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Retirement Planning > Saving for Retirement

Behind the Numbers

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Ask your clients if they’re financially prepared for retirement and you’ll receive a variety of answers. Too often, however, many of your clients earnestly believe they are prepared for retirement, when in fact they are not doing enough. This is especially true of members of the Baby Boom generation, the lion’s share of which are rapidly approaching retirement.

Since 2001, Mainstay’s Across Generations research has quantified this disconnect between clients’ beliefs about retirement and the reality of their financial picture. For example, pre-retirees responding in the 2005 survey (i.e., those aged 55-65) predicted that they would have savings of roughly $1 million and a net worth of $1.53 million by the time they retired. However, those same respondents reported average current savings and net worth of $660,800 and $904,000, respectively.

Your job is to help bridge the gap between perception and reality. One of the most effective bridge building techniques is to consolidate your clients’ retirement accounts. By consolidating those assets, advisors can holistically assess a client’s retirement picture–and prepare their clients for a comfortable retirement while building their own book of business. But to do so, you need all the information. Asset consolidation can be completed in four simple steps.

Gather the Information

First, collect the information you’ll need to coordinate the transfer of portable retirement accounts (IRAs, IRA rollovers) to your firm. List all the details of the client’s (and spouse’s) qualified and non-qualified plans. While you won’t “control” some of these accounts, you will want to take them into consideration when making a recommendation on the retirement assets residing with you.

Use one of the many consolidation tools available in the marketplace, such as MainStay Investments’ Retirement Savings Consolidator, to simplify the process of finding assets and moving them. Work with your clients to document the locations of every retirement account, the current account value and investment position, as well as the details of other qualified and nonqualified plans that may influence the investment of these assets.

Discover and Allocate

Consider the wide variety of factors that may influence the allocation of some or all of your client’s retirement savings.

  • Uncover Other Retirement Plans. Find out if your client participates in an employer-sponsored retirement plan to help determine IRA deductibility.
  • Examine Asset Allocation. Accounts established years ago may have investment allocations that are now outdated and do not coincide with your client’s current risk tolerance.
  • Consider Company Stock Strategies. Consider the Net Unrealized Appreciation (NUA) Rule–special tax treatment of company stock that is distributed from qualified plans, such as 401(k)s. It may be advantageous, tax-wise, for the client to take a taxable in-kind (stock in certificate form) distribution of the company shares and roll the remaining non-stock assets into an IRA.
  • Assume Fiduciary Responsibility? You may choose to accept fiduciary responsibility and advise your clients about their current 401(k) plan allocations.
  • Run the Numbers. Through the use of asset allocation software, you can illustrate how the entire retirement portfolio can be consolidated and well-diversified to help meet the client’s goals as well as demonstrate any shortfalls in the plan.
  • Avoid Portfolio Overlap. Help your clients avoid portfolio overlap, as well as gaps, through a broadly diversified balanced asset allocation and a potentially broader selection of investment options.

Present Consolidation’s Benefits

The Census Bureau reports that 42% of U.S. households hold two or more traditional IRAs and nearly 12 million households own Roth IRAs. In addition, clients often change jobs throughout their careers, and may have left retirement accounts with their previous employers. GenX and Boomer respondents in the MainStay Investments’ Survey cited DC plans as the most popular source of expected retirement income. IRAs and employer sponsored retirement plans present a powerful way for you to garner new assets.

Consolidating retirement plans into IRAs can expand your clients’ investment options, simplify the calculation and distribution process for required minimum distributions, reduce costs, increase distribution options for beneficiaries, simplify tax treatment on distributions, and allow you to facilitate allocation of your clients’ entire retirement portfolio. Moreover, as substantial assets are consolidated, a wider range of products can be offered.

Go Beyond the Balance Sheet

Consolidating retirement assets is just one of the services you can provide to build both client relationships and your business. To add more value, make the most of your relationships with clients and their family members by providing legacy and estate planning as well as financial organization. In short, our survey findings suggest that by taking this approach you will become not just an advisor but an essential part of your clients’ financial lives.

Chris Blunt is president of New York Life’s Mainstay Investments unit and can be reached at [email protected].


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