When is the right time to talk about retirement?

‘For some, the idea of not having to go to work anymore is amazing and for others it scares them to death’

Jarrod Ellis, Delta Financial Management

Retirement is one of the most critical areas of financial planning and ironically one that is often tricky to approach with clients. A panel of financial advisers got together with Invesco Asset Management Limited to get a feel for how this is tackled across the financial advice community.

James Connor, founder and chief executive of Connor Broadley quickly identified a main point the panel all agreed on: the conversation around retirement is not a simple one for any client.

‘As early as possible,’ is when clients and advisers should tackle the topic, Broadley said, but timing these conversations doesn’t always work in the same way for everyone.

‘I found from experience that you can tell by the glint in someone’s eye whether they’re actually serious about planning for the retirement or not,’ he said.

With such a huge topic, Partners Wealth Management partner David Bull agreed the conversation needs to happen as soon as possible, but is realistic this mostly happens when reaching middle age.

‘I find the most productive conversations tend to start with people who are in their early 50s,’ he said. ‘The mortgage is nearly paid off, the children are nearly out of their hair and all of a sudden retirement is moving into view and that tends to focus minds.

‘You have much more productive conversations with [clients in their] late 40s, early 50s than those in their 20s and 30s – it just seems too far away.’

This sentiment was echoed by Owen Thomas, head of regional sales and strategic partnerships at Invesco Asset Management Limited, who admitted that the constant distractions of everyday life can delay the retirement conversation.

‘It was a circuitous route,’ admitted Thomas when asked about when he started consciously thinking about retirement. ‘I’ve always tried to manage it myself and with getting a bit older (and getting married, having children, buying a house) all those sort of things came along. I just thought, it’s starting to get a bit more complicated than just playing around the fringes.’

With his own experience, Thomas alluded to something many of our panellists have had to contend with: the client psychology linked to retirement. Jarrod Ellis, director at Delta Financial Management, described this as a significant hurdle.

‘For some, the idea of not having to go to work anymore is amazing and for others it scares them to death,’ Ellis reflected, using the example of a client of his who admitted he missed the routine and responsibility of his vocation.

‘So you have to start with the psychological, ask them their view of retirement. From there, you build a picture of what they want to do, what they don’t want to and you mould the advice around that.’

Likewise, by getting people to consider the costs associated with their idea of retirement, managing director at Equanimity IFA Helen Howcroft has found conversations around budgets can be extremely constructive.

‘If you don’t actually understand what you’re going to be doing and how you intend to live your life during retirement, no one can ever know what you actually need as a capital lump sum or as income,’ said Howcroft.

‘Most of our job around this whole conversation is actually about coaching and educating the client as to the options out there, because some people are just so busy.’

Besides giving advisers more time to implement financial plans, there is another key reason panellists said it was best to discuss retirement sooner rather than later. Paula Steele, managing partner at John Lamb, said getting clients to sit down and face their financial situation could help them tackle potential problems.

‘Some [clients] don’t have enough money and it’s really better to just put it on the table in terms of, you’re not going to have enough money from what you’ve got in terms of your liquid assets,’ said Steele. ‘That’s quite a wake-up call for people.

‘If you’ve got a couple in front of you, stereotypically he’s been saying it’s absolutely fine and she’s not really engaged and focused and that can be quite a difficult set of conversations as to how they’re going to live. Are they going to have to downsize? Are they going to have to have a completely different quality of life? Ellis agreed. He has found the conversations leading up to retirement can be very useful in creating an all-encompassing financial plan.

He said: ‘You need a series of meetings and occasionally, you throw a grenade in. You throw something in to almost make them feel uncomfortable to see where they feel [vulnerable].’

As an example, Ellis explained how one of his clients had been using his pension to pay off enormous credit cards debts thathad slowly built up over time.

In response, he persuaded the client to sell their holiday home and main residence and purchase a retirement home to stabilise his financial affairs. ‘The wife just said to me, he’s a changed man,’ added Ellis.

‘He had his head in the sand and was literally killing himself. You get these people in these situations, you look at it from the outside and go, “that’s nuts”, but then you ask them the rationale and it made sense.’

For those who are married or in a serious relationship, the issue of retirement has wider considerations. From a constructive perspective, Bull finds it is better to combine both parties in these discussions as there is the potential to use two sets of tax allowances.

He said: ‘It’s very helpful for it to be a joint discussion because everyone’s on board. It is great for having a joined-up relationship if both parties can see the value of what you’re adding and you know there’s no stone unturned.’

However, things can be trickier if finances are more one-sided in a relationship or gender stereotypes emerge. This can be generational issues that can bring additional challenges, as Bloomsbury Wealth partner Carolyn Gowen points out.

‘It tends to be that women, sadly, are a little bit reluctant because they don’t understand the money,’ said Gowen.

‘Nobody has ever talked to them about money, nobody’s ever treated them as though they’ve got a brain, so we talk to them in terms they can understand.

‘It’s about what they want to do with the money and what they want their life to look like. You can’t have that kind of conversation with only one of the couple.’

This recurrent issue of what retirement ‘looks like’ is crucial and panellists agreed that cashflow modelling is the key element in these conversations, because it allows clients to comprehend their wealth and – more importantly – how long it will last in various scenarios.

‘The modelling software is excellent because it can prompt people to realise how much money they’ve got and how it might evolve in value,’ said Connor.

‘That point when people have to let go can be a scary prospect and people are always worrying that something is going to come out of the blue later in life.’ In particular, Howcroft has found this strategy can help with less financially aware clients.

‘I’m a big advocate of cashflow modelling, especially for older, female clients who I generally find are more disengaged with their finances.

Using that software can give them that reassurance they can or can’t [be spending certain amounts], if they can’t then they know it is time to reign it in a bit.’