Bringing spouses into the income planning conversation is important for your clients – and your relationships.
You probably make it a fundamental part of clients’ financial plans: Ensuring the wellbeing of the spouse that may be left behind when your client dies. While solutions such as life insurance are a key part of this conversation, you may not be approaching the topic from the perspective of income planning.
For the sake of your clients, and your relationships, you should be. Consider the impact of your client’s death on a spouse. When a client passes, the surviving spouse may be faced with a round of income hits. The survivor is likely to see a reduction in Social Security benefits. Pension benefits may be reduced or eliminated as well as whatever income may have been coming from your client’s retirement-era employment. With the proper planning, you can help ensure a potentially sudden financial loss doesn’t leave the widow or widower needing to cut expenses in a hurry.
And consider this: While a 2016 Cerulli report found that 92% of advisors work to build relationships with both halves of the client couple, working directly with their clients’ spouses, they also cited clients passing away (50%) and beneficiaries opting to leave after an inheritance (41%) as top reasons for losing their high-net-worth clients.1 So clearly these advisors can do more to help provide a positive income planning experience for spouses and demonstrate the value of their guidance.
Where are the opportunities for improvement?
Open a dialogue about risk
If you’re like me, you’ve found that emotional comfort and predictability can be as important to clients as financial returns. But did you know that women tend to prefer risk-protection strategies compared to men, expressing more worry about their ability to withstand financial downturns and greater interest in insurance?2 By engaging both spouses in the conversation, you can create an income strategy that suits the entire couple.
Plan for the survivor’s lifestyle
When a spouse dies, the financial disruption is the last thing the surviving family wants to worry about. You can help clients plan ahead. To minimize the disruption to the surviving spouse, help them create a solid financial plan that helps account for the potential loss of Social Security, pension, and employment income. This conversation can not only help secure better financial outcomes for surviving spouses but also may help you build more durable relationships to keep those clients within your practice.
Consider an income strategy built for two
Help clients explore the value of dependable income within their retirement portfolio, and consider the value of joint income benefits. This client guide (PDF) explains one such strategy. You may find that clients receive a valuable emotional benefit in feeling comfortable that a surviving spouse will be able to depend on guaranteed income to help maintain his or her lifestyle, whatever may happen.
1The Cerulli Report - U.S. High-Net-Worth and Ultra-High-Net-Worth Markets 2016: Understanding the Long-Term Impact of Wealth Transfer. www.cerulli.com
2Lincoln Financial Group and Hanover Research, Inc., "The Longevity Opportunity: Planning for longer lives as a family,” 2015. http://newsroom.lfg.com/wealth-protection-expertise
About the author
Michael R. Harris, CFP®, CLU®, ChFC®, CFS®, CES®, is vice president of Sales for Lincoln Financial Distributors. Since 1999, Mike has helped financial professionals gain a better understanding of the challenges and opportunities surrounding income distribution planning. He joined Lincoln in 1990 as a securities trader and led the creation of the bond trading desk. In 1992, Mike transitioned into a Regional Life Marketing Director in support of Lincoln’s life insurance products and soon after began working closely with American Funds Distributors to start Lincoln’s American Legacy sales team.