Understanding how to start a retirement plan can be a difficult and stressful task for most. As an advisor, it’s your mission to address your client’s concerns and educate them on the different components and risks associated with retirement as well as the benefits of retirement planning. In this blog, Life Settlement Advisors compiled some information surrounding the traditional components of helping clients retire, how retirement saving methods have changed over time, as well as a list of potential challenges your clients might face.
What Are the 3 Components of Retirement?
Retirement planning goals differ depending on the personal circumstances and needs of a client, but retirement plans for individuals traditionally included three items, often called the Three-Legged Stool of retirement. Although these three components were previously considered to be pillars of a retirement plan framework, things have changed in recent years. We’ll discuss these changes and how they affect a client’s retirement planning process below.
- Social Security: Although the original objective of social security was to provide economic stability to American workers after they retire, the Social Security Trust Fund reserves will be significantly depleted by 2033. This means that many Americans will not be able to rely on social security as a viable source of income when their careers come to an end. Therefore, when it comes to retirement planning, it’s not prudent for clients to consider relying on social security as a substantial supplement to their retirement income.
- Pensions: In the past, pensions—also known as defined-benefit plans—were commonplace and provided by all forms of employers. However, in the 1990s, pension plans in the private job sector were replaced by defined-contribution solutions like 401k employer retirement plans and Roth IRAs. This means that most Americans will not have access to a pension at the time of retirement. Although, if your clients have built a career in government, certain healthcare professions, or the military, they are likely to receive a pension once they reach retirement. Access to a pension, in any industry, will significantly boost a client’s retirement income.
- Personal Savings: Personal savings can include defined-contribution plans, high-yield savings accounts, certificate of deposits (CDs), assets, and various investment opportunities. Your role as an advisor is extremely crucial here. Your clients will likely have many questions about how to best distribute and diversify their investment and savings portfolios. Really, the goal here is to help your clients make the most out of the money they have been able to set aside and manage their existing debt so they can exit the workforce with peace of mind.
With social security funds and pensions in short supply, your clients are largely on their own when it comes to financial support for retirement. This means it is your job as their advisor to help them seek out alternative sources of income to supplement their savings. For example, if your customer has an extra life insurance policy, they could sell their plan through a life settlement.
This allows your clients to eliminate expensive premiums and add a cushion to their retirement savings. Additionally, for policies with a death benefit of $100,000 or more, life insurance companies allow policyholders to sell a portion of their policy, if they do not wish to sell the whole thing. This gives your clients an extra degree of flexibility. Lastly, selling a life insurance policy requires no out of pocket costs for your client and will always offer a more profitable return than surrendering that policy back to the insurer.
What Are the Three Biggest Pitfalls to Retirement Planning?
A recent survey stated that 63% of Americans are worried about having enough money saved for retirement. And their concerns are not unfounded. There are many hurdles and factors to consider when planning for retirement, but three significant challenges stand out above all the rest:
- Changes in the Market: As stocks go up and down, retirement savings fluctuate along with them. That is why your clients should diversify their portfolios and place their savings in options like high-yield savings accounts, CDs, and bonds, which are more stable.
- Inflation: As inflation increases, your client’s spending power will decrease. Therefore, you and your client should invest in assets, like real estate or certain stocks, that will increase in value over time.
- More Expensive Medical Treatment: Your client’s health spending is bound to increase as they age, but the cost of medical treatment has also increased and will continue to increase. To combat this, your client should pursue options like a health savings cost account (HSA), which allows your client to make tax-deductible contributions to a plan. Your client’s contributions can also be invested and grow over time.
Life Settlements: An Important Retirement Planning Tool
As you and your clients navigate the ups and downs of retirement planning, it’s crucial to explore all options. Life settlements are a retirement planning opportunity that can benefit both the client and the advisor. In fact, developing a partnership with a life settlement company is an untapped source of revenue for financial advisors. Life settlement commissions compensate you for your role in helping your clients navigate the settlement process and offer your client additional funds to secure a worry-free retirement.
If you believe a life settlement could be a beneficial option for your client, contact us today to learn more.
Life Settlement Advisors