- Retirement today is very different from the “defined benefit” days of yesteryear.
- Some of your clients may be ill-informed on crafting a sensible retirement spending plan.
- Left to their own devices, retirees may blow through savings or force themselves to live on a shoestring budget.
Retirement seemed a lot simpler back in the pension era: Work, retire, collect pension, spend. But in today’s “defined contribution” environment of 401(k)s and IRAs, clients need more guidance when creating a plan that generates adequate retirement income for a longer life span.
The Stanford Center on Longevity reviewed the tangle of issues facing modern retirees and tackled the retirement income mystery in a comprehensive report, Optimizing Retirement Income Solutions in Defined Contribution Retirement Plans. Researchers sought optimal ways for retirees to use their savings to generate retirement income and prepare for emergencies, big one-time expenses, and discretionary spending.
Researchers found that scenarios presented in the report may help financial professionals create recommendations that are demonstrably in the client’s best interest.
The findings were built on a complex set of forecasts, projections, and scenarios that incorporate variables such as a continued increase of American life spans. The study also examines the tradeoff between investing savings – which may not last a lifetime – and purchasing a plan that provides guaranteed lifetime income but limits access to those funds.
One factor that may surprise some: The old “4% rule,” withdrawing an inflation-adjusted amount no matter what the investment returns, is not part of the study.
The report also discusses Social Security and using savings to delay claiming benefits, as well as a mention of reverse mortgages, and insurance or investments outside of tax-qualified plans.
The study’s authors are Professor of Retirement Income Wade Pfau, Ph.D, of The American College of Financial Services; actuary and financial planner, Joe Tomlinson, FSA, CFP®; and Steve Vernon, FSA, with assistance from the Society of Actuaries.
Vernon, consulting research scholar at the Center’s Financial Security Division, said everyone has a role to play when it comes to planning for a long retirement.
“Critical questions for older workers are ‘Do I have enough money to retire’ and ‘How do I deploy my hard-earned savings in retirement?'” Vernon said. “Our study helps plan sponsors, financial professionals, and retirees answer these questions by developing a framework to build diversified retirement income portfolios that can last for long lives.”
The entire report, including a section on how advisors can use the findings to better serve clients, is available for download.
To extend your value to clients, we recommend sharing this related article: A Spending Plan for Today’s Retirees.
Things to Consider:
- Clients may not be forthcoming with spending questions; don’t be afraid to initiate conversation.
- The Stanford Center on Longevity is a great resource on the evolving needs of aging America.
- Give your clients a leg up by sharing A Spending Plan for Today’s Retirees.
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 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, medical, insurance, securities, tax, legal or financial advice or guidance. Please consult your personal independent advisors for answers to your specific questions.