Why Planning for Retirement is So Hard, and What to Do About It
Fears that baby boomers haven’t saved enough for retirement are constantly dominating headlines, but there’s also the flipside of that problem that can also be a financial disaster: outliving our savings.
According to a recent study by Ernst & Young, almost three out of five new middle-class retirees will outlive their financial assets if they attempt to maintain their pre-retirement standard of living. Finding the right spending balance and developing a financial plan leading up to and in retirement is an arduous process and often requires assistance from a professional.
When choosing a financial expert, it’s important to check their credentials—but where do we begin looking? To help boomers find a pro to help evaluate and plan their retirement picture, The American College launched The Retirement Income Certified Professional (RICP) credential will help advisors master retirement income planning. I had a chance to speak with Director of the New York Life Center for Retirement Income at The American College David Littell, who is in charge of designing the program curriculum. Here is what he had to say:
Boomer: What is the Retirement Income Certified Professional (RICP) credential and how will it help advisors with retirement income planning?
Littell: The RICP is an advanced professional designation for financial advisors who assist clients with retirement income planning. It helps advisors address the specific tasks, such as when to retire, choosing a claiming age for Social Security benefits, how to elect company sponsored retirement benefits and how to convert assets into sustainable income during retirement. The program provides advisors with a comprehensive planning process, to help them create customized plans to meet their client’s specific retirement goals.
Boomer. What’s included in the coursework consist and who is getting this designation?
Littell: Students are required to take three, college-level courses. The courses are online, self-study courses, followed by completion of a final exam at a testing center.
The first course (HS 353 Retirement Income Process, Strategies and Solutions) focuses on how to build a retirement income plan—what has to be considered, what steps are involved and what are some of the strategies and solutions to solve client problems. This course addresses new retirement risks like tax and legal issues that can undermine a plan, and some of the common approaches being used to generate income from assets.
The second course (HS 354 Sources of Retirement Income) reviews things like the Social Security claiming issue, distribution options from retirement plans, annuity products used in retirement income planning and building a retirement portfolio. The third course, (HS 355 Managing the Retirement Income Plan) begins with important retirement decisions including choosing appropriate Medicare and other health insurance options, addressing long-term-care needs and housing decisions. It also addresses retirement portfolio management and issues that arise as clients’ age.
To earn the designation students must also satisfy a three-year experience requirement, ongoing CE requirements and abide by the College’s ethic pledge.
Boomer: Why did The College decide to offer this course, and what is included in the program?
Littell: About a year ago, we brought together a group representing the industry to a "retirement income summit" at the College and discussed our concerns over gaps in knowledge. One concern was simply that advisors come at this issue from a particular perspective, and don’t have a full range of options and solutions. Retirement planning requires different solutions in different situations, a cookie cutter or one product solution is not appropriate.
We also identified that advisors needed help with framing the retirement income issue with their clients and required a clearer planning process. Retirement planners need some knowledge of health insurance planning as medical expenses and long-term planning become a larger part of retirees’ budget.
Boomer: How does one determine their retirement readiness beyond the number?
Littell: Retirement readiness is less about a specific savings number and more about proper on-going planning and careful consideration of the many decisions that have to be made before, at and after retirement has begun. Decisions like when to retire and when to claim Social Security benefits are typically critical to a successful retirement plan. Other decisions impact readiness as well, including taking the right distribution option from the company’s retirement plan, electing the right Medicare and other health care choices and planning for long-term care needs. All of these decisions need to be part of a comprehensive, coordinated retirement income plan. The plan takes into consideration the client’s risk tolerance, income needs, income sources, legacy goals and other unique and individual concerns. Finally, this is not a one-time review, this is a regular, ongoing process that begins well before retirement and continues throughout the retirement period.
Boomer: What are some of the contingencies that retirees need to plan for when it comes to retirement income?
Littell: What’s hard about retirement is that we haven’t lived through it before,so the risks and contingencies are new potential roadblocks to retirement readiness that retirees need to learn about. We have identified 25 risks, but a few key issues include: the uncertainty of life expectancy, the loss of purchasing power due to inflation, the risks of investing, including changing market values, shifting fixed income returns and sequence of returns risk.
Aging can also result in the need for additional spending on health care, spending on services that are no longer easy to perform and the costs of needing care for help with the daily tasks of living. The retirement income plan planning process needs to help the individual prioritize these risks and determine appropriate strategies for addressing them.
“The Boomer” is a column written for adults nearing retirement age and those already in their “golden years.” It will also promote reader interaction by posting e-mail responses and answering reader questions. E-mail your questions or topic ideas to email@example.com.