The importance of retirement planning may seem like a no-brainer to most financial advisors. However, the very idea of retirement planning can be anxiety-inducing. In fact, many people are doubtful that they will ever be able to retire. A recent MarketWatch study found that over 43% of Americans say they do not expect to be financially ready for retirement when their career comes to an end. Additionally, 45% say they can imagine a time when Social Security no longer exists.
The reality is that people need to start planning now and understand how the American retirement system functions if they want to exit the workforce when they’re ready. But that is often easier said than done. Many people don’t even know who to talk to about retirement planning. And that’s where financial advisors come in. Helping clients retire, especially in today’s economic climate, is filled with many challenges.
To help your clients better grasp the benefits of retirement planning, and start making the right financial choices now, they must understand:
- What the most important parts of retirement planning are
- What factors affect retirement planning
- What types of retirement plans are available
We’ll elaborate on each of these concepts in the sections below.
What Is Important in Retirement Planning?
Retirement plans for individuals all differ depending on your client’s unique circumstances. Although, there are a few general points that everyone should keep in mind. Here are some of the most critical things to go over with your clients.
- Estimate how much money your client will need to comfortably retire | Even though this may seem straightforward, understanding how much money your client needs to enjoy their retirement is more complex than most people think. Considering changes in circumstances, lifestyle, and economic disruptions all affect your client’s projected savings goals. As their advisor, it’s important for you to help your clients understand that the projected funds they need for retirement are likely to change. Therefore, their retirement plan and goals should be consistently re-evaluated.
- Prepare for potential financial emergencies | Many people forget to factor in risk when they plan for retirement. This can include emergency health care costs, disaster recovery, and many other unfortunate—and expensive—incidents. Although being optimistic isn’t necessarily a bad thing, your clients need to factor in emergency costs and be realistic about obstacles the future may hold as you work with them to outline their retirement plans.
- Diversifying investments and savings strategies | Although your clients may be tempted to store all of their money in a single savings account, this isn’t a best practice. Ensuring your clients spread out their investment portfolio—even if they are hesitant at first—is absolutely critical for their future financial success. This includes investing in stocks, bonds, high-yield investment accounts, and various other types of assets.
What Are the Factors Affecting Retirement Planning?
Of course, the specific factors impacting your client’s retirement plan differ depending on their individual situation. However, the most common and influential factors that impact their ability to save include:
- Rising health care costs
- Increased inflation
- The global economic climate
- Stock market fluctuations
- Taxes
What Are the Four Types of Retirement Plans?
There are, in fact, more than four types of retirement plans available, but the four most common options are 401(k), Roth IRA, simplified employee pension, and employee stock ownership plans.
- 401(k) Plans | These qualified profit-sharing plans are offered by an employer and sometimes come with employer matching, which is especially helpful.
- IRA Plans | IRAs are useful investment opportunities because they are not taxed upon distribution. Roth IRAs also tend to offer more investment options compared to 401(k) plans. We should note that there are distinct differences between Roth IRA plans and traditional IRA options.
- Simplified Employee Pension Plans (SEP) | Although many people who work in the private sector will not receive a pension, government workers, teachers, and military professionals will still receive a pension once they retire.
- Employee Stock Ownership Plans (ESOP) | These plans allow a company’s employees to own shares of that organization. ESOP options can offer a great rate of return, depending on the company your clients work for.
If you want to learn more about different types of retirement plans, visit this resource from the US Department of Labor.
Life Settlements: Another Way To Supplement Fixed Retirement Income
When planning for retirement, it’s critical that your clients explore every savings opportunity. This includes alternative sources of funds, like life settlements. If your client has an unwanted life insurance policy, they could choose to sell their plan to a life settlement company.
Selling a life insurance policy rids your clients of expensive premiums and provides a healthy supplement to their retirement savings. The life settlement process costs your client nothing and always offers a greater return than surrendering a policy back to the insurer.
Ultimately, life settlements are just another method to help ensure your clients have a fruitful and worry-free retirement. If you believe a life settlement could be a worthwhile option for your client, contact Life Settlement Advisors today to learn more.
