2022 promises to be interesting for those who rely on retirement income as inflation remains high, the Federal Reserve begins to tighten monetary policy, and debates around Social Security sustainability continue. 

Clients who are retired or near retirement may need extra guidance as they try to balance their need for income against the risk of outliving their money. Many clients may also need support as they adapt to policy changes that may affect their long-term plans. 

In a recent webinar organized by The American College of Financial Services, Professors Steve Parrish, Wade Pfau, and Ed Slott explored these and other key retirement income issues. Based on their discussion, here are three questions you should be asking your clients at or near retirement in 2022. 

Question 1: What’s Your Retirement Income Style?

Pfau has developed a proprietary tool with Alex Murguia for evaluating clients’ retirement income styles, the Retirement Income Style Awareness^® (RISA^®) Matrix. According to this matrix, clients fall into one of four quadrants (see Figure 1). 

Figure 1: Retirement Income Style Awareness® (RISA®) Matrix

Along one axis, they may be either Probability-Based–which means they prefer to rely on stock market growth for their income–or Safety-First–which means they prefer the safety of contractual income from annuities or bonds. Along the other axis, they either value Optionality–which means they like to keep their options open–or Commitment–meaning they prefer to lock in a solution for a lifetime need. The right retirement income strategy for an individual client will depend on where they fall on this matrix.

“As a starting point for thinking about a retirement plan, is there a way to assess which one of these retirement strategies might resonate with an individual based on their underlying preferences? Based on reading as much as we could and conducting our own research, we developed the RISA Matrix to fill that need.” –Wade Pfau, Ph.D., RICP^®, CFA

This year, spend some time evaluating your clients’ retirement income styles. Using a tool like RISA^®, you can assess their preferences and what types of products would suit them best. By doing this, you will be able to deliver a tailored solution that truly meets your clients’ needs.

Question 2: Is Your Plan Aligned with Today’s Regulatory Environment?

Most provisions of the 2019 Setting Every Community Up for Retirement Enhancement Act (SECURE Act) have been in force since 2020. However, many clients have not yet digested the Act’s implications for their retirement plans. For example, the SECURE Act eliminated the 70½ age limit for making IRA contributions, raised the Required Minimum Distribution (RMD) age to 72, and eliminated the so-called “stretch IRA” for most beneficiaries. These changes give clients a range of new options and limitations they may be unaware of. Other legislative matters that may affect clients’ plans include the provisions of the Coronavirus Aid, Relief, and Economic Security (CARES) Act and revised 2022 RMD tables. 

“The SECURE Act is a major act that was overshadowed by COVID. It's going to affect all your clients, especially the ones with the largest IRAs. A lot of those plans were never updated. I think it's a major opportunity for advisors to start having these conversations.” –Ed Slott, CPA

You can add real value by asking your clients if their plans are aligned with today’s regulatory environment and working with them to identify ways in which regulatory changes may hurt – or help – their strategies. 

Question 3: Have You Considered a Full Range of Retirement Income Products?

When thinking about retirement income, clients – and some advisors – may only consider a limited array of products. However, according to Slott, Pfau, and Parrish, changes to the rules around IRAs and the treatment of trusts mean retirement planners should consider a wider range of options. Products like life insurance, for example, can offer a host of advantages over holding savings in traditional retirement vehicles. Similarly, annuities, while debated in some circles, can potentially be a helpful component of many different retirement income strategies.

“What does life insurance give you? Larger inheritances for your family, more control, and less tax.” –Ed Slott, CPA

As an advisor, you can add value by understanding the full range of retirement planning products available and giving your clients all the options.

Make a Difference for Your Clients In 2022

Retirement income planning has evolved over the years and, today, it is a complex and sophisticated process. Gone are the days of receiving a company pension and enjoying your golden years – today’s retirees must actively plan and manage their income. 

Advisors have a vital role to play in helping clients plan effectively. By asking some simple questions, you can start a great conversation with your clients and help them build better, more robust retirement income plans.

You can watch the full webcast here.