Three Questions to Set Clients Up for a Successful Retirement

Successful retirement planning starts with understanding the big picture and answering three key questions.

During their working years, the question your clients faced was how much to save. Now, in retirement, the question is how much they can spend. And the answer requires understanding several key considerations.

• When to retire: Obviously, the amount of money a client has saved when they retire is a key factor in determining what they can spend. Working a few extra years can not only boost retirement savings but also allow your client to delay claiming Social Security.
• When to claim Social Security and defined benefit income: Retirees can make some decisions on an ongoing basis, but the choices to claim Social Security and start to receive defined benefit income are essentially one-time, irrevocable decisions. Once made, an individual will have a steady stream of income throughout retirement that they can draw on for spending. The upside of waiting to claim Social Security benefits is that a retiree will receive higher monthly payments. To help guide them in determining when to claim these benefits, start by sharing our article on the topic.
  
  You can also help clients decide whether to use a portion of their assets to purchase a guaranteed stream of income in the form of an annuity, with the structure and timing determined by their individual needs. To learn how annuities can help preserve assets and maintain a retiree’s desired lifestyle, read the A Behavioral Case for Annuities white paper.
• Ongoing spending: To determine how well an individual’s saving and spending strategy will serve them throughout retirement, you can use our Retirement Income Calculator.
• How ongoing spending may change: There’s a common belief that most retiree households maintain constant, inflation-adjusted spending each year. However, research by T. Rowe Price has debunked this myth. It turns out that the average retiree’s spending falls by 2% each year on an inflation-adjusted basis. Of course, some retirees will spend less and others more, which you can help determine with our Retirement Spender/Saver tool.

You’re already thinking about how your clients can maximize their after-tax income and assessing which account they should tap into. Generally, a retiree should withdraw from taxable accounts first, tax-deferred traditional accounts next, and finally tax-free Roth accounts. If a Roth conversion seems appropriate, consider that you’ll need to determine whether your client should do it all at once or incrementally to minimize tax implications. Roth assets can help your clients manage “spiky” retirement expenses (such as health care) without a large tax-deferred withdrawal that could put them in a higher tax bracket and potentially affect their Social Security taxes and Medicare premiums.  This article outlines Roth conversion considerations.

Portfolios need to be constructed to last throughout a client’s retirement. Unfortunately, you are likely to encounter clients who want to play it too safe with their investments. In these cases, it’s important to remind them of the link between their investment portfolio and their desired spending power in retirement. The correct asset allocation has the potential for both income generation and growth.

By contrast, selling in a panic can mean lower income in the decades to come. T. Rowe Price supports financial professionals with portfolio construction solutions. These insights and programs can help you streamline your book of business, consolidate portfolios, and improve outcomes. In addition, we offer scalable model portfolios and target date solutions designed to help you grow your practice. 

Understanding the successful retirement strategies outlined above, and using the tools and content that T. Rowe Price has developed, can go a long way toward helping your clients build a smart financial plan for their golden years.