[IMGCAP(1)]If your clients who are closing in on retirement, planning for the day they leave the workforce is probably at the top of their minds. But retirement planning is critical at any age. It’s never too early to begin putting a retirement savings strategy in place for your clients.

 

One way to look at retirement planning is that it comes in stages – starting early when they are far from retirement (at least 10-20 or more years away), continuing in the pre-retirement years (less than 10 years from the big day) and finally, a strategy to carry your clients from the time they begin their retirement through the rest of their lives.

Categorizing retirement in this way can make this long-term goal more relevant in terms of your clients’ current financial situation. For those who are younger, approaching retirement in stages may make them more motivated to take action. Here are suggestions on how to help your clients plan for retirement based on the amount of time they have left to save and invest for their ultimate financial goals.

Stage 1 – Retirement is 10-20 or more years away

Don’t be fooled by the timeframe – even if retirement is 30 or 40 years away, you should think about putting a savings plan in place for your clients. If they are employed and a workplace retirement plan is available to them, it makes sense for them to start saving there. This is especially true if their employer makes matching contributions. Many younger people qualify, from an income standpoint, to make Roth IRA contributions as well.

From an investment perspective, take a long-term view. Your clients should be in a position to ride out short-term market swings and maintain at least a moderately aggressive mix of investments in their retirement portfolios, seeking the greatest long-term return. The biggest advantage they have in their favor is time. The longer they can let their money work for them, the greater the opportunity to accumulate notable wealth from the dollars they have saved.

Stage 2 – The decade leading up to retirement

For many people, the final years before retirement are the peak income-earning years. This also may be the time when financial commitments for goals such as paying for a child’s education are behind them. It is important for clients to make large contributions to their retirement savings plans – through work, into an IRA, or using other vehicles such as tax-deferred annuities. The emphasis now is to do all you can to help prepare your clients for the day when they will need to depend on their retirement savings to meet their lifestyle goals.

Note that those who are 50 or older are allowed to make what are referred to as “catch-up” contributions – additional sums above standard contribution limits that exist for workplace savings plans or IRAs. Your clients should take advantage of this special opportunity to maximize their savings.

Make sure your clients are prepared for unexpected events by having appropriate levels of insurance in place. They should start thinking seriously about what age they plan to retire, and how other sources of income, such as Social Security or a company pension, will be affected by the timing of their retirement.

Stage 3 – Starting retirement

As your clients enter retirement, a lot of changes may occur. They need to determine how to generate current income from their existing savings while still trying to keep their money growing to meet their needs well into the future, when the cost of living is likely to be higher. You want to help them protect their assets from market volatility, but remain active investors.

There are a number of other key issues to deal with as retirement begins, including:

•     Applying for Social Security – The longer clients delay taking Social Security (up to age 70), the larger their monthly benefit will be.

•     Applying for Medicare – Clients need to do this when they reach age 65, whether or not they are taking Social Security. Also, to help cover expenses not paid for by Medicare, they will need a supplemental insurance policy.

•    Determining other sources of income – Clients need to arrange for payments from a company retirement plan, and determine whether they will draw income from their own savings, if they need to.

•    Managing taxes – You want to take steps to help your clients reduce the tax impact on any sources of income they receive.

Looking at retirement planning at three different stages of life can make it easier for you and your clients to keep a focus on achieving their ultimate financial goals. They should consult their trusted financial advisors to make sure they’re taking the right steps at the right time.

Rich Van Loan, CRPC, is a senior financial advisor and Chartered Retirement Planning Counselor with Ameriprise Financial Services, Inc. He can be reached at 617-337-3233 or via email at Richard.r.vanloan@ampf.com.

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