Your baby boomer client will seem willing and maybe even enthusiastic about working on a retirement plan, but you must take the lead.
Every day hundreds of baby boomers are reaching retirement age but lack the confidence to actually retire. If ever there was a need for retirement planning, this is it. Actually walking out of your employer's door and terminating that paycheck is very difficult to do.
As a baby boomer, I can attest that there are a lot of excuses: Not enough money set aside; the clients still need me; I don't know what I will do when I don't have to go to work; and the old standby: I'm just not ready. A financial planner along with some good planning tools can give these boomers the confidence to pull the trigger.
Taking the Lead
Starting the process is the hardest part. Your boomer client will seem willing and maybe even enthusiastic about working on a plan, but you must take the lead or it won't go anywhere. The worst thing you can do is give your boomer client a big packet of information and a long questionnaire to complete. If you really want to stall the process, ask them to complete a detailed budget assuming they have retired. It won't happen, and the boomer will conclude it is a waste of time.
The gurus of financial and retirement planning seem to focus their attention on the folks who still have plenty of time to prepare for retirement. Yet, right now the need is greatest for the 64-70 year olds who want to retire and have money but lack the confidence to make the move to retirement. For this age group, these are very scary times.
One of the major issues we have seen with the various financial and retirement planning programs is that when they are explained to the client, the scope is so comprehensive that it is both confusing and off-putting. The planner talks about legacy planning, the ordering asset distribution, qualified vs. non-qualified accounts, tiering of non-taxables. This is not the time to show off your knowledge. The client has already selected you.
Retirement planning, like retirement, is best accomplished when viewed as a process, not a point in time.
The starting point for this process (while best done years before the target retirement) should begin with a dialog. Get to know your client. Sounds like the compliance officer just stepped into the room. This is a great example of "good compliance means good business." The only way you will get your boomer client to make the decisions necessary to retire is to know them so that you can help them consider suitable options.
The current group of boomers have any number of issues that weigh on them as they consider retirement. They often have elderly parents who are still alive and must be looked after. Some have children and grandchildren that are in financial need. This is the time when medical issues begin to appear. Above all else, these people do not want to be a burden to their children in their later lives.
Of course, you will document what you are learning about the client. Asking clients what their short-term and long-term cash flow needs are is not only a turn-off but a non-starter. However, getting your clients to discuss their personal and family situations builds a rapport and gives you the foundation for future recommendations.
You must also drill down with the client to determine what, if anything, they have in mind for their own retirement. Do they want to travel, buy/rent that Florida condo to winter in, take up new hobbies, move closer to the kids? All of this can be ascertained by just talking to your client. Again, you need to document this in an appropriate way.
Unlike some generations coming up, the current class of baby boomers deferred things like travel and tend to be more conservative. These characteristics will be reflected in their investment decisions.
Another big turn-off for this group is to ask them what their time horizon is. In reality that's why they are sitting there with you. They lack the confidence to define time horizons--it's just "someday."
Where do you start? As noted above, this should be a process. Make sure your client understands that the first iteration will be based upon some gross estimates and that the reports generated will be modified and refined over time. If you want to make sure that the report doesn't end up in the bottom drawer, or worse the circular file, you must make sure you have set the appropriate expectations. Tell the client in person and send a follow-up letter.
The What-if Scenarios
The first step in the process is getting to know the client, which should reveal short-term and longer-term goals. The second step in the process is to set goals for the planning process itself. This is where you can be of tremendous help to your client. For example, you might tell your client that the first step is to take her current investments and a guess at current expenses and, using some conservative estimates for returns and inflation, prepare some projections to see how long the money will last. We guarantee you that this is the very question the boomers want to know but are afraid to ask.
At this point, instead of explaining what a Monte Carlo simulation is, you are better off asking your client to gather up some basic information. You should already know all of her non-qualified invested assets. You should ask her to gather up copies of mortgage statements, 401(k)s, IRAs, and other qualified plan statements, bank statements, and the larger utility bills. You take this raw data and work with it. Don't ask your client to prepare anything. This may sound like heresy from a compliance standpoint. After all, wouldn't it be better if it came from the client? Not necessarily. You should assume that the client will not undertake to complete the task. A neat, orderly preparation on your part will produce a better foundation for the real goal of planning.
The next step in the process is that first-draft report. Present it to the client in person. Your compliance department will have mandated all of the legal disclaimers which, if typical, will be completely dismissed by the client as "the lawyers made them say it." We will bet the house that the first thing the client will do is flip through the pages to see if they can find the page that tells them that their money will outlast them. Do yourself and your client a favor--prepare a cover letter and give them the good news or the bad news right up front.
At this point, it is absolutely critical that you do two things: go over the estimated expenses you have used and how your illustration program works. You need not be too technical, but if the clients are to implement their retirement plan based on the report, they must have confidence in the report, which means understanding it. The best thing that could happen at this point is for the client to say something like, "The very first thing we want to do is take that vacation to Australia, so we will need, say, $10,000 immediately." You should be prepared to make the change on the fly and produce new pages showing the impact of the change. From there, your client should be hooked on creating some what-if scenarios. This will generate confidence and ownership in the plan.
More than likely, your systems will keep all versions of the plan, but if not, you should.
Let's look at some hypothetical couples faced with the retirement dilemma:
Couple No. 1 consists of a husband who has been retired for several years and a working wife. Wife's income has supported the couple quite handily. Wife has an elderly mother who lives alone and does quite well. Husband wants wife to retire, but wife is concerned about whether they have enough money set aside for her to stop working.
The goal for the planner is to present a report to the couple that shows a high probability that their money will last their expected lifetimes. After that, it is a matter of periodically fine-tuning the plan. Once a decent plan is in place, which includes some basic assumptions, their risk profile can be adjusted to align with the target retirement. All the documentation for the plan forms the basis for any recommendations for their portfolio. The couple's plans and needs may change, but the confidence they have in you, the planning process, and the plan itself should remain high and enable them to continue their own process into full retirement. Your encouragement and advice will go a long way to achieve this goal.
Couple No. 2 consists of a husband and wife who are both working. Both are in situations where there is no mandatory retirement age and no part-time employment opportunities. Both have stated that they are not ready to retire but profess an interest in planning for retirement. Patience is the rule here. You will find that they will seem reluctant and may even be uncooperative. Knowing people like this, you should trust them when they say they are not ready. When you dig down, you will probably find that money is down the list on why they are not ready. Get creative with sample plans and the like. Your getting to know them may give them more confidence in looking at retirement as a reality.
Lastly, we have the couple who does not have quite enough money to retire at the level they planned. You can be of tremendous benefit by helping them set realistic goals.
Lessons learned: Take the lead in the planning process, and document all the data, decisions, and recommendations. Your boomer clients will be most grateful.