Missing from Retirement Income Planning: A Plan

Majority of advisers do not create written plans for clients, forgoing business growth opportunities

Jul 21, 2017 @ 12:24 pm

By Mary Beth Franklin

While it may be hard to believe, most pre-retirees and retired clients who work with a financial adviser do not have a written retirement income plan, according to new research from LIMRA Secure Retirement Institute, a research arm of the insurance and financial services industries. The result is reduced retirement confidence and missed business opportunities.

"Just having an adviser is not enough," Jafor Iqbal, assistant vice president of the LIMRA research organization, said during a recent Retirement Income Industry Association (RIIA) webinar. "A formal plan is a tonic for retirement confidence," he said.

Only 35% of retired clients and 38% of pre-retirees who work with an adviser have a formal written retirement income plan, according to LIMRA. Yet advisers who take the time to create comprehensive retirement income plans report a higher success rate in consolidating clients' assets and selling retirement income products such as variable annuities with guaranteed living withdrawal benefit riders, deferred income annuities and single premium income annuities.

The retirement income market is huge and growing. There is $31 trillion in investable assets in the U.S. and 84% is controlled by boomers and retirees. The retirement income portion, currently $13 trillion, is expected to grow to $25 trillion by 2025 as the retiree population soars from about 50 million people today to 66 million by 2025 and 78 million by 2035.

Consumers want help with retirement income planning and most admit they cannot do it themselves. The top three services that clients seek from advisers is minimizing the risk of running out of money (42%); protecting portfolio principal (32%) and minimizing taxes (27%), according to the 2017 LIMRA "Dear Advisor" report. Of the 29% of pre-retirees who said they were "well prepared" for retirement, two-thirds of them said they have a formal plan.

The secret is to engage with clients as they approach key retirement milestones, Mr. Iqbal said. Those milestones start at age 55, when clients who have separated from their employer can tap 401(k) funds penalty-free; and age 59½, when IRAs and other tax-deferred assets can be withdrawn penalty-free. Other key ages center around Social Security and Medicare, including: age 62, the earliest age for claiming reduced Social Security benefits; age 65, the age of eligibility for Medicare enrollment; ages 66-67, the age range of eligibility for full Social Security retirement benefits, depending on birth year; and age 70, the age of eligibility for maximum Social Security benefits. Finally, there's age 70 ½, when clients must start taking required minimum distributions from their retirement accounts each year, is another high-touch point for formalizing retirement income strategies and consolidating assets.

Two separate LIMRA studies in 2016 found that 38% of retirement income plans were created at ages 60, 62 and 65. Those same age milestones accounted for 39% of sales of variable annuities with guaranteed lifetime withdrawal benefit riders as well as 38% of deferred income annuities sales and 28% of single premium immediate annuities or SPIA sales. SPIAs tend to be more popular at older ages when clients can get a bigger annual payout in exchange for their lump sum purchase.

In addition, clients who have a formal written retirement plan tend to consolidate more of their assets with a single adviser. For affluent clients with $500,000 or more in investable assets, more than half of those who have a formal plan consolidate 75% or more of their assets with their advisers compared to just 21% of those clients without a formal plan. Plus, retirement assets are sticky. Only a small percentage of clients move their assets after being retired five years, Mr. Iqbal said.

To assist clients in developing comprehensive retirement income plans, financial advisers are seeking more training beyond traditional investment topics. The most popular subject is Social Security claiming strategies cited by 49% of respondents in the 2016 LIMRA survey "What Do Advisors Think About Retirement Income Planning?" followed by health-care, Medicare and long-term-care insurance planning at 42%. Other desired training topics included information on regulatory issues (42%), estate planning (36%) and tax advice (36%).

In the new fiduciary-focused environment, "retirement planning is now intrinsic to investment advice," Mr. Iqbal concluded. His advice to advisers: Do more retirement planning. Help clients at the time of their key decision points. Offer training on popular topics beyond traditional investing strategies. And position products as a solution to retirement income challenges of longevity, market volatility and tax efficiency.

(Questions about Social Security? Find the answers in my new ebook.)


What do you think?

View comments

Recommended next

Upcoming event

Oct 22


San Francisco Women Adviser Summit

The InvestmentNews Women Adviser Summit, a one-day workshop now held in six cities due to popular demand, is uniquely designed for the sophisticated female adviser who wants to take her personal and professional self to the next level.... Learn more


Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.


Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print