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'Post-Retirement' Products That Assist Baby Boomer Executives

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Pension plans, 401k(s), stock options, deferred compensation and split-dollar arrangements–they’re all part of the financial benefits executives are rewarded with during a typical career. Once actual retirement looms for these executive baby boomers, however, coordinating the different benefit plans into a cohesive retirement strategy can become a challenge.

Executives who are focused on the operations and goals of the company they work for can’t afford to be distracted by financial planning worries, though most are undoubtedly concerned about whether they will have sufficient retirement income. The good news is that the concept of offering “comprehensive retirement guidance” is gaining recognition among corporate benefit managers.

For companies that have already begun transferring the responsibility of retirement asset accumulation to their employees to reduce benefit liability expenses, offering the services of professional advisors who can help coordinate personal assets and develop a life-long financial strategy is a highly valuable, cost-effective approach to supporting and rewarding key executive talent.

There are typically two phases of financial planning assistance offered as part of these services. The first phase encompasses the “accumulation” years before retirement and culminates with the transition out of the workforce when advisors will help analyze cash flow needs and coordinate upcoming distributions from qualified and nonqualified plans.

The second phase begins once the executive is officially retired, when the emphasis shifts from the accumulation of wealth to the distribution of wealth. Ongoing assistance and advice are available and include lifelong counsel on managing investments, retirement income and estate planning issues. At the optimum level of service, executives receive help in tailoring financial strategies for their short- and long-term personal objectives.

Growing employer interest in providing access to “post-retirement” support and advice is understandable. Of companies surveyed in a July 2007 Employee Benefits Research Institute study, two-thirds indicate that they have stopped offering traditional pension plans to new hires and have frozen pensions for current executives as well as all employees. Recognizing that replacing a secure monthly retirement payment from a pension with a self-directed retirement account presents unique challenges, companies are addressing the need for and value of offering executive financial planning services.

Do executives really need this level of support? Yes. While the Standard & Poor’s Index has averaged an 11% return for the last 10 years, many executives struggle to achieve this rate of return over the long term. Knowing how to accumulate sufficient retirement assets and then effectively manage the distribution of those assets over time are key issues executives have to contend with, making the need for pre- and post-retirement financial advice and guidance paramount.

Corporate benefit managers looking to provide this comprehensive level of service might be surprised to find that their provider’s current menu of executive benefits offerings already includes this type of program. Whatever the branded name may be, these “continuous guidance” benefit packages give financial advisors a new opportunity to assist employers through the uncharted waters of helping their executives develop a solid financial roadmap for the future.

To illustrate how an executive would benefit from comprehensive financial planning services, consider the case of Joe Smith. At the age of 52, Joe has been at the same company for over 20 years. He is at the point in his life where he is contemplating either retiring or moving on to a new endeavor.

However, he doesn’t know whether he can financially support his family during retirement. He has a company pension, 401(k), supplemental savings plan, and some stock awards. In addition to his company benefits, Joe has $400,000 in a brokerage account and a 529 state tuition plan for his daughter, Jane.

Using company-sponsored financial planning services, Joe and his advisor begin by mapping out his future liabilities–estimated living expenses, college tuition costs for his daughter, projected vacation expenditures–and matching them to his various assets. Using financial planning expertise, the advisor uses goal-based planning and multiple scenario simulations to help Joe see how his assets can be used to meet future financial needs. Although the projections may starkly illustrate that Joe might not be able to do everything he wants throughout retirement, the process gives him the piece of mind that he is making solid progress thus far and is close to reaching his primary financial goals.

Joe decides he is going to continue to work for another 5 to 7 years to help ensure his family’s financial future. In addition, he retains the services of his advisor to monitor his situation on an annual basis and make sure that he maintains his overall strategy.

For a company selecting an advisory firm, its first objective should be to determine that its goals for providing this valuable benefit align with those of the advisor’s. To this end, leveraging an existing relationship with a benefits provider may be the best place to start.

For benefits professionals and financial advisors, this marriage of two specialized services can provide an entirely new opportunity. To help executives understand and maximize the value of their benefit plans as wealth accumulation and retirement preparation tools, new service offerings can show them how company-sponsored benefits integrate and what role they play in an executive’s comprehensive financial strategy.

The ideal position of the financial counselor is one of “trusted advisor.” A commitment to devoting the time needed to develop a broad and deep appreciation of each individual’s personal, professional and financial circumstances, objectives and attitudes about risk is vital. That knowledge then needs to be integrated into the comprehensive strategy and implementation plan to best fulfill the individual’s unique requirements. Information must be kept current via periodic face-to-face meetings, teleconferences, etc.

Due to the costs of entry, a smaller, independent advisory firm may want to partner with a larger firm, particularly when the service is geared towards the executive market where the expected level of sophistication in technical competence and financial astuteness is exceeded only by the level of competition.

Heralding in this new generation of benefit products can create some great opportunities within the benefits industry and at the same time help companies provide a new level of wealth building strategies to attract and keep top talent.


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