With all the noise around the rising cost of living and the situation in Ukraine, it can be hard to focus on the positives. But it is times like these that highlight the full value of ongoing financial advice and the enormous impact it can have on individuals’ financial wellbeing. In the midst of the current uncertainty that cannot be underscored enough.
So, is there a need to shift the mindset and client expectations over the short term? I would argue that the power of holding regular client reviews and optimising a truly diversified investment approach can allow you to manage this challenge on a more fluid basis.
Sustainability of income
Those clients who are in drawdown and taking regular income from their plan will naturally be feeling the bite of inflation. Of course, income can be increased to keep pace or even outstrip the rate of inflation, but this can have a detrimental impact on clients’ income sustainability.
There is then the added complication around markets swinging on a day-to-day basis and the subsequent impact of sequencing risk and volatility drag. This can have a significant bearing, not only on the capital generated to date, but also on a client’s ability to generate further income.
It also highlights that when clients transition to taking money out of their pension, it is not just a question about how their investments perform but also when their investments perform.
So how can income sustainability be preserved in times like these? If clients can afford to, it is certainly a sensible move to limit the amount of income currently being withdrawn. And in addition to reducing income, do not be afraid to discuss expenditure with your clients. Reducing current and expected levels of expenditure can improve income sustainability over the longer-term.
It may also be time to review your own existing advice processes for clients in drawdown and taking regular income.
Adopting a centralised retirement proposition and placing a greater focus on things like capacity for loss, spending habits, sequencing risk and the sustainability of income withdrawals enables a greater focus on clients’ specific and different needs in this phase.
Getting the income level right is the key to sustainability scores and this is where planning tools can play a significant role. Adjusting income levels to reflect the wider economic environment can ensure that clients maximise the likelihood of sustaining income throughout their retirement.
