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Life Health > Annuities

Annuities: Preparing clients to retire at (almost) any age

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The new Department of Labor Fiduciary Rule is scheduled to be phased in soon.

This ruling expands the “investment advice fiduciary” standard definition while still demanding that advisors always act in the best interests of their clients.

Related: DOL expected to delay fiduciary rule

As part of that commitment, it’s important for investment advisory industry professionals to recognize that the needs of each particular client will differ based on a variety of factors including income, budget, family situation and personal goals. There is no “one-size-fits-all” retirement plan; each individual client deserves a customized solution that addresses their unique situation.

But there are a variety of general tips and strategies that all clients should be aware of that can help with retirement planning at ages 40, 50, 60 and 70.

Related: Your secret weapon to retirement planning success

At age 40: Clients should be maximizing tax-deferred and tax-free retirement plans to provide assets plenty of time to grow, while also developing a plan to eliminate high-interest debt balances. However, at this stage in life, families with children must also anticipate an increase in spending based on education needs and family living expenses. It is therefore important to maintain a balance between planning for your retirement, while also maintaining an appropriate amount of readily available excess cash for emergency situations.

Related: Reaping the tax benefits of annuities

At age 50: Clients should continue to take advantage of tax-deferred and tax-free retirement plans, but may also want to consider adding after-tax savings to their retirement plans. Adding after-tax savings to an investment plan can include the funding of annuities, as well as brokerage accounts. A retirement plan should be in place and regularly updated as that will drive the target for after-tax savings. The goal is to build a cash flow stream to fill the time between retirement and required minimum distributions and Social Security. A properly structured annuity, with downside protection, can help minimize the impact volatile markets may have on a client’s retirement goals.

At age 60: This is the perfect time to encourage clients to pay off all of their debt, including their mortgage balance, in an effort to begin retirement debt-free. This will allow clients the peace-of-mind to allow more discretionary cash flow during retirement. Some clients may be used to the tax-deduction for mortgage interest. However, it is important to also consider the itemization of deductions in retirement or the use of standard deduction, along with a potentially lower effective tax-rate in retirement.

Right around a client's 60th birthday is an ideal time to encourage that individual to pay off all of their debt, including their mortgage balance. (Photo: iStock)Right around a client’s 60th birthday is an ideal time to encourage that individual to pay off all of their debt, including their mortgage balance. (Photo: iStock)

Claiming your Social Security at 70

Advising a client on whether to wait to claim Social Security until they are 70 becomes a very personal conversation, as the number one factor that can impact the value of the Social Security benefit is life expectancy. Waiting until age 70 can result in an increased annual benefit, but the length of the benefit should be the top consideration. Other considerations to go over with clients include tax levels and

whether or not the client has enough after-tax income prior to age 70. If this is not the case, advisors may want to counsel clients to start Social Security before age 70 to avoid tapping into an IRA before age 70.5.

Related: In 2017, advisors must monitor Social Security and Medicare reform

Lump sum versus monthly checks

Another major issue to discuss with your client as they consider retirement is advising between an annuity of a lump sum versus monthly sums. This discussion will greatly depend on the risk-free rate of return available at the time. Think of this as being similar to many of the pension plans that have been “buying out” pensions and paying recipients a lump sum. Again, a client’s particular personal and family situation becomes a primary factor. The advantage of a lump sum includes the possibility of passing along assets to heirs in lieu of the traditional approach of monthly checks stopping at death (or spouse’s death).

The new DOL ruling requires professionals to advise on the absolute best interest of the client… and to know their best interest means to truly know the client. As family plays a dominant role in each client’s decision, treating clients like family is vital to ensure proper communication as retirement goals are set and carried out at each age.

Read more columns by Jeffrey Phillips:

5 ways to go above and beyond for your clients

Insuring the financial future of the sandwich generation

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