Sometimes it seems as agents and advisors you work with the
lucky few. These are people who
carefully planned for retirement or chose careers with great retirement
benefits. There are many people who are
unprepared. Others have entered into
retirement with inadequate retirement savings.
Do they have options?
The first thing you need to do is determine the extent of
the problem. This involves retirement
planning analysis. You know all about
these tools. It will require data
gathering. In this article we will
assume your client is already in retirement with inadequate financial
assets. What can they do?
1. Three sources of income. Years ago, a complex manager explained the
retirement of the future will be like a three-legged stool. The first leg is defined benefits such as
Social Security, defined benefit plans and annuities. The second is the income they can generate
from their financial assets. Finally,
there’s the possibility of earned income from a part-time job.
Strategy: Is your
client maximizing income from all three legs of the stool? How do they feel about #3?
2. Are their financial assets properly invested? Let’s assume they have funds in the
bank. You’ve heard about the rule of
72. Divide an interest rate into 72 and
you get the approximate number of years the money would take to double. A 6% compounded rate would double in 12
years. If they are earning 1% at the
bank, it might double in…72 years.
they are comfortable with additional risk, look at total return stocks. They
are hoping for appreciation while earning dividends in the meantime.
3. Do they have cash value in whole life insurance? They need income now. They’ve been paying premiums for years. Although they might be able to withdraw from
their cash value, an annuity might be a better income idea.
Strategy: Can you do
a 1035 exchange from a life insurance policy into an annuity to provide
immediate income? Would that make sense?
4. Relocating to another state. New Jersey is known for it’ high property
taxes. Many of your client’s friends
might have relocated to Florida. There
are several states with substantially lower costs of living. It’s a big step.
Strategy: Has your
client considered this option? If they
are agreeable, you could help them do the research.
Real estate has been doing well lately.
Your client might be living in a well located family house that is a
maintenance nightmare. They don’t need all
that space. They have lots of equity,
since the mortgage was paid off years ago.
They could move to a townhouse or apartment where they would have less
Strategy: Have they
considered downsizing? What’s their
house worth? Where would they move? What might a smaller place cost?
6. Do they own vacation property? They might have a house at the beach or an
apartment in the city, in addition to their primary residence. They might be getting clobbered in taxes
because of the SALT limitation that was in the last tax act. They hardly use the property anymore.
Strategy: They need
to determine if they are comfortable letting the beach house go. After taxes, the cash released could be used
to provide income and/or be a cash cushion.
7. Convert vacation property into rental property. No, they don’t want to sell. They want to leave it to their children. Property prices are doing well. If they aren’t using it, would they consider
renting it out?
Strategy: Now the
property that was an expense is now an income-producing asset. They might need to get it into shape
first. Hire a property management
company and letting agent. It might get
more favorable tax treatment too.
8. Look at hard assets. No, they aren’t doing a yard sale every
Saturday! Your client has accumulated
lots of stuff over the decades.
Paradoxically, the things we think have value often don’t (china,
crystal, brown furniture). The things we
don’t think have value often do (Star Wars toys, lunchboxes, comics). The stuff you couldn’t give away before is
now “Mid Century Modern.”
Strategy: Your client
might need to hire an independent appraiser, but they should have someone look
over their “stuff.” Get them watching
9. Lowering expenses.
There are two ways to fix a shortfall:
Increase income or reduce expenses.
They might be paying big cable TV bills and phone bills. There are alternatives out there.
planning can include budgeting. They
need to look at where the money goes and if they are getting the best
deal. Sometimes, just telling a service
provider you are intending to switch carriers can get you lower pricing.
10. Moving in with the kids. This might be a last resort, but it should be
considered as an option. Many children
find themselves in caregiver rules.
Strategy: This is an
option they should consider and talk about with their children. They may be surprised at the outcome.
Not being able to make ends meet can cause anxiety in
retirees. You are in a position to help.
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