Second, “How Much Monthly Income Will You Need in Retirement?”
You’ve probably touched on the topic before, but have your clients really thought closely about how much monthly income they’ll need in retirement? Even if you’ve developed a retirement income plan, this may be a good time to re-evaluate it. As you know, it’s often an ongoing conversation because personal and economic circumstances can change.
If Clients Don’t Have Definite Answers to These Questions, That’s Okay
For discussion purposes, clients can assume they’ll need 80 percent of their current income in retirement as a guideline.3 Once that figure is established, compare it to the amount of Social Security they’ll likely receive. Chances are, Social Security alone won’t cover their income needs.Review your client’s portfolio to determine whether the monthly income they’ll need can be covered by drawing income from the assets you manage. If there’s still a shortfall between their estimated expenses and estimated Social Security and investment income, move on to the third question.
Third, “If There’s a Shortfall, Where Will the Income Come From?”
To make up the difference, clients may have the option to tap other available income sources. If so, you need to find out what those options are—and where. This question is intended not only to help make up for the income shortfall, but also uncover clients’ accounts that you don’t manage and bring everything into view. These accounts could include:
- Traditional or Roth IRAs, 401(k)s, 403(b)s, or other tax-deferred retirement savings accounts
- Non-qualified mutual funds or ETFs
- Pension plans
- Other savings and investments
By being aware of all the potential sources, you can build a comprehensive retirement income plan that’s more likely to cover your client’s retirement-income needs and goals and in a more efficient manner.
If it’s in your client’s best interest, talk to them about the potential benefits of consolidation. Having their entire portfolio, or at least most of it, in one place enables you and your client to make more informed investment decisions. Consolidation can also simplify account tracking by cutting down on the number of emails and 1099 forms clients receive—and possibly reduce overall fees.
What if There Is No Gap?
If there’s no gap, that’s great! Knowing they’re already positioned to receive enough retirement income to sufficiently cover their needs and goals can put your clients at ease. Even so, the asset-gathering opportunity isn’t lost. For example, the average Baby Boomer has held an average of 12 jobs, making it easy to lose track of past retirement accounts.4 Nearly a fifth of all the money American workers have in retirement accounts is tied up in old plans, averaging $55,000.4 It’s still reasonable to ask your clients if they own accounts elsewhere and evaluate whether account consolidation would be advantageous for them.
Three Things to Remember When Talking Social Security with Your Clients
First, you don’t need to be a Social Security expert to provide valuable guidance. Few workers know how much Social Security income they’re entitled to receive. Second, review clients’ estimated retirement expenses and compare them to the amount of income to be drawn from the assets you manage. Third, if there’s a shortfall, help them figure out where the additional income will come from. If clients reveal that they own accounts elsewhere, you can discuss whether consolidation would be beneficial.