What Are Your Clients Saving For? Ask the 5 "Ws"

When walking clients through a retirement plan, you likely focus on the numbers: whether they’re saving enough in their 401(k) or how much they can draw down from their nest egg once their working days are over.

Those are important questions. But how can your client know how much money they'll need in retirement if they don't have a vision of what they're saving for? Have they addressed the emotional planning and answered the five "Ws": the who, what, when, where, and why of their retirement plan?

This emotional planning is often overlooked. Though nearly three-quarters of investors in their 50s have made a serious effort to plan financially for retirement, only about a third have planned for how they want to spend their time in retirement.

It’s critical that preretirees prepare for—and focus on—the key drivers of retirement happiness and success: lifestyle, health care, and meaning. Building a vision of what they want retirement to be will help your clients connect the financials to what they’re trying to achieve.

“So many of us run the savings numbers with our clients but neglect to factor in how their retirement hopes and dreams will drive what they need those savings to support,” says Stuart Ritter, vice president, Insights Director.

Research shows that creating a vision encourages people to save more. Helping clients link current financial planning to their nonfinancial goals may provide the incentive they need to better prepare for this major transition. 

To help your clients create their retirement vision, ask them to answer the 5 "Ws." Thinking about the who, what, where, when, and why will go a long way toward helping them connect their vision to their financial plan.

Who: Who will be in your social network in retirement, and how is that different from today? Will you replace the time you spend with coworkers with time with grandkids? This can also include the people you think will support your health and wellness in retirement.

What: What activities do you see yourself participating in to help you live a healthy and vibrant life in retirement? Do you anticipate work playing a role in your retirement? Might travel take front and center?

Where: Where do you want to live in retirement? This includes both the location and the amenities you want. What factors will influence your decision? Staying in your current home versus downsizing (or upsizing!) will have a big impact on your retirement and could have significant financial implications as well.

When: When do you want to stop working? Will you phase into full retirement with part-time work or stop working all at once? What are the key factors that will impact this decision? Your “When” could help you better think through how many years you’ll spend in retirement based on your personal health and family history of longevity.

Why: Why do you want to retire? What do you envision getting you out of bed every morning? This question aims at your sense of purpose in retirement—your source of meaning. Before retirement, meaning often comes from work and family. Thinking through your new “Why” in retirement helps the transition go much more smoothly.

Your clients’ answers to the 5 "Ws" will give them a framework for their vision. You can now help them understand what this vision tells them about their spending needs in retirement.

“You can help clients start with the rough assumption that maintaining their current lifestyle means they’ll need 75% of their preretirement income,” says Ritter. This includes top spending categories such as housing, transportation, health care, and food. “If they foresee any major changes in those categories or others, they may need to make adjustments to the timing of their retirement or their savings strategy.”

Of course, there are many nuances to consider. But once your clients have a clearer retirement vision, you can better help them align it with their saving strategy. And that will help them stay on track to make that vision a reality.