The most important retirement preparation questions to ask clients

Many Americans do not save enough money to retire comfortably. Financial advisors can not only help clients determine when to retire, they can also help them determine whether they should consider at least part-time work early in their retirement.

Here are a few questions that financial advisors should ask in order to start the retirement planning process with clients.

Key points

  • Retirement planning can be daunting, especially when individuals are increasingly responsible for their financial situation in old age.
  • The first step is to assess lifestyle expectations and then set financial goals that can meet those expectations.
  • Retirement plans should consider personal savings and investments, 401(k) or IRA type retirement plans, and social security to sustain livelihoods.
  • Talk to a financial professional to learn how to plan and what steps to take to start withdrawing assets in the most effective way.

What is your ideal retirement lifestyle?

This is a good time for your clients to dream big and imagine what they want to do after retirement. This may include traveling, moving to a different place, doing charity and community service work, or any number of other activities. Today, this may also mean quitting their job and starting a business in a field they are passionate about.

It is important for clients and their financial advisors to understand how much their ideal retirement lifestyle will cost. Although there are some rules of thumb regarding the percentage of pre-retirement income that retirees usually spend in retirement, everyone is different. In addition, this expenditure is not linear. Usually, the first few years of retirement tend to be more active in areas such as travel, but as people age, these types of activities may slow down. The best way is to let your customers budget based on factors such as where they will live, whether they will shrink (or expand) their house, their activities, and other factors. In short, they need to prepare a retirement budget.

How will you fund your retirement?

Financial advisors should help their clients grasp all available financial resources and provide funds for their retirement life. This may include the following:

Of course, there may also be other financial assets available for retirement. The key here is to help clients determine what type of continuous retirement cash flow their various financial assets will be converted into. This is also a good time to make financial planning forecasts to help determine how much income can be supported and for how long. Given the increase in life expectancy, it is certainly wise to predict that it will be at least 100 years old.

Ideally, these issues should be resolved at least 10 years before retirement, and then revisited regularly as retirement approaches. If the pension cannot support an ideal lifestyle, a choice must be made. These may include extending working hours, working part-time in retirement, reducing expected expenses, and saving more in the remaining years before retirement. The longer the time before retirement, the more time the client and his financial advisor must make any necessary adjustments to the client’s financial plan.

Which retirement accounts will you use first?

For customers with multiple accounts, this is a key issue that needs to be resolved. As the customer’s situation changes, the answer may also change over time. Some retirees may automatically click on the account with the lowest tax bill first. However, in terms of overall long-term retirement planning, this may not be the best answer.

For customers who are younger than the minimum distribution (RMD) required age (72 years), for example, it may make sense for them to use a tax-deferred retirement account at least to some extent. This is especially true if their income is relatively low and there is more room for income within the current tax bracket. This will also help reduce their RMD, which will be very helpful if they really don’t need this income.

The situation changes every year, for example, if the customer’s medical expenses are high, some of them can be tax-free. They may consider withdrawing more from their tax deferred account because medical deductions can offset the tax due for these distributions.

When will you participate in social security?

This is a critical issue and (correctly) receives more attention in the financial media every year. Social security benefits can be received as early as 62 years old. Waiting until their full retirement age (FRA) is 66 and two months (or 67 if they were born in 1960 or later) will result in a benefit that is about 30% higher. Wait until the age of 70 to increase the income by about 32%.Not only are benefits higher, but any increase in the cost of living will be higher because they are based on higher benefits.

For those at work, any income that exceeds the Social Security threshold will result in a $1 reduction in your benefits for every $2 you exceed. Once you reach FRA age, this restriction will disappear.

In addition, depending on the client’s situation, there are a variety of claims strategies applicable to married couples that can work well. Financial advisors should help their clients determine the timing and claim strategy that best suits their situation.

How will you pay for health care?

For many people, health care costs will account for a large part of retirement expenses. Companies that provide medical benefits for retirees are becoming fewer and fewer. In the coming years, even state and municipal entities may have to reconsider this benefit.

The medical expenses of retirees must be taken into account in your client’s retirement plan, otherwise they may be destined to run out of money. If customers can get a health savings account (HSA) through the workplace or private high-deductible insurance plans, one way to fund retirement health care expenses is to use a health savings account (HSA). These accounts allow deferred payment and tax-free withdrawals of eligible medical expenses. Ideally, the client will fund the account while at work and use the out-of-pocket pocket to fund current medical expenses, so that the balance can be used for Medicaid and other expenses.

Bottom line

Asking questions of your customers will help ensure that they are in their best financial position as they approach retirement. Solving the above issues and many other issues is critical to their retirement plans.


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