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Advice to Give to Any Client Looking to Retire


Planning for retirement and managing your money in retirement are likely some of the most important financial undertakings for your client. If you assume your life expectancy might be 85 years and you retire at age 65, you will need to provide for at least 20 years of retirement income. This is a task your client literally cannot afford to get wrong.  There are ample opportunities for accounting professionals to help in this aspect of financial planning.

Let us focus on the client who has reached retirement age. They are beyond the planning stage. The insurance industry often describes annuities as having an accumulation phase and a distribution phase. Your client has reached the distribution phase.  What might their scenario look like?  

The Client with Lots of Money

Here are a few scenarios for clients for whom money is not a problem. They may be focusing on preserving wealth for the next generation, philanthropy and creating a legacy.

1. Sold their business: Your client’s largest asset was their business. It has been monetized. Taxes have been or are being paid on the proceeds. They are being paid off in one lump sum or over time. Their payout may be in cash or stock.

2. Won the lottery: Your client bought the winning ticket. Their problems may be just starting. The New York Daily News reported 70 percent of lottery winners got into financial trouble within seven years. They need financial planning help to safeguard their winnings.

3. Lawsuit winner: Your client received a large settlement. This might be a structured settlement via a vehicle like an annuity.

4. The golden parachute: Your client was a senior executive ousted by the board or was a casualty of a merger. They might have an excellent retirement package plus severance, a final bonus and stock options.

5. The client who inherits: There are children in wealthy families who see their retirement strategy in terms of inheritance. They inherit and take early retirement, regardless of age.

The commonality in most of these situations is there is usually abundant money to live comfortably in retirement. It is highly unlikely they will exhaust it. The major issue is what is the most efficient way to transfer their wealth to the next generation and future generations. Wealth preservation is the area where they need help.  

The Client with Enough Money

These profiles concern clients who saved for retirement, had defined benefit pension plans, or are too young to fully retire.

1. Traditional retirement: Your client might be an NYC teacher. They have a defined benefit pension plan. If at age 55 they worked more than 20 years and retire, they collect 35 percent of their final salary (average) plus 2 percent for each year over 20 years. They may have also been contributing to an annuity through a workplace plan and should be eligible for Social Security.

2. The client who did everything right: Your client is the poster child for financial planning. They made the maximum contribution to their 401(k). They funded their IRAs. They met with you regularly to actively manage their financial assets.

3. Law enforcement retirement: In NYC, a police officer who joined the force between 1973 and 2009 is fully vested at age 62. However, many are eligible for a degree of retirement benefits after 20 or 25 years of service. Even though they’re relatively young, they’re eligible to start collecting benefits.

In these situations, the client either has a good retirement plan through work or has followed your advice and saved correctly for retirement. You have been meeting with them periodically and running retirement simulations. The major issue concerns financial planning and budgeting. They need to keep their spending within the parameters you established together.

The Client with Too Little Money

Unfortunately, many people have not adequately saved for retirement or have left the workforce due to circumstances beyond their control. These situations are different and require different approaches.

1. The forced retirement: The company was reorganized. They got the call notifying them their position was eliminated. They had not planned on retiring. They might feel they are “on the wrong side of 40” when it has traditionally been difficult to land an equivalent position.

Retirement situation: Unless they saved diligently, your client needs to focus on finding another job. There should be severance payments that could help them pay bills in the near term. They should be collecting unemployment. Fortunately for them, we are in a tight labor market, creating demand.  If they cannot find another job, downsizing may be a way to increase their pool of financial assets that could generate income.

2. Retirement from the military: There are different, plans. Here is an example. After 20 years of service, they qualify for a defined benefit pension plan. The monthly payment it is 2.5 percent times your highest three years of basic pay.

Retirement situation: If they are young enough, they might decide to pursue a second career. If they have spent many years in the service and can live on the pension amount, they have access to VA home loans and health benefits that add significant value.

3. The business owner who can never retire: Your client is the breadwinner in the family. No one else works. When they stop working, the income stops too. They love their job.

Retirement situation: Hopefully the business has value, thanks to a loyal customer base. Your client needs to find a solution that provides continuity. This might involve taking on a partner, selling their practice, or establishing an Employee Stock Ownership Plan.

4. All the wealth is tied up in the business: This is often the case when your client is focused on growing their business. They have few assets outside the firm they founded. As their accountant, you have encouraged them to contribute the maximum allowed amount to their retirement plans.

Retirement situation: They need a succession plan for their business. This might involve taking on a partner, selling the business, or deciding they prefer not to retire.

5. Retiree re-entering the workforce: Your client realizes inflation has exceeded any COLA provisions they might have. They have determined they will find a job to bring in extra money.

Retirement situation: This client fits into a situation that is not uncommon. Retirement income for many may be a three-legged stool. They have defined benefit income like Social Security, the return they earn on their retirement (and outside) assets and the cash they can bring in from part time outside employment. They need to find a part time job that they do not mind doing.

6. The spendthrift retiree: Your client has recently retired from a high-paying job, yet still spends as if they were bringing in the big paycheck. Their retirement assets could disappear quickly.

Retirement situation: It has been said your spending in retirement is about 80 percent of your earlier spending. Your client needs to understand what lifestyle their assets will support and what 80 percent of their pre-retirement spending would look like. They need to reconcile these two numbers.

7. The disabled retiree: Your client has retired early because of a disability. They are collecting benefits. They did not plan on leaving the workforce.

Retirement strategy: Can your client afford to retire? Can they live with a family member? Was there a lawsuit or insurance settlement that can be a base for providing income in retirement? Can they find employment, since many firms prioritize hiring disabled employees?

8. The retiree who cannot say no: Your client has money. Unfortunately, everyone knows it. Family members ask for loans that are unlikely to be repaid. Charities ask for larger and larger gifts. Your client always comes across with money.

Retirement strategy: Your client needs a trusted intermediary, ideally a family member, to act as a buffer. Their assets need to be protected, so they can use them during their lifetime. They can remember family members and charities in their will.  

Several years ago, UBS issued a report looking at retirement in three phases. In the first, you kept on working, but not full time or at the same firm. In the second phase, you stopped working and enjoyed life. In the third phase medical issues became your primary concern. These are additional aspects of retirement financial planning can help address

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