Market volatility isn’t making it easy for anybody to plan for retirement.
It’s making clients who are saving for retirement increasingly nervous, as well as discouraging those who aren’t yet planning from starting.
What you can control is helping clients prepare for their retirements. Why not consider what the national economic policymakers are doing and learn from their mistakes?
Mistake #1: Policymakers didn’t correct problems when they were small.
Have you ever had a situation where your client started an RRSP, and began to slip on monthly contributions or make a habit of making regular withdrawals? You had two choices: step into get the client back on track, or let it ride, hoping the client would right the problem on his own. Did you choose the latter because you were afraid of alienating the client? There’s no doubt these conversations can be difficult, but clients need to understand the impact of their decisions, even if they seem like small choices.
What you can do: Frequent communication is key. Monitor a client’s monthly retirement savings contributions. When you meet with him, highlight any months where he contributed less than what he’d planned. Learn why his contributions have been slipping, and then suggest a fix to get him back on track.
Mistake #2: Policymakers were slow to recognize serious problems, and in some cases underestimated them.
Perhaps your client began to ramp up day-to-day expenses while assuming he’d carry on that lifestyle in retirement. But that same client may have been saving far too little. Do you know your clients well enough to be able to recognize when they’re on the wrong track? Have you delved into their affairs to determine just how big their problems really are? Investors often misjudge how long their savings will last, so you can help them understand the reality of their situations.
What you can do: If you have a good handle on his circumstances, you’ll have seen this coming. But if not, it’s time for a broad discussion. At this point in his retirement planning process, two things need to be considered: his saving/consumption mix, and his goals. In almost every case, that mix will need to change—to less consumption and more saving.
Mistake #3: Policymakers haven’t taken bold steps to deal with problems.
You’ve figured out that a client has a big retirement planning problem. It might be something as simple as a lack of adequate savings. Or the plan for retirement is too ambitious for the client’s financial resources. Did you have the courage to sit the client down, spell out the ugly truth and provide a (possibly drastic) reset of the client’s retirement savings and aspirations?
What you can do: Mincing words is a mistake. The client is in trouble. Resetting the retirement date into the future may be an unattractive option. It may not be possible if the client’s health is an issue. The other option involves a major scale back in retirement spending.