Find Opportunity In Making Sure Your Clients Have Enough To Retire
When clients look at their 401(k) and other retirement accounts today, they wonder what happened to the 10% return that was projected in the 1990s. For many, 10% was viewed as a “conservative” growth rate when accounts were growing over 20% year after year.
Reality struck in 2001 and for many it has been a downhill ride. Today, more clients are asking the question, “Will I have enough money to retire?”
That question creates a great opportunity for you to work with individual clients and businesses concerned with helping employees meet their retirement objectives. Now is the time to step back and help clients answer these questions:
1.How much do I need in retirement?
2.How much do I have earmarked for retirement today?
3.If there is a gap, how am I going to fill it?
The retirement gap isnt unique; it is a concern for both low- and high-income earners. Depending on the situation, there are a variety of ways to help the client meet his or her objectives. A key consideration is whether employer contributions or plan sponsorship is an option. When company involvement is not available, vehicles available include:
- Roth IRAs;
- Mutual funds;
- Annuities; and,
- Cash value life insurance
In situations where employer sponsorship and/or contributions are available, the first step is looking at the qualified plan. If qualified plan contributions havent been maximized, increasing contributions should be considered. For many mid- to high-income employees, the qualified plan and Social Security wont be near enough to secure a comfortable retirement. In these situations, nonqualified benefits can be used to fill the void.
Executive bonus. A nonqualified executive bonus plan is a versatile plan design. Depending on employer objectives, the employer can choose to allow all employees to participate or only offer participation to a select group of key employees. The employer will pay out a bonus to the employee, who will be taxed on it. Many employers will offer an additional “tax bonus” to cover this expense. Some employers will choose to offset all tax costs to the employees, but others may only cover a portion of the tax.
Since this plan is so flexible, the employer may select the investment vehicle to be used or allow the employee to choose one. Depending on the situation, mutual funds, annuities and variable life insurance are typically considered.
A variation of the executive bonus plan that can be very attractive to both employers and employees is one that allows an employee to set aside a portion of after-tax income. For example, the employee makes a contribution into an investment he or she owns. The employer then covers all or a portion of the tax on this contribution amount through a bonus to the employee. The employer bonus replicates a pretax arrangement from the employees perspective.