April 3 marks the beginning of National Retirement Planning Week, a national effort to encourage and promote savings among Americans as they plan for their financial retirement needs.
Each year, the National Retirement Planning Coalition – a group of education, consumer advocacy and financial service organizations– spearheads this effort to help Americans plan for retirement needs.The urgency to plan for retirement income has heightened now that only 18 percent of U.S. employees have pensions.1 The disappearance of these plans puts more pressure on workers to self-fund their retirement. You know the facts: U.S. equities and government bonds may average returns as low as four percent and zero percent, respectively, over the next 20 years.2
The four-percent rule for portfolio withdrawals was created in 1994, when the S&P 500 was more than 1,500 points lower than it is today and the 10-year Treasury note was nearing eight percent, which meant there was room for growth. Today’s safe withdrawal rate may be somewhere between two and three percent.3 Add longer lifespans, inflation and the rising cost of healthcare into this mix of lower yields and the near disappearance of company-sponsored pension plans, and a serious retirement income challenge emerges.
Rethinking retirement income
These factors mean retirement savers are going to need the help of a trusted financial advisor to navigate these potentially choppy investment waters and help secure a reliable income to support their lifestyle in retirement. That’s why Lincoln’s theme for National Retirement Planning Week is Rethinking Retirement Income. Our job is to help clients realize that they need a thoughtful strategy to turn their savings into dependable income in retirement.
How can you help clients rethink income in this complicated investment environment? Here are a few tips.
Rebuild the three-legged stool
In the past, savers built their retirement income using three “legs” – Social Security, pensions and savings. Now, some of your clients may lack a pension – or it may be a shorter “leg.” Social Security is a key part of any retirement income strategy, but if 2017 is any indication, its cost of living increases may not keep pace with healthcare inflation.4 And women clients may have less Social Security available because of lower wages and gaps in employment. Consider how an annuity with guaranteed lifetime income may help transition a portion of clients’ savings into a steady stream of income.
Talk through retirement costs—planned and unexpected
Budgeting for known retirement expenses is a good start to create an income plan. Clients may need to think about unexpected expenses as well. For instance, only 22 percent of consumers Lincoln surveyed feel prepared to fund a long-term care event, even though the majority of people age 65 and older will need some form of long-term care.5 And many retirees these days provide financial support to their children and grandchildren. Having an additional source of reliable income beyond Social Security can help clients feel prepared to handle these unexpected expenses.
Address emotions in the room
Lincoln’s research shows 48 percent of consumers feel it’s likely they could run out of money during retirement. The responses were nearly identical whether or not consumers worked with an advisor. However, advised consumers were more confident on a range of other planning issues. Consumers tell us that they don’t feel confident about making the leap to retirement and being able to maintain their lifestyle without running out of money.6
As an advisor, you can take the long view of market performance and portfolio success rates. But can you do more to give your clients concrete answers about their income plan? By adding an annuity with guaranteed income to clients’ income strategy, you can increase the certainty in the equation and help answer clients’ concerns about the future.
Take advantage of these National Retirement Planning Week resources to support your client conversations:
- Women and Long-Term Care: How to recognize and plan for their unique needs, [replay available] April 4 at 3:00 p.m. ET. Lincoln’s Andy Milaskas and Florrie Willis share their insights, along with other industry experts in this webinar hosted by Insured Retirement Institute.
- Retirement Income and Investment Risk: Are you prepared? [replay available] April 6 at 3:00 p.m. ET. Wade Pfau of The American College, Scott Bowers of BlackRock and Lincoln’s Dan Wellock discuss retirement income and investment risk in this webinar hosted by the Insured Retirement Institute.
- A website and toolkit for National Retirement Planning Week, provided by the National Retirement Planning Coalition.
1Source: Dupont, Deb “Focus on Defined Contribution Plans: Role in Retirement Saving and Security” LIMRA, 2014. http://www.limra.com/Research/Abstracts/2014/Focus_on_Defined_Contribution_Plans___Role_in_Retirement_Saving_and_Security_(2014).aspx?LangType=1033
2Sources: Lincoln Financial Group, Federal Reserve, FactSet, 2016 data as of May 31. Year-end yields used for all other data points.
3David Blanchett, Michael Fink and Wade Pfau, Low Bond Yields and Safe Portfolio Withdrawal Rates, Morningstar, January 21, 2013.
4Rx Price Watch 2016-03, AARP Public Policy Institute, February 2016, http://www.aarp.org/content/dam/aarp/ppi/2016-02/RX-Price-Watch-Trends-in-Retail-Prices-Prescription-Drugs-Widely-Used-by-Older-Americans.pdf.
5Managing Long-term Care Risks. Hanover Research and Lincoln Financial Group, October 2014. http://newsroom.lfg.com/wealth-protection-expertise; Alzheimer’s Association, “2016 Alzheimer’s Disease Facts and Figures,“ Alzheimer’s & Dementia, https://www.alz.org/documents_custom/2016-facts-and-figures.pdf, 2016:12(4), page 17.
6Lincoln 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.