Why your clients may benefit from forestalling retirement beyond age 65Article added by Ryan Parker on December 11, 2012
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The golden era — when a hard-working American could retire at age 65 and not only survive, but thrive throughout their retirement years — has most decidedly come to an end, along with the once-traditional and guaranteed security of the pension. How many of your clients understand this new actuality and, more importantly, how many are taking the appropriate steps to navigate the new retirement landscape successfully?
You may have a bit of work to do in order to better prepare your clients for a comfortable retirement in the face of this new reality, as the results from a recent Prudential sponsored National Retirement Risk Index (NRRI) report and new data from Boston College’s Center for Retirement Research collectively underscore.
The findings of the report not only indicate the need for a great many Americans to work beyond the traditional retirement age, but also highlight the tremendous benefits waiting just five years longer can have on your clients’ overall retirement preparedness and security.
To help illuminate these findings, Prudential issued a paper earlier this year, “Planning for Retirement: How Much Longer Do We Need to Work?” that addresses the implications of the National Retirement Risk Index report for several groups — from individuals who may well be your clients, to financial advisors, employers and even policymakers. The paper also sets forth recommendations you can use when speaking to your clients about how to prepare for what’s likely to be a long retirement.
And they’ll need the help. According to the NNRI report, the number of households that won’t be able to retire at age 65 continues to rise, going from 30 percent in 1989 to roughly 50 percent today. On a much more positive note, however, the same report reveals that by working just five more years beyond the traditional age of 65, the number of households deemed prepared to retire spikes to an astonishing 86 percent.
“While many Americans despair of ever being able to retire, the reality is that with a few extra years of work and a delay in taking Social Security, they can increase their chances of being able to have a more financially secure retirement,” explained James McInnes, Prudential Retirement’s Chief Operating Officer, Total Retirement Solutions.
The paper highlights a number of things financial advisors can do to assist their clients in planning a safe and secure retirement, including:
- Examine each client’s circumstances and begin discussing and preparing your clients for the possibility of having to work past age 65 in order to enjoy a comfortable retirement today
- Develop and recommend a customized target retirement age for each individual client so they’ll know if and how many more years they’ll need to work beyond age 65
- Be sure to explain that delaying retirement for even five years has many benefits, including:
- Affording them more time to accumulate wages and bolster their savings
- Increasing their monthly Social Security benefit substantially
- Decreasing the need to draw from savings over a prolonged period of time
- Work with clients to establish an aggressive savings plan
- Recommend appropriate savings vehicles that typically deliver better interest rates than traditional bank savings accounts, such as money markets or CDs
- Offer tips for creating a budget they can stick to when saving for retirement
- Encourage clients to take advantage of the defined-contribution plan offered through their place of work, most commonly 401(k)s
- Ask your clients if their employer matches their contributions and, if so, to what extent. At the very least, they should be contributing as much as their employer is willing to contribute
- Based on each client’s individual needs and tolerance for risk, offer to help them go over and ultimately select the best combination of plan investments, or review their current elections to see if assets would be better allocated elsewhere
- Determine whether each client’s employer offers alternative, in-plan guaranteed lifetime income products in addition to traditional 401(k)s, and investigate the option of diversifying the defined-contribution plan with annuities
- Stress the importance of planning for future retirement income as well as hedging against longevity risk
- Explain and discuss the importance of guaranteed lifetime income products
- Review the importance of the shift from a lifelong accumulation phase to the distribution phase and what this means when it comes to product and investment choices
Remember, the earlier clients begin implementing these strategies, the better, so be sure you broach the subject early on in your relationship.
- Assess individual client’s situations carefully, and do your best to educate and inform them of products designed to use their savings to generate lifetime income — usually products that distribute a monthly payout until (and sometimes even well beyond) their death, such as one of a diverse variety of annuities
- Recommend that clients establish a retirement income goal instead of a savings goal, and encourage them to track their savings as achievements toward reaching their goal for retirement earnings and income
The Prudential paper also identified ways in which policymakers and lawmakers could make it easier for Americans to enjoy a more secure retirement. If you belong to any industry associations, organizations or groups, you may consider asking them to lobby policymakers to support retirement-friendly initiatives. Some of the recommendations set forth by the paper include:
Thanks to longer-than-ever life expectancies, odds are good that most of your clients have a long retired life ahead of them. And
although the appeal of exiting the workplace after a lifetime of hard work at age 65 may be strong, it’s up to you to explain why delaying retirement by as little as five years could pay off in spades for many of your clients.
- Passing legislation that would make offering a retirement savings plan realistic for more employers via Multiple Small Employer Plans
- Creating “safe harbors” that would assuage employer anxieties vis-à-vis adding guaranteed lifetime income products to their defined contribution plan offerings
- Implementing regulations that would require defined contribution plans to include projected future monthly income on the statements issued to participants
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