Choosing the right retirement account isn’t the same for everyone. For example, Sarah, a 32-year-old marketing manager, might benefit from a Roth IRA where her savings grow tax-free. On the other hand, Tom, a 50-year-old contractor nearing retirement, may prefer a Traditional IRA for the immediate tax break. The right choice depends on your client’s situation, goals, and timeline. In this blog, we’ll explore different retirement account options to help you recommend the best one for your clients based on their needs and financial goals.
Changing Savings Needs
Most retirement accounts fall into one of four categories, each with pros and cons.
- Social Security. For decades, Americans have relied on Social Security to support their retirements, but the future of the program is uncertain. With Americans living longer and not having as many kids to contribute to Social Security, the program and its contributions to retirees is expected to change dramatically in 2035, unless the program is revised. In other words, people preparing for retirement can no longer count on Social Security like future generations.
- Employer-sponsored savings. Many employers contribute to retirement accounts for their employees or match an employee’s contributions. While employer-sponsored savings like 401(k)s and pensions used to make up the majority of retirement savings, the tides are shifting. In the 1980s, nearly half of U.S. workers had a pension plan; today, that number is less than 15%.
- Personal savings. Savings and investments, including real estate and high-yield savings accounts, can be a strong retirement source for many people.
- Individual retirement accounts (IRAs). Traditional and Roth IRAs allow people to contribute their own savings (not connected to their employer) with different tax responsibilities. Personal IRAs provide tax advantages without the limits of an employee match.
How to Recommend the Best Accounts
With so many retirement savings options and changes and uncertainty to the economy and Social Security, many people don’t know the best way to plan their retirement. One recent survey found that more than half of Americans lack confidence in their ability to retire comfortably and when they want.
That’s where financial advisors come in.
By learning about clients’ goals, lifestyles, and risk tolerance, advisors can recommend certain retirement plans and account options to help clients confidently prepare for retirement.
However, it’s crucial to remember that there isn’t a one-size-fits-all approach to retirement. Like most financial recommendations, no single account recommendation or formula will work for everyone. The basic guidelines are just that: guidelines. Many other factors contribute to how clients should invest for retirement.
As you recommend retirement accounts, consider these factors.
- Employer-sponsored options. One of the biggest factors in retirement accounts is the availability of employer-sponsored accounts. A retirement plan can vary wildly based on whether a client has a pension or their employer matches a higher percentage of 401(k) contributions.
- Other accounts. In addition to savings and retirement accounts, many clients have other financial resources they can tap into in retirement, including health insurance, long-term care insurance, annuity products, properties, and other passive income sources. These resources may impact the retirement accounts clients need and should be evaluated to ensure they’re the best option to meet the client’s financial goals.
- Lifestyle. How much a client needs to save and the aggressiveness of their savings depends on how they plan to live in retirement. A client with plans to live more luxuriously and travel must save more than someone who lives more simply. Similarly, clients who want to help fund their children’s education will have different education-based account options.
- The cost of living impacts retirement savings and which accounts are best. For example, a 25-year retirement in Hawaii costs more than $2 million, while a similar retirement in West Virginia costs less than $700,000. Consider a client’s location, living situation, and local taxes in their retirement plan.
- The average retirement age in the U.S. is 65 for men and 63 for women, meaning most people live for 10–20 years after retirement. However, clients who plan to retire early will need to save more because they have more retirement years to fill. Conversely, clients who plan to work past the standard retirement age (even part-time) may not have to save as much because they don’t have as many retirement years to fund. Similarly, consider the life expectancy of your clients, including their health issues and any chronic conditions. It’s generally recommended to over-save, especially for clients who don’t know how long they will live.
- Life expectancy. Similarly, consider the life expectancy of your clients. They may not need to save as much if they have health issues or chronic conditions that limit their lifespan. However, it’s generally recommended to over-save, especially for clients who don’t know how long they will live.
To wrap up, checking in with your clients is simple with PreciseFP. Whether you’re reaching out individually or in bulk, you can easily send educational materials or ask if any life changes have affected their accounts. Ready to get started? Try a free trial at PreciseFP.com today and make client communication easier than ever.
