Most of the time these clients are okay financially, he said. They’re just fearful and that fear comes from not understanding what they’re doing. With these new clients, it’s back to basics.
“Every client’s situation is different. So it’s not the same situation, but it is the same solution,” Pratt-Heaney said. “It always starts with the budget and a spreadsheet with assets.”
Conigliaro said he’s also seen a substantial uptick in new clients calling for help, and he sets up those clients the same way he does his other retirees, with a two- to three-year cushion or surplus to allow for market moves without tapping assets that are priced low, and then two other buckets for years four to seven and then seven and beyond.
“Especially for retirees, we have money in a short-term duration that’s not affected by the market,” he said. “They know the money is there so there’s a place where we can access funds to finance retirement while we wait for more volatile assets to come back. Retirement isn’t five years, it’s 20, 30, 30-plus, so you still need growth instruments, and we’re not selling things that are going down to finance retirement.”
Those short-term vehicles are cash, money market funds, or ultra-short or short-term bond funds, he said. “Since interest rates have been so low, it’s been hard to use CDs,” he said. “But moving forward we would build laddered CDs for a secure cash flow of one to three years.”
And of course part of planning with a new client close to retirement would include determining the most advantageous time to take social security. “If we’re deferring it out, we’ll construct the portfolio to make up the difference between retirement and receiving Social Security,” Conigliaro said. “As a fall back, if we did run into a bigger cash flow crunch and the investment portfolio was really falling short, we’d have the conversation about taking social security earlier.”
Beyond the short term, the bucket for years four to seven includes fixed income, REITs, and some short-term bonds and cash equivalents, while the bucket for years seven-plus remains invested in growth, he said.
Huiskamp-Collins said she has to remain pretty aggressive with her clients’ assets when they first enter retirement, at least for a while, as she plans for life expectancies of 95. Her portfolios for new retirees in their 60s are commonly 60% to 70% stocks, she said.
“Stocks are still the best game in town to fight inflation,” she said. After that, there’s some cash, maybe a fixed annuity, depending on the client. “Some people push back on that 95 saying they won’t live that long, or they don’t want to live that long, but you still have to plan for it.”
Huiskamp-Collins said the closest she’s gotten to having to rethink retirement with a client was one whose assets were in a 401(k), where they had picked positions from what choice they had but the returns were not as stable as Huiskamp-Collins would have liked them to be.
“This person’s 401(k) was down, they were about to retire, and they were nervous. They said ‘How about 100% bonds?’ and I had to remind them of our conversation about when interest rates rise, the price of bonds falls,” she said. “Our talk about investing evolved into a lifestyle conversation. This isn’t someone who can look at four walls all day, so they had plans to do a lot of volunteering, which they were excited about. In the end, they were feeling good about retirement again, so they went ahead with it.”
In a final comment, Pratt-Heaney said he wanted to remind other advisors that there’s a reason conventional wisdom says when the markets are full of bad news, advisors have to touch base with their clients more often.
“It’s all true. Because if your clients are worried and you don’t call them, you’re going to make it worse,” he said. “Your call when you ask them, ‘Are you comfortable?’ is really you asking, ‘Am I doing a good job?’ And that’s an important inflection for the advisor.”