Think Retirement is a joint initiative between Tata MF and Wealth Forum, where we discuss diverse aspects of one of the most critical responsibilities of a financial advisor towards his investors: retirement planning. Our endeavour in Think Retirement is to provide advisors with insights and perspectives that can help them understand the various dimensions of retirement better and thus help clients prepare and execute effective retirement plans that enable them to live their golden years with dignity and financial security.

In the inaugural article within the "Understanding Retirement" section, we explored a rapidly emerging dimension of retirement planning - that of successful executives who chuck their cushy jobs before retirement to pursue more meaningful and fulfilling options (Click Here). The flip side of this trend is unfortunately also often seen - where senior executives are made redundant years before their actual retirement age. Why does this happen? And what can you as an advisor do to help clients deal with such situations?

As we mentioned in our last article in this series, a static and uni-dimensional retirement plan assumes retirement age of a client at 60 and then we go on to crunch numbers taking that statistic as a given. In reality, that assumption is subject to change very often, which throws a uni-dimensional retirement plan completely off track. We discussed in the last article (Click Here) how many successful executives in high paying jobs develop an urge to pursue different professional goals, sometimes at the peak of their careers, which potentially jeopardizes your carefully crafted retirement plan. You made an assumption of growing contributions into the retirement kitty right until the age of 60, while suddenly, your client at 51 years of age, decides he wants to become a writer or a teacher because that is what gives him true professional satisfaction - not the high paying corporate job he is in. As an advisor, you need to understand the pulse of your clients and prepare for such eventualities. We discussed in the last article how you can attempt to do this.

The growing phenomenon of involuntary early retirement

There is another aspect of "early retirement" from a cushy job - and this is far more sudden, far more unexpected and far more unpleasant. Increasingly we find companies putting a lot of focus on cost control and one of the biggest elements of cost for most organizations in employees. As employees cross their 40s and get closer to their 50s, due to annual increments, their salaries have grown quite well. While this may be satisfying for the individual, hard nosed bosses may look at the situation very differently. In many cases, the boss asks himself "what incremental benefit does my organization get by retaining this high cost 50 year old? What is the value that he adds which a 35 year old with 10 years experience cannot? The reality is that as people rise in seniority, fewer jobs are available at the top as compared to middle management levels. Some make it to senior positions and continue their growth path, while many get stuck at a middle management level for a number of years. Those that get stuck run a greater risk of having questions asked about their value add some years down the line. These are the executives who could well be "eased out" well before they attain retirement age.

What can you as a financial planner do?

As a financial planner, you know how serious the consequences could be for the retirement plan you made for such a client. You assumed continuing contributions into the retirement kitty till age 60 and now suddenly at age 51, those contributions cease and instead demands for income from the kitty are made - 9 years before you planned for it. If we know that such instances are not uncommon, if we know this trend is here to stay, what can we, as forward thinking planners do to help mitigate this risk to some extent?

2 questions to help evaluate risk

Draw up a list of all clients for whom you have retirement savings plans at various stages of execution. Of these, short-list clients in the 40+ age bracket. Talk to them individually about this trend in corporate India and find out how they feel about it. Ask them to evaluate on a scale of 1 to 10, how high is the risk of them facing this situation of involuntary retirement. Ask them to evaluate whether their pace of growth within the organization has slowed down considerably versus peers or are they running ahead of peers. Ask them to score this too on a scale of 1 to 10.

If you find their evaluation of risk low and their pace of growth high, there's probably no need for worry on this score, at least at this stage. Ensure that you include these questions in your annual financial planning review, so that you can catch a warning signal the moment you find a deterioration in this score from one year to another. Doing this exercise every year will also be a very useful reality check for your clients to know which way they are heading in their jobs.

Help your client prepare a Plan B

When you find warning signals - poor risk scores and / or poor scores on growth, you need to discuss with your clients a Plan B. You need to have two retirement plans running in parallel - the second one with earlier retirement assumptions than the first one. You may also want to ask your client to think through what options he is most likely to explore in the event of an involuntary early retirement. Most professionals with years of experience behind them can, with sufficient planning, find themselves alternatives in consulting, teaching, coaching and allied fields, which may not pay the same amount, but would certainly bring in welcome cash flows. You will be doing your client a great service by having such a straight conversation and getting him to think through a viable Plan B. Importantly, an executive who sees a threat of an involuntary retirement coming because you asked him to do a self evaluation on two simple points, will be able to then start focusing on building and strengthening his industry network to put himself in a good position to get an alternate income stream going, if and when required.

Plan B will be a very dynamic process and you will be spending a lot more time with such clients in helping put together a viable Plan B that minimizes impact of an involuntary retirement. Being prepared is of great help - as it allows sensible and rational decisions to be taken rather than falling prey to emotionally charged financial blunders.

Go beyond number-crunching - go behind the numbers

Your task as a retirement consultant is not just to run a set of numbers and show a printout from a system. Retirement planning is far more complex than planning for children's education and marriage as the variables you are dealing with are many more. Your job as a good retirement consultant is to understand all the dimensions of retirement first, then help your clients understand these dimensions - whether it be a quest for financial freedom or dealing with involuntary retirement - and then run a set of numbers for the retirement scenarios that you and your client finally freeze on. Making this extra effort is what will build lasting relationships - which no web-based goal planning software can aim to match.

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