A new survey published by St. Louis-based Edward Jones finds that financial advisors believe they are doing their best to adequately prepare their clients for retirement, but most investors have an overly idealized view of what retirement will look like.
Of more than 200 financial advisors who participated in the survey, 97% said their clients are not anticipating any of the surprises or challenges that can occur during retirement. Those challenges are not necessarily related to financial concerns. They could involve issues with health as well as mental stability, according to Jennifer Schoonmaker-Dasch, a financial advisor at Edward Jones.
“I don’t think that they’re naive that it’s going to be perfect,” she said. “But I think they have a picture of what retirement is going to look like and explaining that it can go lots of different ways is key for a holistic financial planning process.”
The study found that a great majority of advisors are working with clients to help better prepare them for the obstacles they will encounter in retirement. For example, 98% of advisors surveyed said they are stressing preparation, flexibility, and willingness to adapt. Advisors identified these as the top three initiatives to achieving success in retirement.
“The sooner we can save for retirement and pay down debt, the more prepared we’re going to be when we enter this phase,” Schoonmaker-Dasch said.
There are a number of incidents that can occur in retirement that investors will have to prepare for, the advisors in the study said. However, they were divided on what the top ones are. The largest group of advisors, or 29%, pointed to an increase in the cost of living, while 26% said it was having to provide financial assistance for family or friends and another 26% identified declining value of investments as the most impactful financial shock for retirees.
To help investors navigate the challenges in retirement, advisors should maintain the lines of communication with their clients and talk to them about ways to guard against potential problems during retirement, according to Schoonmaker-Dasch.
The study found advisors are talking with clients about what could be coming and making suggestions to avoid those pitfalls. Fifty-two percent said they recommend their clients obtain supplemental health insurance, while 48% suggest securing long-term care insurance and another 48% propose adopting a more frugal lifestyle to ensure financial stability.
“We have to recognize that just as life throws us curveballs, we’re also going to have them in retirement,” Schoonmaker-Dasch said. “I think you try to stay on a path, and you use the financial advisor as that accountability partner and advocate, but we have to remain flexible.”
Living in retirement isn’t just about having enough money to support whatever plans a person has for that time. It is also about how a person plans to occupy their time while in retirement. Ninety-four percent of the advisors surveyed said that they have spoken with their clients about the potential of returning to work and almost all of them have addressed the importance of staying mentally active.
“It’s about that sense of purpose,” Schoonmaker-Dasch said. “This is a question regularly asked because it’s not just about what you’re retiring from, it’s about what you’re retiring to.”
Given the uncertainty about retirement, advisors need to prepare their clients and about 36% agree that clients should embrace a more open-minded approach. In addition, 31% said investors will have to network for new opportunities and another 30% said their clients need to prepare themselves because they might have to work for someone younger.
"More and more, we are having conversations with our clients about whether working in retirement might be right for them," she said. "Working in retirement may look different for individuals than it did in the peak of their careers, but the right employment opportunity can help provide financial stability and give retirees a sense of purpose."