Your clients want a financial advisor who can fill in their own knowledge gaps and guide them toward smarter decisions about their wealth management strategies. As the business responsible for their financial well-being in retirement, advisors should be prepared with answers to the questions their clients raise over the management of these funds.
Though the value of a strong impression can’t be overstated, these questions aren’t just a moment when advisors need to prove their expertise to clients. They also present an opportunity to educate clients and achieve greater buy-in into the wealth management strategies you’re using to maximize their available income in retirement.
From taxes to risk management to income distribution, it’s normal for clients to have questions from time to time. Be prepared with answers that satisfy their curiosities and strengthen their confidence in their wealth management strategies.
Here are four common queries you can expect to hear, and some helpful responses to set you up for growth.
1. What kind of Social Security benefit can I expect in retirement?
Clients want to know what kind of monthly Social Security benefit they can expect. If you’ve already set a claiming strategy with your client, you can review the particulars of that decision and its implications for the clients’ retirement income.
If the client is relatively new and hasn’t committed to a certain claiming strategy, this question might lead into a larger discussion about their retirement goals. Review the client’s additional sources of income in retirement, their claiming strategy as it relates to their spouse, and other factors that may affect when they choose to claim benefits—which in turn will affect their expected Social Security income.
Social Security benefits can’t be discussed or accounted for without a comprehensive view of the entire household’s finances—including retirement funds, pensions, and additional sources of income such as alimony. When these sources of income are identified and understood, advisors can work with clients to optimize their Social Security claiming strategy. An optimized claiming strategy will seek to maximize the long-term value of Social Security benefits while keeping in mind the client’s financial needs and goals.
Depending on your clients’ circumstances and their retirement goals, an optimized strategy may seek to delay Social Security benefits or adopt a “split strategy” between spouses, among other changes.
For households that haven’t yet retired, the client’s anticipated retirement age and projected income leading into that retirement are also a factor. Make sure you’re taking a comprehensive view to guide effective strategy development for your clients.
2. Do I need to worry about taxes in retirement?
Clients may only have a vague understanding of the tax implications of various retirement strategies. Likewise, they may be entirely unfamiliar with the “tax torpedo” that can strike poorly managed Social Security benefits.
Advisors are responsible for educating clients on how strategic retirement planning can reduce the tax burden clients will have to pay in the future. If you’re already using specialty financial planning tools such as Tax Clarity® and Income InSight® to review the tax impact within a particular year or look at a long-term comprehensive look at taxes throughout retirement, you can point to these tools as examples of your approach to ensuring tax efficiency.
Clients want to know that their financial advisor is doing everything they can to preserve their wealth. Advisors, in turn, should be eager to educate clients on the potential risk of retirement strategies that don’t take taxes into consideration. Tax Clarity can help discover hidden taxes within a clients’ retirement strategy or income distribution strategy.
When clients come asking about the implications of taxes on retirement, advisors should respond by providing them with a better understanding of the tax implications of various wealth distribution strategies.
3. How do I avoid unexpected taxes and the (dreaded) tax torpedo?
As advisors educate clients on the tax implications of poorly managed retirement strategies, their response is often predictable: Faced with high effective marginal tax rates that chew up their hard-won retirement income, they want to know how they can pay as little as possible.
For starters, it might be helpful to assure your clients that you consider long-term tax impact to avoid tax torpedoes in the first place. Remind them that part of an advisor’s job is to consider the tax implications of these retirement strategies in the first place.
But you can also outline the different ways retirement income and Social Security can be managed and utilized over time, keeping an eye on marginal tax rates when planning out income across multiyear scenarios with Income InSight. Present different options in terms of combining sources of retirement income and how those combinations affect taxation. This scenario planning will help you and your client determine which accounts to draw from, and when—allowing you to make the most of your clients’ retirement.
4. If there’s a market crash, will I be OK?
Anxiety around market volatility and economic recessions makes perfect sense. As your clients’ retirement savings and investments grow over time, market shifts can lead to significant changes in the total value of their accounts—and spark concern that their retirement income won’t be sufficient to achieve their goals.
As portfolio values decline, it’s understandable that clients may get worried about whether their portfolios are at risk of reaching a point of no return. This is when an advisor’s expertise and planning really make a difference in easing client anxieties and preserving the retirement or income distribution strategy you have set for your clients.
You can preemptively address these economic anxieties with Income InSight by performing stress tests during the strategy development process. Place retirement strategies through a number of stress tests that account for market changes as well as other important factors, such as clients’ long-term healthcare needs, unexpected/early death, and other events that may disrupt the clients’ strategies.
It’s wise to remind your clients that their portfolios have been stress tested to evaluate their resilience in these challenging economic scenarios. Advisors should also explain how bailing on a current position or reallocating funds during a period of depressed prices could lead to even greater long-term losses than by staying patient and sticking with the original plan.
Through these stress tests, you can instill confidence that your wealth management strategies are designed to offer security even amid uncertain conditions.
Client Trust Is Earned, Not Given
Your clients’ long-term welfare hinges on your ability to manage their wealth wisely. When advisors encourage tough questions from their clients—and come prepared to answer—it ultimately leads to better client engagement, improved education, and a stronger long-term relationship on both sides.
By anticipating the questions and needs of your clients, you’re able to provide proactive advising services that account for sources of stress and worry before they become an urgent concern.
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