Client Retirement Needs: Solving for De-accumulation - How the RMA Certification helps advisors solve for client needs
Advisors almost universally agree that those saving for retirement or living in retirement have a seemingly endless number of similar needs.
“They need a nest egg to keep them in a similar standard of living,” said Bill Harris, RMA®, CFP®, co-founder of WH Cornerstone Investments and author of Inheriting Your Spouse’s IRA. “They need good health, or they need health care and long-term care funded; they need to have investments that outpace inflation; and on the softer side, they need hobbies to stay sane, a social network, etc. Again, the needs are endless.”
According to Harris, pre-retirees feel particularly anxious about how they'll manage their income and spending needs once they retire. “They go from the land of one big check to the land of many little checks – Social Security, pension, IRA distributions, dividend, part-time work, etc.,” said Harris. “And, unless you are fabulously wealthy, it’s a huge challenge; your clients either realize that or they are naïve.”
Others share that assessment. According to Roger Whitney, CFP®, CIMA®, CPWA®, RMA®, AIF®, the founder of Agile Retirement Management and host of the Retirement Answer Man Show podcast, the number one concern clients have is this: How to go from a saver to a spender.
“Almost everybody has lived decades saving and investing and working and the people who are most successful at that, the ones that have money for retirement especially, have a hard time spending. You're going from sowing to reaping. And it's a very uncomfortable situation. If you think about it; they're losing their income, they're stopping the savings and growing. And those two things by themselves, give us a lot of power, a lot of agency. When you leave work, you're not saving, you're not earning, and you're supposed to spend a lot of money. That's hard.”
The Retirement Management Advisor® (RMA®) curriculum, says Whitney, “helps bridge the gap of this major life change by creating a framework to figure out how to do it successfully.”
Whitney also agrees that pre-retirees and retirees are concerned about creating a paycheck. “It seems obvious to us financial planners, but it's really a concept that is difficult to grapple with for someone who's lived off of work income,” says Whitney.
Whitney says pre-retirees and retirees want to know if their money will last over the course of their lifetimes, they want to know if they will be OK. “Having confidence in their spending and still feeling that they're going to be OK later in life,” he said.
In the RMA certification program, advisors will learn a process to help their clients meet their many retirement needs. They will learn, for instance, how to create a sound outcome-based holistic retirement-income plan that helps their client households manage the risks of longevity, inflation, unexpected health care costs, and the many other retirement risks they may face.
“I can only speak for myself,” said Harris. “The RMA program blew me away. I consider myself a very seasoned advisor. However, I was seasoned on the accumulation side of the coin. You need to be seasoned on the de-accumulation side of the equation. Not only does RMA educate, but it also opens your eyes for business opportunities and services that you never thought of.”
Whitney shares Harris’ sentiments. “I don’t believe people looking for retirement planning understand the difference between a financial planner and one that specializes in retirement planning,” he said. “The RMA equips a planner to help clients create a great retirement. That is not generally understood.”
Grounded in decades of academic research and practical application, advisors will also learn in the RMA program how to assess the readiness of a client household’s retirement plan using a tool called the Household Balance Sheet.
The Household Balance Sheet reflects the client’s “fundedness” based on several factors, including the present value of the client household’s social, financial, and human capital as well as the present value of the client household’s retirement expenses.
“I think of ‘fundedness’ probably the same way your doctor assesses your blood pressure,” said Harris. “Prior to RMA, I never discussed ‘fundedness’, now it’s a vital sign we check regularly.”
Whitney also thinks the Household Balance Sheet represents a major component of the RMA curriculum. “Essentially,” he says, “the RMA curriculum, through defining what you want out of life, putting numbers to it, organizing your social capital, human capital, your financial capital, and creating a household balance sheet, gives a framework to essentially create a payroll account to create your own paycheck, which is something people get once they hear it.”
After determining the client household’s retirement readiness, the advisor can then evaluate the degree to which the household is exposed to certain risks, such as longevity and inflation, and what techniques can be used to manage and mitigate those risks.
For some, Social Security may be enough. Others, however, might require different strategies – Social Security plus an income annuity or systematic withdrawal plan.
No matter the strategy, advisors will learn in the RMA certification program the process to determine the best retirement management allocations, allocations that are spread across four techniques: floor, upside, reserves, and longevity.
“The people who are most successful in saving have a hard time spending to begin with,” said Whitney. “But what ends up happening without the context of the Household Balance Sheet and the RMA structure is that people are considering doing something in their go-go years, but they don't have enough visibility of how they're going to be OK in their 80s,” he said. “And because they don't have that perspective, they just forego it. Because they're used to foregoing it because they're such great savers to begin with. When we have the household balance sheet and we're figuring out how to divide our assets between reserves, floor, upside, and longevity, once we have that structure, we can create what-if scenarios using this framework to show them what if we had more ‘go-go’ in their early years and helped show them how they're going to be OK later on. And that gives them the confidence to actually go rock retirement, as we say.”
In short, advisors will learn the process to create a withdrawal, drawdown, and spending plan for their clients. They will learn how to create retirement paychecks for their clients.
“The RMA curriculum does the most important thing,” said Whitney. “They (the clients) get to a feasible plan and then they optimize it through cashflow planning, and then they help optimize the ‘bling’ of planning through Roth conversions and all the other cool strategies. It puts that in the right order about how important this transition is.”
And the RMA curriculum, says Whitney, solves the big retirement needs that pre-retirees and retirees have. “It empowers advisors to really deliver a standard of care that almost no advisors do.”
To learn more about the Retirement Management Advisor® (RMA®) program visit: www.investmentsandwealth.org/rma.
Robert Powell, CFP®
Robert Powell is editor and publisher of TheStreet’s Retirement Daily and a frequent contributor to USA Today and AARP. He also serves as editor of the Investments and Wealth Institute's Retirement Management Journal; host of the IWI's Exceptional Advisor podcast; host of the Callaway Climate Insights podcast; co-founder of finStream.tv; and instructor in Salem State University's Online Elder Planning Specialist program. Previously, he served as editor of Retirement Weekly; managing director of Dalbar; and managing director of Acadient, an online financial education company. He has written about personal finance, investments, and retirement since 1986.