How advisors can help clients determine the right time to retire

Deciding when to retire is one of the most significant financial decisions your clients will make. As an advisor, your role is crucial in guiding them through this complex process, ensuring they have the information and strategies needed to make informed decisions. By focusing on different scenarios and strategies tailored to their unique financial situations, advisors can provide invaluable assistance with great confidence and expertise.

Understanding client segments

Retirement planning varies widely among different groups of clients. Clients with substantial assets and high investment incomes often have the luxury of optimizing their retirement income streams rather than worrying about basic financial needs. For these clients, fine-tuning the frequency and level of retirement income payments is key.

On the other end, some clients may find the concept of retirement out of reach, having to extend their working years beyond the traditional Full Retirement Age (FRA) defined by the Social Security Administration.

However, the majority of clients fall into a category often referred to as the "Potential Pivoters." These clients have some retirement savings but may need to adjust their plans based on future financial developments. They need a more dynamic approach to retirement planning, balancing aspiration with practicality.

Considerations for potential pivoters

For the "Potential Pivoters," determining the right time to retire involves several critical steps. First, retirement planning should go beyond savings and investments. It should include a thorough understanding of future expenses, especially healthcare and long-term care costs.

According to a study by the Investments & Wealth Institute and Absolute Engagement, these are the top concerns for investors with $1-$5 million in assets. Planning for these expenses can prevent financial shocks that may derail retirement plans.

Advisors should encourage their clients to measure their retirement readiness using various tools and calculations. For instance, Merrill’s Personal Retirement Calculator, AARP’s Retirement Nest Egg Calculator are easily accessible options that can help clients estimate how much they may need to retire. Osaic Wealth also offers a comprehensive retirement calculator, as well as calculators for other aspects of saving. Additionally, tools like HSA calculators can provide insights into using Health Savings Accounts for medical expenses in retirement and estimate the costs of long-term care services. This triangulated approach provides a more accurate picture of financial health and readiness for retirement, helping to identify gaps and areas that need adjustment.

Finally, retirement decisions are not purely financial. The emotional readiness of clients to leave the workforce plays a significant role. Advisors should help clients weigh their emotional readiness against the financial implications of retiring at different ages.

Balancing technical and emotional aspects

For optimal results, advisors must guide clients through both the technical and emotional aspects of retirement planning. From a technical perspective, educating clients on the impact of claiming Social Security benefits at different ages is paramount for setting retirement income expectations. For example, claiming benefits at age 62 while continuing to work can significantly reduce their Social Security payments due to earnings limits and penalties, ultimately reducing the potential nest egg a client is relying on for when they officially stop working. Resources like the Social Security Administration’s Retirement Estimator can help clients estimate their benefits based on their actual earnings record. Furthermore, Charles Schwab's comprehensive guide, “A Guide on Taking Social Security,” provides valuable insights to help clients determine the most advantageous time to claim their benefits.

Helping clients prioritize their retirement goals based on their financial situation can be a revelatory moment. For some, this may mean focusing on essential expenses and healthcare, while others might prioritize travel or leisure activities. Retirement priorities are highly individual, and advisors should respect and support these differences.

Advisors should also be aware of the family dynamics that can influence retirement decisions. Encouraging open communication through family meetings can help address spousal and intergenerational concerns, ensuring that the retirement plan is aligned with the client's broader family context. By facilitating these family meetings, advisors can provide a holistic view and explain to the next generation what they can expect for their parents in retirement. This approach also allows advisors to showcase their value beyond generating investment returns.

The role of professional development

Continuing education is essential for advisors to stay up to date with the latest trends and developments in retirement planning. Professional designations, such as the Retirement Management Advisor (RMA®) certification offered by the Investments & Wealth Institute, can help advisors deepen their understanding and expertise in retirement planning. These credentials provide advanced training covering both the technical aspects of retirement planning and the psychological aspects of client counseling. By pursuing these certifications, advisors can improve their ability to offer sophisticated, high-quality advice tailored to their clients' needs, ultimately increasing their value-add.

Advisors play a pivotal role in helping clients determine the right time to retire. By developing your professional expertise in the retirement planning realm, you are better able to understand the unique needs of different client segments, implement comprehensive planning tools, and balance emotional and financial considerations when it comes to determining the right time for your clients to enter their golden years. In doing so, you can provide unparalleled guidance and support to your clients, ensuring they achieve their retirement goals with confidence.

Mike Kurz is director of programs at the Investments & Wealth Institute.