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By James A. DeGaetano Jr., CPA, CFP

Professional financial advisers live by a certain code of conduct and ethical responsibility. This results in a public trust that our services will be performed with integrity, objectivity, due care, and competence. We drill deep, get into the financials, and ask many questions to seek the facts. These skills are well-suited to retirement planning. However, there are two parts to a client’s retirement: the financial and the emotional. To properly guide clients through the transition into retirement, the initial conversation should focus on the softer, emotional side. Most preparing retirees have not fully thought about how they will fill their calendar after employment dissipates, and many have some level of anxiety about what the next chapter entails. Step one in any good retirement planning effort is to quell that anxiety so the conversation can move forward to the next steps without emotional traps that could hurt happiness in retirement.

The U.S. was recently ranked 19th on a 2021 Happiest Countries in the World report, despite being the wealthiest. Princeton economist Daniel Kahneman has long argued that income may influence how we view ourselves, but it does not necessarily result in better health and social relationships. This is reinforced by what psychologists call the science of money: while money can definitely provide some wonderful life experiences, it is what we do with our freedom of time that truly brings the joy we seek. In fact, a recent analysis in the journal Nature Human Behaviour concludes that people are happiest when they make around $75,000 per year. For the financial planner, conversations about money and retirement should start with what is important to the client about money and what activities will be filling up the calendar that had been spent working.

It is unreasonable to expect any person to spend three or four decades performing a function at work to just walk out the door and become a different person without some preparation. We need to feel relevant, and our employment helps serve that purpose. If a retiree tells you that he or she is busier now than ever, it means they have begun to move on to the next chapter in a way that gives their time purpose, doing activities that bring them personal satisfaction. Advisers inherently understand that financial success is linked to our behaviors, but sometimes we need reminding that so, too, does our happiness. Both take discipline and greatly benefit from a plan of action.

Here are a few tips to start your conversation with clients pondering their exit from the working world.

When dealing with couples, it is important that both are present during this conversation. Even long-lasting partners may have differing opinions on retirement; they may not have even discussed each other’s thoughts about it.

As mentioned in the opening, share with your clients that there are emotional and financial aspects to retirement planning. Then begin with the emotional. Clients and their financial advisers can’t construct a plan to spend money if all the parties don’t know how they will be spending their time. Find out what is important to them. Everyone will have a different answer, so follow that up with what an ideal day looks like if money were not a concern. What activities bring them the most peace and joy? If they took a one-year sabbatical from work, what would they do, where would they go?

Give your clients two assignments. First, have them seek out two or three people they know who have retired recently and ask about their experiences. What would they have done differently, and what have they done well? It will be very helpful for them to hear another’s personal experience, and most retirees are happy to discuss their journey. The next exercise is to print out their current weekly calendar. Have them cross out all the activities that will go away when exiting employment; then have them fill up the open calendar with activities that keep them social and satisfied. Many “retirees” will still want to work, just march to the beat of a different drummer. Income, if applicable, may be a byproduct of the experience and not a necessity. Volunteering in some form is a great way to give back and share the skills learned over many years in the workforce. These two exercises will help your clients begin to visualize what that next chapter will look like. An adviser’s ability to guide this conversation cannot be overstated.

Once the new calendar has filled up, the topic of finances can begin. Most pending retirees have concerns about running out of money, Social Security, health care, investment portfolios, insurance, taxes, and their estates, to name just a few. The following is meant to provide a framework to open up the conversation about retirement in the proper order, which will ultimately allow for a more productive retirement visioning and planning process. I like to call it “The Fruitful Retirement.”

There is brilliance in simplicity because it can turn a complex topic into something easily digestible. So, to begin opening the financial discussion, the key is to simplify. A retirement budget should be created that breaks down expenses into needs, wants, and legacy along with the expected guaranteed income streams (pensions, Social Security, installments, rents, etc.). Then picture a retirement pyramid, with needs at the bottom as the base, wants in the middle, and legacy on top. Each is a liability, and the retirement plan you will create together depends on the income available to cover each.

There are only three types of scenarios a family is in when they enter retirement. Since our brains tend to be visual, a fruit analogy can be used to describe each scenario. This allows the potential retiree to focus on which “wealth type” they fall.

• Pears do not have enough guaranteed income to cover their needs. Since pears are wide at the bottom, the bottom level of the pyramid will be the focus for this group.
• Apples have guaranteed income to cover needs but not wants. Just as an apple is thick in the middle, the focus for these clients will be on the middle level of the pyramid.
• Strawberries have needs and wants covered from guaranteed income sources. This allows this group of potential retirees to focus on legacy, the top-end of the pyramid, much like the shape of a strawberry.

Once a budget is created in this fashion it becomes clear which scenario fits. The client’s “fruit” tier provides clarity and helps them continue along with the retirement planning process.

By beginning the discussion with an emotional purpose, an adviser creates an environment of opportunity and excitement – rather than fear and anxiety – to better redefine and visualize next steps. By furthering the conversation with the fruit analogy to retirement budgeting, an adviser simplifies a complex topic into manageable steps that give potential retirees a better understanding of where they are and where they are going.

James A. DeGaetano Jr., CPA, CFP, is president of Diamond Wealth Advisors and JD Media Company in Carlisle, Pa. He can be reached at thefruitfulretirement@gmail.com.

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