Financial advisors are grappling with the unsettling reality that without careful planning, clients may not have enough saved for regular income streams in retirement.
In interviews with Income Planning, financial planners offered insight into tools that they feel work for clients.
“The big thing is to really save. You have to lay out a plan and stick to that plan,” says Carol Friedhoff, a certified financial planner with Savvy Outcomes, based in Dublin, Ohio. Maintaining proper asset allocation is also important, she continues.
No-load index funds are one way Friedhoff says she helps clients develop a plan to save for retirement. She says she finds these funds effective. The only time mutual funds may not be efficient is if they are managed funds with a lot of turnover that are not in a tax-advantaged vehicle, she adds.
The problem is not necessarily that people don’t have the money for retirement but that they do not have the expertise to determine whether they have enough to create sufficient income for retirement, says Jack White, a certified financial planner with Fidelis Financial Planning, St. Charles, Mo.
A financial advisor needs to work with a client to determine “what retirement really means to them,” according to White. He adds that many people do not even know what retirement means and what they want out of retirement, except for general concepts such as maintaining 80% of current income in their retirement years.
White says that, as a fee-only planner, he is more concerned with the process rather than just selecting products for retirement.
White recommends that clients make use of their 401(k) plans, if they have one, as well as personal savings. He says he is not a big advocate of annuities or of products that create income streams. Rather, he suggests clients use savings to access income as needed and do so in a more cost-effective manner.
One way to save for retirement is through the use of passive products, he adds.
Working in retirement is something that many people want to do, at least part time, because work keeps them active and connected with people, White observes. To illustrate, White says that, for years, he has been informally asking older employees at a local Wal-Mart if they enjoy working. He has found that for the most part, these employees say that they work because they want to remain active.
In addition to the benefits of remaining connected with people, White says that even an income of $1,000 a month can make a big difference in the amount a retiree will need to accumulate for retirement.
The concern these advisors are expressing is affirmed in a new study released last month. A quarter of independent financial advisors surveyed believe that only up to 40% of their clients will have adequate funds during retirement, according to a new survey out from Curian Capital, Denver. Curian is a registered investment advisor subsidiary of Jackson National Life Ins. Co., Lansing, Mich.