Retirement planning is a core competency for many advisors and astute advisors know that the retirement strategies that worked 20 or 30 years ago may not be applicable today.
Some still are, but the point is retirement planning is an evolving paradigm and that in order to best serve clients, staying abreast of those shifts is critical. For example, with the recent passage of the SECURE Act 2.0, there are some IRA details advisors need to be aware of because they’re beneficial to clients, including new catch-up provisions and fresh guidelines pertaining to required minimum distributions (RMDs).
Additionally, Social Security is a pertinent subject for a broad swath of clients and as advisors know, owing to the various ages at which a client can claim Social Security benefits, there’s no one-size-fits-all answer here.
SECURE Act 2.0 and Social Security 2.0 are just two examples, but they highlight the notion that the retirement landscape is more fluid than clients realize and new market regimes demand advisors be up-to-date on those shifts.
Speaking of Regime Changes…
The coronavirus pandemic altered investment regimes and there’s little indication things will return to “normal.” In fact, preparing for “the new normal” – overused as that phrase may be – is essential to improving client outcomes.
“Looking ahead, we expect these structural changes will contribute to continued inflation pressure, cross asset class volatility, and interest rate uncertainty. Central banks cannot solve supply constraints,” notes BlackRock. “That leaves them rising interest rates and engineering recessions to fight inflation, which is why the relationship between stocks and bonds may be more dynamic moving forward. Amid so much uncertainty, we must re-examine retirement plan menus to build resilience for a new regime.”
One standard element in retirement planning that hasn’t changed and isn’t likely to is the need for income. It’s actually being accentuated due to rising interest rates. Fortunately, dividends are rising, too, and advisors have more alternative sources than ever before from which to source income.
“BlackRock’s 2022 Read on Retirement survey found that 87% of workplace savers would be willing to invest a portion of their retirement savings in exchange for regular income. The same survey found that 71% of retirees would have chosen to receive a steady stream of income throughout retirement if given a choice,” according to the asset manager. “Against the backdrop of our current market conditions and increased longevity, creating new sources of income could offer more certainty when planning for retirement.”
ESG’s Role in Retirement
Admittedly, the issue of the marriage between environmental, social and governance (ESG) factors and retirement planning is a politically thorny one. However, it’s not one to be ignored and one that has merit on a client-by-client basis.
It’s particularly pertinent for advisors looking to better connect and perhaps improve retirement planning options for investors in younger demographics.
“While the decision to consider material ESG factors in investment decision-making process must first and foremost be based on one’s fiduciary duty of prudence and loyalty, participant preferences may also be taken into mind,” concludes BlackRock. “From the participants’ perspective, there is interest in these options, particularly from younger generations. BlackRock’s 2022 Read on Retirement survey found that 78% of participants believe it is at least somewhat important to have sustainable investment options within the plan, with 47% of Gen Z and 38% of Millennial respondents reporting that having sustainable investment options is very important.”
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