What To Do When Your Client Is Retiring In 2023

Julius Buchanan, Managing Editor, Wealth Solutions Report

Experts From RetireOne, Integrated Partners And Avantax State The Top Issues For New Retirees In The Current Market Environment And How Advisors Can Smooth Their Retirement

As we turn the page into a new year, we talk about resolutions, plans and strategies for making 2023 the year we finally achieve a long-standing dream or goal, and for many, that goal is retirement, especially as large numbers of baby boomers decide the time is right to make that transition.  

With markets still wavering, war and threats of war, supply chains continuing to search for balance and wildly varying predictions for where inflation will go and how Jerome Powell will react, new 2023 retirees face challenges – but not alone.

Resolution to retire this year?

Their financial advisors can guide them through the retirement process with one eye on the markets and the other on financial stability and robust income regardless of current uncertainties and challenges.  

We spoke with the following experts to learn what advisors can do to provide a smooth and sure-footed transition into retirement for clients who plan to take that leap this year:  

We asked our expert panel the following questions:

Tell us the top issues advisors must bear in mind for clients retiring in 2023: Are there perennial issues to address for clients on the doorstep of retirement, and specifically how is the financial environment at this time for a near-term retirement? What actions can advisors take to smooth 2023 retirements for their clients? 

Their responses are:

David Stone, CEO & Co-Founder, RetireOne

David Stone, CEO and Co-Founder, RetireOne

Ninety-two percent of respondents to the joint RetireOne and Midland National 2022 RIA PARI Survey indicate that clients have expressed concerns about inflation. Sixty-four percent of respondents also say that their clients worry about being able to retire on time. It’s a safe bet that these concerns are correlated.

For clients in the last five working years through the first five years in retirement, these concerns are immediate. If retiring during or before a market downturn, the combination of withdrawals and poor performance can quickly deplete a retiree’s main source of income and alter their whole retirement – which is known as “sequence-of-returns risk.”

Market conditions in 2022 amplified the impact that this risk may have on client portfolios, and the downstream risk that their retirement spending will be markedly lower than planned. While these risks are perennial concerns, this confluence of negative conditions has drawn these risks sharply into focus.

Advisors should protect client spending in retirement by allocating a portion of their portfolios to a contingent deferred annuity, which allows advisors to wrap retail ETF and mutual fund investments in client IRAs, Roth IRAs or brokerage accounts with an income guarantee. This protection enables individual investors to insure their retirement savings against sequence-of-returns risk, market risk and longevity risk. 

In addition, because the advisor is able to protect a floor of income, they may also increase their client’s risk budget to potentially offset the negative impacts of inflation.

David Kline, Private Wealth Advisor, Integrated Partners

David Kline, Private Wealth Advisor, Integrated Partners

Clients are facing a multitude of issues as they move towards retirement, including inflation, market volatility, war and supply chain shortages, not to mention the impact our Federal Reserve has on the markets. 

Although global volatility factors present challenges, there are ways for clients to take advantage of this current market environment. For instance, with the quick rise in interest rates, short-term savings now have a potential solution. For over 10 years, in order for investors to earn at least a 3% yield they had to increase their risk and dive into lower credit quality investments or even equities just to find income and net positive returns. 

Now, with treasuries paying over 4%, investors can find yield without having to take on the same level of risk. By looking at investments through a time release bucketed approach, you are able to take on different levels of risk based on varying time horizons, which helps reduce investor emotion and navigate complex market environments. 

Meeting the client’s retirement goals

To help provide clients peace of mind to still meet their retirement goals in 2023 and beyond, we believe in two key solutions: a bucketed approach to planning where we pool client assets with short-, intermediate- and long-term needs and a differentiated portfolio that does not just rely on stocks and bonds.

Andy Watts, VP, Investment Solutions, Avantax Wealth Management

The points below should be applied together as part of a comprehensive, tax-focused financial plan to a happy retirement. 

Andy Watts, VP, Investment Solutions, Avantax Wealth Management

Inflation. Inflation doesn’t persist forever. Many advisors will recall when the Fed tried to arrest extreme inflation by boosting interest rates over 10% in the ’80s, which only lasted a couple of years. Advisors can remind clients that it’s important to control spending during periods of inflation. A smart spending plan that optimizes discretionary income can allow clients to enjoy their retirement while retaining a solid financial position.

Social Security benefits. In 2023, Social Security will see its highest COLA adjustment in 41 years – the hefty 8.7% increase will affect those currently collecting Social Security and those who haven’t yet claimed benefits. Advisors will want to highlight the COLA adjustment for clients who might have expected the average COLA adjustment of a mere 2%. This could also mean leaving more invested assets untouched versus selling them at a loss to fund retirement goals.

Make a budget during inflation

Market conditions. It’s good to remind clients looking to retire in 2023 that current conditions aren’t all bad. The S&P 500 is holding above pre-pandemic levels, and even with slower growth expected, it’s trending positive. In this environment it’s less about market timing and more about tax-efficient withdrawal strategies. Newly retired clients should focus on which assets to sell to fund retirement, when to sell them and from what types of accounts. 

Historically, the market has always bounced back, and advisors should help clients stay disciplined through this rough patch.

Julius Buchanan, Managing Editor at Wealth Solutions Report, can be reached at jbuchanan@wealthsolutionsreport.com

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