Spend an hour in your local library reviewing digitized newspapers from recent decades and the conspicuous dearth of articles focusing on retirement planning may seem odd. Our focus on retirement planning is a relatively recent development and the Retirement Income Planner is a job that did not exist just a few decades ago. Unlike the Social Media Managers and App developers that emerged from nascent technology, the history of financial services predates the Greek Empire, and a modern stockbroker or insurance salesperson would be recognizable to someone alive in the early decades of the last century.
The evolution of retirement planning in its modern form can be roughly traced to the Revenue Act of 1978, which unwittingly led to the creation of the 401(K) savings account and helped contribute to the subsequent decline in the number of defined benefit pension plans. The Act, and a confluence of external factors, effectively shifted the responsibility and cost of retirement funding from employers to their employees. The result is that today’s retirees, and the generations to follow, must take far greater control over managing their own retirement.
Today’s retirees face a litany of choices, many of which they are ill-prepared to make. In contrast to prior generations of retirees that often received a pension benefit equal to a large portion of their final year’s salary and, in some cases, health care benefits to boot, today’s employees must often determine an appropriate level of savings and budget for that while they are employed. They must then ascertain whether their savings are likely to be sufficient to fund their retirement and make any necessary corrections along the way. Paying for health care and the potential of a long-term care event, though perhaps not top of mind, should be evaluated, along with methods to protect their assets and loved ones from low probability but high-impact events, such as a disability or premature death. When retirement draws near, an evaluation of their anticipated retirement income, discretionary and non-discretionary spending, Social Security benefit claiming choices and Medicare enrollment is on offer, along with irrevocable decisions pertaining to retirement benefits that are provided through their employer. You might think that a brief respite and much-earned solitude would be a just reward for your careful analysis and decision fatigue, but you’d be wrong. Once retired the real work begins: making certain that your income continues to last throughout retirement, undertaking ongoing adjustments to your plan, protecting against frailty risk and elder abuse, and ensuring that your assets are efficiently transferred at your death and end up in the correct hands. Not surprisingly, an increasing number of individuals are reticent to take on so many decisions at once, and even the most resolute do-it-yourselfer may seek guidance as the enormity of the project becomes clear. Enter the retirement income planner.
Retirement income planning is, in essence, a specialized area of financial planning and focuses on all of these issues and more. A good retirement income planner will take a comprehensive approach to each client’s situation and draws from a wide spectrum of resources. They will help their client identify their own particular mix of retirement-related threats and opportunities, and will provide solutions and practical guidance for what are often complex issues and trade-offs. The planner should possess the same broad knowledge of financial planning as a Certified Financial Planner, but must be particularly proficient and attuned to the needs of the retiree. Unlike many financial planners that focus on helping clients attain their accumulation goals, primarily through savings and investment strategies, the focal point of the retirement income planner is the creation of a reliable income stream that meets the client’s needs and lifestyle. The planner should also help guide the client through financial and non-financial decisions, and discuss the issues and challenges that many retirees face. These include housing and lifestyle considerations, budgeting, making appropriate provisions for health care, aging, and end-of-life care, as well as identifying charitable and financial legacy goals. As the resources and circumstances of each client will vary, so too will the solutions. Evaluating a full range of ideas, products and best practices from both the investment and insurance disciplines are important components of a retirement income plan.
People often seek out professional advice at different phases of life. Young adults entering the workforce and/or starting a family may need advice on saving and investing to meet specific goals, and ensuring that they have an appropriate risk-management program, including insurance coverage and estate planning. As retirement draws closer, people’s interest in the topic tends to pique. Conversations surrounding long-term care and the management of retirement assets may lead to a more detailed review of financial and retirement goals, and the sufficiency of one’s current plan. These so-called inflection points may better position advisors with specific skills. Advisory relationships can and do change over time, and for a variety of reasons. Recognizing that no one person can be an expert in all of the myriad number of financial planning specialties reinforces the importance of a team approach.
A common refrain of those seeking financial advice is how best to evaluate providers to ensure that they are competent, ethical and align their incentives as closely as possible with those of their clients. Regrettably, the financial services industry continues to maintain a host of barmy incentives, opaque pricing and professional designations of dubious value. To help stack the deck in your favor, begin by evaluating the advisor’s education, professional designations, and relevant experience. An advanced academic degree is a good sign, as are widely recognized and respected designations such as a Certified Public Accountant, Certified Financial Planner, or Chartered Financial Analyst. The American College of Financial Services offers a variety of well-respected designations, including the Retirement Income Certified Professional, which tailors its series of courses to the specific needs of the retiree. Ask about the professional focus of the firm and who they serve, as well as the background and credentials of those that you’ll be working with. Inquire about allied professionals and any external resources, such as tax or legal professionals that may be consulted. Before proceeding, be certain that you are satisfied that the advisor has the skills and resources to address your needs.
Having established a baseline for competence, determine whether your new advisor will work with you in a fiduciary capacity, where they place your needs ahead of their own. The duties of care of many professional licensees and designees require this higher level of care, but it may vary based on the specific services provided. Be sure you understand the nature of the advisory relationship before moving forward.
Those planning for retirement, or already retired, will face a different set of choices, risks, and opportunities than do those whose retirement is many years in the future. Retirement planning has evolved over the years and will continue to as best practices, education and training are enhanced. The changing nature of retirement has provided opportunities for specialization, which will be increasingly important as a growing portion of the population enters retirement. Contemplating your own needs can help you align with the right sort of advisor.