Life Stages: A Successful Roadmap

To Pre-Retirement Planning

By

[These types of articles tend to be accompanied by lists of issues and things to consider for each life stage similar to the T. Rowe Price article]

As financial advisors know, each client arrives with a unique set of circumstances, needs and goals. Then, over time, their financial picture evolves as the client household reaches new personal and professional milestones. Anticipating these milestones will set the stage for the Many of these milestones correlate closely with distinct life stages.pre-retirement planning process.

Helping your clients understand their needs in each life stagewell before retirement dayw — ill be So regardless of a clients age, or the size of their net worth or household, understanding what stage of life your client inhabits will prove vital to building a mutually beneficial to both of you.partnership.For decades, company strategists and marketers have searched for an “ironclad” method of segmentation that would let them better respond to the transitions and changes that occur in a household over its lifetime. Perhaps the most resilient strategy has been to view a household in terms of a lifecycleor life stages.

With respect to financial strategies, these life stages can be depicted asThere are four distinct financial life stages in pre-planning for retirement: AaAsset accumulation, asset preservation and asset distribution, and asset transfer. Each stage influences how investors manage risk, diversify assets, protect savings and provide for their families. Between an investors first job and his or her retirement are many life-changing events. Navigating each life stage, and meeting financial goals along the way, requires sound planning and open communication between advisor and client.

It , and . it is critical to successful planning for each of the first thesethree stages to be addressed as early as possible. well before retirement day arrives. In addition to helping clients evaluate their resources, define their objectives and select appropriate investments, u And, achievable goals and comfortable life stages dont just happen for investors, nor can a comfortable retirement be achieved by simply throwing a little money aside here and there. Throughout these life stages, the need for a financial plan to prepare people for lifes changing events is always there.sing a life stage framework allows financial advisors to better anticipate client needs, especially as they transition from one life stage to the next. Anticipating needs is a sure way to keep clients satisfied and thinking clearly about their financial future.

Every stage, from asset accumulation to asset transfer, will impact how investors manage risk, diversify their assets, protect their savings and provide for their families. As a financial advisor, you can help them evaluate their resources, define their objectives, and select appropriate financial vehicles to meet their long-term retirement objectives, as well as navigate each stages life-changing events. As investors pass through the life stages, their needs, goals and priorities will changeso too should your advice concerning the stages and options they will need to secure their financial future and retirement.

Asset Accumulation. The asset accumulation stage is comprised of many firstsjob, marriage, house and child. With so many important life events, and so many large expenses, saving for retirement may seem impossible. Many young adults may have legitimate reasons for not saving, soPerhaps the most difficult obstacle to overcomechallenge is to convince theminvestors to take the early stages of the planning process seriously.

It is never too early to start saving, regardless of the amount. SEveryone seems to have an excuse for not saving, and many people simply feel that they can wait for a while before starting a regular plan of savings. But, the sooner an investor starts saving, the more he or she will have at retirement. Starting early gives allows an investors money assets more time to grow and compound and grow, creating more potential long-term growthplacing financial goals within closer reach. This is the foundation for a successful pre-retirement plan. Without a firm commitment to this stage by both advisor and client, there will be no post-retirement glory for either. The asset accumulation stage should be fairly obvious; however, statistics show that the majority of Americans are not saving as much as they should.

At this early stage, an advisors role is initially limited to providing sound, common-sense recommendations and encouraging clients to start the planning process as early as possible. During the asset accumulation stage, investors needFirst and foremost is to the need to develop a household budget, set upestablish an emergency fund and begin a program of start regular savings, perhaps through payroll deduction. Taking advantage of employer-sponsored in retirement plans (especially tax-deferred plans with company matches), accounts, start saving foropening a college savings account and establishing sound insurance coverage is a good start.

Helping clients select an appropriate asset allocation to meet their long-term goals is probably the most important advice that can be offered at this life stage. There are a variety of products specifically designed for the asset accumulation goals of the long-term investor. These products offer tax-deferred accumulation, professional money management, portfolio diversification, lifetime income options and beneficiary protection.

Asset Preservation. rotection eservation [it says Protection in the brochure]An investors The middle years of an investors life are likely to be the most difficult challenging and and stressful but also the most yet financially rewarding.they may produce the investors Furthermore, if asset accumulation is the foundation for a successful pre-retirement plan, asset preservation is the frame for that plan.

Even as clients reach the highest career earnings level of their careers, investors will likely be . Initially, investors may have to balancinge the financial needs of payin the need to payg for college for their children and the need to against the possibility of having to assist aging parents, while still making aregular contributions to their own retirement accounts. Eventually, after the children leave home, there is an opportunity to beef up retirement savings as household expenses decrease. However, an increasingly important concern during this stage is the need to protect accumulated retirement assets.

During the asset preservation stage, the needs of investors go beyond simple asset accumulation. WhileT there is still the need to contributeaccumulate assets, perhaps even to maximizee contributions, to ones retirement savingsas incomes rise.,

However, investors are nowwill likely be more concerned with health care protection and insurance for both themselves and their parents, paying for their childrens education, estimating and saving for retirement needs and assessing their portfolios level of riskwhether they will be able to meet their retirement goals. While there is the opportunity to increase savings as household expenses decrease when children leave home, the main focus of this life stage is to protect accumulated retirement assets.

The doorstep of retirement is not the time for risky investment strategies. Again, understanding where your client is on the life stages continuum is essential to a successful pre-retirement plan.

Advisors must carefully review each clients financial plan to determine if their current asset allocation will allow them to reach their goals. Balancing a clients risk tolerance with their return requirements is the most significant challenge at this life stage.

Advisors must continually encourage clients to maintain, even increase, their pre-retirement savings contributions.understand Since asset levels have increased and there is less time to recoup losses, advisors may want to introduce financial products these changing investor needs and be prepared with options designed to take advantagethat provide of upside potential while also protecting against downside risk. Equity-linked indexed annuities are a sound alternative, providing participation in stock market gains with downside protection in the form of a guaranteed interest rate.

In addition, there are other products with benefits and features designed for the asset accumulation goals of the long-term investor. These products offer guaranteed minimum retirement income, guaranteed return of principal and guaranteed minimum rates of return.Equity-linked indexed annuities may be an acceptable alternative in this stage since they offer upside potential from the equities market with the downside protection of fixed interest rates. In addition, advisors need to acquaint investors with guaranteed benefit options designed to protect hard earned assets

Asset Distribution. Asset accumulation is the foundation and asset protection is the frame for a successful pre-retirement plan. This makes asset distribution the comfortable interior of a successful pre-retirement plan. The house has been built, now its time to enjoy the comfort of that structurally sound home.

If the proper pre-retirement steps have been taken, At In retirement, it is time for investors to can fully enjoy the fruits of their labor. . Thoughtful financial planning in a comfortable retirement. If at the stages of asset accumulation and asset preservation stages should allow for have been done well, there should be a nice nest egg that provides an adequate income stream after an investor has left the work force. with several income streams from assets accumulated in investments, permanent life insurance, fixed and variable annuities, and other selected vehicles. However, the emphasis on planning and financial discipline should continue, as in the past, but with a different orientation.

InAt the asset distribution stage, investors need to make sure they have adequate insurance coverage, especially long term care and supplemental insurance, is necessary to maintain ongoing financial security. Essentially, what advisors should do with their clients at this stage is to plan their retirement paycheck.

Even though many of the asset distribution decisions will have been made already during the pre-retirement planning process, While the emphasis on financial planning remains, and advisors may need to The focus of planning turns to continued savings and to help clients adjust the risk levels of their investment portfolios.

Investors wishing to protect accumulated assets may prefer a more conservative asset allocation. While this often involves shifting assets from equities restructuring portfolios to fixed income securities, stocks remain ana more conservative allocation to protect accumulated assets. However, some assets should be kept i important portfolio component since they canequities for growth to keep pace with inflation. Offering products that provide guaranteed lifetime income, such as annuities, are likely to be attractive to In addition, investors may want to shift some of their assets into instruments that provide a guaranteed lifetime income.

As an advisor, you need to have options for investors to help them reduce the risk level of their current portfolios. You also need to be able to present them with income, withdrawal and beneficiary designation options. If there is a possibility that investors who ares concerned with may outliving their assets. These products offer benefits such as lifetime income options, withdrawal options, stretch options, and beneficiary designations and income options.

Asset Transfer

The focus here is on During retirement, an investors focus may will turn to an investors estate and family protection issues. Should something happen to the investor, would managing the estate be a burden and would loved ones be protected? LeavingNow is the time to consider possible strategies that help the investor pass along his or hera financial legacy, perhaps to multiple generations or a worthy charity, is a major concern with serious financial and tax consequences that will require the assistance of knowledgeable advisors.

At this stage, an advisor needs to recommend alternative strategies that would help reduce the impact of estate taxation after the investor is gonehas died. Alternatives such as providing for the transfer of wTealth ransfers of wealth in the form of gifts and trusts forto children and grandchildren, or a payouts that stretches over the beneficiaries lives, can help minimize taxation and avoid probate. SGiven the appropriate strategies and options that ameliorate , an advisor can help remove an invean investors worries concerns about providing for loved ones will , makeing retirement that much more fulfilling and enjoyable.

Building a Life-Long the Relationship. Understanding the four financial life stages – of asset accumulation, asset preservation and asset distribution, and asset transfer can help advisors establish, implement and monitor a pre-retirement financial plan that best meets a clients changing needs and goals.

While it ismany financial planning rules are straightforwardfor example, to best to start saving early and regularly for retirementit is unlikely that you should reassure investors that any time is a good time to startinvestors will be able to follow these rules consistently. Life just simply gets in the way. So once the financial plan is in place, your main role is to help your clients understand the consequences of their financial decisions, especially as they relate to their retirement goals.

Placing each clients circumstances and needs in the context of the pre-retirement planningthe four life stages Regardless of an investors life stage, there are retirement strategies and options that can be used to plan and secure his or her financial future and retirement. You can help these investors, from asset accumulation to asset transferwill allow you to provide advice that is consistent, meaningful and financially rewarding, by offering them long-term, life-stage solutions that will help them realize their financial and retirement objectives.

is Chief Distribution Officer of Jackson National Life Insurance Company and President of Jackson National Life Distributors, Inc., Denver Colo. He can be reached at cjack@jnli.com. Life Stages in Transition:

Helping Your Clients Navigate and Anticipate

their Changing Financial NeedsOver the Rough Spots


Reproduced from National Underwriter Life & Health/Financial Services Edition, October 24, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.