The global pandemic has created shock waves in our markets and economies this year, and it has been hard to wrap our heads around exactly what it means for our financial well-being. Very few of us predicted back in February that we would be facing a renewed lockdown at Thanksgiving, or that we wouldn’t be able to travel to see our families during the holiday season. Many Americans are still working from home, others have seen their pay slashed or have been made redundant. So, what does that mean for their retirement planning and how can their financial advisors respond?
Because of Covid-19, investors are facing a “retirement reset.” Baby boomers approaching retirement were already grappling with new retirement realities, and the current situation brings those realities into stark relief. “It’s not so much a reset from the perspective of ‘well I didn’t know I was going to retire’...[it is] ‘now that I’ve arrived, I’m not really sure that I like what I see’,” explained Steve Gresham, CEO of the Execution Project, on a recent LinkedIn Live broadcast with The Rudin Group. “The road does not look as endless as it did when you were younger.”
For many people, that means that retirement plans are delayed, or their investment needs have changed. These feelings are generally amplified in times of economic uncertainty, and the current pandemic has ramped up the confusion and concern that many workers were already facing.
The Transamerica Center for Retirement Studies wrote in a May report that one in four workers surveyed say that their confidence in their ability to retire comfortably has declined because of the pandemic. The decline in confidence was greater for Baby boomers (32%) versus millennials (20%) or Gen X (25%). Baby boomers also were more likely than the younger generations to have been furloughed because of the pandemic. Additionally, about 10% of boomers have already or plan to dip into their retirement savings, and another 17% said they were “not sure” if they would do so.
Gresham says that Covid “woke people up,” and gave them a reality check about how they interact with their financial advisors. In a bull market, there often feels like there is little need to work closely with advisors and search for guarantees around retirement plans. “When you’re rolling at that speed you don’t stop and think for a minute that the party is going to end,” said Gresham. “But clearly clients have started to think that way.”
This means that advisors need to be ready to have realistic conversations with their clients. Questions that were at the back of clients’ minds before are now at the front. Where are they going to get the income they need? Are their current plans good enough? Are they going to be able to stay in their homes for the rest of their lives? In markets like this, financial advisors need to be proactive in their conversations and ready to initiate retirement plans in the light of new concerns.
Financial advisors also need to probe to find the questions that aren’t being asked, said Gresham. Very, very few families are truly financially comfortable enough to cover any financial problem that could hit them. Financial advisors are uniquely positioned to discuss retirement as a family problem, bringing up how one change can affect the entire portfolio of the client as a family, said Gresham. For instance, is a client prepared to help his 65-year-old brother who recently lost his job? Is downsizing a house really in the cards for parents of recent college graduates who need to move home for a couple of years? How do the needs of the entire family play into a client’s plans and financial needs?
As the anxiety and political and economic uncertainty continue to plague Americans, many investors will be consolidating their holdings, predicted Gresham. Those that worked with multiple financial advisors in the past will likely pare their list down to just those advisors they trust the most and those who listen to them. Investors want comfort and they want receptive advisors that understand them, said Gresham. For wise advisors, that means that now is an opportunity to reach clients in a new way and secure old relationships, he said.
2021 is sure to bring more questions and uncertainty. Volatility is the new normal for investors. While this will create new needs and shifts for investors, financial advisors can be the guiding force they need. Fire up the Zoom, type that email and send a text. It’s time to get closer to your clients.
Brooke Worden is president of The Rudin Group.