Keeping clients’ retirement plans on track amid uncertainty

While election day has passed, the 2020 cycle has been wrought with uncertainty and continues to dominate the headlines. Set against the backdrop of a global pandemic, concerns with racial injustice and a widening political divide, Americans have been worried.

Investors said the presidential election is the No. 2 macro factor that will adversely impact their portfolios this year, outranked only by COVID-19, according to Nationwide’s 2020 Advisor Authority study. Given these concerns, how can you help clients deal with the unknown impact of the election as they plan for retirement?

AVOID POLITICAL TRIBALISM

Political tribalism occurs when individuals with strong political beliefs self-segregate into groups, or “tribes,” of like-minded people. This can influence a person’s decisions — including those related to money. 

Politically minded investors are more likely to be optimistic about the market when their preferred party is in power and pessimistic when it is not. However, financial decisions should be based on a client’s personal investment objectives and long-term goals — not the current political climate. Even though volatility increases during an election year, history has shown that election outcomes do not influence long-term market returns. By making emotional investment decisions based on whether or not their preferred party is in power, clients could open themselves up to potential losses or could miss out on market gains, negatively impacting their retirement plans.

MANAGE UNCERTAINTY WITH GUARANTEES

Clients are anxious about their financial futures. To help ease their angst and manage uncertainty, consider solutions that can provide guarantees.

If clients are at the stage where they’re still accumulating savings and their retirement is decades away, they might be comfortable riding out unpredictable markets with a well-diversified portfolio. But closer to retirement, investors are more likely to want the guarantee of a defined level of protection against ongoing volatility or steep market downturns. If they’re ready to retire or already in retirement, they’re likely to need the certainty of guaranteed income every month, regardless of the market’s ups and downs.

One way to manage the uncertainty and get those guarantees is to consider annuities. These long-term, tax-deferred investment vehicles designed for retirement come in many varieties — some offer a fixed return, while others may fluctuate in value, based on the performance of underlying investments or an underlying index.

TAKE CARE OF TAXES TODAY

There is a potential for tax changes in 2021. While the current uncertainty might make it difficult to plan, you can still take steps to help clients take care of taxes today.

First, it’s important to make sure their portfolio is diversified from a tax perspective, by incorporating a range of taxable, tax-deferred and tax-free vehicles. If you’re concerned about a possible increase in the capital gains tax rate, reviewing clients’ portfolios now could help you decide whether or not they should sell assets this year while taxes are still low. Likewise, you may consider converting their traditional IRA to a Roth IRA before the end of the year, allowing them to capitalize on lower tax rates now and take tax-free distributions in retirement.

For clients already in retirement, under the CARES Act, they do not need to take required minimum distributions from their qualified plans this year. In many cases, delaying distributions this year allows them to benefit from the value of longer tax deferral. However, if they’re concerned about the potential for higher taxes in the near future, your clients may benefit from the current tax rates, especially if they’re high earners. In this case, consider working with a tax adviser to determine whether or not they should take or defer their 2020 RMDs.

CLIENTS NEED YOUR HELP

The unknowns of retirement planning can be a challenge for clients, even in the best of times. It may be hard to cancel out the noise of converging crises, but your guidance can help clients gain greater control and focus on the fundamentals when making financial decisions. You can help them establish a long-term retirement plan and adjust that plan as their priorities shift over time — regardless of the challenges posed by the markets, the economy and partisan politics.

Eric Henderson is president of Nationwide Annuities.

Related Topics: CARES Act, Individual Retirement Accounts, Roth IRA, Taxes