Complicate it all you want. Feel free to perform analyses of portfolio overlap, study P/E ratios, and develop the ideal glidepath for each of your clients' portfolios.
These are all valuable exercises for a financial advisor. However, for a retirement advisor, we'd better be laser focused on one thing.
What is it that our clients really want, and how can we, their advisors, help them get it? Simply put, retirement clients want effective "Income planning".
Study after study reveals that the greatest fear people wrestle with as they approach retirement is running out of money during their lifetime. This fear trumps the fear of death itself. The fear of becoming a burden on others for financial help is hard-wired into all of us. This probably shouldn't be the primary focus of the retiree's thinking, but it usually is.
A quick history lesson will reveal that this phenomenon is a new one. Until recently, pensions and Social Security have ensured a basic income for life for those who committed themselves to a long career. The risk was on the employer to ensure paychecks lasted until the end of life. Prior to that, what did people do?
In short, they worked until death. Shorter life-spans equated to little need for retirement planning. And here we are, shifting the financial risk from employer to individual. As an advisor, this is an amazing opportunity to serve the retiree, to give them the one thing they truly want: financial security.
So how do we do this? First let me suggest how not to do it. Do not add a lifetime income benefit rider to every annuity you offer and do not place 100% of your clients' assets into annuities. An income rider is not a substitute for real planning. The cost of the rider, when not utilized properly, can harm your client just as too much salt will ruin a favorite recipe.
A retirement planning session should begin with a question such as: "If you were to retire next month, how much income would you require each month to maintain your current lifestyle?" Depending on the client, they will either know to the penny or they will have no idea.
Part of your role is to encourage and equip them with tools to arrive at their number. There's no way around this. Once you determine that number, subtract guaranteed income sources like company pensions and Social Security. The resulting number is your income gap or liability.
