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The Practice Doctor is IN
Retirement Planning: How Deep Do You Go?
As the baby boom bulge works its way through the demographics of American life, the advisor is being called on more and more to do “retirement planning.” In fact, in my consulting I have documented that almost 90% of the advisors who have undergone a practice analysis (the Practice Checkup™ at practicetools.net) have as their primary market the pre- and post-retirement population. Seems that’s where the money is!
Also during these consultations, I have been observing that there is great inconsistency among advisors as to what “retirement planning” means.
In a generic sense, it’s having enough money to provide an income in one’s later years. Some advisors simply use a money management approach, creating a pool (or pools) of money that the client can draw upon in a steady stream or as needed. The client bears the responsibility for distribution issues, such as taxation, longevity, and emergencies.
The other strategy advisors use involves layering products––usually annuities–– that can be accessed for withdrawals and ultimately turned into income streams. Again, the client has the distribution responsibilities.
Advisors who take a true relationship approach to retirement planning will participate in the whole process including:
This month I’d like to focus on how well you help your clients paint a realistic picture of what their retirement years might look like. We’ll call it part one of the Practice Doctor “advisor retirement challenge.”
When dealing with a client’s retirement planning, there are ten concepts to probe in helping them visualize what’s to come. How many of these ten do you use in your retirement discovery process? Note: a “client” can be a couple or other persons who make up a household.
1. Time span. Does your client grasp the concept that “retirement” might last 25, 30, or more years? For a couple entering their retirement years, both at age 65, the joint life expectancy according to actuarial tables is 90. Statistically, in other words, one of them––probably the wife––will live until 90. This does not take into account additional life-prolonging medical advances that occur over that time span. Planning for life until 100 would be prudent.
Regardless of the time span, you need to bring perspective to it. This is 2008. Twenty-five years ago was 1983. What was your client’s life like then? How much has it changed and evolved through 2008? Consider 25 years into the future: 2033. It’s reasonable to expect a similar amount of change and evolution. Ensuring, to the best of your ability, that the client understands the time span perspective will result in a more realistic retirement plan.
2. Leisure. This is a favorite clichéd default for beginning retirement discussions. “Oh, I’ll golf all day.” “Hah-ha – now, seriously…” Some probing of leisure expectations will draw out other items on your client’s agenda, such as:
3. Education. Have you drawn out your client’s plans around their educational desires? Would they like to:
Have you examined the possible costs of these educational plans?
4. Work. Has your client expressed their expectations regarding work? Work can encompass both income-producing and volunteer endeavors. Your client could be continuing in a career or starting a new one. They could be mentors to a younger generation. How much income could be generated from working and what will that income go toward?
5. Family and Friends. This may have come up in the exploration of the previous four questions, but it should be fleshed out. The best practice is to help clients look at retirement years as they relate to interacting with their children, grandchildren, parents, relatives, friends and other important people in their lives.
You should listen for your client’s thoughts about frequency of visits, travel methods and costs. Might there be the chance that your client would need to help support any of these people? Are there any particular situations that should be taken under consideration, such as special-needs children, step-families, estrangements or other family obligations?
6. Location. Where is your client planning on living in the retirement years? Options include, but are certainly not limited to:
What will the economic impact of any of the above mean to your client’s cash flow?
7. Health: Economic impact. Digging in to create a realistic picture of your client’s retirement scenario, including asking pointed questions about health issues, is a must. There are two aspects to consider:
For both, be sure to ask what preparations have been made to address the medical costs that are occurring or might possibly occur? Insurance, Medicare, prescriptions, deductibles, and care facilities are among the topics to discuss.
8. Health: People impact. This is a cross-reference of many of the above questions, but from a different perspective. If your client endures an adverse health condition during his or her retirement years, whether temporary or permanent, who will be impacted the most? The nearest children? From another angle, what about the client’s elderly parents or relatives? Who will be impacted by their adverse health conditions? Health care directives are an important piece of this puzzle. Continually addressing and updating these relationship issues as the retirement years progress can position you as a peacemaker in a volatile family situation.
9. Self-reliance. While this topic of self-reliance has probably come up in a variety of topics addressed thus far, it’s important to have your client answer it head-on. Do they realistically want to remain self-sufficient? To what extent are they willing to accept the help of others when self-sufficiency becomes untenable? Put another way, what is a tolerable level of “being a burden on others” your client willing to accept, if any?
10. Legacy. Have you discussed with your client their desire to leave a legacy? A legacy can include:
These goals could go unfulfilled if your client runs out of money by living too long or experiences a medical emergency.
In order to paint the best possible picture of your client’s retirement wishes, you will need a fact-finder with triggers to promote discussion. Take some time to examine the discovery tool you are currently using. Do you need to enhance it in light of what we’ve discussed in this column?
Next month, we’ll look at retirement planning and helping educate the client to the realities they will be facing. Until next month, the Doctor is OUT. Al Depman , CLU, ChFC, CMFC, BH, a.k.a. “The Practice Doctor”, is mitchanthony.com’s Business Practice Consultant. He is the creator of “The Practice Management Assessment” tool and materials and has authored numerous articles in professional publications on practice management. Al combined his Liberal Arts studies with 10 years of management experience with McDonald’s Corporation to enter the financial services world 22 years ago. Since then, Al has evolved from an MDRT-level sales rep into a full-time consultant specializing in helping others engineer their business practices to the next level. Contact him at al@mitchanthony.com . © 2008 Al Depman |
Al Depman, CLU ChFC CMFC BH
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