The Changing Retirement Landscape
Nearing retirement? Why making it to the bottom is even harder than getting to the top.
When consumers think about retirement, most focus on asset accumulation: put away those savings and build, build, build that nest egg. Once they’ve amassed a sufficient level of assets, many likely feel the hard work is over. Unfortunately, it’s not. Because now they face the real challenge of making those assets last throughout their retirement years. Think of it like ascending Everest. When climbers make it to the top, they likely feel a well-deserved euphoria: “Woo-hoo, I did it! Mission accomplished.”
But the harsh reality is that getting to the top is easy, relatively speaking. Getting safely to the bottom again is a much bigger challenge. In fact, most of those who have perished on Everest have done so during their descent as they battled things like bad weather, exhaustion, and the myriad difficulties that come with being five and a half miles above sea level.
Why is “getting down safely” so much trickier?
For this discussion, equate “getting down safely” with “having assets last throughout retirement.” Why has this become so challenging? There have been a number of contributing factors:
- INCREASED LONGEVITY. Retirement assets need to last longer today than they did in the past. It’s not unusual for a retiree to need 30 years of income.
- CHANGING EXPECTATIONS IN RETIREMENT. Today’s retirees tend to be healthier, more active, and to demand more from their retirement years. This means future retirees will need more resources than previous generations did.
- SELF-RELIANCE. While previous generations might have had a pension to count on, today’s retirees are typically on their own.
- COSTS/ISSUES WHEN CLAIMING SOCIAL SECURITY BENEFITS EARLY. The current full retirement age (FRA) is between 65 and 67, depending on when a retiree was born. Many retirees don’t fully appreciate that taking Social Security before they hit FRA means a lifelong reduction in their payments and the impact this can have on them long term.
Financial Services Providers (FSPs) and advisors can make it easier to successfully navigate retirement. Here’s how.
Fortunately, FSPs and advisors can help consumers manage a potentially perilous journey by offering them financial planning tools. These show clients how potential future scenarios (such as the impact of different levels of withdrawals, inflation, expenses, and interest rates) could affect their nest egg and how various asset allocation strategies can help to ensure income security.There are a variety of options in the marketplace, offering a range of analytic tools, reports, and calculators that allow advisors to help their clients understand the challenges of retirement and the best asset mix for them.
To optimize the value of these tools, offer them in conjunction with a written financial plan. In addition to increasing the likelihood of client success, written financial plans benefit the financial services provider too. MoneyGuidePro conducted research that showed that firms with written plans had increased net assets and higher revenues and were more likely to garner advisor referrals.
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