Help clients determine best age to retire using checklist

Some of your clients may have a set retirement date in mind. Others may turn to you for advice on when to resign from the 9-to-5. Regardless, it is seldom a simple decision.

You and your client have to answer several questions. Can the client afford to retire? Does the client want to keep working in some capacity? What psychological forces are involved in making decisions about retirement?

As one published work in the area describes it: “The decision requires the skill of an actuary, the rationality of an economist and the ingenuity of a lawyer.”

Feel intimidated yet?

Don’t worry. Help is on the way.

Kenn Tacchino, a professor of taxation and financial planning at Widener University and co-director of the New York Life Center for Retirement Income at The American College, has come up with a checklist of 25 factors that influence the selection of a client’s optimal retirement age.

SNEAK PREVIEW

The research paper, which he co-wrote with his wife, Patricia, who is a social worker, will be published in an upcoming issue of Benefits Quarterly. But Mr. Tacchino gave me a sneak preview.

The choice of retirement age is first and foremost a financial one. Therefore, you must perform all the usual calculations of tallying retirement income available from all sources and assess whether it is likely to provide the desired lifestyle under the proposed withdrawal strategy.

You also need to make a best guess at life expectancy and determine health insurance availability if the client retires before he or she is eligible for Medicare.

You should also evaluate the client’s debt level and examine the effects of various options for claiming Social Security as a source of guaranteed retirement income for the client and, possibly, the surviving spouse, the Tacchinos wrote.

In addition, because a client might be forced to retire by circumstances beyond his or her control, such as poor health, corporate downsizing or care-giving responsibilities for a family member, planning should identify scenarios for a spectrum of retirement ages.

Planning for a range of ages rather than for a set date could help mitigate the risk of “retirement by necessity” and increase the chances of “retirement by choice,” the Tacchinos wrote.

CHECK OUT THE 401(K)

That is just the beginning.

The employer’s retirement plan type and features are significant. Some defined-benefit plans, for example, may provide financial incentives for early retirement, while typical 401(k) plans may encourage working longer to stockpile matching contributions.

Don’t overlook the softer side of the retirement equation. Filling up free time with meaningful activity requires thought and planning, too.

In fact, one adviser in New Jersey, who asked not to be identified for compliance reasons, has created a series of workshops that she dubbed “Retirement University” for retirees and preretirees. They are designed to help them reconnect with former passions and discover new ones.

The adviser, a onetime art student, said the project is her attempt to inject some right-brain creative thinking into the left-brain logic of financial planning.

The experiment has been a hit with her clients, who find that how they spend their time in retirement is just as important as how they spend their money.

The 25-point checklist could one day lead to software identifying an optimal retirement age. However, the authors note, assessing even that many factors could understate the complexity of the issue.

“The dialogue between the clients, the spouse and the trusted adviser is a necessary function,” the Tacchinos wrote. “The decision about when to retire may require some printouts to help map it, but here, more than ever, the essence of the decision requires the personal touch of thoughtful discussion and analysis.”

Assessing a client’s ability to retire and recommending the optimal date is a big responsibility.

But this paper underscores the important role that advisers play. And for that, you should be proud.

[email protected]: @mbfretirepro