Trending
Written by: Sheryl O'Connor | Income Conductor
I recently spent a week diving in Little Cayman and, although on vacation, I continued to think about retirement. Not mine, but the retirement of the clients our industry serves. As the week progressed, I realized that there are some lessons to be learned from diving that can be applied to retirement income planning and management that I’d like to share.
A Whole New World
No one would argue that the ocean is a vastly different environment than the land we spend our lives on. So many differences humans must contend with - no oxygen to breathe, foreign wildlife and plants, ocean waves and currents, and a 3D spatial plane in which to move. The decumulation phase of a client’s life is as different from their accumulation phase as the ocean is from land. Retirees are faced with a whole new world of challenges and risks they never had to face during their working years: paying for their own healthcare; long term care; Social Security claiming; inflation, longevity risk, and sequence of returns risks; and, new retirement-focused products. Not to mention the psychological challenges of leaving a full-time career and defining new ways to find purpose.
Training
SCUBA diving requires an individual get certified, which entails book study, pool practice and eventually open water training in a lake or ocean. This training is critical to understanding how to use dive gear, how to safely behave in the water, and what to do if something goes wrong. Although we can’t ‘train’ for retirement, it’s important that clients be educated on all the aspects of retirement and how it will change their lives. How often have you heard of someone making an irrevocable mistake on Social Security claiming, or use of retirement funds? Just as training makes diving easier and safer, educating clients early on can help them feel more confident about retiring and avoid those costly mistakes. If they are engaged in creating their own retirement income plan, the advisor can educate the client about these aspects of retirement in context, where it will be most meaningful to them and their situation. Using technology that promotes this engagement is important to the client’s understanding and confidence.
“Plan your dive and dive your plan.”
As a diver, you hear this phrase repeatedly during training. A dive plan is more than an underwater map showing the route to follow and topography the diver will encounter. It also relates how long the dive should last, what depths the diver will encounter, how long they should stay at those depths, and how much air they should have left at the end of the dive as a contingency. Having a clear plan before jumping in the water can help divers avoid dangerous situations, like getting lost, running out of air, and experiencing the ‘bends’ which could be deadly. Having a retirement plan with the same level of detail is just as critical to a retiree’s success. Most advisors use ‘rules of thumb’ like assuming all clients will live to age 95 and a “probability of success” based approach that offers little guidance to the retiree. I can’t imagine having a dive master tell me before a dive that I have a 90% chance of making it back to the boat alive. Retirees, like divers, need a written plan like IncomeConductor provides that gives them the detailed, GPS-like guidance they need to have a financially secure retirement.
Hire a Dive Master
Dive masters are expert guides who are familiar with the dive sites, ocean conditions, sea life and more in an area. If you are diving with a dive operation, you will have at least one or two dive masters on the boat. They make diving, especially in an unfamiliar area, safer, more relaxing, and more interesting. Financial advisors who are retirement income experts serve the same purpose for their clients. Besides creating a custom plan, an advisor is critical in guiding a client through retirement, supporting them, and ensuring they stick to their plan and don’t make any missteps that could jeopardize their financial security. It is not enough to use technology that merely creates a plan. Advisors need technology that helps them and their clients track and manage that plan’s performance throughout retirement.
Gear Up
Choosing the right masks, fins, wetsuits, dive computer, BCD and other gear is important as each person has preferences based on their body type, comfort level, type of diving they want to do, etc. In any given dive group, chances are that you won’t find two divers with the same make, model or configuration of gear. Everybody has chosen what works best for them. The same is true when it comes to what products work best for individual clients. If a retirement income specialist is a true fiduciary, they will implement the client’s retirement income plan with a variety of products, including guaranteed and growth, which are tailored to that client’s personal goals, preferences, and risk appetite. Using technology that allows you to model various products and how they impact the overall plan for the client is important to ensure that the client understands how each product is contributing to the plan’s success and any trade-off’s that may be involved.
The Unexpected
Having a dive plan is a good start, but unforeseen circumstances can come up that require adjustments to that plan. One morning last week, my group started a 60-minute dive in calm waters. Towards the end of the dive, a sudden, violent storm swept in, and we looked up to the surface to see our boat violently rocking in 8-foot waves. Running low on air, it was important to stay calm and get back on the boat safely. Fortunately, our dive masters were trained for just such a situation and had a strategy. They instructed us to take our gear off in the water before individually approaching the boat, wait for their command, and then quickly jump onto the ladder and climb onto the boat before the next swell turned the metal ladder into a bucking bronco that could seriously injure or knock us unconscious. Lots of unexpected things can happen during retirement that can impact a client’s plan. History has shown that retirees can live through three to four market cycles. A good planning strategy, like time-segmentation, can help clients keep calm during these periods of market volatility when they see their investments swinging up and down and get through the storm safely. Also, having technology that provides the analytics and data upon which to make decisions when the unexpected happens (vs. changes in probabilities) leads to better decision-making around modifications that may be needed.
The Right Stuff
You’d be hard pressed to find a diver who doesn’t have an adventurous spirit and isn’t ‘childlike’ in their fascination with the world around them. Many dive well into their 80’s if they’re able to climb the ladder. Just as important as physical fitness, mental attitude contributes to success and happiness in diving and in life in general. Retirement income experts understand that ‘fact-finding’ is much more than gathering the client’s financial data. They must also uncover the client’s persona – their biases and attitudes, their risk appetite, and their individual fears and concerns about retirement. This becomes even more important when dealing with a couple as each partner’s persona may differ, and even conflict with, the other partner. Gathering and combining both scientific and psychological data into a customized retirement income plan is the true ‘art of planning’. Having technology that allows the advisor to incorporate this data and model ‘what if’s’ is as important to addressing psychological profiles as it is financial profiles. And having the right resources and referrals at hand to support clients mentally through phases of retirement, such as losing a spouse, can have a positive impact that will help them make good financial decisions.
There are more comparisons I could make between diving and retirement income planning, but I’ll conclude here with an old diver joke:
Son: “Dad, when I grow up, I want to be a diver.”
Dad: “Well, son, you can’t do both.”
May you stay forever young.
Related: Retirement Do-Over: Here's One of the Most Common Regrets for Today's Retirees