Advisors to Anxious Retirees: Plan, Don't Panic

In early 2001, Ed and Barbara Swanson wanted reassurance that they would have enough money to live on through retirement.

The suburban Chicago couple found it by developing their retirement plans with Raymond James advisor Mike McCormick. By working closely with him, the Swansons became confident they could achieve their retirement goals, though their confidence has been tested by the ups and downs of the market.

"Honestly, when we leave Mike's office, we are confident that we've got enough money," says Barbara Swanson, 75.

Unfortunately, many investors say they don't share the Swansons' confidence about making it through retirement, according to advisor accounts. And advisors increasingly find themselves reassuring clients worried about the risks and changes they face during retirement.

"I've had some clients for 30 years. Someone I had 30 years ago wasn't interested in this stuff. Now it's a different story. It's a distribution world, not an accumulation world," says McCormick.

Experts say the economic upheavals of the past decade have left their mark on clients.

"We've been through two roller coasters. You go back to 2001 or 2008. I lost, like most people, almost 40% of my portfolio [during the financial crisis]," says Ed Swanson, 76.

He adds, "My instinct there was to figure out if I should pull out. ... I was asking, 'What the [heck] are we doing?'"

With headlines screaming financial chaos, the Swansons had many conversations about their tolerance level with McCormick. In the end, they didn't panic and pull out. They were reassured about their retirement plans — and still are today.

Joseph Nadreau, head of innovation and strategy at Wells Fargo Advisors, says many investors suffer from a disconnect, pointing to two data points in the survey. When asked how they would save or invest if given an extra $10,000, more than half of investors said they would keep it as cash. Meanwhile 67% of investors claimed to be knowledgeable about investing, yet only 7% actually knew that the markets had an average return of 30% in 2013, based on S&P 500 returns.

Nadreau attributes investors' conservative attitude toward investing in part to the legacy of the financial crisis, which devastated portfolios.

"I'm the poster child," he says. "If I told you I didn't have more cash in my portfolio than in 2007, I'd be lying. I have my Series 24, I have my M.B.A., but I also have an advisor. And I have an advisor for that irrational component."


Image: Mike McCormick, vice president investments and retirement planning consultant at Raymond James & Associates. Photo by David Jackson.



While instincts may verge at times on the irrational, based on inaccurate understandings of the markets, investors' reasons for being worried about retirement are also partly based on real risks, experts say.

"There's a big penalty to be paid for mistakes. It can be overwhelming," says John Diehl, senior vice president for strategic markets at Hartford Funds.

Moshe Milevsky, professor of finance at the Schulich School of Business at York University in Toronto, says one of the primary drivers for clients' concern is the randomness and uncertainty about how long one's life may be.

"I think that's the big change, the longevity risk," Milevsky says. "It's actually getting wider for people who reach the age of 65 compared to where it was 100 years ago. That's the scary thing. I may live 35 years [more] or not."

That uncertainty makes long-term planning difficult, notes Milevsky, who has authored several books on retirement topics and annuities, including, "The Calculus of Retirement Income."

Complicating matters further for many, entering a new stage of life can be disorienting.

"You've lost your traditional source of income," Milevsky says. "You have an anchor every month because you have a paycheck. You can say, 'Oh, that's too expensive because it's bigger than my paycheck.'"

Many clients — no longer tethered to that anchor — are afraid they'll be hit in the midst of their retirement by a wave of rising costs, from health care to inflation.

Diehl, who regularly presents on topics such as aging clients and retirement, suggests that half of an advisor's job today comes down to psychology.

"[Clients] are expecting more emotion and more empathy," Diehl says.

He adds, "We can't just ask our clients what their hopes and dreams are because they might not have thought about it. You need to get them talking."


One way firms are helping to bridge the conversation between advisors and clients is through technology. Platforms like Wells Fargo's Envision and Merrill Lynch One, which launched earlier this year, are providing starting points for advisors to get clients talking about their retirement needs, dreams and fears.

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