Eight Major Risks to Your Clients' Retirement

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By Tony Batman, chairman and CEO, 1st Global

Everyone wants a safe, stable and certain flow of income to sustain their ideal retirement. But if you were to ask five different relatives and friends what retirement means to them, you would likely receive five different answers. As such, there cannot be a one-size-fits-all solution for how to create a sustainable income plan for retirement.

A whopping 56 percent of American workers report that they have never calculated what their financial needs will be in retirement¹. That’s frightening, considering that 10,000 baby boomers are poised to reach the traditional retirement age of 65 each day for the next two decades². Now, more than ever, financial professionals are needed. (Read: How You Can Guide the Future for America)

As an accountant, CPA or financial advisor, you are in a unique position to help clients determine what their income needs realistically will be.

To start that process, you must determine how your clients envision retirement. Ask them:

  • “Who would you most want to emulate in retirement?”
  • “How confident are you that you will have enough income to last the rest of your life?”
  • “What choices will you make in retirement?”

Eight Major Risks to Retirement Income

The next step, after you get a clear picture of your clients’ wish-list lifestyle, is to share with them the eight major risks that can affect retirement income plans:

  • Entitlement Risk: The possibility that one’s presumed income and benefits from Social Security or Medicare will be underfunded or not funded at all
  • Excess Withdrawal Risk: Drawing too much from one’s portfolio at an improper time, causing one to outlive his money
  • Sequence of Returns Risk: The risk of a decline in the financial markets— like what happened in 2008 — right before one’s retirement
  • Asset Allocation Risk: When portfolios are not properly diversified
  • Purchasing Power Risk: Better known as inflation; as lifespans increase, inflation will eventually erode the purchasing power of any income
  • Medical Expense Risk: Healthcare costs are soaring; a recent study by Fidelity Investments says that the average couple will spend at least $250,000³ out of pocket for medical care during their retirement
  • Tax Risk: The risk posed by federal and state income tax and estate taxes
  • Relationship risk: this occurs when long-married couples divorce, causing the retirement nest egg to be divided. The money would have been enough to support the couple living in one household, but split, it is not enough to support two households.

The risks each retiree will face will be different. For example, a client who is depending on Social Security for a large part of his retirement income will be more affected by entitlement risk than another client whose income plan does not depend on Social Security. Only after you identify which risks pertain to your clients can you work on solutions that are best able to hedge against these risks. Then you can begin to develop with your clients a plan to make their retirement income last throughout their lifetime.

Creating a plan for sustainable income is an integrated process; therefore extensive interaction and conversation between yourself, your client and his loved ones are required. By building a relationship with your client, you can work together to help ensure that the unique income plan will provide adequate cash flow for life and allow your client to meet his long-term goals. And the relationship will be long-term: Over time, the assumptions and information used to build a solid plan are bound to change. As such, you and your clients must revisit the plan and consider adjustments based on changes that arise so that the retirement lifestyle which was originally planned can remain intact.

At 1st Global, we have developed a system called Sustainable Income Solutions™. This plan addresses all elements of income planning and risk management. Through a five-step process, an advisor can guide clients toward their personal vision of retirement, identify the unique risks that they face and provide outcome-based solutions to hedge against those risks. This combination of a clear, concise advice-based process and its outcome-based solutions helps provide our advisors with certainty that the retirement lifestyle their clients dream of can become a reality.

Want to read more from 1st Global? Follow us on Twitter @1stGlobal or on LinkedIn. You can also watch videos on the company’s YouTube Channel.

Tony Batman is Founder and Chief Executive Officer of 1st Global, a research and consulting partner for high-achieving CPA firms offering wealth management. 1st Global provides CPA, tax and estate planning firms the education, technology, business-building framework and client solutions that make these firms leaders in their professions through dedicated professional client relationships built around wealth management.

1st Global Capital Corp. is a member of FINRA and SIPC and is headquartered at 12750 Merit Dr., Suite 1200 in Dallas, Texas, 75251; 214-294-5000. Investment advisory services offered through 1st Global Advisors, Inc., an SEC-Registered Investment Adviser. Additional information about 1st Global is available at www.1stGlobal.com

¹ Retirement Confidence Survey, Employee Benefit Research Institute, 2012.

² Baby boomers retire, Pew Research Center, December 29, 2010.

³ Fidelity® Estimates Couples Retiring In 2012 Will Need $240,000 To Pay Medical Expenses Throughout Retirement, May 9, 2012



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