Unplanned Retirement
For many people, retiring early is a dream. Fidelity conducted research in 2017 on the behaviors of “early retirees”—people between the ages of 50 and 64 who had retired in the past three years. Our research showed that about half of those who retired earlier than planned experienced at least a moderate impact on their standard of living.
Before they retire, could your clients estimate their yearly expenses? Think about it this way: If I asked you how much you earned in 2018, you would probably provide an answer very quickly. If I ask you what you spent in 2018, your response would likely require some work.
This is an important exercise so clients can understand how to cover non-discretionary expenses in retirement, especially if it is unplanned. This will vary for each client based on a number of factors, but the 2016 “Consumer Expenditure Survey” by the Bureau of Labor Statistics estimates that the average households represented by those age 65 to 74 spend the following: 28% of their income on housing, 14% on transportation, 13% on food and 10% on health care. One place to start: If clients primarily use credit cards, consider pulling a yearly summary of their account activity, since most companies already sort credit card charges into categories.
Clients who retire earlier than expected may have to reconsider their financial plan. Advisors should work to understand their clients’ feelings and expectations. Has their risk tolerance changed? Can they visualize how they want to spend their free time? Are they considering starting their own business or taking another job?
Health
According to the Fidelity Retiree Health Care Cost Estimate, an average retired couple aged 65 in 2019 may need approximately $285,000 (in today’s dollars, after tax) to cover medical expenses throughout retirement. That applies only to retirees with traditional Medicare insurance coverage and does not include costs associated with long-term (or nursing home) care.
Experiencing sticker shock? You’re not alone. That is why health-care expenses should be part of any retirement plan, and your clients may turn to you for help. For example, Medicare Part A and Part B do not cover dental care, routine foot care, hearing aids or some other items. Clients may also ask you about long-term-care strategies. While you may not have the solution, you should be prepared to discuss the topics—or ask your professional network to provide additional support. You should also be aware of helpful online resources, including the U.S. government websites on Social Security and Medicare.
Legacy Planning
Losing a loved one is one of the most difficult experiences that many of us will ever go through. It is life altering, leaving deep impacts in our emotions, our finances and our plans. Clear and compassionate end-of-life planning conversations are key to easing confusion and fear, and advisors have the opportunity to make a big difference in their clients’ lives by helping them make plans.
There are legal and social details that arise when someone passes away. Is there a will? When was the last time it was updated? Are all of the account beneficiaries current? Remember, in many situations the account beneficiaries may supersede the will. Who is the personal representative? Does the family know where key documents can be found?
By addressing these questions early in the process, clients can focus on spending time with family when the unexpected happens, not filling out paperwork.
Careful planning may be more complex than clients expect. For example, parents might decide to divide their assets equally among their four children, but then elect the eldest as the personal representative to manage the final details of their estate. How does that make their youngest children feel? Sometimes even the best intentions can lead to unintended consequences, so having these conversations ahead of time—before significant emotions come into play—can help family members feel included and part of the decision-making process.
Some of these conversations are not easy, but they are necessary. You don’t have to have all the answers, but you should be raising the questions with your clients and, most important, listening to their responses. After all, helping them helps you: The more questions you ask, the more insight you gain into how families think about these moments.
Life’s big moments move people into action, so consider this your big moment to change your practice and better understand your clients by being the first to ask the important questions.
Richard Cresta is Senior Vice President of Institutional Insurance at Fidelity Institutional Asset Management.