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Income Planning Education Never Ends, But When Does It Begin?

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Education really never ends, but at least for income planning a pertinent question advisors are asking is, when does it begin?

When the question was posed to financial planners, there was an overwhelming and diverse response. The planners spoke not only of when the education should begin and when it should begin in earnest but also of how it should be taught, how actively financial advisors should pursue it and how to incorporate the education as well as the financial planning component of income planning.

‘Start early!’ was the refrain, over and over again.

“I’d suggest that income planning start at about age 5,” says Norman M. Boone, a certified financial planner with Boone Financial Advisors Inc., San Francisco.

“Seriously. That’s when the kids start to get allowances and their training for how to make it last until the next paycheck [allowance].”

Starting income planning education 5 years before retirement “is way too late for most people,” Boone adds.

“The sooner the better” is the approach he prefers. “That allows you to make fewer sacrifices [since they are spread out over a longer period].”

And, he continues, income planning education is a process. That process starts with determining how much capital will be needed over a number of years, with a typical assumption ranging up to 100 years, he says.

Often, Boone continues, adjustments may have to be made over time. Examples include working longer or saving more. “Since it usually doesn’t work perfectly the first time, it becomes an iterative process to see what clients are willing to sacrifice to allow them to be able to retire comfortably,” he says.

The earlier the better to have the discussion on income planning and to help a client reexamine expectations, says Dave Moran, a certified financial planner and senior vice president with Evensky & Katz, Coral Gables, Fla.

Moran says he works with clients to help them understand that timing is key. Additionally, he says it is important to establish a cash reserve of at least 2 years of living expenses during retirement and to develop an investment policy that provides a meaningful ‘total return’ within a risk profile.

Income planning and the education that accompanies it should start at the “inception of a client relationship,” according to George Middleton, a certified financial analyst and certified public accountant with Limoges Investment Management PC, Vancouver, Wash.

But, a client’s initial response, he says, is often, ‘I have no idea.’ Consequently, a planner needs to drill down to issues such as current spending, changes in lifestyle upon retirement and medical issues, he adds.

As a client draws closer to retirement, the calculations for income planning become more precise, he adds. And, the education process leaves more room for ‘what if’ discussions, Middleton adds.

Eve Kaplan, a certified financial planner with Kaplan Financial Advisors, Berkeley Heights, N.J., says that even though younger clients may have other priorities–e.g., paying off a mortgage or paying for the children’s college education–it is still important to start thinking about income planning. But, according to Kaplan, many clients already come to her with an understanding of the need to start thinking about it. By their 40s and 50s, it becomes more of a high visibility issue, though.

Most understand the need to create momentum to start saving, Kaplan says. But what they also need is to understand the impact of expenses on investments and the impact of purchasing a fund with “A” shares with a 5.75% upfront load. Educating clients on expenses also plays a role in income planning, she explains.

For older clients, monitoring expenses is an area that they generally need more assistance with than income planning assistance, says John P. McFarland, a certified financial planner with Life Plans of Richmond, in Midlothian, Va. The structure of a financial plan is as important as the cash flow derived from a client’s assets, he notes.

The “t-minus 5″ measure is an income planning benchmark that Lucas Wagner, a fee-only planner in Malden, Mass., uses when he develops a plan for clients. This means that a time frame of no less than 5 years is required to begin helping clients understand the need to get a grasp on spending. But, he says, that is an idealistic world. “Unfortunately, there is often a mental disconnect, even 5 years before retirement, such that being able to do this is often a pain and the older clients, frankly, don’t want to.”

He says the education process can be particularly important for clients nearing retirement. “In my experience, younger clients in their 20s and 30s getting out of debt are, surprisingly, easier to work with in budgeting than someone who has retirement assets and is within the final 5-year time frame for retirement.”

“In a perfect world, there should always be retirement education,” says Elaine Scoggins, a certified financial planner and president with Scoggins Financial, LLC, Tampa, Fla. However, she says, “most will not seek help until retirement is more of a reality.”

Usually, she says clients take interest around age 50. In exceptional cases, this might occur as early as age 45.

One reason, Scoggins explains, is that many uncertainties that existed at an earlier age have been removed. These include how many children a couple will have, how much it will cost to educate those children, how many homes the couple will own and how much those homes will cost.

If an advisor is doing the right thing, then income planning will be a part of the planning process starting about 4-5 years before retirement, says Ray LeVitre, a certified financial planner with Net Worth Advisory Group, Midvale, Utah.

As retirement nears, he says, the education process begins by asking and answering where retirement income will come from. LeVitre says that often what follows are discussions about Social Security and when to take it, pensions and payout options, and personal savings and how to structure a portfolio to provide the income needed at retirement.

The education process starts with simply making clients aware of the decisions they will have to make in the future, LeVitre says, and it gets them thinking about those decisions. “As we get closer to the actual retirement date, then we begin preparing specific analysis in each of these areas to help them compare their many options and make final decisions,” he says.

“Income planning is not a one time, one product meeting an advisor should have the day the client retires. If that is the case, then the advisor is not doing his or her job.”

Insurers also are giving importance to income planning education. For example, MassMutual, Springfield, Mass., is taking the need to educate producers seriously, says Victor Ianneilli, a MassMutual certified family business specialist.

This includes support offered via MassMutual’s FieldNet, a Web site for company producers, and MassMutual University, a Web site that provides educational services for both producers and home office employees. Another producer service is the Blue Chip group, a bank of 10-12 attorneys who can provide legal research support as an income plan is being developed.

What is important, according to Ianneilli, is to start a dialogue with clients about saving for retirement so that you can decide in today’s dollars what income stream and inflation considerations to make for future needs.

By projecting income and needs, Ianneilli says the advisor can determine whether there will be sufficient income or whether there will be a shortfall. If there is a shortfall, the education process will help a client understand whether a certain additional amount must be set aside regularly or whether a client may need to work longer before retirement, he says.

An advisor should make sure a client has realistic expectations of future income, Ianneilli stresses. “It is very disingenuous to sugarcoat a poison pill.”

This article originally appeared in the June 2005 issue of Income Planning, an online publication of National Underwriter Life & Health. You can subscribe to this e-newsletter for free by going to


One planner says, “I’d suggest that income planning start at about age 5. That’s when the kids start to get allowances and their training for how to make it last until the next paycheck (allowance).”


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