Clients Are 'Exhausted' and Want to Retire Early. Advisors Can Help.

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COVID has seemingly changed everything, and that includes retirement planning. Be it due to illness, the death of a loved one, working remotely, or spending more time with family, COVID is causing people to reprioritize what matters most, and smelling the proverbial roses sooner is often at the top of the list. This is Greg Bartalus, editor-in-chief of Barron's Wealth and Asset Management Group. My guest, Julie Kelly, is exceptionally qualified to discuss the topic of early retirement. She's a financial advisor for Edward Jones in Durham, North Carolina, and has been at the firm for more than a decade. And since 2010, she's taught a course on retirement at Duke University titled 30 Years Without a Paycheck. Julie, welcome.

Good afternoon. It's a pleasure to be here.

Thanks so much for joining me. Oh, you're most welcome. Um, you've, you've said, uh, that many clients who had planned to retire in, let's say, 5, 10 years due to COVID have been reaching out to you to discuss retiring sooner. Please tell me about what's behind this. What are they saying in these conversations and what, what's exactly behind it in more detail?

Absolutely. So it's a trend that we started to observe as we work with hundreds of different families in the Triangle community within North Carolina. And what we have observed is the individuals that work on the front line. So I want you to think of doctors, dentists, hygienists, et cetera. They have all kind of reached out and said, you know, that financial plan that we ran, Julie, I need to revisit with you. I'm just exhausted. I'm tapped out. And I think I would like to retire earlier. Where it's interesting on the other side of the table, the individuals that have been given the opportunity to work from home and given more flexibility, they're now willing to perhaps work a little bit longer. And what What we've seen, I think, is essentially that this pandemic, this COVID situation that we've all been faced with, has really, I think, brought to the forefront of everybody's mind that life isn't forever and they have one life to live. And we're seeing this trend that maybe they want to start to enjoy it a little bit more and have more meaning to it. So that was a trend that I saw in my own practice in Durham, North Carolina. But it was interesting, Edward Jones back in 2020 did a research study with Age Wave study where we surveyed 9,000 different people across the country and tried to understand kind of their perception, their views as they journey through retirement. We revisited those same 9,000 investors throughout the country as we were going through the pandemic, and 76% of them credited the pandemic for helping them kind of want to refocus on really what's important. So I think again, it's just this pandemic has brought it to the forefront of people's mind that their life is not forever and want to bring more purpose and intentionality to it.

And when they're refocusing on what's most important, I mean, are there any themes that are emerging that you tend to hear?

We definitely have seen that. So what we do with the families that we serve, for every relationship, we run a comprehensive financial plan for them. And essentially in that financial plan, we look at with the resources they have, can they live the life that they want to live at a level of risk that they're comfortable taking? And so when they're coming in, we are prepared and ready to look at that financial plan, look at an earlier retirement date. I have noticed a trend that they all want to make sure that they've built in a budget for medical expenses later on in life. And again, I think that's a result of the pandemic, but we really try to stress test it for high medical expenses. We focus on stress testing it for perhaps needing independent health insurance. That's more on the forefront of people's mind. And then the big thing we've also been really working on is helping them see that their dollars can serve more than just their retirement cash flow needs. We try to help them see that their dollars can serve a greater purpose in their life. So talking to them more about if they had extra funds, what would they want to do with them?, like whether it be now, over the next 10 years, 15 years, or at their death. Um, and so that's generally kind of what we prepare to look at when they come in, uh, having those additional expenses prepared and really helping bring more purpose to their dollars.

Are they saying they want to maybe do more philanthropy or give that more to their children, or what are you hearing from them?

Yeah, you kind of hear a mixture of things. Uh, first off, sometimes people haven't really thought about it. So one of the greatest phrases that I've started using with clients as we visit with them is, um, I see kind of my value as a financial advisor to bring, um, intentionality to your dollars and purpose to your dollars. And I'll tell them that I see one of the benefits of collaborating with us is that we can help them bring the future to the present. And we do that through our financial planning skills— tools, excuse me, uh, where we can show them, you know, gifting on an annual basis to charities, to their children, Because what I have found is when you ask a client at the end of the day, when they can see how much money they're going to have left over, and let's say they're going to have several millions of dollars left over, do you really want to die with X amount of millions of dollars in your estate when you're no longer here? Or would you like to bring more intentionality and purpose to those dollars while you're alive and you can be part of it? And I'll tell you, it's been so rewarding. Some of the best conversations I've ever had with clients We recently had a client in where they had quite a nice estate left over at the end of their death, even though we stress tested it. And they had always been talking to me over the last year about their new grandchildren. And I just said to them, I said, you know, do you really want to leave this all at your death when you're not going to be here to be part of that experience? You have talked to me so much about your grandchildren. Would it mean anything to you if you could pay for some of their education, maybe their first year of college or the first 2 years of college? Would that be something that would fulfill you? And they had never thought that they had the capability to do that. And the woman started crying when we reran the financial plan and she could see that she could fund, uh, 2 years of college out of 4 for her 4 new grandchildren that she's had in the last year. And she called us afterward and said, Julie, there was one word that you used in that conversation that has stuck with me, and that is purpose. I've always just lived life using my dollars kind of for my cash flow needs.. But you really helped me understand that there's a purpose to every dollar that we have. We just need to uncover and figure out what that is.

How about for people, let's say, who, who want to retire early, but let's say they're not really being realistic about how much they need, um, and are overestimating, uh, their, their, their resources. Um, and, and especially given that people are living longer, how do you bridge that potential gap? The risk of disappointing the client? How do you broach that tough subject?

That's a funny question. I do a lot of coaching to financial advisors at Edward Jones, and they always say, are you going to really tell a client they're going to run out of money? And the answer is yes. I mean, that's our responsibility as a financial advisor is to show people the risks that are present to them. But then I think that's where the fun really starts. We get to show them how they can close and bridge that gap. And the analogy I often use for clients is, you know, financial planning and savings is like a rubber band. If you pull it on one end, the other end's going to get a little tighter. So when we look at a financial plan, we can either work longer, spend less, save more, or take more risk in our investment portfolio. It's really that simple. So helping them prioritize what is most important to them. So if they come to me and say, I have a drop-dead date that I have to retire at 55, well, I'm going to have a really serious conversation with them about how much more they're going to need to save in order to be able to do that. Or if they say, I need to leave $500,000 to every child that I have. We're going to have a really serious conversation about sustainable withdrawal rates. One of the greatest things that I show clients if they want to retire earlier is starting to get them to think about, uh, would they be willing to perhaps consider some part-time income, maybe in a career that would be a little bit more fulfilling to them than what they're currently doing today. Because for individuals who want to retire before Social Security kicks in, it really requires quite a substantial amount of savings. You don't have Social Security coming in, and often if it's before 65, you have to pay out-of-pocket health insurance costs. And those are two big hits for several years. For example, if you retire at 55, it would be 10 years. So you are facing the additional pressure on the portfolio. So we talk about ways that we can relieve that pressure. And often if you can show somebody, look, you'll have financial freedom at 55 from the perspective of you're not locked into your existing career, would you be willing to go work part-time in something that maybe you got a little bit more fulfillment in and did that for maybe the 10 years or so to bridge you until 65 when Medicare kicks in? Once you start getting to think about that, they then get to go home and think about like, well, what do I want to do? If I can find a job that pays me, let's say, $80,000 a year or $50,000 a year, I know that I can make this plan work. And you're just kind of get them to think about What does life look like beyond what the kind of standard ages are? Everybody comes in saying, I want to retire when I'm 65. And when I ask them why, they say, well, that's when Social Security kicks in. And I always tell them, well, what if the government didn't dictate when you retired? When would you want to retire? And so it's really pushing them to think outside of kind of the standard ages that we live in and hear about in our community today.

Yeah. I mean, that really seems logical and It seems to dovetail with what's happening increasingly. There's— Barron's actually recently published a story about phased retirement, you know, whereby it's not so much a binary either/or that you work full-time or you retire. Some people are slowly receding from the workforce with perhaps a lower salary or fewer benefits and a lighter workload, but they keep one foot in the workforce. And the employer benefits by keeping someone perhaps with a lot of institutional knowledge in the workforce. So, it's kind of a win-win. And it just seems a little more enlightened than some of the traditional employment arrangements. So, is this something that you're experiencing with some clients talking about, or is it more relegated to academia and parts of the government? I know it's not so much in the public.

Yeah, we see that often. I would say more so than not, I have clients that kind of do that staged retirement. And it's something I'll often present to somebody Even if they haven't thought about it, if they just think that they absolutely want to retire, for example, at 60 years old, um, one of the things I've been trying to study up on as a financial advisor is really understanding the psyche of a retired person because it's quite a journey that they're going on. And clearly I'm not retired yet. So I've gone out and studied a lot of, you know, former partners at Edward Jones to just try to understand like the mindset. And what one of them said to me was when he was an advisor before becoming a partner, he said, I wish I had pushed clients more to really pre-experience what the psychology, psychological journey is going to be like when we transition to retirement. He said, you know, I thought about it. I premeditated it a little bit, but it's been very unique for him going at that transition into retirement. He said, you know, you really push clients to think, Julie, if you woke up and your to-do lists were all done, what are you going to do if that's every day? And encourage them to really think about that far before they make the decision to fully retire. Because if they get to retirement and they have not thought about that, it's going to be a pretty difficult and challenging transition. So we've been working with families trying to push them to think about that, giving them books to read and to consider about how to figure out what that purpose is going to be kind of in that second journey or stage of retirement. And I think you're kind of speaking to that, that one of the solutions to make that transition a little bit easier is maybe not make that switch go off one day, right? But ease yourself into that new life cycle of, you know, not intensely working every day a 10-hour day.

Yeah, it's funny when you're just saying that, it made me think about how when people relocate, right, geographically, a lot of people like, oh, I'm going to move across the country and buy a house, and they might end up miserable, miserable. And, you know, might be a little wiser to go and maybe rent for 3 months. Try it out, right? And maybe— and you'll learn a lot in 3 to 6 months. You'll know whether it's a good fit or not, most likely.

Yeah.

Um, so yeah, it made me think like that, you know. You don't have to— it's not either or.

Yeah.

So I want to go back to a question about early retirement. That the, the stock market has had an amazing bull run for the past decade, and bonds as well. Um, are, in your opinion, are is this perhaps emboldening people a little unrealistically? I mean, if you look forward the next decade, projected returns are probably going to fall short of what we've had. So to what extent do you weigh this, or how does that manifest itself in conversations with clients?

So retirees, I think, is one area that this could pertain to, but I think with millennials too, it's a whole nother conversation. And frankly, that's what I lose sleep over right now with the environment we've been in. But really looking at retirees, we are spending a spend a tremendous amount of time setting expectations. I mean, we all know that these have been remarkable years in the stock market. Uh, we've had one small pullback last year. I mean, it was big in size, but it recovered very, very quickly. And the last true big pullback in the market was over 12, 13 years ago. And really helping people understand and remember what that experience is like and helping them pre-explain experience in retirement, how that's going to be different. So we spend a lot of time as somebody's preparing to retire, helping them understand how they're going to get their income, how it's going to be distributed off the portfolio, and how our strategy is designed to weather both good and bad markets. I think if we can help clients understand how we generate their income, how we distribute it out to them, like what liquidation order do we use on the portfolio and the different accounts we have, And then thirdly, if we can help them pre-experience mentally what it's going to be like to receive their statement in a down market when they're in retirement, we're going to have a higher chance and odds of success that they're going to sit tight and not want to panic and move to cash, et cetera, like we often see many investors do because they get the emotional component kind of overlays the logical side of things. And so that's what we've been doing, and hopefully we'll have good success back in March. We did have success. We had a lot of people calling us saying, you've taught me, this is when I go from being a good to a great investor. What should I be buying? And to me, that's a really good sign that they're not panicking. But I think it's critical as we look forward to setting that expectation of, as you mentioned, what are normal returns? It's not double digits, right? Particularly in a balanced portfolio and helping them understand why we come up with those expectations and capital market assumptions. But then helping them understand the behind the scenes. How are they going to get their income and their paycheck? Helping them see that it's logical. We've thought through the taxation, the liquidation order, and it's all not reliant just on the market going up. Yeah, the millennials, because I know you and I prior to this were just having a conversation about that. I think that's a very different conversation. And that's the one that really worries me. You know, you think about it, 30, 40-year-olds, maybe even early 50-year-olds, they haven't had significant wealth in a true pullback bear market that's been sustained down for more than 6 months. Uh, again, the last one was 12, 13 years ago in 2008. And many of them really don't know what it's like. And we all know in this industry today from the study of behavioral finance that when we lose money, we want to react, take control, do something about it. Um, where I think that's just really upon us as financial advisors is to be sure to educate and educate relentlessly right now to those generations so that they can be great investors and not traders when that time comes, thinking that they need to all of a sudden alter their plan significantly.

And when you're dealing with families, is that a dynamic you focus on when engaging with millennials? Is it very much a focus on educating and bringing them up to speed?

Yeah, as you mentioned, it's kind of part of my background. I think education gets confidence. So I always tell families when we onboard them that I really am going to focus on, with our team, educating them. And I don't expect them to retain it all, but they hopefully, through osmosis or little sound bites over time, will learn more and more and have confidence. Because again, right now everything's good in the markets, right? We're all making money, our statements are going up every month. But what I have found when it goes the other direction, everybody wants to understand what you're doing and why you're doing it, right? So if we can get ahead of that, they're going to be, I think, more calm. But yes, we do do that extensively working with the families that we work with. And my engagement with millennials has always been more through the avenue and the path of generational planning. So we work with families as they age. We have a process and a conversation in our business that we— I created it years ago when I realized that a lot of the families that we work with weren't getting any younger.. And I saw that the trend in the industry is that when somebody passes away, the beneficiaries of the account will take their accounts away from mom and dad's advisor. And I did not want that to happen because we had wonderful families that we worked with. And I realized that also just being one of 3 girls and looking at my parents not getting any younger, and I thought, you know what, I'm blessed because I understand the financial industry, but how about all those families out there today? Where their children are sitting in their home wondering who's taking care of mom and dad financially right now. Um, do you know that financial advisor well? And that's their future wealth. And I realized that I needed to do something about that. I also found that clients really, um, wanted to feel in control. So we started a conversation called Aging with Dignity, and it's by far probably one of the most impactful conversations I've ever had with clients. In fact, we've kind turned it into a formal conversation at Edward Jones that we are training financial advisors on it. But for any client that hits 70 or older, I will make it a priority at some point to have an aging with dignity conversation with them, which is essentially we bring in their power of attorney or their executor and/or their other children into a group family meeting, whether it be in person or virtually. And we go through a set agenda of items. And the intentionality of the meeting is to give the children or power of attorney or executor a level of comfort with our team and how we're working with their parents and for them to understand our processes and our team and our members and our roles. But it's also to give the client, the elder client, confidence that they will still have a seat at the table if they face cognitive impairment or if the world starts moving too fast and they simply need some family to help. Every family that I've done this with has said that it's been one of the most powerful conversations because they feel secure that they will be respected. They will be at, you know, have some control. They'll have a seat at the conversation, but they just feel good that their family member that they've chosen knows what to anticipate and how it's gonna all be handled. And we show them it doesn't have to be a rip the bandaid and all of a sudden you no longer have any say in your portfolio. There's stages that we can take at Edward Jones where it's a gradual progress and it's a really fun conversation. And that kind of brings the millennials in, right? I mean, it's their children. Those are usually the power of attorneys and the beneficiaries. Um, and that's when we start our engagement with the millennials.

And, and when millennials— I mean, it could be for anyone, but let's just use them here. How do you broach the topic of financial advisor versus robo-advisor? What have you been hearing and what do you say to them? How do you, you know, how do you make your case effectively?

Yeah, so I help them understand, um, I kind of come from a family with some law background, and, uh, I've always had the perspective of a financial advisor, like, not one thing is better than the other. It just depends what's most important to you. And so again, I take that educational approach that robo-advisors versus financial advisors, like apples and oranges. They are two complete different things. Neither is right or wrong. Um, there are research studies out there that show, like Vanguard has done one, that the value of a financial advisor, can be quite significant in the total return of a client's portfolio over time. But really, I put it, the choice in the millennial or whoever it might be's hands to understand the difference between the two. A robo-advisor really is simply more a pure investment money management computer-based system. And that might be adequate and enough for some investors who are very confident in what they're doing, who want to own some of the decision-making. Who don't need that personalized relationship that's very collaborative in any way. However, people come to a financial advisor like us at Edward Jones or any other many of the institutions because they are seeking a partner when it comes to their financial planning today and in the future. And they are seeking somebody that will collaborate with them, will help challenge them financially to become one inch better, you know, every time they do a review or a meeting and somebody that they can bounce ideas off of, somebody that they can lean on for additional guidance beyond just money management, like Social Security planning, Medicare planning, long-term care planning, the legal side of support, the estate planning side. I kind of think of it as like we are the one that is one of three financial professionals they should be working with. They have their CPA and their attorney, and it's one big team collectively working together. So it's, again, I don't think one is right or wrong. I think the individual needs to assess in their world with where they are in their stage of their life, their level of confidence, what is most important to them. And we tell that to people when they come to us, like, we are looking for people who are serious about collaborating together. Uh, we are looking for people who are serious about planning for their financial future, who really want that professional guidance.

When there's someone who it's pretty clear you think should have hands-on personal advice, but they really insist on being a robo. What, what's motivating those people typically? Is it just that they're really concerned, obsessed with dollars and cents, or they're not— they're fearful, or trust issues? I mean, what can you say about those people? Because there's certain profiles of where it's like, okay, robo makes sense for you. But for those where you're like, nah, nah, nah, this is not adding up, is there a pattern you tend to detect?

Yeah, I think it comes down to often fees. So does somebody want to pay the fee for a financial professional and financial guidance at the end of the day? Um, if they absolutely don't, then they would probably make sense to be with a robo-advisor. Um, but you know, fees can become less relevant when there's value present. Uh, right. So the question becomes, and the challenge for financial advisors today, as we continue to see these robo-advisor platforms being built out, these low-cost providers, is you have to be very good at demonstrating your value. Showing it, articulate it, and supporting it with your action. Or yeah, you're going to be in that challenge all the time where people might just say, you know, it's not worth it, I'd rather just go put it in a robo-advisor program and have them take care of it for me. I think again, this environment has fostered a little bit of that trend. It will be interesting to see when we go through a sustained bear market, um, or a down market, what happens to that trend, right? Yeah. Um, so You know, everything's great when the markets are just going up, but if we see a 40% pullback, I mean a 50%, like 2008, it will be interesting to see where people settle up. I think you're going to see some dollars flow into different directions because maybe they realize, you know what, I'm not as sturdy mentally and emotionally as I thought I was when I lose my actual money.

Well, you know, we're, we're nearing our time. Um, and this has been a fantastic conversation. Um, but before I let you go, I wanted to ask you for a final actionable idea. Specifically about what advisors should do to prepare for their next client meeting, um, in which they'll discuss early retirement or the prospect of it. Like, what, what should an advisor do to prepare for that?

That's a great question. I would say kind of there's a few things that we do. So one, obviously before the client comes in, run the financial plan before they come in, have a scenario ready where there's extra medical expenses. Expenses built into there. Make sure you stress test it against markets. Solve the problem hypothetically as if you were the client so that you can come to the table with a solution that you think is fair and reasonable that they might be willing to participate in, um, just so that you know kind of what you're ahead of so that they're not shocked suddenly if they're going to run out of money. The other thing that I've been encouraging people to think about, not necessarily just early retirement, but really going back to purpose, um, in today's environment and throwing the question out there when you run the financial plan to a client, Mr. and Mrs. Client, we're going to have several million dollars left over. Uh, would you like to see if you could retire earlier? And what I have found is sometimes if you can show somebody that they can retire earlier, all of a sudden work becomes a little bit more tolerable because they're in control. And then all of a sudden they're not running to the door to try to retire. So we look at that. And then again, if there's money left over, Some of the most fun questions I've been asking people is, is that how much you expect to leave? And like, well, what do you mean? Well, how much did you want to leave to each of your 3 daughters? I never thought about that. And would you like to leave it at your death, or would you like to leave it earlier on where you can be part of that experience? And they might not have an answer right there and then, but say, you know, that's what I want to work with you on. I want to work with you in helping you bring again the future to the present and intentionality and purpose. Purpose to your dollars. So run the scenario beforehand, have a plan in place so that you can provide a good solution, and then flip side on the back end, more looking towards their legacy, really getting to the intentionality and purpose of those dollars and why whatever goal they state is important to them, I think is so valuable for us to understand.

Thank you very much.

I, I really appreciate it. Thank you. It's been so fun to visit with you today.

My guest has been Julie Kelly of Edward Jones. Thank you for joining us and tune in next week to hear my colleague Steve Sandusky Interview Valerie Kondos Field about how she crafted a legendary coaching career as a gymnast and how lessons she's learned can help advisors.

This podcast was brought to you by Wells Fargo Advisors. Looking for a firm your clients can't outgrow? Wells Fargo Advisors offers financial advisors full balance sheet solutions with wealth planning, investment products, banking, and lending that meet the needs of affluent to ultra-high net worth clients. Build your practice your way and on your schedule with independent and employee model options designed to meet your needs today and tomorrow.

Learn more at joinwfadvisors.com.