6 Tips to Kickstart Succession Planning with Your Business Owner Clients
Here are 6 tips you can share with your business owner clients to help kickstart their succession planning.
The 2022 midterm election is just weeks away. In years past, elections have generated a level of anticipation and excitement about what the future will hold. However, the past several election cycles have been wrought with uncertainty. Set against the backdrop of inflation, a significant drop in the equity markets, and a widening political divide, Americans continue to be worried.
Another thing at the forefront of Americans’ minds? Retirement. The retirement income challenge is real and has been growing in recent years, putting more pressure on individual Americans. According to a Gallup poll, American workers are retiring at later ages than those in the past three decades. In 1991, U.S. retirees, on average, reported that they retired at age 57. Now, the average reported retirement age is up to 61. Reaching retirement age and having the funds to last becomes harder as pensions disappear, concerns about the solvency of Social Security increase, and other financial obligations from housing to the cost of healthcare, take precedence.
Add uncertainty about the election on top of these concerns, and the challenges can seem insurmountable. But there are steps clients can take to control what they can—and protect against the things they can’t. It’s time now to encourage your clients to cancel out the noise, focus on the fundamentals, keep their eye on the long term and consider these three tips to help keep their retirement planning on track as we approach the election and navigate the aftermath:
The economic views of the two political parties typically shift based on who sits behind the Resolute Desk in the Oval Office. 2022 is the same for many Americans who have a view of the economy that is largely tied to the political candidate or party they follow. Today, according to the Pew Research Center, there has been an increasingly stark disagreement between Democrats and Republicans on many topics, including on the economy. Your client’s political views will most likely impact their view on the economy, and subsequently, their fears about their financial position.
Politically minded investors are more likely to be optimistic about the market when their preferred party is in power and pessimistic when they are not. However, financial decisions should be based on your client’s personal investment objectives and long-term goals—not the current political climate. In fact, even though volatility increases during an election year, history has shown that election outcomes do not influence long-term market returns. By making emotional investment decisions based on whether your client’s preferred party is in power, they could open themselves up to potential losses or could miss out on market gains, negatively impacting their retirement plans.
No matter which side of the political aisle your clients stand on, they may be experiencing anxiety as they try to second-guess how the election will affect their financial future. But even Nobel Prize-winning economists have trouble predicting the election’s impact. To help ease the angst, and manage the uncertainty, consider investing solutions that can provide guarantees.
If your clients are at the stage where they’re still accumulating savings, and their retirement is decades away, they might be comfortable riding out unpredictable markets with a well-diversified portfolio. But the closer they get to retirement, the more likely they are to want the guarantee of a defined level of protection against ongoing volatility or steep market downturns. If they’re ready to retire, or already in retirement, they’re likely to need the certainty of guaranteed income every month, regardless of the market’s ups and downs.
One way to manage the uncertainty, and get those guarantees, is to consider annuities. An annuity is a long-term, tax-deferred investment vehicle designed for retirement. There are many types of annuities—some offer a fixed return, others may fluctuate in value, based on the performance of underlying investments or an underlying index. Some annuities are designed to help clients protect against the market’s downside, while allowing clients to capture some of its gains.
And annuities are the only category of investment product that can provide guaranteed income for life—whether clients choose to turn a lump sum investment into an immediate stream of income now or choose to accumulate for several years before turning on that income stream at a future date. This can help supplement the income from their Social Security and pension, or even bridge an income gap before they start receiving Social Security.
When evaluating an annuity, keep in mind that these are long-term investment vehicles designed for retirement purposes, so clients may be charged an additional penalty if they take their money out early, if they’re not yet age 59½ (additional 10% tax penalty), or for both. Certain types of annuities will fluctuate in value and can involve market risk, including possible loss of principal. Clients should also know that all guarantees and protections are subject to the claims-paying ability of the issuing insurance company. So, when choosing an annuity, look for an insurance company that is highly rated and financially stable.
While candidates from different parties may propose very different tax policies, there is the prospect of tax changes no matter who wins. While uncertainty might make it difficult to plan, clients can still take steps to take care of their taxes today.
First, it is important to make sure their portfolio is diversified from a tax perspective—by incorporating a range of taxable, tax-deferred, and tax-free vehicles. If you’re concerned about a possible increase to the capital gains tax rate, reviewing their portfolio now could help them decide whether to sell assets this year while taxes are still low. Likewise, clients may consider converting their traditional IRA to a Roth IRA before the end of the year, allowing them to capitalize on lower tax rates now, and take tax-free distributions in retirement.
The unknowns of retirement planning can be a challenge, even in the best of times. It may be hard to cancel out the noise of divisive politics that are ever-present even today, but it’s important to focus on the fundamentals when making financial decisions now, and in the months ahead. As a financial professional, your role is to help your clients establish a long-term retirement plan—and stick to it.
As a qualified and unbiased advisor or financial professional, you can help put your clients’ needs first, help them adjust their plan as their priorities shift over time, and help them navigate the challenges posed by markets, economics, and current events. Partisan politics, and the gridlock in Washington that comes with it, might be our reality right now. Guided advice will help your clients to control what they can regardless of the election outcome this November—with guaranteed solutions that help protect against market risk and provide guaranteed retirement income and tax-smart strategies to keep more of their hard-earned savings, allowing them to fund a secure retirement for themselves.
For more information on Annuities, a selection of solutions for all stages of retirement income planning, you can visit Nationwide Annuities for Financial Professionals – Nationwide Financial.