You probably already know most of your clients’ important financial numbers. Savvy financial professionals might’ve even talked to their clients about health numbers such as their total cholesterol, blood pressure, waist size, and blood sugar and the impact each can have on a client’s Wealth + Health.
But do you and your clients know their individual retirement income gap numbers and how they’re going to overcome it?
Failing to know the difference between their estimated retirement expenses and their expected sources of income could leave clients working well into their preferred retirement years and reflect poorly on you.
As average life expectancy increases, knowing a client’s retirement income gap number takes on even more significance. And while income needs will likely change at different stages of life, estimating a client’s monthly expenses in retirement is the first step toward creating a strategy.
There are a number of economic factors clients should be aware of that can affect their budget in retirement. For instance, a rise in the age for full Social Security benefits may translate into less than expected income. Plus, lower interest rates can mean reduced returns on some types of investments — not to mention unpredictable changes in tax rates.
They should also be aware that their expenses will likely differ from their current monthly expenses. Items such as commuting costs may decrease while others like travel, recreation, and hobbies may increase. Inflation could also cause their monthly expenses to increase over time.
Even with all these factors, it is possible to help clients estimate their expenses for when they retire. Share our retirement budget worksheet with your clients to help determine whether they might have a retirement income gap. They can use this worksheet to determine the extra monthly income they may need in retirement to create the kind of golden years they want.
If they haven’t already, a good place to start is having your clients create an account at ssa.gov/myaccount. There they can review their estimated Social Security benefit at 62, at full retirement age, and at age 70. This will give them a good idea of where they stand as far as Social Security income goes.
Retirement income strategies
If your clients are like many, Social Security and retirement contributions alone may not cut it in closing a retirement income gap. Depending on their individual situation, an annuity could be the answer for some. An annuity may help clients fill the retirement income gap by providing guaranteed income for life. It can also help clients manage their tax liability or offer protection for loved ones once they’re gone.
Something else for clients to consider in their retirement budgeting exercise? Many people choose to have their Medicare Part B premium deducted from their monthly Social Security payment. In 2018, this amount ranges from $134 to $428.60, depending on their income. Remind clients they may want to subtract this amount from what they thought they’d be receiving from Social Security.
If your client is fortunate enough to be eligible for a pension, review their payout options for the potential effects each one could have on their retirement plans. If they only have a defined contribution plan such as a 401(k), perhaps you can discuss the idea of how to “ pensionize” or draw down their savings safely so it lasts as long as they do.
If clients have estimated their retirement income gap on their own, review their worksheet and see if it requires any refining. If there is a gap, you can start discussing the many ways to close it, and prepare a long-term strategy that’ll work best for them.
Share our retirement budget worksheet with your clients today to help them determine their retirement income gap.
Neither Transamerica nor its agents or representatives may provide tax, investment or legal advice. Anyone to whom this material is promoted, marketed, or recommended should consult with and rely on their own independent tax and legal advisors and financial professional regarding their particular situation and the concepts presented herein.
Transamerica Resources, Inc. is an Aegon company and is affiliated with various companies which include, but are not limited to, insurance companies and broker dealers. Transamerica Resources, Inc. does not offer insurance products or securities. The information provided is for educational purposes only and should not be construed as insurance, securities, ERISA, tax, legal or financial advice or guidance. Please consult your personal independent advisors for answers to your specific questions.