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July 31, 2014 at 07:24 AM
As 10,000 people are expected to retire every day for the next 18 years, financial advisors sit on the forefront of the greatest retirement demographic in history. While this fact has been much publicized, what may be lesser known is the myriad of decisions and determinations that advisors will be responsible for as they lead their clients to a safe and secure retirement.
Advisors know that many of their affluent clients today are educated, well-read and curious about new financial products, especially those that offer flexibility, moderate risk, and increased investment return. A recent report from Nielsen, a global information and measurement company, states that the affluent individual has income producing assets between $250,000 and $1 million, possesses multiple investment accounts, owns their own home, reads newspapers, trade journals and magazines widely, and is over 55 years old.
Despite their financial awareness, many in this retiring demographic don’t understand how to make the best decisions when it comes to funds distribution. For the most part, this demographic will be fully employed at age 62. But by 70, most will be fully or semi-retired. Within that eight-year “retirement transition window”, advisors will need to help these clients make many irrevocable decisions that can significantly impact their financial independence. Some of these decisions include taking steps to maximize Social Security payments, filing when required for Medicare, and properly timing the disbursements from company-sponsored retirement programs, IRAs, 401Ks and employee stock options.
The Necessity of Transitioning to Distribution Planning
Advisors who serve this growing demographic will need to start transitioning their near-retirement clients from an accumulation mentality to a distribution planning mentality. This transition will be challenging for advisors, as the time and knowledge base needed goes up exponentially. Now it’s not just about growing assets, but also creating income from those investments. There is a whole element of distribution planning that was not in place in the accumulation phase, and clients expect their advisor to understand the complexities and offer sound advice.
