ACTIONABLE ADVICE FOR FINANCIAL ADVISORS: Newsletters and Commentaries Focused on Investment Strategy

    Last 14 days

Most Popular Articles


Most Popular Commentaries

    Last 12 Months

Most Popular Articles


Most Popular Commentaries



More by the Same Author

Annuities
   Immediate
Economic Insights
   Inflation
Equities
   Common
   Value
Investment Strategies
   General
Practice Management
   Fees
Specialty
   Dividend Stocks
A Unique Way to Help Clients Close
the Retirement Gap
By Dan Richards
November 8, 2011

Next page     Bookmark and Share  Email Article   Display as PDF


Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.

Dan Richards

Clients facing a shortfall in retirement savings can bridge that gap in many ways.  But one technique is often neglected: spending reductions – even small ones – in their everyday lives.  A new web site gives clients the tools to quantify and manage those reductions.

If you’re meeting with clients in their 40s and 50s, chances are you’re run into a common question: How do I close the gap in hitting my retirement goals?  Weak equity markets over the past decade, low interest rates and a new consensus on a muted outlook for future returns means that some clients who five years ago were on track to retire at 60 or 62 can no longer be confident about doing so.

It’s here that advisors can add real value, as you’re able to engage clients facing a shortfall in a discussion about the six options available to them: 

Option 1: Work longer.
Option 2: Work part time after retirement.
Option 3: Increase the risk in asset mix before and during retirement to increase potential returns.
Option 4: Change retirement plans – downsize houses earlier or cut back on spending.
Option 5: Reduce spending now and invest more leading up to retirement.
Option 6: Buy lottery tickets.

Setting aside option six, every solution to closing the gap en route to retirement will include some combination of these alternatives. And it’s here that financial advisors can add real value – clarifying alternatives and helping clients understand the tradeoffs available to them.

Historically, some advisors have been reluctant to get into conversations about client budgeting and spending, focusing on the investment side of the equation. That may have worked in the past – but for clients looking to close a shortfall in retirement plans, you can’t ignore the impact of spending, both now and in retirement. As part of that, an interactive new web site gives clients the tools to quantify and manage those reductions.

Quantifying “the latte effect”

Most advisors have heard of “the latte effect” – the big impact that a small reduction in non-essential spending makes on retirement portfolios.

And while many clients are vaguely aware of this, the challenge is getting them to take action.

Inertia is an incredibly powerful barrier to change. Telling people they need to alter behavior doesn’t work – they have to discover this for themselves. That’s why an interactive savings calculator on a website called bills.com offers an effective way to show clients what happens if they reduce spending. 

There are three simple steps. First, clients choose the return that they’ll earn on their savings – from 1% to 10%. Next, they select the length of time for which these savings will be maintained – anywhere from one year to 30 years.

Display article as PDF for printing.

Would you like to send this article to a friend?

Remember, if you have a question or comment, send it to .
Website by the Boston Web Company