The generous retirement process is something I use that is client-facing and will apply to all of you because it’s about how you make the clients feel. It’s about a process that gives them confidence and peace of mind and the certainty that they are going to be OK.

So there’s “tax now,” “tax later” and “tax never.” In the U.S. there are certain assets in the “tax now” column, like checking or savings accounts, like some mutual funds, that are outside of retirement accounts, where you might pay some capital gains tax or some interest taxes on that money every year. Then we have retirement accounts. We have annuities that can grow tax-deferred. We have individual retirement accounts that are set up for later in retirement that can grow tax-deferred, and so that is our “tax later” column. And then we have our “tax never” column. The “tax never” column doesn’t mean never taxed. It just means that once the money’s there, it’s never taxed again. These are things like Roth IRAs and life insurance.

We had a client who retired in March 2020 in the middle of the pandemic, and he said, “Am I going to be OK? Can I still retire? I see how much my account is down.” I said, “In this part of your account, the long-term bucket is down, but your conservative bucket hasn’t lost a dime. Yes, you can retire.” We started drawing income off his conservative bucket while giving that more aggressive money time to recover. So we spend down the conservative bucket, and then the next year we review how the account’s doing, and in years where the market is up, we’ll reposition money from the aggressive bucket into the conservative bucket. In years where the market is down, don’t sell. I don’t have to time the market; I don’t have to know when the market’s going to go up or down. I just have to be able to read a statement. Did you make money, or did you lose money?

If you made money, now would be a good time to reposition money into the conservative bucket. If you lost money, now’s probably not a good time. Let’s keep spending down your more conservative money. You may choose to do this in three separate buckets. You may have it in one large bucket, but you just show it differently to clients so that they see what the overall goal is for the money.

Next, let’s talk about retirement income. We like to try to guarantee their income for life, at least their baseline needs. What does that look like? Let’s say we’ve got a husband and wife receiving U.S. Social Security, a government program that gives us income for life. So the husband’s Social Security is larger in this case. Sometimes it’s the wife’s, but let’s say the husband’s Social Security is larger.

What will happen is that larger Social Security benefit will continue as long as either spouse lives. The smaller of the two Social Security checks goes away when either spouse passes away. What we’ll do is claim the smaller of the two checks sooner. We’ll claim the larger of the two checks later. In this case the husband also had a pension, and so let’s say a pension, just a workplace retirement income stream that he gets for life. And so between the Social Security of the husband, the wife and the pension, we’ve guaranteed $4,500 per month, but they want to guarantee $5,000 per month. What do we do? Well, one option is we could just draw a little bit more off the buckets. Another option is we can carve off a portion of their money into a guaranteed lifetime income, some sort of annuity vehicle probably, and we create a guaranteed income for life.

Why do we do this? Because now they know that their baseline income needs are met. What’s the purpose? Again, peace of mind and certainty. Give them the option. Our industry is going toward investment management. And we’re not talking as much about annuities. I think that if we just say, “Mr. and Mrs. Client, here are the options. You can draw some off your managed account, or you can buy this annuity. If you buy this annuity, the fees are higher. Here’s the difference. It’s going to be an extra — pick a number — 1 1/2 to 2 percent per year more to have this product. Here’s the advantage. You have more peace of mind and more certainty. Would you like to buy this?” Give them the opportunity to say no. Some people are going to say, “Oh, the fees are higher. I don’t want that. I want the lower fee option.” Great. Some clients are going to say, “I want the guarantee. I want the peace of mind and certainty.” Great. You’re giving them options because it’s better that they hear the options from you rather than from another advisor.

We need to have a plan for long-term care. Now we call that nursing home care, assisted living, in-home care. Sometimes family members are providing that care, but often in the U.S. it’s provided at a facility or when a nurse comes to the home. You can purchase long-term care insurance, or we can do some extra work with them. Sometimes we use attorneys to draft trusts that can protect assets from needing to be spent down to pay for care. But what you are doing is understanding what their concerns are, and you are helping them to have more peace of mind that they are going to be OK. Then we look at estate strategies to maximize the money to the family by giving more from the “tax now” and the “tax never” buckets because the “tax now” and “tax never” buckets in the U.S. pass tax-free to the family.

If they have any charitable intent, we want to give more of that from the “tax later” column because, in the U.S., the family pays taxes on the “tax later” bucket, but a church or charity does not. And I know that’s not the same in every country, but that’s an interesting way that we can give more to the causes they care about by giving away money in the “tax later” column that the family would otherwise have to pay taxes on. By giving it to a church or charity, it goes tax-free.