Every decade in life brings new financial milestones,
challenges and opportunities. This is no different for clients entering their
40s and 50s. Priorities may shift toward family life and retirement planning.
Clients may also find themselves part of the “sandwich generation” – balancing
the delicate act of caring for the financial needs of both their growing
children and their aging parents. At the same time, many clients will also be
in their peak earning years, so showing them how to maximize their wealth will
be important in helping them both meet their goals and deliver on their
responsibilities.
As your clients continue to reach different financial
milestones, it is good to check in on the challenges and opportunities specific
to their current stage in life. In particular, here are four things your
clients in their 40s and 50s should consider.
1. Education funding and costs
For clients with children who are planning to attend
college, paying for tuition can be a challenging goal especially as the cost of
college continues to rise. According to US News, the average tuition and fees
are $41,411 at a private school, $11,171 for state residents at public colleges
and $26,809 for out-of-state students at state schools. To prepare your clients
to handle the high costs ahead, ask about their children’s goals for higher
education. If that includes attending college, confirm that parents know about
529 savings plans and the option of using an annuity to help pay for tuition
depending upon their age and time horizon.
While a very common and useful tool when planning for
college and educational expenses, 529 plans may lose value in market downturns,
depending upon the allocations selected. Depending on the rules of the state’s
529 plan, your clients may have to pay penalties on the earnings to withdraw
savings for other purposes if their child does not end up using the funds for
approved educational purposes. Although account earnings are not reported on
the FAFSA, they may affect an application for financial aid, depending upon the
institution’s rules. Similar to many other financial vehicles, some of these
plans include yearly fees and administrative costs.
Another tool to consider as part of your clients’ college
saving plans is a fixed or fixed-indexed annuity. An annuity can grow
tax-deferred and is protected from downside market risks while providing
flexibility for withdrawing funds. However, when proposing this as a strategy,
it is important to consider the age at the time your clients withdraw the funds
to pay for college to ensure that they will at least be age 59½ and will not be
subject to the IRS penalty if under that age, as well as considering the other
benefits and charges.
2. Re-evaluating goals based on time horizon
If your clients’ plans were made in their earlier years,
they may be outdated due to changes in income streams and new financial needs.
Revisiting their long -and short-term savings goals can help your clients
understand how their current savings habits may affect their retirement goals.
It can also reveal room for growth and the option to explore catch-up
contributions to retirement accounts at age 50.
In 2021, everyone has the option to save an extra $500 in
their company retirement plan, whether it’s a 401(k) or 403(b), but people above
age 50 can tack on an additional $6,500 catch-up contribution, making for a
$26,000 cap. Additionally, people age 50 and over can make an extra catch-up
contribution of $1,000 to their traditional or Roth IRA account for a total of
$7,000. Lastly, people age 55 and over can contribute an extra $1,000 catch-up
contribution to their health savings account (HSA) which can be used tax-free
for qualified healthcare expenses.
3. Retirement budgeting and income streams
With many of your clients saving money through multiple
avenues such as 401(k)s, IRAs and annuities, they may need help seeing exactly
how those streams will come together in retirement – especially around required
minimum distributions (RMDs) and possible taxes. Helping clients make a full chart
of accounts, from Social Security to drawdowns from managed money accounts,
will help your clients see how everything they are saving for will come
together.
4. Legacy planning
Clients in their 40s and 50s may also be starting to think
about their legacies. As their financial professional, you can help make sure
they understand the essentials of end-of-life planning. Start by clarifying the
roles that beneficiaries, wills and trusts can play in their estate plans to
help ensure they have a complete, well-rounded financial plan.
Helping your clients see around corners and take a proactive
approach in planning during their 40s and 50s can help boost their financial
literacy and give them the tools to make sound financial decisions that they
can count on for many years to come.
Click here for the
original article.