We are all familiar with the 200-page books handed to clients in annual meetings describing Monte Carlo simulations and other fancy statistics.
What can we say? In this business, we tend to make things complicated.
The problem is that among the variables of returns, inflation and multitudes of economic scenarios, clients often lose track of their goals.
Why? Because this outdated style of communication doesn’t address a client’s biggest need: understanding.
Overwhelmed, the client tosses the book into a drawer, never to be touched again. Therefore, we need to simplify.
And no place is this more necessary than in creating a specific, long-term numeric goal for clients’ retirement.
Far too many people save for retirement aimlessly, amassing an undetermined vault of retirement funds. Although this could lead to a good outcome as clients can never save too much for retirement more often it leaves savers constantly wondering if they are on track.
An adviser’s job isn’t just to address clients’ financial needs for retirement in the most tax-advantaged way but also to provide peace of mind along the journey. Many clients will get nervous about the market at some point, so having a number will help keep them focused and lead to better conversations.
Start by determining cash flow needs in excess of Social Security and pension, the latter of which we see less every day.
Find the asset level the client needs to reach in order to switch to an appropriate dividend strategy, from where it can be hedged against inflation. From this number, create mini-goals in today’s dollars that can be revisited annually.
For instance, we might recommend a goal of $2 million if the client needs $80,000 annually in dividends. If the client says $80,000 isn’t enough, we will adjust that $2 million goal.
There are no questions as to when a client is able to retire, for that time is determined when a number is reached.
Basing a discussion on numbers is also important when talking about risk. When the market dipped 20% this year, many clients may have not understood what that meant to their portfolios.
However, if they had $500,000 and just lost $100,000, that would make most clients sick. The actual dollar amounts affect clients’ reactions to down markets, so use it when discussing hedging.
An obvious truth in life is that things change, not the least of which are clients’ needs. Make clear that the goal number is based on projected needs, and it isn’t set in stone.
From there, have an open conversation that is based on real, understandable goals. It is simple as that.
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