How to keep your clients from retiring more than once

There are some things that people prefer to do only once in life, and a big one on that list is retiring. Walking out those office doors for the last time is a monumental moment for most folks, and one that's generally not meant to be relived.

That said, an increasing number of American retirees are finding themselves forced back to work as a result of a financial or life change, resulting in multiple retirements.  

InvestmentNews caught up with Mike Lynch, managing director of applied insights at Hartford Funds, to learn why so many people who think they're ready to retire are ultimately forced to return to the workforce, as well as how financial advisors can help their clients get retirement right the first time and make it stick.

InvestmentNews: Why are an increasing number of people finding themselves in their second or third retirement?

Lynch: There are many reasons why people retire, unretire and retire again, but the most common one is underestimating expenses. Whether it’s out-of-pocket health care costs or property taxes on a new home, there are several easily overlooked factors that can derail retirement plans and cause someone to return to the workforce. Unexpected life changes and boredom can also dramatically shift the ideal vision of what retired life looks like, especially without the 9-to-5 grind.

IN: What costs or taxes do people forget to account for prior to entering retirement?

ML: People often underestimate the cost of health care, which is one of the biggest expenses in retirement. If you develop an illness that requires additional medications, doctor visits or even hospitalization, health care costs can pile up quickly. On the other hand, if you are active and healthy, you will likely be spending more 'fun' money on traveling and social activities. For either scenario, it’s always a good idea to save more than you think you’ll need.

While your retirement savings may look robust, pre-retirees often fail to anticipate the full impact of taxes. You may be taxed when you withdraw from different types of assets during retirement, such as your pension, 401(k) and Social Security. People who plan to move in retirement can sometimes underestimate the differences in the cost of living and tax rates from state to state.

IN: Which life changes most often catch retirees flat-footed and force them to alter their retirement plans?

ML: A lot of times, an unexpected life event is the reason people need to alter their retirement plans. If you have a family member who becomes ill, you may have to change course to assist. If your child decides to go to grad school, get married or adopt a child, and you want to financially help, you may consider getting a part-time job. It’s life events like these that will impact your overall withdrawal strategy and may cause you to reconfigure your retirement plans.

IN: From a mental standpoint, how does the lack of a day-to-day structure surprise new retirees?

ML: You’ve heard it before: Humans are creatures of habit. If you think about it, for nearly all your life, you’ve structured your days around a routine like work or school. Then suddenly, you enter retirement and realize you are on no one’s time but your own. It’s exciting and promising at first, but the bucket list often gets exhausted quickly. Ultimately, we need a sense of purpose, and it’s vital to create that in retirement outside of what used to be your day-to-day routine. Boredom drives people back to the workforce more often than you would think.

IN: How can financial advisors better prepare future retirees to be ready both mentally and financially to meet the challenges of retirement?

ML: Financial professionals can build a diverse, qualified network of other related professionals as part of their practice to help clients prepare for retirement and tackle the challenges ahead. Financially speaking, this network may include a tax specialist, a legal expert and a real estate agent. From a health perspective, the network may also include a senior fitness specialist and a geriatric care manager.

When it comes to retirement planning, it’s also important for financial professionals to be adaptable and encourage their clients to do the same. Life is unpredictable, and retirement plans often change as time goes on.  

Lastly, financial professionals should regularly check in with their clients and ask these three essential questions about their vision for retirement: Where do you plan on living? What do you plan on doing? Who do you plan on spending your time with?

The answers to these questions are truly the starting point for financial professionals to create the best financial strategy and mental road map for their clients. The more you learn about your clients’ dreams, goals and realities, the more you can help them be prepared for a successful retirement.