Conducting an Annual Checkup: 6 Steps for Weatherproofing Client Retirement Plans

Checking in on clients’ retirement plans at least once a year provides an opportunity to confirm client priorities and measure progress they've made toward their goals. These annual reviews typically include a portfolio evaluation that may lead to adjustments in asset allocation strategies, and individual holdings. Advisors can add value to the review process by looking beyond portfolios and reviewing clients' overall retirement strategies to address evolving goals and changing needs.

While these reviews can help keep plans on track to meet long-term objectives, they are also an excellent way to deepen your personal connection with clients. Each client brings a unique set of needs to the table. While few clients will need fundamental changes to retirement plans each year, it's important to review a range of topics to discover specific opportunities or areas of concern.

A comprehensive review should cover not only investment strategies, but also the mix of products that clients are using to pursue their goals. Annuities are one important product category to explore. With the range of annuity options available, this discussion may help clients find opportunities to solve for their very specific need.

Here are six key considerations to explore during annual checkups, along with opportunities to discuss how annuities might help address specific needs in your clients’ planning.

Markets are cyclical, and the performance of different asset classes can vary from year to year. While these fluctuations likely won’t call for major changes to a client’s portfolio, you might consider minor adjustments due to changing conditions.

As you conduct annual portfolio reviews, consider market outlooks and ensure your clients’ portfolios are properly diversified, both across and within asset classes such as:

• Bonds of different durations
• Domestic and international assets
• Large- and small-cap stocks

Even with proper diversification, an ill-timed downturn can harm a portfolio’s ability to generate adequate retirement income. Annuities can provide a measure of protection against this risk. Because annuities offer guaranteed monthly income, clients may be able to reduce withdrawals from other investments during market downturns that occur in retirement.

Additionally, reviewing portfolio components and asset allocation provides an opening to explore your clients’ discretionary spending, which is one of the variables that clients can control over the course of retirement. Having conversations about the impact of spending on their portfolios – especially during specific market conditions – can help clients adjust their spending rates to meet their needs and lifestyle.

Learn more about how annuities can help diversify client portfolios:

• How Annuities Can Help Your Clients Become Truly Diversified
• The Added Value of Product Diversification in a Portfolio
• Longevity and Legacy: Portfolio Strategies for Older Clients

Tax concerns can change over the course of a year. A client may move into a different tax bracket due to a new job or a change in salary. Others may see their eligibility for certain tax breaks change based on age or family makeup. What’s more, clients closer to retirement may be ready for more detailed discussions on how to manage taxes on their investments and future retirement income source(s).

During an annual review, re-examine clients’ sources of retirement income and desired income levels to explore potential tax implications. Keep in mind that withdrawals from traditional IRAs and 401(k)s are taxable income, which might trigger client concerns about taking more income to support their retirement lifestyle. Due to their general tax-deferred status, adding annuities to a retirement plan may help clients attain more tax efficiency in their portfolio.

Learn more about the tax benefits of annuities­:

• Non-Qualified Tax-Deferred Annuities Can Help Strengthen Your Clients’ Retirement
• Explore the Potential Role for Annuities in your Clients' Tax Strategy Conversations

Prolonged periods of relatively low inflation can cause some clients to overlook the threat of rising prices on their retirement security, especially with retirements that may last decades. Check your clients' retirement plans against projected rates of inflation and discuss the potential impact. Outline a range of inflation scenarios and highlight the impact these scenarios can play on their retirement income.

Clients who want to keep their savings ahead of rising costs—without increasing exposure to volatile market investments—might consider a strategy to help grow and protect retirement income. For example, a variable annuity offers growth potential that can include annual step-ups to lock in previous interest rate gains.

Learn more about how annuities can protect against inflation:

• Real Talk About Annuities: Part 1- Guaranteed Income in Retirement
• How to Explain Why Clients Should Consider Annuities

Increasing life expectancies make it especially important to protect clients against the risk of outliving their retirement savings. At the annual review, advisors and clients should revisit the projected guaranteed income stream from all sources.

You can start by estimating the income clients stand to receive from Social Security based on another year's worth of earnings, using the Social Security Administration’s retirement benefits estimator. Also revisit claiming strategies to calculate the impact of beginning benefits at different ages. If applicable, discuss any changes in access to pension income.

If clients need additional sources of guaranteed retirement income based on that review, annuities may help fill that gap. With the purchase of an optional lifetime income rider, annuities can help provide an income stream that lasts for the duration of a client's retirement.

Learn more about annuities and guaranteed lifetime income:

• Longevity Concerns: How to Help Clients Solve for Additional Income Needs
• Generating Income in Retirement

Changes in clients’ health status can trigger new concerns about managing health-related expenses in retirement. Alternatively, clients who previously were counting on investment growth to cover the rising cost of health care or potential long-term care expenses might be less comfortable with that strategy when facing potential market downturns.

Including an annuity in a retirement plan can help address rising health care costs. With health care costs in retirement likely to rise, annuities can provide a guaranteed income stream that clients can use for fixed expenses, allowing them to utilize their investments to cover some or all of their health care costs.

Learn more about how annuities can help pay for medical expenses:

• The Role of Annuities in the Changing Retirement Landscape

The annual review is also a good time to revisit clients’ legacy plans. For example, you can discuss how retirement plans might change if one spouse is no longer present, helping ensure the current strategy supports a surviving spouse’s lifetime income needs. Also discuss whether there have been any changes in a client’s family structure, such as the addition of grandchildren, that they want to address in their legacy planning. This discussion, although sensitive, can help strengthen relationships with your clients and their family members.

Many clients also incorporate charitable giving into their legacy plans. Be sure to revisit existing charitable giving plans or ask clients if they’ve considered making new charitable contributions in the near future. You can estimate how earmarking assets for charitable causes might affect other parts of a plan, such as a desired level of retirement income.

Depending on client needs, you can modify retirement strategies to help balance legacy planning and charitable giving with other financial goals. For example, annuities can support legacy planning in several ways. They can provide lifetime income for both your client and your client's partner, not just the primary annuity owner. Plus, they offer several types of death benefits to provide assets for heirs or for a charitable donation.

Discover more about the role of annuities in legacy plans:

• Making the Complex Simple: 6 Questions to Ask Clients about Annuities
• How to Help Clients Understand and Evaluate Variable Annuity Fees and Charges

Engaging with clients on a broad range of topics during an annual meeting can help personalize and optimize retirement strategies. By encouraging clients to think carefully about changes in their financial goals and life circumstances you’ll be in a better position to suggest appropriate tools and strategies to address their unique needs. And these in-depth conversations help create the kind of open communication that’s the hallmark of positive advisor-client relationships—helping you build a stronger advisory practice while increasing your clients’ odds of achieving the retirement they desire.