It’s debatable whether or when we’ll actually arrive in a truly post-pandemic world, yet many are hopeful that there is light at the end of the tunnel. But will things return to “normal?”
The pandemic brought unprecedented changes and disruption that will leave a lasting mark, and ongoing market volatility and global uncertainty will likely continue to impact investors for the foreseeable future. A new normal for your clients may also include new personal goals that require a different approach to their financial strategies.
Now is an opportune time to help clients identify any new priorities in life and assess their retirement goals to ensure they align.
Here are five questions to help you start the conversation with clients.
1. Are you considering a career change?
Or maybe some of your clients have already made one! The last couple of years have seen incredible shifts in the U.S. labor market. The pandemic ushered in large-scale layoffs at the onset, with unemployment peaking at nearly 15% in April 2020.1 Contrast that with today’s business climate where nearly every industry is putting out “help wanted” signs.
In the fall of 2021, the nation’s quit rate reached a 20-year high, with most leaving for better pay.2 If that statistic includes some of your clients, it’s time to discuss whether to rollover a 401(k) from a previous employer. You may also want to discuss insurance options or strategies for maximizing benefits at their new job. Consider also whether there may be any tax implications if their new career came with a higher salary. Better pay could bump them into a different tax bracket.
2. Do you still have the same retirement goals and horizon?
Part of the reason that companies are having a hard time filling positions is because of the increase among those ages 55 and older who’ve left the job market altogether in favor of early retirement. In fact, half of these older adults are now retired, up 2% since before the pandemic.3 If your clients are among this throng of early retirees — or considering joining them — it’s critical to take a hard look at their financial strategy.
A pre-pandemic retirement horizon may have been several years off. If a client’s plans changed, their financial plan likely needs to change, too. Depending on their age, you’ll need to help them strategize how they will fill the gap until they’re able to start taking required minimum distributions or claim Social Security benefits. Also talk through how they will cover medical insurance until they qualify for Medicare benefits, and review their short-term, mid-term and long-range goals.
3. Have there been any major purchases or debt accumulation?
Who could have predicted that the real estate market would skyrocket in response to a global pandemic? But it did. Many families took advantage of low interest rates to upgrade to a new home or invest in other real estate. When you add in the evident inflationary woes, gas prices and other rising costs, one could assume that many Americans are piling on debt.
Research suggests that about half (51%) of non-retired adults are finding it harder to achieve their long-term financial goals due to the economic impact of the coronavirus outbreak.4 When talking with clients, reiterate the importance of checking in with you prior to making major financial decisions to help mitigate the risk of overextending their limits. If decisions have already been made, work with them to adjust their plans accordingly.
4. How healthy is your emergency fund?
It’s generally accepted among financial advisors that between three and six months’ worth of expenses should be set aside in an emergency fund. However, an early retirement, health issues or sudden change of circumstances could deplete liquid assets much faster than anticipated.
It’s important to evaluate the status of a client’s emergency fund. The amount may need to be higher than previously thought, especially if their income has changed, monthly costs have risen, children are heading off to college, or other life changes have taken place. Take time to walk through various scenarios to determine potential expenses moving forward and adjust emergency fund targets accordingly.
5. Has your tolerance for risk changed?
Have you gotten fretful phone calls or emails from clients who are nervous about recent market volatility? While some investors may want to take advantage of “sale” prices, there may be other more conservative clients who want to pull back their market participation. Navigating these conversations can be a challenge.
Understanding a client’s true risk tolerance can be a guessing game because it generally relies on their own self-assessment. Misjudging their tolerance for risk has the potential to lead to panic-driven decisions that don’t align with their values or long-term goals.
Rather than simply having clients check a box to indicate their comfort level with risk, consider using interactive tools designed to help draw out their true attitude toward risk. Tools available in our Behavioral Finance Advice program can help you guide clients through various steps to identify their own values and biases. Knowing these internal factors can be extremely helpful in identifying their approach to investing. Once they recognize potential ways they might respond irrationally to situations, they may be better equipped to keep a level head when faced with concerning financial news and make decisions based on their values rather than their feelings.
Access our award-winning Behavioral Finance Advice program materials today and see just how helpful they can be when engaging in client conversations.
