CPD: The stages of retirement- the adviser’s role

What are the six stages of retirement and what role do advisers play in each of the stages?

Retirement marks a significant transition in one’s life, representing the culmination of years of hard work and financial planning. In this article from Allianz Retire+, the important role advisers play in all stages of retirement is examined.

Retirement is often described as a journey – and it is. However, it doesn’t end with the cessation of employment. Instead it evolves into a new phase that requires careful navigation to ensure continued wellbeing and fulfillment. Beyond a focus on financial management, retirement planning encompasses a spectrum of emotional, social and psychological considerations. In this context, the role of financial advisers transcends traditional investment strategies and extends into holistic support for clients’ overall wellbeing.

As individuals enter retirement, they often grapple with a myriad of uncertainties and adjustments. Questions about lifestyle changes, health, social engagements and spending capacity demand attention. In this unfamiliar landscape, financial advisers become trusted guides. From fostering a comprehensive understanding of financial resources through to providing emotional support during life transitions, you play a pivotal role to empower you retiree clients to lead fulfilling lives.

Retirement is often described as a single event. Those living through it – and their financial advisers – know different. First identified through research in the 1980s^[1], and since ratified by more recent studies, retirement is said to comprise six distinct stages. Each has its own characteristics – and challenges! The time spent in each stage is unique to each client and will vary depending on a range of individual factors.

Starting with pre-retirement, the second stage is the actual retirement event, whether planned or unplanned. This is followed by the honeymoon period, disenchantment and then reorientation. Finally, the retiree settles into a routine that will evolve over the course of their retirement years.

The six states of retirement

Pre-retirement – the first and pivotal stage of retirement

Pre-retirement is a period of transition, where individuals may begin the gradual process of disengaging from the workplace. They will envision their post-employment lives and usually take concrete steps towards financial and emotional readiness for retirement. Financial preparedness may include a formal transition to retirement strategy.

The role of a financial adviser is paramount in the pre-retirement stage; you need to guide your clients through a myriad of decisions to lay the groundwork for a secure and fulfilling retirement.

This will include a comprehensive assessment of your client’s current financial situation and future retirement needs, with particular consideration of the income they’ll need to meet their objectives throughout their retirement years. By providing a clear understanding of your client’s financial standing, you can empower your clients to make informed decisions and take proactive steps to bridge any gaps between their current situation and desired retirement lifestyle.

Thanks to increased longevity, retirement may now span 25 plus years. To provide your clients with certainty of income throughout their retirement, it’s important to include decisions about how to generate that income during the pre-retirement stage. This will include consideration of the retirement income products that will best provide the desired level of income. For many clients, the certainty of guaranteed lifetime income, coupled with access to capital and some form of capital protection will provide peace of mind as they approach retirement.

Beyond financial planning, you can assist your clients to by creating a structured retirement plan that encompasses not only financial goals, but also personal aspirations and lifestyle preferences. This could include healthcare and insurance options, as well as devising plans for leisure activities, travel or volunteer work.

A tailored retirement plan that aligns with each client’s unique needs and aspirations will help foster a sense of purpose and fulfillment in the pre-retirement phase and lay strong foundations for ensuring a smooth transition into retirement and laying the groundwork for a secure and fulfilling future.

The big event

In an ideal world, the retirement ‘event’ will herald the culmination of years of planning and anticipation. It represents a significant life transition. For many of your clients, retirement will symbolise the commencement of a new chapter characterised by freedom and leisure. In a not so ideal world, clients may be forced into retirement through an unexpected and unplanned event.

Retirement brings with it a host of considerations. There are financial, emotional and logistical factors, which make your guidance indispensable when clients come to navigate this new terrain.

A planned retirement event may involve a transition to retirement plan already in place. It typically involves finalising financial arrangements, including income from super funds and retirement income products to maintain your client’s desired lifestyle throughout retirement, taking into account factors such as inflation, market volatility and longevity risk.

Unforeseen events, such as health emergencies, injury or job loss can significantly impact retirement plans. Financial advisers play a critical role in helping clients navigate these unexpected challenges in the form of guidance about contingency planning and insurance coverage. Early implementation of retirement income strategies can better position clients whose retirement event is unplanned. At the same time, advisers provide emotional support and reassurance during times of uncertainty, helping clients adapt to their changing circumstances while staying focused on their long-term financial goals.

The honeymoon period

The honeymoon period following retirement is a time of newfound freedom and relaxation, where your clients can savour the fruits of their labour and spend time doing the things they love. It’s a period that can span six months, six years or more! As every client is unique, so is every retirement. Each client’s individual experience will determine the length of their honeymoon period.

Despite the euphoria that often accompanies the honeymoon period, it’s important for your clients to maintain a sense of financial stewardship and ensure that their new life is sustainable over the long term. This is where you can play a crucial role. Your strategic guidance and support can help clients enjoy this honeymoon phase without depleting their assets.

One way you can assist clients during this time is to help them establish a sustainable spending plan that aligns with their retirement income and lifestyle goals. A personalised budget may include prioritising discretionary spending on travel, hobbies and entertainment while ensuring that essential expenses, such as healthcare and housing, are adequately provided for. This will allow clients to enjoy their newfound freedom while young and in good health without risking their longer-term financial security.

You can also help retired clients to make informed decisions about their investment portfolios during the honeymoon period. It’s an important time to optimise returns while managing risk. Significant market drawdowns early in retirement can have a detrimental impact on long-term retirement outcomes.

The honeymoon is over!

For some retirees the honeymoon stage is followed by a period of disenchantment. This does not happen for all, but generally occurs when retirement fails to meet expectations or when feelings of anxiety, often provoked by financial concerns, becomes an overwhelming emotion.

When retirees encounter such feelings of disenchantment after the honeymoon stage of retirement, it’s important they seek guidance to effectively navigate this challenging period. A fundamental way you can help clients in this stage of retirement is to conduct a comprehensive reassessment of their retirement goals. What have they accomplished and what’s still on the list? Is it achievable and, if not, what’s the roadblock and how can it be managed?

Through an open conversation, you can gain insights into your client’s sources of dissatisfaction and concern. In this way, you can help them recalibrate their expectations and priorities. This may involve revisiting their financial plan, an adjustment to their spending plan, or exploring new avenues for personal fulfillment and engagement. For some clients, it’s a return to part time work, for others it’s taking up volunteering opportunities to support a cause that has meaning to them. Ultimately, it’s about finding purpose.

By encouraging your clients to cultivate and maintain a sense of purpose in their daily lives, you can help alleviate the feelings of boredom, isolation and disillusionment often associated with retirement disenchantment.

Reorientation

Financial advisers play a critical role in the reorientation of clients who find themselves questioning their post-retirement aspirations and lifestyle choices. By proactively engaging your clients in comprehensive retirement planning well in advance of the retirement event, you can help mitigate uncertainty and facilitate a smoother transition into this next phase of life.

Through exploration of your clients interests, those that provide meaning and fulfilment, you can help your client cultivate a sense of purpose and direction in their post-work life. While this is ideally done prior to retirement, it is something that needs to be revisited at different stages of retirement to keep your clients aligned with their retirement objectives.

The creation of a retirement lifestyle plan can also help reorientate clients who question their post-retirement life. This plan should cover both financial and non-financial considerations and include the likes of: desired activities, setting realistic spending expectations, a framework for ongoing personal growth and engagement. By integrating financial projections with lifestyle preferences, you can assist your clients to make informed decisions that support their long-term wellbeing and fulfillment.

Retirement routine

The final stage sees your retired clients settle into a rhythm of life that reflects their preferences, interests and values. Some clients will find routine soon after they leave full-time employment, while for others, it happens later in retirement. This phase typically lasts for many years and offers your clients the opportunity to fully embrace the lifestyle they’ve envisioned.

One way you can assist clients in the routine stage of retirement is through regular reviews of their financial plans and investment portfolios. As your clients settle into their retirement routines, their financial needs and priorities may evolve over time. Health issues can often emerge in later years, which in turn may lead to a reassessment of living arrangements.

A review of retirement goals, income sources and spending patterns will enable you to ensure that each client’s financial strategies remain aligned with their long-term objectives. It also allows you and your client to make adjustments as new interests, opportunities or challenges emerge. Whether your client wants to pursue a new pastime, travel the countryside, or faces unexpected medical expenses, you can offer guidance and support to help your client adapt their retirement plans accordingly.

Retirement is a journey. Today, it’s typically a longer journey than experienced by previous generations – and retirement planning needs to take this into account. It is characterised by a series of distinct stages, each of which will be unique for every one of your clients. Each of these stages will present a range of challenges, opportunities and transitions during which your support and strategic guidance is essential to ensure each client has a fulfilling retirement experience. Through proactive planning before and during retirement, you can empower clients to navigate each of these stages of retirement with confidence.

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Notes:
[1] Robert C. Atchley, Retirement as a Social Institution, Annual Review of Sociology, Vol. 8 (1982)