Underestimating the impact of inflation is among the biggest mistakes retirees and their advisors can make, according to Ken Van Leeuwen, an advisor, CFP, founder and managing director of Princeton, New Jersey-based Van Leeuwen and Co.
The wealth management firm says it helps clients via its "holistic" financial planning process, which focuses on developing a robust financial strategy to work toward a client's "desired lifestyle and addressing significant milestones long before retirement."
Van Leeuwen and Co. assists pre-retirees and retirees in building a "life vision" in concert with financial planning services that aim "to make the most out of your money today, and decades into the future," it explains.
We asked the firm's founder a series of questions via email that touch on how he is helping his retiree and pre-retiree clients with a variety of issues today.
THINKADVISOR: How are you helping clients with market volatility right now?
KEN VAN LEEUWEN: From a communications perspective, we have been proactive in reaching out to our clients to explain the economic environment that we're currently experiencing and how it has impacted their portfolios.
As a firm that places the utmost importance on financial planning, we have utilized our deep understanding of our clients' goals to reiterate that the short-term volatility that we are currently experiencing is not a reason to deviate from their plans, as long as their goals remain intact.
From an investment perspective, we have been active in managing our portfolios to decrease risk by raising cash in certain areas and upgrading our equity portion of the portfolios as we have seen opportunities to do so.
How are you helping retired clients with inflation and financial planning?
Inflation is a topic that we always consider and highlight in our financial planning with both retirees and pre-retirees. With the recent increases in inflation, this is a topic that has generated a lot of concern with our clients, as can be expected.
From a financial-planning perspective, as a firm we have always made assumptions of 4% as a long-term inflation rate. In doing so, this has allowed us to better prepare our clients for situations like the one we are currently experiencing now where inflation has risen significantly.
While our assumptions are currently lower than the 7% inflation we experienced last year, and continue to experience this year, it is still our belief that 4% is a conservative long-term target.
This gives our clients the ability to plan for increased income needs and maintain their purchasing power, so they never feel like they are going to outlive their savings.
How are you helping pre-retirees in 2022? And what's your strategic approach to helping pre-retirees prepare for retirement?
Planning for pre-retirees is centered around goal-planning. Helping our pre-retirees understand what their short, intermediate, and long-term goals are now can provide a framework for decision-making to put them in the best position to reach those goals.
Is it a standard or a different approach from what you use with other client segments?
In our experience, we take a very different approach to planning with our pre-retirees, specifically our corporate executives.
We understand that because of the way their compensation is structured, stock compensation can be one of the greatest wealth creators they have. Because of that we help them make decisions to maximize their wealth creation through stock compensation while also managing their concentration risk.
While it may be very easy and potentially more profitable to our firm to simply recommend selling all of their stock grants and reinvesting the proceeds in a diversified portfolio that we manage, we always consider what is in their best interest before making any recommendations.
How did you develop this approach, and why is it working well for your advisory practice?
This strategy is the best for our practice because it's what's best for our clients. By always prioritizing our clients' best interests, we are able to develop close relationships with our clients which allows us to uncover unique planning and investment opportunities, which in turn strengthens our relationship further.
This creates a cycle of positive interactions with our clients, which leads to better outcomes for them and us.
What lessons have you learned from working within this client segment?
The majority of our pre-retirees are corporate executives at public companies. What we have learned from working with this group is that a lot of their situations are similar. While their goals are different, their access to certain financial opportunities tend to be related.
Most of them receive salaries, cash bonuses, and stock compensation in some form (restricted stock, performance shares, stock options), as well as retirement savings vehicles such as 401(k) and deferred compensation plans.
