5 Steps to Building a Retirement Income Plan for Clients

Related: 8 Things Your Clients Might Not Know About Social Security

An effective retirement income plan can involve coordinating multiple goals, assets, liabilities and income sources.

For instance, some clients will want to travel extensively while others might prefer to stay local and become more active in their communities. Some will have adequate financial resources to fund their desired lifestyle but others will face spending tradeoffs. Also, each client will have a different degree of risk tolerance and desire to leave a legacy.

The Ultimate Retirement Income Planning Guide for Advisors from Commonwealth Financial Network outlines a comprehensive approach for advisors to distinguish themselves as retirement income planning experts. The process follows a five-step sequence to help develop a personalized plan for each client. We’ve summarized the steps in the gallery above.

Ed McCarthy is a freelance financial writer who holds the certified financial planner and retirement income certified professional designations.

Step 1: Define the Client’s Goals

Clients’ goals for retirement vary and you need a clear idea of how they picture their post-working years before plunging into the data-gathering and analysis portions of the plan.

It’s important to get your clients to envision what their days will be like when every day is a “vacation day.” Many people believe this doesn’t take much consideration, but there are pros and cons to having so much spare time.

“This is an incredibly important step in developing both an effective and realistic plan for retirement income,” says Justin D. Duft, vice president, advanced planning at Commonwealth. “Financial planning is part art and part science. Yes, there is a lot of math that goes into building a successful income strategy, but if you are missing details because you didn’t probe enough during the data-gathering process, you will be missing part of the picture.”

(Image: Adobe Stock)

Step 2: Take Inventory

Once you’ve discussed the emotional aspects of retirement, including your client’s personal retirement vision, the next step is to take inventory of your client’s financial situation to see how realistic his or her goals are. This inventory includes not only current assets and liabilities, but also an assessment of risks and concerns for each client’s situation, including longevity and inflation risks.

“Discussing the risks associated with a financial plan is a natural and essential part of the planning process,” says Duft. “Using financial planning software is an effective way to illustrate these risks and make adjustments to minimize them. It’s also important for clients to understand that a financial plan is a living document — you do not set it and forget it.”

(Image: Shutterstock)

Step 3: Identify Distribution, Tax, and Estate Issues and Opportunities

You likely have already discussed these matters with clients for whom you’ve worked on full-blown financial plans. Income planning also may require an in-depth look at these issues to ensure that the plan meets your client’s needs, especially when the regulations regarding retirement distributions change.

For example, Duft notes that the Setting Every Community Up for Retirement Enhancement (Secure) Act that became law in December 2019 had a significant impact on inherited IRAs.

“After the SECURE Act, individuals who inherit an IRA from a non-spouse are required to liquidate the balance of the IRA in a more compressed time frame than previously expected,” he explains. “A good planner can help a client understand the effect of this legislation and make appropriate adjustments to the financial plan to account for these changes.”

(Image: Shutterstock)

Step 4: Identify Gaps and Shortfalls

Clients tend to fall into one of three categories:

No shortfall: These high-net-worth clients may have a surplus of assets. You will have to consider things like legacy planning and the intelligent allocation of assets to reduce taxes and reach other estate planning goals.

Slight shortfall: For clients in this category, you can address gaps in income using some basic strategies. You may also need conversations about adjusting goals and ensuring those goals still fit the client’s situation.

Severe shortfall: These clients have not prepared for retirement and it appears unlikely that they will meet their income goals. There are strategies you may employ to improve the situation, but you will likely engage in some difficult discussions about redefining goals.

(Image: Adobe Stock)

Step 5: Implement the Retirement Income Plan

The first step is to show clients any potential income shortfalls you identified. Be sure to differentiate between essential and discretionary expenses, as covering the essentials is the first priority. There are several approaches you can follow to address any shortfall. Each has pros and cons and may not be appropriate for every client.

The second step is to address any shortfalls, and the guide discusses six options in detail:

Reposition assets.
Retire later and postpone Social Security and pension payments.
Add additional lifetime income.
Spend less.
Work part-time.
Use home equity.

(Image: Shutterstock)

5 Steps to Building a Retirement Income Plan for Clients

Related: 8 Things Your Clients Might Not Know About Social Security

How Social Security Gets Used Up on Health Care

More on this topic

Do Fees, Commissions Drive Bad Social Security Guidance? — Advisors' Advice

Social Security 2025 COLA Estimate Climbs to 3%

Insured Retirement Institute CEO Vows to Defend Annuity Industry

Do You Need $1.5M to Retire? 5 Experts Weigh In on the New Magic Number

Step 1: Define the Client’s Goals

Step 2: Take Inventory

Step 3: Identify Distribution, Tax, and Estate Issues and Opportunities

Step 4: Identify Gaps and Shortfalls

Step 5: Implement the Retirement Income Plan

Do Fees, Commissions Drive Bad Social Security Guidance? — Advisors' Advice

10 Keys to Boosting Retirement Portfolios in a Surging Market: Advisors’ Advice

7 Reasons Retirement Is Always Uncertain: Jamie Hopkins

These Data Points Show That Social Security Income Is Essential

Featured Resources

Helping Your Clients Make a Greater Philanthropic Impact

Index Year End Review: 2023

Tips for the Talk: Conversations Around Philanthropy

RIA Investment Trends

5 Steps to Building a Retirement Income Plan for Clients

Share with Email

Thank you for sharing!

Related: 8 Things Your Clients Might Not Know About Social Security

More on this topic

Step 1: Define the Client’s Goals

Step 2: Take Inventory

Step 3: Identify Distribution, Tax, and Estate Issues and Opportunities

Step 4: Identify Gaps and Shortfalls

Step 5: Implement the Retirement Income Plan

Featured Resources

Connect with ThinkAdvisor