The Retirement Income Planning Opportunity Is Now

As the leading edge of the baby boomers turns age 62 this year, they will have reached 2 important milestones: 1) it’s time (for some) to apply for early Social Security benefits, and 2) it’s time to begin transitioning from saving for retirement to spending in retirement.

Because many pre-retirees don’t realize that how they spend savings is as important as how much they saved, retirement income planning has become a dynamic business opportunity for advisors.

For instance, many Americans aged 60 to 74 are na?ve about how much money they will need in retirement; many are over- or under-spending in retirement; and a good many are adopting a “do it yourself” mentality, according to a recent Thrivent Financial survey (see chart).

Yet, unlike their parents, many will not have a pension or other secure income sources to ensure they will not be destitute in old age. So a retirement income plan is especially important for this generation. Without a plan, unknown factors like market performance, life expectancy, health issues or changing personal circumstances can prematurely deplete savings.

Further, once retirees reach age 70 1/2 , they will be required to make minimum distributions from qualified retirement accounts like 401(k)s and traditional individual retirement accounts–or face stiff tax penalties. Many will need help managing the complexity and tax implications of these required distributions.

A holistic strategy can help by maximizing income potential throughout retirement and ensuring the retiree doesn’t outlive savings. Here are guiding principles:

Guarantees: One way to manage retirement income risks is to turn a portion of accumulated savings into a “personal pension” or guaranteed lifetime income, as through a lifetime income annuity.

Growth: Asset allocation is key to creating a retirement portfolio that will generate income sufficient to keep pace with inflation over an extended period of time. Since today’s retirement can last more than 30 years, a too conservative allocation may not deliver the needed long-term portfolio growth while a riskier allocation may deplete savings too soon.

Flexibility: Because retirement is likely to last a long time for many people and life is full of changes, it is important to develop a retirement income plan that maintains as much flexibility and control as possible. Retirees can address this through managing withdrawals to make money last, maintaining some liquidity and control, and leveraging investment accounts.

How can advisors make the most of the retirement income opportunity?

o Make retirement income planning a part of ongoing client meetings and communications, especially for clients who are nearing retirement or newly retired. Find out about clients’ retirement investments, whether they are expecting company pensions and when they hope to begin Social Security benefits. This is an opportune time to discuss the benefits of asset consolidation and rollovers.