8 Wealth Management Issues #3 and 4: Risk Management and Retirement Planning

The 1040 can help you address your clients’ Risk Management & Retirement Planning concerns.

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In the April issue of Tax Insider E-Newsletter, we introduced the 8 Wealth Management Issues^SM, which we believe will help enhance your role as your clients’ tax adviser. In June, we addressed Cash Flow & Debt Management. We will show you in the monthly e-newsletters, through September 2009, how each of the 8 Wealth Management Issues - Investment Management, Cash Flow & Debt Management, Family Risk Management, Retirement Planning, Education Planning, Legacy Planning, Business Planning and Special Situations Planning - are interrelated. Using the 8 Wealth Management Issues, you can help your clients identify the issues they have already adequately covered and those issues that need more attention. You can help your clients create an action plan that addresses these issues as they see fit. This month’s article will focus on Family Risk Management and Retirement Planning.

Family Risk Management
Are your clients prepared for the unexpected? Even the best investment and financial plans can crumble if clients are not properly prepared for the risks that exist for every family. Should something happen to your client or their family member such as disability, death, or even a long-term-care need, the careful planning and investing your clients have so diligently developed can be unraveled in an instant. By learning more about your clients’ situation, you can evaluate their current risk plans to determine whether they are adequately meeting their needs. Your clients may believe they have minimized their risk by having life insurance; however, because the world of risk management is changing quickly, you can conduct an evaluation of your clients’ risk and the efficiency of their plan. The goal is to cover the client’s need in a cost effective manner that still allows them to address their other financial planning needs. Even a policy put in place a few years ago could be less efficient than what is now available. If modifications are needed to your clients’ risk management plan, you can make suggestions that not only address their risk management needs, but also consider the tax implications of these changes.

When preparing or reviewing a client’s 1040, looking at lines 6a through 6d for exemptions presents an opportunity for a review of the client’s risk management plan. When the client has exemptions, it indicates that there are others who depend on them for support. If the client were to pass away, or become disabled, the ability of the client to provide for these dependants could be jeopardized. While many clients have life insurance policies through their employer, it is still worth the effort to do a thorough need analysis to determine if they are properly protected.

Retirement Planning
People entering retirement are facing concerns that retirees simply did not face 20 years ago. As healthcare is improving and life expectancies rise, your clients are likely to live longer during retirement than past generations. And, unlike generations of the past who had their retirement funded mostly with guarantees made by their employers and the government, the assets your clients have accumulated may be their primary source of cash flow. In addition to the concerns that exist, it is important to first establish a clear vision of what retirement means to your clients. Will they work part time?  Will they be traveling the world?  Everyone’s vision of the “dream” retirement is different.

You can partner with your client to create a plan considering the level of assets needed to fund their vision of retirement including likely income needs, potential tax implications and risks that can stand in the way of realizing their vision.

The 1040 can be a valuable tool when discussing your clients’ retirement goals and the planning they have already done.  For clients that do not have an IRA deduction on line 32, you may want to ask them whether they are saving for retirement. It may be that they are contributing to a Roth IRA or an employer sponsored plan, but it opens up the discussion to whether or not they are saving enough to meet their goals. For your small business clients, you may want to look at line 28 to determine if they are contributing to an employer sponsored SEP, SIMPLE or qualified plan. These plans can enable employers to not only fund their own retirement goals, but also provide a valuable benefit to help their employees fund their retirement goals and enhance employee retention.

Using the Form 1040 to examine financial planning opportunities may be new to some individuals.  However, understanding a client’s tax return and the information contained in it is critical to the overall financial planning process.  The tax return can shed light on financial mysteries and uncover financial obstacles that keep clients from reaching their goals.  Most clients want someone to tell them what to do.  Taxes and investments are confusing.  Your clients will respect you for helping them identify a need and work to solve it.

Next month’s feature will address Education Planning and Legacy Planning.

The current economic and market environment reinforces the importance of using a comprehensive and repeatable process to address the wealth management challenges your tax clients face, not only for their retirement plans, but their entire portfolios. Whether their wealth is valued at $10,000 or $10,000,000, it is critical in times like these that a client has an Advisor who is knowledgeable about their complete financial picture, including their tax situation, so they can be given appropriate advice and recommendations. Our 8 Wealth Management Issues strategy can help you help your clients.