Retirement income planning ideas for 2022
In the case of an adviser using liability-driven investing to meet the retirement income needs of an individual client, the adviser would examine his client’s future liabilities and design an investment strategy to meet those future liabilities. .
The Liability-Based Investment Benchmark Model, Explained
The liability-driven investment reference model essentially generates a benchmark for the portfolio based on economic scenarios, projections and the optimization of the investment strategy used. Based on these assumptions and the associated liabilities, this can provide the financial advisor with a benchmark target for future dates.
Tontines are a form of pooled retirement investment that resembles an annuity in some ways. They have not been used in the United States since the turn of the 20th century, but there has been talk of reviving them in the United States.
Moshe Milevsky, professor of finance at York University in Toronto and consultant to companies in the financial sector, is collaborating with a firm to offer a 21st century tontine.
What is a Tontine?
A the tontine is a longevity protected income solution whereby a group of individuals contributes to a common fund. Once people retire, the fund begins to pay them a retirement benefit. When fund participants die, payouts adjust to the number of beneficiaries remaining in the fund.
Are tontines legal?
Tontine insurance – a related but different product – was banned in New York State in the early 20th century after an investigation into policy abuse. As regulations become more restrictive, insurance companies have chosen to no longer use tontines.
In a recent interview with ThinkAdvisor, Milevsky pointed out that his modern tontine would be very different from the tontine of yesteryear. It will be structured like “a garden mutual fund, which you can buy but never leave,” he said. “You get payments for the rest of your life”,
ETF with definite result (buffer)
Defined outcome or buffer ETF allow clients to participate in a specified level of market upside while providing a level of downside risk.
What is a Buffer ETF?
Buffer ETFs can be very complex products, but they basically invest in a broad market index such as the S&P 500. There is also an option tunnel to limit downside risk. This downside protection typically lasts for one year, and downside protection limits typically range from 9% to 30%. Fund shareholders would only be exposed to losses in excess of these limits.
Benefits of a Buffer ETF
The main advantage of a buffer ETF is the limitation of downside risk. This can help clients approaching or retiring to balance the potential impact of a market downturn in the early years of retirement, while offering them the opportunity to participate in a percentage of the index’s upside. underlying reference. The other advantage is that the ETF format allows for greater liquidity than with annuities or other income-linked vehicles.
A reverse mortgage allows a homeowner to borrow against the equity in their home. A reverse mortgage can be part of a client’s overall retirement income strategy in some cases.
How does a reverse mortgage work?
Homeowners age 62 or older can borrow against the value of their home and receive payments as a lump sum, monthly or as a line of credit that they can use. No loan payment is required from the borrower; the loan becomes due and payable when the owner dies or leaves the residence. The federal government requires homeowners considering a reverse mortgage to attend education sessions before taking out the loan.
What is the downside of a reverse mortgage?
There are several downsides to a reverse mortgage. These may include costs and fees associated with the loan. This may not be the best option for the client if they are moving soon or wish to bequeath their residence to their heirs as part of their estate. It is important that you ensure that your clients do not fall victim to reverse mortgage fraud.
Although no payment is required with a reverse mortgage, there are rules that must be followed. Violation of these rules may have consequences, including foreclosure.
What happens when a reverse mortgage holder dies?
Upon the death of the owner, the heirs will receive a notice due from the lender. They have the option of buying the house or selling it to pay off the debt. They can also turn the house over to the lender.
Benefits of a Reverse Mortgage
A reverse mortgage can be a way for seniors who have a large portion of their net worth tied up in their home equity to generate additional cash for retirement.
When is a reverse mortgage a good idea?
A reverse mortgage can be a good solution for clients who have a lot of equity in their home and want to continue living there. A reverse mortgage can be a good way to generate the extra cash they might need to support their retirement income needs. A reverse mortgage also works in situations where there are no heirs or where the owner is not concerned about leaving the house to their heirs.
Inflation protected annuities
An inflation-protected annuity guarantees a real rate of return equal to or greater than the level of inflation.
What is an inflation protected annuity?
An inflation-protected annuity provides annuity payments that are indexed to the level of inflation. These are immediate annuities whose payments generally begin within a year. There may be caps on the inflation benefit, and the terms of any contract being considered should be reviewed before moving forward.
What are the benefits?
The main advantage of an inflation-protected annuity is that payments will keep pace with inflation over time, at least to the extent of any payment cap. Inflation is a major enemy of retirees who live largely on a fixed income.
Qualified Longevity Annuity Contracts
A Qualified Longevity Annuity Contract or QLAC can help retirees preserve part of their retirement account balance for the last part of their retirement. They can also help defer RMDs on this portion of their retirement account balance.
What is a QLAC?
A QLAC is a deferred annuity purchased through a qualified retirement plan such as a 401(k) or in an IRA. Up to 25% of the lessor’s account value up to a maximum of $145,000 can be used to purchase a QLAC, and the annuity benefit can be delayed until age 85.
Benefits of a QLAC to Provide Retirement Income
The benefits of a QLAC for your customers can be twofold. First, the deferred annuity reserves the amount of the annuity for the latter part of your client’s retirement. This money is protected from the impact of market downturns and overspending by account holders.
The second advantage is that the QLAC amount is exempt from RMD until the start of annuitization. This can save tax for your customer over time.
A potential downside of a QLAC is that as a fixed annuity, benefits do not keep up with inflation. This can be a problem in times of rising prices like we are currently experiencing.
Many people of normal retirement age are working longer, either by choice or necessity. Working longer may offer certain advantages to those who are nearing or have reached retirement age.
How does working longer affect retirement savings?
Working longer can affect your client’s retirement savings and retirement income planning in several ways.
- Working longer can allow your clients to continue contributing to their 401(k) or other retirement accounts and delay using those accounts to fund their retirement needs.
- Working longer can have a positive impact on your client’s social security benefits as their earnings are considered one of the best 35 years of a career.
- Those who work at age 72 can defer their RMDs for their employer’s 401(k) plan if the employer has made the appropriate choices in their plan documents. This allows the money in the plan to continue to grow and save on taxes that would have been due on RMDs. This exemption only applies to this plan and RMDs must begin as soon as the employee leaves his employment.
When does it make sense to continue working instead of retiring?
There are a number of reasons why your client may decide to continue working instead of retiring. One reason is that they love their jobs and feel like they might get bored in retirement without some kind of daily routine to keep their minds stimulated.
Certainly, needing the money from work is a valid reason. It could be that the combination of working a few extra years, delaying their Social Security benefits, and adding to their 401(k) is the combination needed to ensure they don’t run out of money in retirement.
Roger Wohlner is a financial writer with over 20 years of industry experience as a financial advisor.