As market volatility continues to impact on retirement savings, it’s understandable that many of your clients are feeling anxious and vulnerable about their future. Here’s what you can do to help.

The impact of COVID19 on the economy and markets has seen the value of many retiree nest-eggs rapidly decline. By March 2020, coronavirus market volatility had wiped 4.5 years¹ of income off retiree balanced portfolios – with further impacts expected as the crisis plays out.

As they face a less certain future, with a more modest lifestyle or earlier reliance on the age pension, it’s understandable that your retiree clients may be experiencing considerable stress.

Before the latest market falls, research found that two in three Australians in or approaching retirement were unsure of their financial security in the event of an economic downturn.² So as their trusted adviser, your clients will be looking to you for guidance and support.

While there’s not much you can do to change the wider market conditions, here are five ways you can help your clients to refocus, adapt and alleviate their anxiety during periods of volatility.

1. Help them take a long-term view

It’s important for your clients to take a long-term approach to their investments – even when they’re already in retirement. To help them do this, consider providing examples of where markets have fallen in the past and demonstrate how they have recovered over time. That way, they can understand the current disruption as a normal part of the investment cycle.

It’s also worth reminding clients of how long they can expect to spend in retirement. This will help remove the pressure around their investment horizon and reduce their desire to make rash, short-term decisions, like moving their money into cash.

2. Understand the risks

If your clients are talking about moving their money out of shares, they may not understand the inherent risks in holding high levels of cash. Before they rush into anything you need to explain that cash returns may be lower over the long term and result in less income for their retirement down the track. It is helpful to provide some examples of how this works and, in particular, what it would mean for their day-to-day spending.

Recent Allianz Retire+ modelling shows that a move to cash in March 2020 could have depleted retirement income by around 8 years1.

If a client still wants to reduce their exposure to shares, look for alternatives to cash – such as products that offer growth opportunities while still providing the protection the client is seeking.

You should also make sure that your client understands the potential tax consequences of any decision.

If your clients are talking about moving their money out of shares, they may not understand the inherent risks in holding high levels of cash.

3. Prevent constant checking

You should identify clients who are checking their balances online very frequently, as this is typically a sign that they are struggling with the current situation.

This can be the manifestation of hyper loss aversion, a behavioural bias common among retirees. This is the propensity for people to become more sensitive to financial loss as they age.

In fact, research shows that retirees fear a loss ten times as much as they value a gain, compared with two times for someone in the accumulation phase.³

To help these clients, you may want to reach out to provide additional support, and remind them that it’s not helpful to be checking their portfolio value every day.

The best thing they can do is to stop looking, so you may want to consider limiting easy access to this information. For example, if you have a portal for clients, you might consider switching it off and asking clients to call you for their balance. If you decide to do this, make sure you discuss it with your clients first, so it doesn’t cause further anxiety or distress.

4. Review non-financial goals

Now is a great time to discuss the things that your clients are hoping to achieve that aren’t dependent on finances. For example, did they want to learn a new language, musical instrument, or other skill?

You can talk about these with your clients in detail – and if they don’t have any specific goals in mind, you could suggest writing up a list. You want to shift the focus towards other areas of their lives that can continue to thrive during a financially challenging time.

5. Accentuate the positive

The best way to counteract stress and panic is to encourage your clients to look at all the positive things that are happening in their lives. These might include staying in touch with friends and family, and spending their time doing activities they enjoy.

To take the strain off their finances, your clients may need to pare back their lifestyle in the short term, and emphasising simple pleasures will help make this easier.

Looking ahead

While the impacts of COVID19 continue to be felt across all aspects of our lives, it’s important to remember this crisis will eventually come to an end. As an adviser, you play a critical role in helping your retiree clients stay positive and avoid costly mistakes – so they can bounce back as well as possible once markets recover.

1Source: Allianz Retire+ Investfit calculations based on a balanced portfolio modelled against a 15% decline since 20 February 2020 to 20 March 2020, against income generated for a 65-year-old to age 90, with a portfolio balance of $1 million.
2Source: Allianz Retire+, The Next Chapter, 2019.
3Source: Behavioural Finance and the Post-Retirement Crisis. Prepared by Sholomo Benartzi, UCLA. Sponsored and submitted by Allianz of America, 29 April 2010; Hyper Loss Aversion, chapter 4, p8.

This material is issued by Allianz Australia Life Insurance Limited, ABN 27 076 033 782, AFSL 296559 (Allianz Retire+). Allianz Retire+ is a registered business name of Allianz Australia Life Insurance Limited. This information is current as at April 2020 unless otherwise specified and is for general information purposes only. It is not comprehensive or intended to give financial product advice. Any advice provided in this material does not take into account your objectives, financial situation or needs. Before acting on anything contained in this material, you should speak to your financial advisers and consider the appropriateness of the information received, having regard to your objectives, financial situation and needs. No person should rely on the content of this material or act on the basis of anything stated in this material. Allianz Retire+ and its related entities, agents or employees do not accept any liability for any loss arising whether directly or indirectly from any use of this material. Past performance is not a reliable indicator of future performance.