Advisor Today - September/October 2012 - (Page 14)

practice specialties FINANCIAL PLANNING | By Katie Libbe Making the Transition Help clients navigate the years just before retirement to secure a long-term guaranteed income. T he financial-services industry has traditionally divided retirement planning into two phases: accumulation and income. During accumulation, financial professionals are focused on helping their clients build a lump sum for retirement. The income phase is spent determining the most effective way to distribute that sum over their clients’ retirement years. But what is missing is a critical third phase in between these two that may be called the “transition phase”—the roughly five to 10 years before retirement. While many financial professionals have successfully helped their clients through accumulation, fewer have navigated the all-too-crucial transition phase—a period when putting the building blocks together for long-term guaranteed income in retirement is most effective. Key questions for your clients There is a great opportunity to fill this potential void for your clients and market yourself as a financial professional who can help them through the transition. Here are five important questions you can ask your client to demonstrate your understanding of his transition strategy: 1. Is your current retirement strategy realistic? As financial professionals meet with clients in their early working years through their 40s, much of the discussion is focused on building that lump sum in order to fund aspirational goals. But as people turn 50, and certainly by age 55, they should be done dreaming of what they’d like their retirement to look like and instead have a firm idea of what it will look like. The discussion during this period should be a reality 14 ADVISOR TODAY | September/October 2012 check to see where they are after 30 years of accumulation. An open and honest assessment is key; so, make sure your client is prepared to have this conversation. 2. Are your assets where they need to be? Asset allocation isn’t just about diversification and trying to capture the upside of various investments. It’s also about where your clients place their money. Once in retirement, an individual may have several different IRAs, 401(k) plans, etc. Planning for retirement income involves creating a strategy for short-term as well as long-term needs and how to structure income payments. Make sure you know about all of your client’s assets so you can do the holistic preparation necessary for the transition phase, as well as a legacy strategy for heirs. This could include consolidating your client’s accounts or bringing the planning under one financial professional if many are being utilized. 3. Have you considered the tax implications of your decisions? Central to an efficient distribution strategy in retirement is addressing tax strategy. Most financial professionals are not tax experts; so, if you don’t have that expertise and cannot provide that guidance, your clients should be encouraged to work with a tax advisor who knows the most efficient way to distribute retirement funds and help minimize the impact of taxes. An efficient distribution strategy can potentially increase the life of your client’s portfolio, and how he withdraws money during retirement can impact Social Security taxation and Medicare. 4. Should you delay taking Social Security? The uncertain future of Social Security gets a lot of attention these days, and rightly so. But Social Security remains the main source of retirement funding for a majority of retirees and will likely stay that way for years to come. According to AARP’s Ready for Retirement report from 2011, Social Security is the base of retirement security for 96 percent of American workers and the largest source of income for older Americans. Clients should contact a representative with the Social Security Administration to determine what may be an appropriate time to start taking benefits. Delaying Social Security by even a few years can make a significant difference in the amount of money they’re eligible to receive. 5. How do guaranteed income solutions fit into the retirement equation? Personal savings used to be the icing on the cake when it came to retirement planning. Fixed costs were usually covered by the combination of an employer-sponsored pension and Social Security, leaving personal savings for things like travel and leisure. That is no longer the case, as individual savings and investments, including defined contribution plans (401ks), now make up the bulk of Americans’ retirement portfolios. Thus, the guaranteed portion of that money used to cover fixed expenses no longer exists. Clients should think about how options for generating a guaranteed lifetime income may be suitable for their retirement strategy. ■ Katie Libbe is vice president of Consumer Marketing and Solutions for Allianz Life.

Table of Contents for the Digital Edition of Advisor Today - September/October 2012

From The Editor
Making the Transition
Will We Avoid the Fiscal Cliff at the End of 2012?
Boosting Retirement Plan Participation
Protecting Younger Workers’ Greatest Asset
From Term to Perm
Demystifying Life Insurance
Four Under Forty
My Best Sales Ideas
NAIFA Government Relations
Insuring People in the World of Sports
Advertiser Index
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Advisor Today - September/October 2012