Retirement signals complex spending, income, and identity shifts, often all at the same time, which is why many clients seek an advisor during this time. Often, as advisors are creating the projections of how a client’s retirement may pan out, they have some combination of follow-up questions, good news, and notes of caution. However, sometimes, it becomes evident that a client’s lifestyle cannot be maintained with their anticipated retirement timeline… which means it falls to advisors to have this tough conversation.
In this 203rd episode of Kitces & Carl, Michael Kitces and client communication expert Carl Richards discuss how to help a client who wants a retirement they can’t afford – especially if their previous advisor has left them with the impression that they can afford that lifestyle.
First, advisors may want to minimize ‘badmouthing’ the previous advisor – even if they are internally exasperated or confounded by the prior analysis. Advisors may offer to walk the client through what they see instead, essentially “cocreating” or “co-realizing” the possible (negative) outcomes. (And if a client is really stuck on their previous advisor’s advice, the current advisor may consider requesting previous meeting notes or other information – just to check what they may have missed!)
Second, by walking the client through the consequences of their action – and the probability that they’ll need to adjust retirement spending – advisors can keep the focus on what, if anything, the client wants to do. Some clients may have enough cushion that they are comfortable with continuing with their current plan, then only adjusting if they need to. For other clients, they may need to consider a broader array of options, from working part-time for several more years to selling assets – and they may need to act with urgency. While these conversations aren’t pleasant, it is nonetheless important to remain outcomes-focused and to be clear on how severe the shortfall may be. This helps to avoid both downplaying and catastrophizing the risks and outcomes.
Even if this conversation is unpleasant, once the potential retirement outcomes are explicit, then the client and advisor can collaboratively brainstorm potential adjustments. Sometimes, the advisor may be surprised by which options the client considers to be “on the table” once it is necessary to make some lifestyle changes. And it can be challenging to anticipate how everyone will genuinely respond in real time when those changes are necessary. A client may anticipate making certain changes, then may opt for different ones when the time comes – for example, they may be more amenable to downsizing their living space than everyone originally anticipated!
The key point is that adjustments to retirement planning may not be fun, but once the needed adjustments are understood by all parties, then the client and advisor have control again, as they are able to consider their options anew. Advisors will likely need to approach these conversations with a blend of hard analytics and empathy, but when they can “cocreate” a new plan with their client, they can ultimately build something sustainable that leaves everyone happier in the long-term!
