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By Holly SwanExecutive Director, Advisor Institute

Many investors have a number they believe they need in order to retire comfortably. It's important to ask prospective clients what that retirement number is and to understand the thought process behind it. Was it chosen arbitrarily or the result of a lifestyle assessment and cash flow model?

Most investors don't spend enough time reviewing and updating retirement plans to stay on track and meet their retirement goals. Rather, they check to see if their retirement assets are growing and do some quick mental math to determine their growth rate. A comprehensive retirement plan should:

  • Evaluate current expenses and how they are likely to change in retirement, as discretionary expenses typically increase early in retirement and trend lower as you age.
  • Consider health care and assisted living costs in your area, as health care costs tend to be lower earlier in retirement and trend higher over time.
  • Include a tax-aware spending strategy, as high spend rates in down markets can have an outsized detrimental impact on long-term retirement plans.

If a prospective client's retirement number could benefit from further refining, ask these questions to start a discussion about potential action plans, strategies and solutions.

"Will your expected retirement income sources meet your anticipated needs?"

Many people have never calculated what their actual needs will be in retirement. This question invites a deeper discussion about the retirement lifestyle they envision and the true cost of maintaining that lifestyle.

"Have you considered optimal asset location for growing your retirement investments?"

Investment assets that produce ordinary income are generally better suited for retirement vehicles. Because these vehicles are tax deferred or tax exempt, the income isn't taxed and is able to further compound, whereas assets that produce capital gains that can be offset with capital losses may be better suited for taxable investment accounts. Many of your clients and prospects may not be aware of the importance of asset location and the impact it can have on their retirement assets.

"Have you mapped out a tax-aware retirement spending strategy?"

Spending strategy is the key to the success of any financial plan. When clients model retirement plans themselves, they tend to think of the market as increasing linearly. A good financial model will include up years and down years. Tax-aware spending strategies allow more assets to grow for a longer period of time, providing additional support during down markets.

"Do you have adequate long-term care insurance?"

Failure to plan for the true cost of long-term care can have a major impact on retirement plans. This is particularly important for women who statistically live longer and, therefore, are less likely to rely on their spouses to care for them.

Bottom line: The After-Tax Advisor® works with clients to develop a retirement number and spending strategy that can weather changing market conditions.