Every now and then I’ll ask retirees what advice they would give others about retirement. Last week, I asked this of Sam.

Sam’s response to the question was, “Don’t get so focused on tomorrow that you miss today. I can’t travel long distances anymore, so I’ll never see Angkor Wat. My bucket list isn’t going to get done. I was always afraid to spend the money.”

Further conversation revealed that his family led a very comfortable life until his dad’s business failed when Sam was 13, after which they were poor. Getting groceries was a struggle, he said.

Sam continued, “I should have gotten some counseling, but that wasn’t something you really did then. Besides, everyone tells you you should save for retirement so you can do those things.”

That last comment got me thinking about what messages financial planners are delivering and how clients can interpret those messages. I think it is easy for us to instill fear in clients unnecessarily. So, in no particular order, here are a few items about which I think we can help clients reduce their anxiety by not scaring them with our messaging.

Bear Markets

In the fall of 2018, I received a call from a reporter asking, “What are you telling clients now that their retirement is in danger?”

The reporter’s tone indicated the decline was surprising. It also struck me that the idea of people’s retirement being in danger was quite an assumption. When I add to that the fact that every day I see a headline predicting an imminent bear market—every single day—it is no wonder so many people think that bear markets are some sort of devastating anomaly that must be avoided.

One of the enduring stories in our family comes from our first time riding the Tower of Terror at Disney Studios. For those unfamiliar, you sit and wait in pitch black until your cart is released and you plummet in complete darkness. You are then propelled up at rapid speed and allowed to free-fall in the dark again a few times. It’s a lot of fun.

The first time my daughter Megan rode it she was small. She was allowed in line only because her hair bow obscured the fact that she was just a tad short of the height requirement. As we got close to boarding, my wife got very nervous. Just as she was about to jump out of the line, Megan took her hand, looked up at her with her baby blue eyes, smiled and said, “Oh, Mommy. It just goes up and down.”

Everyone in line laughed, partly because Megan was utterly adorable and partly because it is simply common sense that there is no point in fighting the fundamental nature of the thing. The ride goes up and down. That’s what it does. If you don’t want to experience that, you don’t get on the ride.

Markets are by their very nature volatile. Bear markets are inevitable. They come along quite frequently, about every five or six years depending on whom you ask and how they measure things. “Corrections” of at least 10% happen on average every other year or so. Over a 30-year period, we are looking at five or six bear markets and around 15 corrections.

Given that markets have declined so frequently, how is it possible that anyone can ever retire? Clearly, there must be a way. Millions upon millions of people have retired, suffered through terrible market environments and managed to avoid financial devastation.

There are many things that can be done. First and foremost, of course, is that you should not bet the farm on the short-term gyrations of the market. Beyond that are all the clichéd, boring things we financial planners should be talking about. Have a reserve, save for retirement, manage spending, manage debt and diversify the investments.

Instead of feeding the fear, we should be emphasizing that bear markets are not to be feared—they are to be expected. “It just goes up and down.”

Most important, if bad markets are expected, we can plan for them. The issue should not be what the market will do. The issue should be what will the client do when (not if) the market tanks. It is much better to decide what to do ahead of time than scramble to figure it out in the moment. Few will decide that selling low or panicking is going to be a good move.

Recessions

For workers and business owners, it makes sense that economic conditions would be a concern. Their livelihoods depend upon a certain level of business activity. Their best defense is employing the same fundamentals I just talked about—by having a plan that includes having a reserve, saving for retirement, managing spending, managing debt and diversifying the investments.

For retirees, fear of a recession makes less sense. Retirees don’t get laid off. Often, what happens is the retiree makes an assumption that recession means a bear market. That has been true sometimes, but the correlation is not strong enough to rely upon. Heck, economists can’t even agree when a recession started and stopped months after the fact using hindsight.

Do your discussions of economic conditions contribute to client worry about whether a recession is nearing? Are you unwittingly encouraging clients to extrapolate economic concern into a bear market prediction? Stop that and redirect your emphasis. Again, it doesn’t matter much why the markets decline but it matters a great deal what clients do in reaction to the declines.

Running Out Of Money

When my career started almost 30 years ago, it was common for people to think that if they earned 10% a year, spending 7% was reasonable. I can’t recall the last time someone made that suggestion.

The public has become a little more educated about markets and retirement planning. So much so that I often encounter people who know about the “4% rule.” Some read so much they have even told me that they heard 4% is no longer good and 3% to 3.5% is better.

Well of course 3% is safer than 4%, but that has always been true. If 4% of a client’s portfolio is enough to cover all their costs as a retiree, I think it is quite reasonable to tell them they are in great shape.

First, no one I have ever met, or even heard about, starts retirement by spending $X and inflating that every year in perfect lockstep with inflation—the pattern modelled in most studies.

I’m certain there are people who increase real spending over their retirement, but that’s the exception not the rule. Research like David Blanchett’s retirement “smile” seems to back this up. Real spending tends to decrease, not rise. As people age, they do less and spend less.

Second, most households won’t need to sustain withdrawals for 30 years, the standard time frame in these studies. Educated Americans with money can reasonably assume they will have an above-average life expectancy, but that still doesn’t equate to a 30-year retirement for most.

Third, considering 4% as “safe” does not mean 4.1% or more is dangerous. A recent article by Michael Kitces noted that if retirees had used the 4% rule going back to 1871, their ending balances exceeded beginning balances even after 30 years of inflation-adjusted withdrawals in 90% of the cases. In fact, it was just as prevalent for there to be six times the starting balance after 30 years as there was to be less than the starting value.

Theoretically, clients using the 4% rule might find it difficult to run out of money. To deplete their savings, markets would have to behave worse than they ever have in our recorded financial history, the clients would have to beat the odds with their life expectancy, and they would have to spend money in lockstep with a rigid pattern that likely exceeds their needs.

Clients who are too conservative with their withdrawals are much more likely to leave a lot of assets behind than they are to run out of money. Do they really want to restrict their present to get that future?

Are you scaring clients or preparing them to deal with the inevitable uncertainties of life? Do you talk about retirement spending as something that is rigid, or do you help clients identify where they can make adjustments and when those should be made? Are you helping them use their life savings to enjoy life now? Would you have encouraged Sam to go to Angkor Wat before he retired?

Instead of contributing to them, help clients confront their fears with a plan, control what they can control and proactively make decisions that are likely to make the best use of their resources.

Dan Moisand, CFP, has been featured as one of America’s top independent financial advisors by Financial Advisor, Financial Planning, Investment Advisor, Investment News, Journal of Financial Planning, Accounting Today, Research, Wealth Manager and Worth magazines. He practices in Melbourne, Fla. You can reach him at [email protected].