Navigating the world of probability and certainty in your practice

Advisers should be cognizant of the rules that govern clients' retirement assets

Oct 3, 2019 @ 10:36 am

By Corey Keltner

Financial advisers often hang their value proposition on a phenomenon that for the most part is outside their control: portfolio gains. The laws of probability tell us that markets go up over time, but when they do and by how much is inherently unpredictable.

Conversely, the rules that govern retirement assets are more absolute. The problem is that many of them are complex and difficult to understand fully. After all, what average person has both the time and expertise to wrap their heads around esoteric issues like when and how various retirement asset vehicles are taxed, as well as when they can be drawn down?

Wealthy individuals and corporations, of course, can simply hire someone to do this for them. Most others do not enjoy the same luxury, meaning many middle-class clients could be leaving money on the table. Sometimes a lot.

This suggests that advisers can provide value and make a huge difference for their clients just by gaining a better appreciation of some of these more absolute rules referenced above. In some cases, this could mean becoming tax credentialed themselves or working closely with a professional in their area who is.

To illustrate further, consider the example of a husband and wife on the brink of retirement. He's 65, while she's 63. With close to $1 million in traditional IRAs and two Social Security checks about to start coming in each month, they believe they have a plan in place that will satisfy all their future income needs.

However, if the higher earner, which in this case is the husband, were to put off taking benefits until age 70, as the rules of Social Security allow, the couple's retirement outlook would improve. That's because not only would his checks surge by more than 30%, but his wife would receive a larger widower's benefit should something happen to him.

Over the years, these differences could translate into tens of thousands more than they would have ordinarily received under their original plan. This simple example shows that retirement and planning are not solely about making a client absorb added risk to win higher returns. It also means having knowledge of and leveraging existing rules hovering over retirement assets.

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In the world of financial advice, we do not always think in terms of probabilities and certainties. We should. Investing in the markets and constructing portfolios relies on making assumptions about a wide variety of factors, including lifespans and future market returns.

By contrast, effectively navigating the issues surrounding retirement assets involves more precise and predictable answers. At the very least, if tax or retirement rules change, it is unlikely they will do so suddenly, making it possible to plan around such changes.

The bottom line: Advisers cannot guarantee higher returns. What they can do is try to get to know the rules that govern our clients' retirement assets. That is how the industry can better serve clients — possibly to the tune of thousands of dollars over their lifetimes.

Corey Keltner is a Practice Development Specialist at Securities Service Network LLC, a Knoxville, TN-based subsidiary of Ladenburg Thalmann Financial Services.


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