Answering these questions will allow both clients and advisors to anticipate potential problems and make sure a client doesn’t walk into retirement thinking it will provide a 10 percent annual return with no risk of losing out. 

Performance Measurement

A key part of every advisor/client relationship is how performance will be measured. Will portfolio progress be measured by average gains and losses? Will it be compared to an index or other benchmark?

Whatever the method, measurements allow clients to gauge whether things are going as planned or need to be adjusted. The other benefit of employing a consistent measurement tool is that it helps weed out some of the emotional decision making. 

Similarly, clients need a way to measure their transition into retirement. People who retire often tend to take the standards of excellence and success they knew from their work world and apply them to their next, very different phase of life. I’m not saying that’s bad necessarily but, rather, that it may be misplaced, which can open a door to disappointment and regret.

To put this in context, how do you measure vacation success? The answer, of course, depends on how you approach it. Some people go on vacation and cram in as many activities as possible. They have a detailed schedule, follow it diligently and, in the process, check off as many as they can. Typically, they return home more exhausted than when they left…but for them that’s a big win, while others would consider it a loss.

The other side of that coin is that some people prefer to lounge on the beach or at poolside, consume a couple umbrella drinks and do as little as possible on vacation. They come home relaxed and rejuvenated. Again, to some this is a major win, but others see it as falling short of what a vacation is for.

The performance measurement for your clients entering retirement (and for at least for the first few years) should be to first stop and identify what their style and approach will be and then determine how they will measure success. Will they try to do as many things as possible or sit back and relax after decades of diligent working and saving? Either way, it’s important to specify the measurement tools and benchmarks they will use, and to understand that, as times goes by, thewhat and how of measurement will change, just as a traditional asset allocation does. 

Hedge

Hedges are among the most valuable investment tools one can have during a market meltdown or black swan event. Things that zig when the markets zag can provide a needed boost when everything else in a client’s portfolio is down. Whether it’s done through gold or silver or other low correlation investment, hedges provide both client and advisor with a psychological edge when things just seem to be getting worse and worse. 

Historically, we know market corrections of 10 percent can be expected almost every year, while steeper declines of 20 percent or more happen on average only every 2 ½ – 3 years. Therefore, we teach clients to focus on the long-term, and that declines are temporary and not a good time to sell everything.  

Similarly, life in retirement can come with a series of assaults. The natural aging process, and time itself, impact relationships, oftentimes bringing more jolts than one expects. Whether it’s a divorce, the loss of a loved one, challenges with an adult child or aging parent, medical diagnosis or feeling alone and isolated, many clients face difficult situations and need people and places to help them hedge or offset trying circumstances. 

That’s why I encourage clients to develop a personal rainy day fund for their life in retirement. Just as clients need to set aside enough portfolio cash to live on during an extended bear market, they also need a list of family, friends, professionals, organizations and things to rely on for help and support when experiencing unexpected slings and arrows.