Pre-RetirementPlanning AtTheLastMinute

PatrickA.Lang

Atsomepoint,yourclientsinthe50-to65-year-oldrangewillaskyou,theirfinancialadvisor,whatlast-minutetechniquestheycanusetohelpensureacomfortableretirement.Fortunately,thereareanumberofplanningoptionsavailablethatallowpre-retireestotakeadvantageofspecialtaxexceptionsandattendtootherimportantdetailsduringtheirworkingyears.

Thestartingpointforanyretirementplanningshouldbeacarefulreviewoftheclientswillsandtruststounderstandthescopeofhisorheroverallplan.Yourcompanysadvancedsalesdepartmentshouldbeabletohelpwiththisreview.Inaddition,everyclientshouldhaveadurablepowerofattorney,healthcaredirectiveandlivingwill,ensuringthatthefinancialaffairsareinorderforthelatterstagesoflife.

Longtermcareinsuranceisanotherimportantoptiontoconsiderearlyintheplanningstages,becausefundingthisinsuranceearlywillhelpkeepthepremiumdowninthelongrun.Thepeaceofmindthisprotectionoffersalsowillallowtheclienttofocusonmoreimportantmatters.Nowthatpricingandproductdesignhavebeguntostabilizeforthisessentialcoverage,youlldowelltosurveythemarketandselectafewcarriersyouarecomfortablewithbeforeyourclientbeginsaskingquestions.

Qualifiedplansshouldbeanotheroptioninthepre-retirementyears.Inmostcases,maximumfundingisessentialtofuturesecurity.Inaddition,thereareafewlast-minutecatch-upopportunitiesavailabletogetthemostmoneyintoaprogrambeforeretirement.Catch-upcontributionsareadditionalelectivedeferralsmadebyaneligibleparticipantinanapplicableemployerplan.

For2004,catch-upforatraditional401(k)planinwhichtheparticipantis50yearsorolderis$3,000.Catch-upfora403(b)planisalso$3,000wheretheparticipantisatleast50.UnderaSection457plan,thecatch-upamountforclients50oroveris$3,000forallbutthelast3yearsbeforeretirement,duringwhichtimeits$13,000.

Catch-upamountsare$1,500forSIMPLEIRAsandSIMPLE401(k)plans.FortraditionalIRAs,theamountis$500forindividualswhohavereachedage50.ThesamelimitappliesforRothIRAs.

Thisperiodbeforeretirementisalsoanappropriatetimetodiscussretirementdistributionplanning.Clientsneedtoappreciatethatcertainwaysoftakingqualifiedplandistributionscanbemoreadvantageousthanothers.Theyalsoneedtoconsiderbothqualifiedandnonqualifiedassetsindesigninganefficientdistributionstrategy.

Perhapsadiscussionofthenew,simplerrequiredminimumdistributionrulesalsowouldbebeneficial.Besuretoreviewqualifiedplanbeneficiarydesignationstoensuretheystillmatchtheclientscurrentobjectives.

Fornonqualifiedinvestments,thetimevalueofmoneycanbeastrongpersuader.Createyourownchartsthatreflectthesavingsabilityofyourclienttoshowtheadvantageofsavingmorenowversustryingtoplaycatch-upwithnonqualifiedinvestmentsatage65.

Whileyourclientsinvestmentphilosophymayneedtobeadjustedinthepre-retirementyears,moreadvisorsarepointingouttheneedtoretainasignificantequitypositionduringtheretirementyearstoprovideadequatefundsforever-increasingpost-retirementlongevity.

Apre-retirementreviewofyourclientslifeinsuranceprogramisalsoimportant.Adequatelifeinsurancecanofferpeaceofmindbyallowingclientstospendassetsinretirementknowingtheirfamilieswillbeprovidedfor.

Inaddition,manyclientsmayfeelcomfortablebeingmoreaggressivewiththeirequityinvestmentsduringretirementknowingtheirfamilieshaveanunderlyingsafetynetofsufficientincometax-freelifeinsuranceproceeds.Secondarydeathbenefitguaranteesmayhelpassuretheclientthatpolicyproceedswillbeavailablefortheirfamiliesregardlessoffuturefluctuationsinthefinancialmarkets.

Furthermore,adequatelyfundedlifeinsurancecanprovideanincometax-freesupplementalretirementincomeinthelateryears.Annuitiesalsoneedtobeconsideredatthispointbecauseoftheirtax-deferredgrowthandtax-advantagedpayouts.Atthisstageintheirlives,manyclientscaneffectivelytransfercertainunderperformingassetsintoannuitiesorlifeinsurancewithsignificantyieldsandtaxadvantagestotheclient.

WhileMedicaresupplementsmaybeanichemarket,youshouldhaveabasicunderstandingoftheseprogramstospeakknowledgeablywithprospectswhomayexpressaninterestinthisarea.Remember,clientswanttoleavenostoneunturned.

SocialSecurityisonemoreareatoreviewinthepre-retirementyears.SocialSecurityhasbegundistributingbenefitstatementsperiodicallytoparticipants,butyoullneedtohaveamethodtoreviewtheearlybenefitsquestion.Manycompanieshavesoftwarethatcanhelpwiththis.

Finally,oneofthemostoverlookedopportunitiesforpost-retirementplanningischaritablegiving.Forthoseclientswhoindicateadesiretoallocatecertainassetsforpost-mortemcharitablegifts,youshouldpointoutthatthesesameassetscanbepreservedforthefamilybyfundingtheproposedgiftonadeeplydiscountedbasisusingasinglelifeorsurvivorshiplifeinsurancecontract.

Weveonlyscratchedthesurfaceinexploringsomeofthetopicsyouneedtodiscusswiththepre-retiree.Makeupyourownchecklisttobesureyouvecoveredallthetoolsthatareappropriateineachclientssituation.

PatrickA.Lang,JD,CLU,ChFC,CFP,CFS,FLMI,isvicepresidentofadvancedsalescasesupport,forJeffersonPilotFinancial.Youcane-mailhimat patrick.lang@jpfinancial.com.

ReproducedfromNationalUnderwriterEdition,October7,2004.Copyright2004byTheNationalUnderwriterCompanyintheserialpublication.Allrightsreserved.Copyrightinthisarticleasanindependentworkmaybeheldbytheauthor.