compounding returns (Opens in a new window) can clearly illustrate why starting sooner than later is a good idea and motivate your younger clients to enter the market.

Conversations should also include taking advantage of an employer’s 401(k) plan, setting up an IRA and establishing a savings account, plus strategies for avoiding poor financial habits like impulse buying and overspending.

Consolidation Phase. Those in this stage of life have probably purchased a home, have a family and are established in a career with peak earnings. Some of life’s bigger expenses are out of the way, while others such as a higher car payment or child’s college tuition have emerged. In general, however, a larger portion of a person’s annual wage is available for investments and things are going smoothly. Clients may be tempted to put their investments on autopilot, or they may consider withdrawing from their retirement plans to pay for expenses or splurge on the finer things in life. Talking with them about early withdrawal fees and loss of future earnings growth will likely dissuade them from this financial blunder.

Now is the time to increase contributions to their portfolio, not downsize. Talk with clients in the consolidation phase about asset allocations that match their risk tolerance and the benefits of increasing their presence in the market. They should also make sure their family is protected from the unexpected with adequate life insurance and estate planning.

Spending Phase. Finally! During retirement, investors hopefully get to reap the rewards from the wise investment decisions they made earlier in life. The spending phase can be the most fulfilling and provide the freedom to travel, enjoy hobbies or simply spend more time spoiling grandchildren.

Some investors become more risk averse as retirement approaches, especially if they’ve lived through market downturns. And once they do retire, knowing how much to withdraw without exhausting their nest egg too soon becomes a concern. Lifespans are increasing, and clients who retire at age 65, for example, may need to rely on investment withdrawals that can sustain them for 20, 30 or more years. Add to that potential inflation and market volatility and investors in the spending phase may have a difficult time understanding the boundaries of their newfound freedom.

Talking with these clients about preserving their portfolio and managing their risk is crucial. For those who’ve entered retirement, help them establish a sustainable withdrawal rate to know how much they can take out without running out of money. Making adjustments along the way should be expected, especially in response to market swings or various life circumstances. As an advisor, help put your investors’ minds at ease by explaining the tools available to help them manage risk and still benefit from the ROI the market provides.

No matter where your clients are in life, they need an advisor they can trust—one who can teach them about investing and address the evolving fears, anxieties and aspirations they experience during each phase.

Need more resources to help your clients control risk? Download Risk Control Accounts: Limiting the Downside, Providing Potential for Higher Returns (Opens in a new window).

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