Your client got a raise? Here’s how to keep them focused on retirement
Welcome to Retirement Scan, our daily roundup of retirement news your clients may be talking about.
Advising clients after they get a raise
Receiving a raise could be counterintuitive for clients, as a salary increase can complicate retirement planning if they boost their lifestyle instead of their savings, an analysis by Morningstar found. The phenomenon known as the lifestyle creep "can put someone’s retirement plans at risk because existing savings and other common retirement assets are relatively fixed," according to an expert. "Everyone should save more every time they get a raise. How much more depends on the investor’s personal characteristics, such as their age, existing retirement savings, and income."
Clients ready to retire? Not until they’ve done these 3 things
There are a few financial moves that pre-retirees need to consider before leaving the labor force, a CFP writes in Kiplinger. Clients who are 10 years or more away from retirement are advised to diversify their tax exposure by owning retirement accounts with varying tax treatments, according to the expert. Pre-retirees who are five years ahead of retirement should start creating a health care plan, while those who are a year away may want to try out spending based on the 4% retirement withdrawal rule, she adds. "If that level of spending feels tight, then you can rethink your retirement and investment strategy with your planner."
A crippling fear all near-retirees share
Nearly 72% of pre-retirees are anxious about the possibility of outliving their savings in retirement, according to a study by Schwab in this Motley Fool article. Clients who share this fear are advised to determine their living expenses in retirement and boost their savings by increasing their retirement plan contributions. They should also consider their life expectancy, expenses and investments to create a sustainable withdrawal strategy.
How Social Security benefits work after clients stop working
A 59-year-old worker who already stopped working can expect their Social Security benefits to be lower than the estimated amount in their respective statements, especially if the credit for future earnings is included in the estimate, according to an expert in this Forbes article. "How much of a difference, if any, depends on how your past earnings compare with the future earnings estimates that Social Security used," the expert writes.
6 ways to get a handle on clients’ IRAs
Clients should make the most of their IRAs this year in order to enhance their tax savings and boost their retirement security, according to this article in Bankrate. To do this, they have until April 15 to max out pretax contributions to traditional IRAs for 2019. They should also consider creating a budget to free more money to save and put their tax refund or windfall into the account this year. Those who don't qualify to contribute directly to a Roth IRA may use the backdoor strategy, but they should take note of the pro-rata rule to avoid any tax trouble with the IRS.