Financial Advisors: The Tricky Language of Retirement Income

Here’s a shout-out to the Helping Advisors Blog from Russell Investments…from which the following thoughts are generated. I have always found this blog to be interesting and thought provoking; this one especially so.

In this recent post, The Realities of Generating Retirement Income, there is a very thoughtful discussion with respect to the uncertainties of retirement income with regard to what is predictable and sure in this low-interest rate environment.

In the first place, let’s put this out there. We are coaches, not investment experts. Most of you reading this blog have much better subject matter expertise when it comes to understanding and explaining the markets and investments.

Yet, when reading this post, we were struck with the impact of language and specific words that financial advisors use when explaining the reality of generating retirement income.

What this article points to is a number of possible disconnects. In some cases, clients seem to not fully understand (possibly willfully) what their advisors are doing to generate retirement income. In other cases, there is the possibility that advisors are not doing exactly what they’ve communicated to their clients. In still other instances, the advisor might not be completely clear in their explanations. Or, maybe it’s a combination of all three?

Here is the paradox, as expressed in bullet points:

• Clients are uncomfortable with uncertainty, especially when it comes to retirement income.

• In today’s low-interest rate environment, certainty and reliability is in short supply as financial advisors look for ways to generate income for clients at or near retirement.

• Of the multiple strategies that financial advisors use to generate retirement income, e.g. total return, bucket strategies, covered calls, yield-seeking, etc., yield-seeking is the most certain and understandable from a communication standpoint in that it can be explained with a definitive number.

• The paradox is that, while focusing on yield (i.e. dividends + interest) might seem simpler and most easily understood by investors, it can be a decidedly dangerous exercise to reach for yield in a low-rate environment.

Moreover, a number of questions come to mind with respect to how financial investors employ and describe income strategies:

What strategies do you use in generating retirement income for your clients?

How do you balance the desire for certainty from investors, when there is a conflict with what is best and most suitable for their situation?

What language do you use in explaining those strategies to investors who draw comfort from certainty and predictability, especially for income-generating strategies that are more nuanced than straight “yield-seeking” approaches?

Are the strategies that you employ completely consistent with the language that you use?

Ultimately, this might all be about the language of expectations. No doubt, it’s a tricky balance to communicate a sense predictability and constancy to apprehensive investors who seek certainty in an inherently uncertain world. 

To negotiate this path successfully is one way that financial advisors can provide real value to their anxious clients.