With the approaching retirement of baby boomers, the importance of saving for retirement is frequently discussed while spending in retirement is often overlooked. Most people assume they know how to spend their money. But it takes planning and diligence to ensure that assets last for several decades of retirement. And planning for one’s financial legacy can be a vital part of the process.
A recent Thrivent Financial survey of retirees and pre-retirees revealed that most were clueless about how much money they will need in retirement and many were off base with their actual spending in retirement. In fact, 56% had miscalculated their monthly spending in retirement, with 29% spending more and 27% spending less than expected. Further, just 1 in 5 retirees had worked with a financial advisor during his or her first 2 years of retirement to discuss spending and drawing down one’s savings.
When clients begin retirement, they shift from saving to spending. While this transition sounds easy, the Thrivent Financial survey showed that many retirees are struggling to manage their day-to-day finances. It’s easy to see how pre-retirees and retirees can postpone or forget about legacy planning. However, there are several strategies you can use to help clients prepare for the future and help you position yourself as an invaluable financial resource throughout their retirements.
? Use retirement income planning to minimize clients’ risks of outliving their assets. Future gifts to family, friends and charities are meaningless if there are no assets to distribute. Thrivent Financial maximizes income throughout retirement with a 3-part strategy: (1) diversify portfolios to maintain growth; (2) ensure a steady stream of income while retaining flexibility; and (3) provide guidelines to assist with the right balance of spending and investment. Financial plans are evaluated each year to provide personalized guidelines on how to adjust investments and spending based on changing needs and conditions.
? During client meetings, discuss family relationships and legacy intentions. Your next generation of clients could be a question away! By asking clients about their families, you achieve several goals: you uncover sales opportunities with parents, siblings, children and grandchildren; get to know people who may influence your clients’ finances in the future; and discover how clients want to distribute their assets and if they want to make charitable gifts.
? Review beneficiary designations and estate-planning documents with clients. Touch base with clients every year or when they experience major life changes to ensure they have up-to-date wills, beneficiary designations, asset tilting and other estate-planning documents. If clients consolidate assets with you, help them properly update the corresponding beneficiary forms. This is an opportunity to showcase your expertise and learn more about clients’ assets, estate plans and giving goals.
? Use insurance checkups to help clients build financial safety nets for loved ones. Position insurance as part of clients’ retirement income and legacy plans. Show clients how life insurance can assure quality of life for surviving spouses or family members or pay estate taxes. And discuss how heirs will receive tax-free proceeds and avoid probate.
With survivorship life insurance, clients can insure two people under one contract and use proceeds to meet wealth replacement and charitable giving goals. Long term care insurance can preserve assets while paying extraordinary care expenses; and disability income insurance can keep retirement savings intact if they are unable to work. Adequate health care and homeowners’ coverage are also critical.
? Promote the gift of permanent life insurance. Encourage clients to give children and grandchildren permanent life insurance policies for weddings, graduations and birthday gifts. Family members can use the cash value or death benefit to help pay for college, make a home down payment or take advantage of a business opportunity. These gifts will increase in value over time, grow on a tax-favored basis and protect a child’s future insurability. Clients can use a lump-sum gift to purchase a policy or make scheduled premium payments.
? Position annuities as tools for creating retirement income and transferring wealth to heirs. Familiarize clients with payout options that can benefit surviving spouses and family members. Let them know about guaranteed death benefits, guaranteed payments for life and payments for the lives of heirs. For couples, show how joint and survivor annuities can create income streams for the lifetimes of both partners.
? Discuss the estate planning benefits of inherited IRAs and Roth IRAs. Whether clients are inheriting retirement accounts themselves or want to pass theirs onto heirs, they can leverage a “stretch” IRA strategy which allows “non-spouse” beneficiaries to stretch distributions from inherited retirement plan assets over their lifetimes. This approach stretches out the tax bite, lengthens the time that earnings grow tax-deferred and increases the value of the inheritance. With Roth IRAs, clients can create tax-free legacies for their heirs.
? Help clients achieve multiple legacy goals with charitable and life insurance trusts. When clients donate their assets through charitable trusts, these assets are permanently removed from their estates. However, they can replace this wealth through irrevocable life insurance trusts. With an ILIT, your client invests in a life insurance policy that is equal in value to the amount to be passed to charity. The policy is held in trust and distributed free of income tax to heirs upon the client’s death.
? Help clients realize their giving goals by naming charities as beneficiaries of traditional IRAs, annuities and insurance policies. There are many benefits to naming charities as beneficiaries on these accounts, including income and estate tax advantages. However, you will want to work closely with clients’ tax and legal advisors on these strategies and follow regulations carefully to implement them.
The financial future starts today
Planning for retirement income and financial legacies go hand in hand. You can ensure that your clients’ assets go to the individuals and organizations that are most important to them while making the most of their assets and minimizing future tax liabilities. This will position you as an expert financial resource with clients and their heirs and enable you to forge relationships with your next generation of clients.
Ann Koplin is the director of annuity product marketing for Thrivent Financial in Minneapolis, Minn. You may send comments to her at email@example.com