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pre-tax retirement

13 Tips for Clients Who Didn't Save for Retirement


According to research, most Americans don't have enough money saved to retire. Fortunately, by talking to them about the steps they're taking as early as possible, you can help them change that. Bryce Sanders discusses 13 ways they can grow their savings. 

Oct 26th 2020
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Retirement should be that pot of gold at the end of the rainbow for your salaried client. It actually needs a pot of gold! Retirement is often a vague concern and underfunded. Focusing their attention on this problem is another way you can add value to the relationship. You want to make the goal attainable, if they are willing to focus.

The Problem is Bigger Than You Think

Statistics show Americans haven’t saved enough for retirement: 

  • $ 172,000 in Actual Savings: A 2015 Transamerica Center for Retirement Studies report showed the median level of retirement for Americans in their 60’s was $172,000.
  • 8-10x Salary: It is a guideline for projecting what an American in their 60’s should have in retirement savings. The guy earning $75,000/year should have $600,000-750,000 set aside.
  • 80 Percent of Salary: That is what people should expect to spend in retirement. Maybe that guy making $75,000 can get by on $60,000 a year.

Background Assumptions

Time is your ally. Ideally you and your client are having this conversation in their 40's, not their 60’s. 

Let’s make some background assumptions: 

  • They are pretty close to retirement. 
  • They know how much income they will need in retirement. 
  • They know what they will be collecting from Social Security and any defined benefit pensions. 
  • Looking at their 401(k) balance, their IRAs and investment accounts, they have concluded they don’t have enough money saved.  What can they do?

Your Client Has More Options Than They Think

Your client will know the basics, but some of these might be “aha” moments:

  1. Working Longer: Assuming their employer permits it, it’s the obvious choice. Each additional year shortens retirement while adding a year for additional retirement saving and growth of their current retirement assets. 
  2. Downsizing: Retirement is here. They need a lot of cash and fast. They own a big home with big property tax bills. They consider selling the house upon retiring and moving to a state where the cost of living is considerably lower. The windfall they receive from the house sale becomes their nest egg. This should be a last-resort strategy, not an excuse to kick the can down the road.
  3. 1035 Exchange: Your client owns whole-life insurance. It has been building up cash value for decades. It might be approaching the face value of the policy. They might see the primary purpose of life insurance as providing a death benefit. Another option is to convert the policy into an annuity. It should be a tax-free exchange. The annuity can continue to accrue cash value or provide immediate income if your client is retiring now.
  4. Annual Bonus: Your client’s compensation might be paid as salary plus bonus. Although many people have already (pre) spent the bonus on arrival, they should direct as much as possible towards savings.
  5. Tax Refunds: About 73 percent of American tax filers received refunds in 2019. It’s enforced savings that becomes found money. These funds could be redirected towards savings instead of consumption.
  6. 401(k) Catch-Up Contributions: Tax-deferred growth is better than growth in a taxable environment. Your client can contribute $ 19,500 to their 401(k).The government allows people 50+ to add an additional $6,500 to that amount if they have under contributed in years past. In simple terms, they can direct more pre tax dollars to their tax deferred account.
  7. IRA Contributions: Clients are allowed to direct $6,000/year into IRA accounts. The catch-up rule above allows them to raise that by $ 1,000 for similar reasons.
  8. Orphaned IRAs: People change jobs often today. Monies in a previous company’s retirement plan might have been rolled into an IRRA. The companies might have made this easy with a suggested custodian. Your client might have pots of money of various amounts below their radar screen. Consolidate them. Put them to work.
  9. Stock Plan at Work: Your client might have the opportunity to buy their company stock at a discount through a company stock purchase plan. This might be a 10-15 percent savings. Although buying stock involves risk, it’s a way to make an immediate return on their money, assuming the plan allows them to sell. There are tax consequences.
  10. Restricted Stock and Options: Your client’s compensation might include deferred stock options. They often take years to vest. Your client has worked there for years. This is another pool of money they might not have considered as an asset. What’s it worth?
  11. Supplemental Executive Retirement Plan: Your client owns their own business. These plans are designed to favor only a specific segment of a company’s staff, usually senior management. Often a long term perk like golden handcuffs, they also work as a golden parachute. The retirement plan is a company funded expense, payable upon retirement. They are also called Top Hat plans.
  12. Rental Property: Your client owns a second home at the shore. It is the family summer retreat. As retirement approaches, this could be transformed into a rental property, bringing in a regular stream of income. You can still have personal use your property if it’s a seasonal rental. The key number is 10% of the total number of days rented or 14 days of a year round rental.
  13. Deferred Compensation: Your client might not collected everything they make during the year it’s earned. If they have deferred comp coming to them, that’s another pool of assets to consider putting to work on arrival.

Your client is smart. Several of these strategies are already part of their plan to fund their retirement. There might be forgotten pools of money. Repurposing assets differently may be an “aha” moment for them. There should be some solutions to help increase their pool of retirement assets.

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