With a growing number of Baby Boomers retiring every year, financial advisors have an unprecedented opportunity to attract new clients to their practices and grow their businesses.

Pre-retirees and retirees face a host of financial planning and investing issues, and, unlike younger generations, are working with a small margin of error. Their need for professional advice has never been greater. Advisors are in a unique position to play an important role in helping those planning for retirement navigate the opportunities and pitfalls of managing their money. (For related reading, see: How Baby Boomers Will Change the Way Others Retire.)

Even though older investors have weathered a variety of stock market highs and lows - such as the 1987 crash and the subsequent bull market and the post-financial crisis run up from 2009 to the present – they are not putting this experience to use. In fact, a recent survey by Dreyfus found that nearly two-thirds (61%) of investors 55 or older have not or will not reevaluate their investment approach as they head toward retirement. But, clearly, those who plan to retire in the next five to 10 years may need to shift their focus from growing their wealth to preserving it.

To be sure, there are significant challenges in attracting new clients who have been investing for years and initially may not be receptive to making changes in their investing approach or engaging a new advisor - or their first advisor - so late in the game. We have found that one of the most effective ways to break through investor resistance is by discussing common investing mistakes with prospective clients and showing them the potential consequences of not taking a goals-based approach to retirement investing.

Our survey also found that nearly two-thirds (65%) of those who work with an advisor have adjusted their portfolios, compared with 40% of those who do not. What’s more, advisors reported that nearly three-quarters (73%) of their clients changed their approach as a result of the advisor’s advice. By engaging a prospect in a conversation on how to avoid miscues in an effort to maximize their retirement nest egg, an advisor can break through their natural resistance to change and become a valued resource for years to come.

To get started, focus on these 11 common mistakes pre-retirees and retirees make:

1. Failure to Reevaluate Investments As Retirement Approaches

This problem is far too widespread among investors 55 and older. Although the markets are strong right now, it took several years to recoup losses from the Great Recession. Nasdaq took almost 15 years to return to its previous high in 2000. Advisors would be well positioned to arm themselves with such historical market information and explain that markets can take years to recover and point out that a significant decline in their transition years could mean the difference between a comfortable retirement and just getting by. (For more, see: Why Boomers' Retirement Is Different from Their Parents.)

2. High Equity Allocation in Pre-Retirement and Retirement

Advisors recognize the risk involved in keeping too many assets in stocks later in life, but this seems to be lost on many investors. To educate clients and prospective clients, advisors can perform an analysis on an individual’s holdings and demonstrate the impact that even a 5%-10% correction would have on their savings.

3. Selling Instead of Buying When Markets Decline

This is a common mistake that many investors make, but it is a particularly impractical idea for those in transition years. Older investors who want to keep some of their assets in equities need to be smart about when to buy. Advisors are well positioned to guide clients through market declines and recommend stocks that can enhance returns when the markets come back.

4. Panicking When the Markets Stumble

Many investors panicked in the 1987 and 2009 market meltdowns and exited their positions as the markets reached new lows. One way to help investors to avoid this mistake is to advise them on a group of core holdings that are off limits regardless of how the market is performing.

5. Trying to Time the Markets

Savvy advisors know this does not work for building long-term wealth and that it is an even riskier approach in the transition years. Given the short horizon between their working years and retirement years, those 55 and older can least afford to time the markets and the almost inevitable result that comes with it.

6. The Use of Alternative Investment Strategies

Alternative investments that are not correlated to the markets may help increase diversification and reduce volatility. However, most investors are not familiar with alternatives and are ill-equipped to make sound decisions in this area. Advisors have a unique opportunity to offer value-added services by recommending alternatives that may be right for an individual. (For more, see: Alternative Investments: How the Game Has Changed for Retail Investors.)

7. Failure to Identify Specific Outcomes During Retirement Years That Will Influence Investment Allocations

Every individual is unique and has different goals for retirement. Advisors should ask investors what their goals are - buying a second home, downsizing, traveling, moving to a less expensive or lower tax state, working part time - and develop a specific goals-based wealth management plan to help ensure clients can have the retirement they envision.

8. Not Understanding Duration and Impact of Rising Interest Rates

We have enjoyed a long period of low interest rates, but retirees should not expect rates to remain low for the duration of their retirement. Increasing rates increase the cost of living and will chip away at retirement nest eggs. Advisors and their clients cannot control interest rates, but every investment plan can include strategies that are designed to offset the impact of rising rates.

9. Underestimating Life Expectancy

People are living longer and many will be retired for 30 years or more. This longevity and all that comes with it can be factored into every retirement plan. It can be hard for people to understand all of the considerations impacting a long retirement, but advisors who take an analytical and dispassionate approach can help set clients up for long-term success.

10. Claiming Social Security Benefits Too Early

According to the Social Security Administration, 35.8% of eligible men and 38.9% of eligible women take their Social Security benefits at age 62 (1). Unless there is an absolute need, this a bad idea because the monthly payout will be 25% lower than waiting until age 66. What’s more, waiting until 70 will net an additional 32% in benefits. Unless a client’s circumstances suggest differently, advisors may wish to encourage them to wait and devise other strategies for making ends meet in early retirement.

11. Using Retirement Savings to Pay for College

This could be a detrimental decision for someone approaching retirement. College students can get loans and grants and they can work to pay for tuition and other expenses. Even though monthly loan payments can be substantial, new graduates have a lifetime to pay them off. Pre-retirees and retirees don’t have that luxury. Unless children are willing to help pay for their parents’ golden years, taking money from a retirement account is an ill-advised decision.

By walking prospective clients through these common investor mistakes and providing strategies that are tailored to meet their specific needs, advisors can demonstrate the value they can add and add value with even the most hesitant prospect. (For more, see: 9 Financial Mistakes Retirees Can’t Afford to Make.)

Mark Santero is Chief Executive Officer, The Dreyfus Corporation, A BNY Mellon Company.


(1) Research Summary, Early Claiming of Social Security Retirement Benefits Increased During the Recession, Office of Retirement Policy, Social Security Administration, April 2013

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