This year has brought additional changes and challenges to those we had endured in 2020 — markets at all-time highs, the U.S. government taking on more debt, monetary relief programs, budget debates, tax change proposals, low interest rates, ongoing inflation and potential market corrections. All of this can spell disaster for retirees if they aren’t prepared with an intentional and proactive retirement strategy. And as their trusted financial advisors, it’s our duty to help them.
To do our jobs effectively, it’s important to stay up to date on the different situations that can have the most influence on our clients’ retirement plans. If we know what we need to address, we can work better. Or to put it another way: If we want to “win the game” for our clients, we need to know the rules we’re playing by.
Currently, Congress is considering several tax changes that would directly impact the way we help our clients plan for retirement due to the potential implications. One of the biggest changes would end the so-called “backdoor” Roth IRA conversion. Another proposal would change the tax rates on individual incomes of $400,000 or more, increasing the top individual federal income tax rate from 37% to 39.6%.
While these proposals have not passed as of press time, it’s important to anticipate these changes so that we can make crucial tax-saving money moves before year-end, as well as anticipate new strategies and opportunities to implement in the new year.
But without a crystal ball to predict what Congress will do, how can we look ahead to next year and pivot our plans now to account for potential changes? One suggestion is for advisors to start scheduling a second annual review meeting specifically for discussing retirement tax planning. Dedicating time to address this aspect in greater detail helps to ensure we are accounting for all the potential tax-related nuances that can easily eat away at a plan.
Advisors should also pay close attention to many other tax changes being proposed within the American Families Plan. My suggestion is to do your research and keep track of any new developments that happen over the next year (expect there to be many). Also, consider joining an advisor group or organization that specializes in tax planning to help keep you up to speed on the latest laws and strategies. Or if these changes are all too much to keep up with, think about hiring or partnering with a CPA who can coordinate with you and your clients.
Planning around inflation is nothing new, but ongoing price increases and the weakening of the US dollar have brought the issue to the forefront of many advisors’ minds. Clients need to be made aware that simply having money in the bank won’t cut it because they’ll likely lose out to inflation, so advisors should view it as another opportunity to review plans to keep them appropriate as markets shift.
For retirees especially, ensure the proper allocations for income replacement are in place and confirm that the right assets for long-term growth are in place for inflation protection.
One of the biggest areas of opportunity in our industry today is addressing Social Security as part of a retirement plan. For many retired people, these checks can be the biggest and most important source of income. Modeling multiple scenarios to help clients make good decisions is an immediate way to increase your value and further show your expertise as a retirement specialist. The recent news of a 5.9% cost of living adjustment in Social Security payments for 2022 is the largest in over 40 years. Don’t assume your clients are aware of the change; instead, use this news as a touchpoint to re-engage with clients and continue to educate them as new developments come about.
Room to Grow
Holistic Planning Beyond the Financials
The sad truth is that most people, especially new clients, don’t have a real plan. Instead, they have retirement “stuff” they’ve accumulated — 401(k), pension, company stock, etc. — and rarely feel like they have a solid strategy. Yes, it’s important to start to bring these pieces together in a more comprehensive plan, but I would argue that the traditional concept of a “holistic” planning model does not go far enough. I believe as advisors it is our responsibility to take it one step further, to help clients see the bigger retirement picture beyond purely the financials.
Incorporating the discipline of retirement coaching into financial planning is the next logical progression in the advisor-client relationship. Advisors should equip themselves and their teams with the necessary skills to understand and talk about the non-finance aspects of a successful retirement. Look for training and other educational programs taking place in 2022 to continue to hone these specialty skills.
“My goal is to one day reach a point where someone working with a retirement coach is as common as someone having a personal trainer or nutritionist.”
My goal is to one day reach a point where someone working with a retirement coach is as common as someone having a personal trainer or nutritionist. Where one provides guidance on physical goals, the other can provide guidance on financial goals and retirement satisfaction.
Clients will come to expect that level of attention, so advisors that don’t embrace this new model will be left behind — either forced to join the movement or fall out of the industry entirely.
Proactive vs. Reactive Planning
Complacency is the enemy of progress, and too often I see advisors and clients making the same mistake of failing to act until severe damage has already been done. The early years of retirement and the years leading up to retirement are where mistakes can be the most detrimental to a plan. And with a more constrained timeline to make up for missteps, the problem can quickly snowball if it’s not recognized and dealt with early.
“The early years of retirement and the years leading up to retirement are where mistakes can be the most detrimental to a plan.”
My hope for 2022 is that advisors take it upon themselves to start thinking, and acting, more proactively with clients. We’ve probably all heard this before, but what does it really entail? Stay on top of industry and national news that will affect their plans and make any necessary changes early. Educate your clients, too, and anticipate their questions and concerns to show that you are looking out for their best interests. Remember, an educated client is a good client. Use new information to deepen your relationships with clients and further enhance your value. I firmly believe that as an advisor it is the work that is done beyond the spreadsheet that can make you truly irreplaceable.
Additional Reading: Year-end Planning Tips to Grow Your Practice
As 2021 ends, let’s look to the next year and begin to think critically about the changes and opportunities that can impact the way we help our clients plan for retirement. Major legislative changes and market events can have an impact on whether or not a retirement plan will ultimately be successful, so my message to fellow advisors is this: Use the new year as a call to action to continue to do your homework and stay on top of new developments, review and update plans with clients accordingly, teach your clients to be proactive participants in the retirement process, and be an available resource and guide to facilitate their journey to a successful retirement.
James “Beau” Henderson is the founder of RichLife Advisors LLC, a wealth and retirement planning firm that provides pre-retirees and retirees with holistic wealth management services. His firm provides provides investment advisory services through Fiduciary Capital, Inc. Beau is a licensed insurance professional in Georgia and holds RICP, CLTC and Certified Financial Fiduciary licensing.