The Senior Market Income Equation

Pre- and post-retirement protection and growth

by Scott Harrison

Throughout the majority of peoples’ working lives, financial strategies are typically aimed at accumulating and growing assets for the future. While there is certainly concern over generating a nice return, the actual year-to-year fluctuation of assets may not be nearly as worrisome as the overall value of the portfolio just prior to retirement. This is because in most cases, these are the assets from which future retirement income will be drawn.

Post-retirement, one’s financial objectives tend to change, leaning much more towards three primary goals. First, more income in order to support one’s ongoing lifestyle, as well as the protection of principal so that income will continue to be generated. In addition, growth of assets is also essential in order to keep up with inflation and future rising prices.

Shifting from Pre- to Post-Retirement

For many clients, it is difficult to make the shift from the “accumulation” phase of life to the “decumulation” stage. This requires changes at many different levels – the biggest of which entails no longer funding retirement and other investment accounts, but rather using the funds within these accounts to now generate an ongoing livable income.

When coming up over the retirement horizon, many are hoping that their funds will accomplish similar objectives. These typically include:

•  Production of ongoing income for everyday living expenses, as well as for additional amenities such as travel, that will last throughout the retiree’s lifetime, as well as for the lifetime of a spouse (if applicable)
• Protection of principal, regardless of market and economic conditions
• Growth of capital, and in turn income, in order to keep up with the rising cost of goods and services in the future

Yet, while these particular goals may appear to be similar for most, for those who are just entering into retirement – as well as those who are just about there – the individual needs and goals are all unique and specific.

Therefore, just as with any other type of financial planning, it is important that advisors work with clients on more of an overall approach as versus just moving into and out of various individual financial products at random.

Using a Holistic Planning Approach to Cover All the Bases

One of the best ways of creating a more cohesive plan where all of the parts work together is to incorporate more of an overall holistic planning approach right from the start. Holistic financial planning actually takes into account the client’s entire financial picture rather than just small, narrower portions of it.

Here, all aspects are included, such as the client’s specific goals, their risk tolerance, and their lifestyle – both present and future – when developing the plan. In doing so, an advisor is much better able to then determine the products that are right for the client in obtaining the short and long term objectives.
This differs significantly from financial planning where different components are managed separately as singular units in hopes that all of the pieces will somehow eventually just fit together.

When using a holistic type of financial planning approach, products aren’t sold in the first meeting with a client – and possibly not even in the second or third. The process begins with an initial session between the client and advisor for the sole purpose of obtaining as much information as possible regarding the client’s goals and objectives, as well as about their current situation.

Next, all of the data that is gathered is then analyzed for the purpose of developing a strategy for the client that is based upon their specific goals. The financial products, or tools, that are used are chosen based on objectives such as the creation of wealth, protection of principal, avoidance of taxes, or other specific needs.

In working with our clients, I have been using a holistic planning approach for many years as it allows me to provide my clients with a more complete financial plan. It’s important to note, however, that holistic financial planning isn’t something that comes quickly or easily. It is a true, ongoing process that you need to work in conjunction with your clients – far from just simply selling individual products here and there.

It could take at least three or four meetings before a client will actually do business with you. It’s extremely important to move slowly before you can diagnose the ideal solution for someone – and it’s essential to keep in mind that you are planning, not selling – because no one likes to be sold.

After I have initially gathered a new client’s information, I use SIPS, Structured Income Planning Software, in order to build out a plan for the client that is very visual. This literally helps clients to “see” an approach that could move them towards their financial goals. Oftentimes, when working with financial concepts, people like to visualize how the plan will work.

It’s also rare that the first plan we come up with is the one that’s implemented. This is due to the client’s ongoing input. When working with my clients, I don’t just take their initial information and run with it, but rather keep the process interactive throughout. The plan may get tweaked several times before we put it into motion. This way I can ensure that my clients are including all of the pertinent details.

Once a plan has been constructed, the holistic planning process doesn’t stop there. In fact, the process is never really complete, but rather it involves regular monitoring, reviews, and strategy sessions.
Since clients’ lives are constantly moving and changing, financial needs and goals are apt to change along with them over time. With that in mind, it is essential to keep a close eye on clients’ plans, regardless of which stage of life they are in.

Complete Planning for the Senior Client

Because one of the biggest fears of seniors today is that of outliving their money, I also use Social Security optimization strategies within my planning approach for those who at or near retirement. I take a close look at these clients’ income objectives and all of their guaranteed income sources, such as Social Security and pension, and then we fill in the shortfall.

In this particular niche area, we target individuals and couples who are between the ages of 62 and 70 – and because of this age bracket, a majority are already in the distribution phase of life versus the accumulation phase, and are therefore primarily focused on seeking income and protection of their principal.

One of the biggest risks to a retiree’s principal today is the cost of long-term care. Longevity has been on the rise for a while now, due in large part to advances in medical technology. While this can be good news for the most part, longer life doesn’t necessarily mean that those extra years will be healthy years. In fact, it could actually mean just the opposite.

Healthcare exposure can be even worse than market exposure. Here in Seattle, the cost of just one year in a skilled nursing home can exceed $100,000 per year. That can put a fairly sizeable dent in any retirement portfolio – and especially that of a married couple, where the healthy spouse still needs assets to maintain regular, ongoing income for living expenses for an indefinite period of time.

Keys to Success When Using a Holistic Planning Approach for Pre- and Post-Retirees
When it comes to being successful in the holistic planning arena for either pre- or post-retiree clients, there are several keys to success that advisors should keep in mind. First, it is essential to really, truly know your client. Helping them to define what they want out of life – and then helping them to achieve that financially – will make you a star in this area. One of the best ways to go about doing this is to understand how to guide a conversation with clients without controlling it.

Another important aspect is to be properly licensed in all of the product areas where you’ll be working with clients. If you’re not properly licensed, then partner with someone in your office who can help. That way, you can provide your clients with all of the financial tools that they need for their plan to work – without having to send them down the road to the competition.

Yet another important piece of advice – keep learning. The world of financial services is constantly evolving, so it’s imperative to stay updated. There are numerous ways to do that, including continuing education courses, earning industry designations, or even by reading up on various subject areas in the world of finance.

In so many ways, financial advisors are educating clients on how to achieve their goals, so staying continuously educated is a great way to stay at least one step ahead. The learning curve never ends. So never stop reading, and never stop learning.

Advisory Services offered through Investment Advisors, a division of ProEquities, Inc., a Registered Investment Advisor. Securities offered through ProEquities, Inc., a Registered Broker/Dealer and member FINRA & SIPC. 2801 Hwy 280 S., Birmingham, AL 35223; 800-288-3035. Futurity First is Independent of ProEquities, Inc