8,000 days of retirement: Longevity brings expanded role for advisors

Investors spend so much of their adult lives saving up for retirement that it can feel like crossing the finish line once they finally make it. The reality is that planning for what to do in retirement is just as important as getting there. That’s because retired people are much more susceptible to loneliness, boredom, and other factors that can decrease their quality of life—and sometime its duration. 

John Diehl, an expert who has spent his career focused on tactical strategies for retirement planning, says financial advisors can play a pivotal role in helping clients get ready for their "8,000 days of retirement." That’s no random number. It comes from the Massachusetts Institute of Technology (MIT) AgeLab, which says life can be divided into four segments of 8,000 days, or about 22 years, each: learning, growing, maturing, and exploring. Diehl works with MIT AgeLab to help financial advisors and their clients understand how the demands on financial, physical, and social resources will likely change in retirement and how to plan for it. 

"Now that we've achieved what we’ve been trying to do forever—extending human life—we really don’t have any idea of what to do with that extended life period," Diehl said at a recent Schwab event. People are often so preoccupied with the first three life segments,  Diehl said, that their goal is just making it to the fourth. However, those 8,000 days will need to be purposefully filled to maintain a high quality of life. While most clients don’t know whether or how to plan for this, financial advisors are in a perfect position to help. 

Planning the fourth act

Source: Slide from John Diehl’s presentation

Longevity planning: An expanded role for the advisor

Financial advice has come a long way over the years, transitioning from transaction-focused support to financial planning, wealth preservation, and generational transfer. The next iteration of this evolution is a field that MIT AgeLab refers to as "longevity solutions advisory."

For most, retirement looks very different than it did just a decade ago. Work and retirement are no longer mutually exclusive for many retirees. In fact, working in some capacity is now one of the activities retirees cite most when asked what they plan to do in retirement. Retirees are generally more active and mobile. They take care of family members and are more flexible about where they live. They’re even more likely to get divorced, driven in part by the opportunity to reinvent themselves later in life.

As a result, older people are asking themselves some different questions:

• What will I do in retirement?
• What will retirement look like?
• How do I remain productive and validated?
• Who am I going to be taking care of?
• Where are we going to live?
• What causes will bring me purpose?

Changing priorities through the years

Source: Slide from John Diehl’s presentation

When it comes to finding the answers to these questions, clients will increasingly rely on their financial advisors for support, if they aren't already doing so. Those who don't know how to proactively address this new dimension of retirement planning risk losing clients or gaining new ones, especially as investors’ expectations for performance continue to climb. 

"You as an advisor are going to be asked about things far outside the boundaries of traditional investment advice," Diehl said. "If the value proposition of your firm is based on the way that you manage assets, how you construct portfolios, how you select securities, and so forth, it's falling on deaf ears at the consumer level."

Four phases of retirement

To capture the attention (and business) of people wrestling with post-retirement questions, financial advisors need to understand different client contexts as they advance into and through retirement. MIT AgeLab has found that retired clients can be grouped into one of four phases:

1. The Honeymoon: Retirees continue to work in a scaled-back capacity or launch a new business and generally stay active and involved.
2. The Big Decision: Work is phased out, and retirees increasingly focus on where they want to live and with whom they’re spending time.
3. Navigating Longevity: Health tends to become a dominant issue for many, along with the medical and housing costs associated with maintaining their health.
4. The Solo Journey: Widowhood is more common, as are feelings of boredom and loneliness.

Determining a client’s stage of life or retirement isn’t as simple as asking their age. Instead, it’s often a function of three intertwined resources: financial, physical, and social. For instance, younger clients with ample financial resources can easily fall into the third phase if their health is compromised. And widowers in an advanced stage of life can wind up back in the first phase if they are healthy and socially active. 

So the first question financial advisors should ask when engaging a client in this aspect of planning is where they see themselves. What phase of retirement do they think they’re in? Advisors and clients can have different views about this. When those assumptions are not aligned, neither are the advisors' recommended strategies. Advisors also need to address common misperceptions about retirement. For instance, a client might be expecting to receive help from their adult children, only to find out their children are in greater need of financial support than they are.

Are you sure you want to bank on that?

Source: Slide from John Diehl's presentation

Making the right connections

Conversations like these are only the start. As with any financial planning discussion, engagement is often followed by a decision. But since longevity planning is new terrain for financial advisors, many may not have the resources in house to support those decisions. 

Therefore, advisors should develop both a basic understanding of where those resources are located and how to connect their clients with them. For instance, a financial advisor who is schooled in medical benefits in retirement may be more likely to retain a client at risk of moving to a competitor. Every financial advisory practice should have trusted external resources they can recommend to support their clients across different non-investing dimensions, including medical, legal, and real estate. 

The key is to be proactive in offering this kind of help, which could be as simple as sharing a newspaper article, Diehl said. "It's about being able to call a client and say, 'You know what? I thought of you today,'" he said. That kind of engagement shows the advisor is eager to help and actively seeking solutions.

At other times, the client may just need to hear how other people in their situation approached the same problem. Diehl recommends bringing a few clients together in a casual setting so that those who have worked through similar challenges—such as downsizing, taking care of loved ones, or their own physical challenges—can share their experiences with those just starting to grapple with them. The litmus test for advisors' success won’t be just investment performance but how well they can help clients address life-stage concerns by sharing pertinent information and lessons learned. 

Longevity solutions put into practice

Achieving a high quality of life in retirement is more than simply having enough money. Many factors can enhance or diminish the life clients want to lead. Four stand out: health, housing, mobility, and social networks. While not exclusive or relevant to every client, these are great starting places for financial advisors for adding longevity solutions to their practice.

At this point in the evolution of financial advice, clients are looking for much more than building and preserving their wealth. Increasingly, they are looking for solutions that help them sort through not only the financial implications of retirement but other, more personal dimensions as well. And if they aren't asking, it's time for advisors to take it upon themselves to help clients get started.

"Ask yourself what kind of advice they'll be seeking going forward," Diehl said. "It's the advisor that can paint the picture, educate them, and connect them to the resources that will win in the end."

We hope these ideas inspire you to think about new ways to serve your clients when it comes to retirement planning. 

If you're thinking about becoming an independent advisor, consider a custodian that invests in your success. Contact us to learn more about the benefits of a custodial relationship with Schwab.