Clients approaching retirement face a complex financial landscape. Sebastian Van Mook, Business Development Manager at Standard Life, explains why certainty around essential expenditure is becoming a more important part of retirement planning conversations.
Retirement planning has never been solely about numbers.
Cashflow modelling and long-term projections both have an important role to play, but many clients approaching retirement are focused on a much simpler concern – whether they will be financially secure in the years ahead.
Will I have enough income?
Can I maintain my lifestyle?
What happens if markets fall?
Those questions have always formed part of retirement planning, but in recent years they appear to have taken on greater significance.
“The world is a much more uncertain place today than it was even five years ago,” says Sebastian Van Mook, Business Development Manager at Standard Life.
For many people approaching retirement, uncertainty can feel much closer to home than the wider economy. Concerns about maintaining their lifestyle or ensuring their savings last throughout retirement can influence how they view the future.
“Customers aren’t daft, and they see the news every day,” he says. “They hear the stories about market volatility and global uncertainty. They might not understand every detail, but they know it’s there.”
As a result, retirement conversations are often as much about confidence as they are about calculations.
Beyond the numbers
Financial planners and paraplanners spend much of their time navigating technical complexity.
Investment assumptions are important. So too are considerations around inflation and taxation. Yet when clients sit down to discuss retirement, the conversation is rarely driven by technical modelling.
Instead, clients want to understand what retirement will actually look like and whether their finances will support the life they want to lead.
“You can come up with all these lovely stochastic models and all this really pretty stuff,” says Sebastian. “But that’s not what the customer is asking.”
The questions he hears most often are refreshingly straightforward.
“They’re asking very basic questions. Am I going to be okay? What does my financial future look like? Am I going to run out of money?”
While technical planning remains essential, those questions highlight an important distinction between creating a retirement strategy and helping a client feel comfortable enough to live with it.
The role of guaranteed income
One consequence of this shift is a renewed focus on guaranteed income.
Rather than being viewed as an alternative to other retirement solutions, it is increasingly being considered as part of a wider strategy.
The starting point, says Sebastian, should be identifying the expenditure that must be met regardless of what happens elsewhere.
“Get your essential spending covered.”
Retirees may already have access to secure income through the State Pension or a defined benefit pension arrangement. Others may discover there is a gap between the income they can rely upon and the expenditure they simply cannot afford to be without.
That can be particularly relevant for those who retire before State Pension age and need a reliable source of income while bridging the gap to other guaranteed benefits.
Where that gap exists, guaranteed income solutions can help provide greater certainty.
The objective is not to remove risk altogether. It is about creating security around the costs that underpin day-to-day life and ensuring that essential spending is not dependent on market performance.
Staying focused when markets move
Market volatility is an unavoidable part of investing.
While clients often accept this during the accumulation phase of their financial journey, the experience can feel very different once they begin drawing an income from their pension.
A fall in portfolio value may not necessarily change a long-term plan, but it can affect confidence. Concerns about market performance can quickly become concerns about maintaining a lifestyle or preserving financial independence.
This is where certainty can play an important role.
If essential expenditure is already covered, periods of market turbulence may feel less daunting.
“The client is still going to be hurt by a stock market correction,” says Sebastian. “But their bills are paid, the food is on the table, petrol’s in the car. They’re probably not going to lose as much sleep.”
That reassurance can help clients remain focused on longer-term goals rather than reacting to short-term fluctuations.
Finding the right balance
More conversations around guaranteed income do not mean retirement planning has become a choice between annuities and drawdown.
Instead, many firms are exploring how different solutions can work together.
Guaranteed income can provide security around core expenditure. Drawdown can offer continued flexibility, allowing clients to adapt their plans as circumstances change.
The mix will be different for every client.
Some clients will place a greater value on certainty, whilst others will want as much flexibility as possible. The right approach will ultimately depend on what matters most to the individual.
What is becoming increasingly clear, however, is that retirement planning is no longer simply about maximising returns. It is also about helping clients feel confident enough to spend the money they have worked hard to accumulate.
Clients are spending longer in retirement, with some gradually reducing working hours rather than stopping work altogether.
As a result, retirement planning is becoming increasingly personal, with solutions needing to reflect individual circumstances rather than a one-size-fits-all approach.
It’s perhaps no surprise then that conversations around certainty are becoming more common.
For some clients, simply knowing that their essential expenditure is covered can provide reassurance and allow them to approach the rest of their retirement planning with greater confidence.
While retirement planning will always involve calculations and projections, many clients are ultimately looking for confidence that their income will continue to support the life they want to live.
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