How to help clients plan for a retirement that evolves with their changing needs
It's easy to imagine retirement as single, unbroken period that begins when work ends and lasts until death. In reality, though, retirement evolves, presenting different opportunities and income needs in each phase.
For many clients, retirement expenses tend to follow a V-shaped curve, with more money spent in the first and third phases and less in the middle phase. During the first phase of retirement, your clients may travel or take up new hobbies, so you may need to help them prepare for the costs of increased activity. In the second phase, your clients may begin to slow down and spend more time relaxing with friends and family. Expenses tend to be lower during this middle period, though they pick up in the final stage of retirement when health-care costs may escalate.
With life expectancy on the rise, it's hard to predict when each phase will begin and end for specific individuals, whose trajectories will be affected by their own unique circumstances. As a result, it’s important to build flexibility into every plan. Here are a few strategies to discuss with your clients as you work together to meet their goals:
Optimizing retirement accounts
If a client is still working, make sure that he is taking full advantage of tax-deferred retirement accounts, especially a 401(k) plan with employer matching contributions. For clients age 49 and under, the maximum annual 401(k) contribution in 2016 is $18,000, but clients 50 and older can make catch-up contributions of up to $6,000 more per year. If your client has multiple retirement accounts, discuss the possibility of consolidating them to simplify planning and reduce fees.
Almost 20% of Americans 65 and older are working either full- or part-time, according to the Bureau of Labor Statistics. By working past the traditional retirement age, your clients will be in a better position to afford the travel and other luxuries they may want to indulge in during their golden years. What's more, work often comes with social benefits that a full retirement can't always offer.
Investing for growth
The closer your clients get to retirement, the more concerned they may become about the risk that market volatility will diminish the value of their portfolio. The bigger risk, however, is that they could outlive their nest egg. Retirement today can account for a third or more of a person's life, with many people living into their 90s. Consider encouraging your clients to continue to allocate a portion of their portfolio to inflation-beating stocks.
Considering protected lifetime income
Many clients want some of their retirement income—generally enough to cover basic living expenses—to be dependable and predictable. According to the most recent Empower Retirement Lifetime Income Score VI 2016, 78% of Americans would feel more secure about retirement if they had a source of protected lifetime income. Help your clients draw up a budget and then determine whether such guaranteed sources of income as a pension and Social Security will cover their expenses. If not, talk to your clients about purchasing a variable annuity with a guaranteed pay-out rate.1
As you help your clients prepare for retirement, keep in mind that there's no single formula that works for everyone. While many of your clients will pass through retirement's three phases, the timeline for doing so will differ from person to person. By meeting with your clients regularly, however, you can keep up to date on their needs and adjust their financial plans to help them achieve their goals.
1 Any guarantees are based on the claims-paying ability of the issuing insurance company.
This material was prepared to support the promotion of insurance products underwritten by GWFS Equities, Inc., Member FINRA/SIPC and issued by Great-West Life & Annuity Insurance Company (GWL&A) or in New York, Great-West Life & Annuity Insurance Company of New York (GWL&A of NY). Any guarantees are subject to the claims-paying ability of the insurer and do not apply to the subaccounts. GWFS Equities, Inc. is a wholly owned subsidiary of GWL&A. GWL&A is not licensed to do business in New York. Contracts may not be available in all states.
Before purchasing a variable annuity, investors should carefully read the prospectus which contains an annuity’s investment objectives, risks, charges, expenses, and other information associated with the annuity and its investment options. You may obtain a prospectus for the annuity and its underlying funds by calling 877-723-8723. Great-West Life & Annuity Insurance Company and Great-West Life & Annuity Insurance Company of New York do not offer or provide investment, fiduciary, financial, legal, or tax advice, or act in a fiduciary capacity, for any client unless explicitly described in writing. Please consult with your investment advisor, attorney and/or tax advisor as needed.
Variable annuities are long-term investments and may not be suitable for all investors. Earnings are taxable as ordinary income when distributed and may be subject to a 10% additional tax if withdrawn before age 59 ½. An investment in a variable annuity is subject to fluctuating values of the underlying investment options, and it entails risk, including the possible loss of principal. A withdrawal charge may also apply.
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