Navigating the Rising Tide of Retirement Anxiety

The baby boom generation is entering "The Great Retirement" in droves, making retirement planning a top priority for financial advisors. However, the Advisor Authority survey by Nationwide's Retirement Institute¹ showed that economic turbulence has made investors anxious about their future financial security. More than half of non-retired investors admit to being concerned about their financial future, and 43% of respondents say they check retirement account balances multiple times a week. Women are more likely to check their balances frequently (53%) compared to men (34%). Men, however, are more likely to be nervous about their post-retirement financial future (55% vs. 49%).

Advisors are also feeling the pressure from their clients, with 34% saying many of their clients are canceling or delaying retirement. So, how can advisors reduce all this client anxiety?

First and foremost, it is crucial to remind clients that successful investing is a long-term game. Of course, this is easier said than done. Use the strategies below to keep clients calm, invested in the markets, and focused on their long-term investment goals, even during periods of market turbulence.

1. Establish Clear and Realistic Expectations

Setting appropriate expectations from the outset is paramount. By educating clients about the nature of market volatility and the potential for short-term fluctuations, we can help them develop a realistic perspective. Encouraging a long-term investment horizon enables clients to focus on the bigger picture and not get caught up in short-term market noise.

Advisors should conduct a complete financial plan and risk tolerance analysis to understand your clients’ goals, objects, and time horizon. This will also help your clients assess their expected expenses in retirement and create a budget that reflects those costs. Work together to understand where the income is coming from once the paychecks stop coming in and address the likely hood of success for not running out of money. Helping clients understand the tax treatment of different sources of income will also play a big role in the development of a successful retirement plan.

2. Emphasize the Importance of Diversification and Strategic Asset Allocation

Diversification is the bedrock of a resilient investment portfolio. By spreading investments across different asset classes, geographies, and sectors, we can mitigate risk and increase the likelihood of positive returns over time. Educating clients about the benefits of diversification can instill confidence in their investment strategy, even during turbulent markets.

Investment management is key to assisting clients towards their retirement goals and ability to keep pace with inflation. A “buckets of money” approach can help clients understand the different risk and volatility potential of the various investments in their portfolio. For example, money to pay short-term expenses is kept in a conservative investment that pays interest and should not experience too much volatility no matter what the market does. On the other hand, money that is not needed for 10 years or more can withstand more volatility and should be left alone to grow over time.

3. Focus on Goals, not Market Performance

Open and transparent communication is vital in turbulent times. Regularly updating clients about market developments, explaining the rationale behind investment decisions, and providing insights can help alleviate anxiety. Shifting the focus from day-to-day market fluctuations to the clients' long-term goals is crucial. By aligning investment strategies with their individual retirement objectives, advisors remind clients that short-term market volatility is just a temporary detour on their journey towards achieving their dreams.

And don’t be afraid to share historical perspective. Reminding clients of past market downturns and subsequent recoveries can help put current market volatility into perspective. By highlighting the resilience of markets over the long term, advisors can inspire confidence in clients and prevent them from making impulsive decisions that may harm their retirement goals.

4. Stress Test Investment Plans

During periods of market volatility, stress testing investment plans can provide clients with a sense of security. By analyzing how their portfolios would have fared during past market downturns and emphasizing the resiliency of their diversified holdings, advisors can reassure clients that their investments are designed to weather storms.

No matter the market conditions, advisors should encourage regular portfolio reviews. Regular portfolio reviews serve multiple purposes. They provide an opportunity to reassess investment goals, make necessary adjustments, and rebalance portfolios. Moreover, these reviews allow advisors to remind clients of their progress toward retirement and reinforce the importance of staying the course during market volatility.

In addition to these four steps, advisors must stay on top of legislation related to retirement planning, which is constantly evolving. Familiarize yourself with the Secure Act 2.0, which aims to help people save more money for their retirement. The law includes many rules that impact those who have IRAs (individual retirement accounts) and employer-sponsored retirement plans like a 401(k).

Remember, a financial advisor’s role extends beyond managing investments. During periods of market volatility, advisors demonstrate their value by keeping clients calm, focused on their long-term goals, and invested in the markets. By establishing clear expectations, emphasizing diversification, maintaining open communication, and stressing the importance of staying the course, advisors can guide clients through turbulent times and help them achieve their retirement aspirations. Successful investing is a journey, and with the right guidance, clients can weather any storm and emerge stronger in the long run.