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How a 401(k) Should Fit Into a Client’s Retirement Plan

How a 401(k) Should Fit Into a Client’s Retirement Plan

The American College of Financial Services
December 3, 2019

More than 100 million Americans participate in a defined contribution plan, with most of those plans being 401(k)s. However, just because someone has a plan doesn’t mean they’re making good decisions with it.

As a financial advisor, you’ve no doubt encountered clients who have a 401(k) but know nothing about the role it should be playing in their overall retirement strategy. Some clients aren’t even familiar with what options their 401(k) offers. Fortunately, even if you aren’t directly involved in a client’s 401(k), you can still provide valuable advice and assistance.

First, if a client’s employer offers a 401(k), they should not hesitate to contribute. Not only do contributions come through payroll deductions—making the act of saving about as easy as it can be—many employers match contributions. Over time, the combination of personal and employer contributions can add up to significant retirement savings.

Nevertheless, simply contributing a small amount to a 401(k) is not going to generate enough savings for most people. Clients should avoid the temptation to only contribute the amount necessary to receive the full matching contribution and instead contribute a good percentage more. Most plans make deciding on the appropriate contribution level easy, thanks to modeling tools that allow participants to see how different contribution levels affect the total accumulation at retirement and, more importantly, how much retirement income the total accumulation is likely to generate.

Having enough available income in retirement is, in the end, the primary goal of retirement planning. For a 401(k) to play a useful role in that, clients need to contribute enough funds throughout their careers and maximize the value of those funds. That means, if a 401(k) has a Roth option, your client should consider making at least some contributions through that option in order to take advantage of the tax-free retirement savings. Additionally, when a client changes employers, they should never cash out their old 401(k). Instead, they should rollover the account to an IRA, although keeping the money in the old plan is an acceptable option too, and a lot better than cashing out the benefit.

Nevertheless, even clients who make all the right choices with their 401(k) will likely need additional resources in retirement. That’s where you can provide even more value. First, you can work with your clients to make sure their spending habits and debt (particularly credit card debt) aren’t sabotaging the retirement planning. Secondly, you can assist clients in identifying additional opportunities for retirement savings, help them acquire adequate insurance to protect their wealth, and provide them with a comprehensive plan that will help ensure they have the funds they need to live the life they want after retirement.

While many advisors don’t have the specialized knowledge they need to develop financial plans that take into account a client’s individual retirement needs, situation, and desires, you can gain that knowledge through advanced education. In particular, the Retirement Income Certified Professional® (RICP®) designation program offered by The American College of Financial Services will provide you with the high-level skills and expertise you need to do more than simply help your clients save. With the RICP®, you can help them thrive throughout their retirement.

Invest in your career with a professional designation.

Baby Boomers are retiring at an unprecedented rate, meaning that more and more Americans are facing the challenge of using their investments to maintain their quality of life. For them, the usual investment advice no longer applies. They need the unique strategies you can learn through the three-course Retirement Income Certified Professional® (RICP®) designation program. Help your clients thrive while growing your career.

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