retirement planner

Retirement planner

The common perception is that financial planning for retirement is about creating investment strategies and maximizing returns. To be sure this is a big part of it, but if your planner only focuses on your portfolio they are short changing you regarding a variety of essential services you are likely to need. Here’s a list of assistance that you should expect from a retirement planner:

Calculate how much savings are needed: A primary focus of your planner should be creating a retirement savings plan that is appropriate for your situation. They should assess a targeted amount of retirement savings that you need to accumulate (your “retirement number”) and perhaps more importantly, the amount you need to save each year to reach your goal.

Investigate whether a Roth conversion is appropriate: Your planner must recognize that it’s not only how much you save, but how much you get to keep and spend that matters. An assessment about “asset location” must be made. Is it more efficient to have assets that are subject to ordinary and/or capital gains treatment, tax qualified treatment, Roth treatment, or some combination? The point is to maximize tax effectiveness in retirement (called tax diversification). Central to all this is the decision whether or not to initiate a Roth conversion.

Evaluate if a rollover is a viable option: If you are changing employment, you may be able to leave your funds invested with the prior employer, roll them over to the plan at your new job, or roll them to an IRA. Can your planner tell you the conditions under which a rollover is in your best interest? More importantly, are they aware of the circumstances under which they should forgo a commission and leave the money in your prior employer’s plan?

Solve the pre-retirement distribution issues you encounter: Can your planner tell you if a plan loan or a plan distribution best suits your needs? Do they know how to avoid the 10% penalty using substantially equal periodic payouts or using another exception under code section 72(t)? If you are getting a divorce, does the planner know about the rules pertaining to qualified domestic relations orders (QDROs)?

Diagnose your optimal retirement age: Choosing the age at which you retire is an art form, which any capable retirement planner will know how to approach. The retirement age decision must factor in the financial feasibility of retiring, your ability to keep working, the psychological implications for you, and the specifics of your unique situation. Your planner should also be well versed in the opportunities and rules surrounding phased retirement.

Assess the best age to claim Social Security: Planners must know about Social Security basics in order to implement the nuanced strategies for when to claim benefits. For example, the file-and-suspend strategy and the restricted-application strategy are still available, despite the fact that they are set to expire soon. They can also help you set up an online Social Security account, explain to you the benefits you get for delayed claiming, perform a breakeven analysis to see if claiming prior to 70 is warranted, and show you the best ways to minimize the taxation of Social Security.

Determine the best strategy for turning retirement assets into retirement income: Can your planner create a plan that will maintain your desired lifestyle over the course of your lifetime? The new word for this is decumulation. Others call it drawing down retirement assets. No matter what you call it, there are a variety of ideas on how you should parse out your retirement savings from systematic withdrawals, to age banding, to the flooring vs. discretionary strategy.

Choose a tax-compliant and efficient strategy for retirement-plan withdrawals: Can your planner tell you if you are eligible to have net unrealized appreciation (NUA) tax treatment that will allow some of your retirement assets to be taxed at capital gains rates? Or whether your spouse should waive the qualified joint and survivor annuity requirement (J&S requirement) in order for you to receive a life annuity or a lump sum distribution? They need to know if you should use some of your retirement assets for a qualified longevity annuity contract (QLAC) and how you will comply with the required minimum distribution (RMD) requirements imposed by the IRS.

Examine the spectrum of retirement risks and apply the products and strategies needed to overcome these risks: Does your planner understand how longevity risk can be combatted through partial annuitization? What is her plan to deal with inflation risk, sequence-of-returns risk, or market risk? Can they suggest how to use a health savings account (HSA) to mitigate the risk of excessive health care expenses in retirement?

Investigate the optimal place to live during each phase of the retirement period: There is a spectrum of retirement housing from independent living to active-adult communities to continuing-care retirement communities to assisted living and, finally, nursing homes. Can your planner identify what’s right for you and when it is right for you? Can they help you to understand the financial implications and tax ramifications of relocating in retirement? If you have decided to age in place, can the planner suggest ways to make the house “senior friendly”?

Evaluate how to use the house as a financial asset to produce retirement income: For many middle-class Americans, the home represents their single greatest financial asset. A good planner should be able to decide if a reverse mortgage is a good fit for your situation. A great planner should know about how the standby reverse-mortgage strategy can be used to extend the time you will have usable financial assets in retirement or whether a sale-leaseback is a strategy you should consider.

Advise about health insurance and long-term-care products: A retirement planner will be well versed in the different Medicare options from which you must choose — everything from which Medicare Part D prescription plan best suits your needs, to how hospice care works at the end of life. A retirement planner should be able to steer you to the best options under the Affordable Care Act or COBRA if you retire before Medicare. He or she should give you help in selecting the best Medigap policy. Planning for long-term care, either with the help of long-term care insurance or through other strategies, must be a service that is offered.

Help with estate planning issues: Whether your goal is charitable giving, business-succession planning, paying estate taxes with life-insurance products, properly titling your assets, or choosing the proper beneficiaries for your assets; you will need a planner familiar with the estate-planning process. Even if you do not have a lot of money, your planner will still need to help you with wills, powers of attorney, living wills, and durable powers of attorney for healthcare (advanced directives).

As you can see, guidance concerning investments is just the start. Retirement planning goes well beyond selecting appropriate investment strategies for accumulating retirement assets. A professional should help you to focus on lifetime spending and budgeting, not merely on wealth accumulation. Don’t settle for a planner who will not, or cannot, identify the myriad issues you face and potential solutions for each issue. Demand someone, who perhaps with the help of his or her team, can provide the holistic services that are right for you.

Kenn Tacchino is a professor of taxation and financial planning at Widener University in Chester, Pa. Kenn is the editor of the Journal of Financial Service Professionals. The Journal reaches over 16,000 practitioners, academics, and policy makers in the financial services industry. Professor Tacchino is also a frequent speaker at professional meetings for financial planners. He can be reached at kbtacchino@widener.edu.