| I. Introduction |
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- The maturing of the retirement planning movement
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| – What is the role
of the retirement planner? |
| – How much will
your clients need? |
| – What sources of
retirement income are available? |
| – How can
retirement income be maximized? |
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| I. Introduction (cont.) |
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| The "Big 8"
retirement objectives (cont.) |
Top |
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| II. What is the
role of the retirement planner? |
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| A. Holistic retirement
planning |
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- What is holistic planning?
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- What types of topics need to be communicated with
clients?
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| B. Applying knowledge
to client objectives—the art of retirement planning |
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- Forcing clients to think about retirement planning
and their lifestyle choices is a primary responsibility of the retirement planner.
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| – Understand your
clients’s objectives, attitudes, and personal preferences. |
| – Apply your
knowledge to the client’s particular situation |
| – A spendthrift
lifestyle hurts a retiree in two ways: |
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| It minimizes the
retiree’s ability to accumulate savings. |
| The retiree becomes
accustomed to an unnaturally high standard |
| of living. |
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- The planner must devise different retirement
strategies for clients.
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| 1. Clients are never
too young or too old |
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- Even at retirement age important decisions must be
made about distributions from qualified plans, liquidation of personal assets, and
investments of any private savings.
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- A client can postpone retirement.
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- A client can move to an area with a lower cost of
living.
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- A client may have to change acquired expectations
about retirement.
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| II. The role of the
retirement planner (cont.) |
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- Client goals for retirement
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| – Issues |
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| II. The role of the
retirement planner (cont.) |
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| Roadblocks to
retirement saving |
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| Overcoming roadblocks
to retirement saving |
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- Use of the full after-tax income to support a
standard of living
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| – Use of budget. |
| – Use of 90/10
spending ratio. |
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- The problem of unexpected expenses
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- Frequency with which clients change employer
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- Greater urgency of other long-term financial
objectives
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Top |
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| III. How much
will your clients need? |
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- Estimating a client’s financial needs during
retirement is like trying to predict the future.
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| – Many factors
complicate such estimates. |
| – Many variables
can dramatically change overnight and without warning. |
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| III. How much will your
clients need? (cont.) |
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| A. Creating a
retirement plan |
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| 1. Stage 1: Where are
we? |
| 2. Stage 2: Where do we
want to go? |
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- Determine how much annual income will be needed in
the first year of retirement to achieve a client’s goals.
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| – The replacement
ratio method assumes that the standard of living enjoyed during the years just prior to
retirement will be the determining factor for the standard of living during retirement. |
| – The expense
method focuses on the projected expenses that the retiree will have. |
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| III. How much will your
clients need? (cont.) |
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| The retirement road map |
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| 3. The expected
starting date for retirement |
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| 4. The expected
inflation rate before and after retirement |
Top |
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| IV. What
sources of retirement income are available? |
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| A. Qualified plans |
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- Tax advantages of qualified plans
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- Several ways of categorizing qualified plans
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| – What the
employer provides |
| – Plans geared to
employer profits |
| – Who provides the
benefit |
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| IV. What sources of
retirement income are available? (cont.) |
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| 1. Defined-benefit
versus defined-contribution plans |
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| 2. Pension versus
profit-sharing plans |
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| B. Types of qualified
plans |
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| 1. Defined-benefit
pension plans |
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- The unit-benefit formula (accounts for both
service and salary)
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- The flat-percentage-of-earnings formula
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- The flat-amount-per-year-of-service formula
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- Integration with social security
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| IV. What sources of
retirement income are available? (cont.) |
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| B. Types of qualified
plans |
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| 2. Defined-contribution
plans |
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- Annual contributions (limited to the lesser of
$30,000 or 25 percent of salary)
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- Target-benefit pension plans (can be compared with
defined-benefit plans)
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- Money-purchase pension plans
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| 3. Profit-sharing plans |
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- Under the allocation formula the employer
allocates profits according to a fixed formula that recognizes both service and salary.
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- If the straight percentage of compensation formula
is used, the employer typically commits to contributions even if there are no profits.
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| 4. 401(k) plans |
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- Employee contributions can be made with before-tax
dollars.
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- Employer-matching contributions can be an added
feature.
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- The planner should be aware of several additional
factors concerning 401(k) plans.
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| 5. 403(b) plans |
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- Who is eligible for this plan?
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- How does this plan differ from a 401(k) plan?
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| C. Nonqualified plans |
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| 1. Retirement planning
considerations |
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- These plans are provided for selected employees
only.
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- There are three basic types of nonqualified plans:
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| – Top hat |
| – Excess benefit |
| – Supplemental
executive retirement |
- There are several potential problems that clients
should be aware of:
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| – Distributions
are not eligible for forward averaging. |
| – Promised
benefits might not be available in the future. |
| – There is a
potential threat of immediate taxation to the employee. |
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- Despite potential problems, a nonqualified pan
supplementing a qualified plan can be appropriate for upscale clients.
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| D. Social security |
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| 1. Eligibility |
| 2. Retirement benefits |
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- A fully insured worker can retire as early as age
62.
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- The benefit is increased if retirement is delayed
beyond age 65.
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| 3. Medicare |
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- Most persons aged 65 or over are eligible for
medicare.
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| – Part A benefits |
| – Part B benefits |
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| V. How to help
clients overcome inadequate retirement resources |
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| A. Trading down:
relocation to a less expensive home |
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| B. Cashing in while
staying at home—the reverse annuity mortgage |
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| C. Postretirement
employment |
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