RETIREMENT INCOME PLANNING

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1 Curriculum: RETIREMENT How to Effectively Work Your Book of Business RETIREMENT INCOME PLANNING For financial professional use only. Not for distribution to the public.

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3 HOW TO EFFECTIVELY RETIREMENT INCOME PLANNING How to use retirement income planning to get more business As the 75 million baby boomers approach retirement, there is an unprecedented opportunity for financial professionals like you to provide innovative investment solutions that feature both continued growth and lifetime income. You have the chance to solidify relationships with your existing clients, expand your client base and capture even more of the $4 trillion in assets the boomer generation has to invest. 2 Baby boomers face more retirement challenges than any previous generation. Retirees and those nearing retirement need your expertise as they: Tackle increasingly complicated income needs Come to terms with limited guaranteed income sources Begin to appreciate the prospects of a longer than expected lifespan The Baby Boom Cohort in the United States: 202 to U.S. Census Bureau. May Fact Book on Retirement Income, LIMRA, 204 WHO CAN BENEFIT FROM A RETIREMENT? Individuals nearing retirement typically those two years or less from retirement who need help with a strategy to generate sustainable income in retirement Individuals already in retirement who don t currently have a retirement income plan and may: Overspend or lack a target spending level Experience confusion regarding how assets are positioned to generate income Live in fear of running out of money Lack knowledge about the unique risks that affect retirement income 3

4 THE 6-STEP RETIREMENT There are six basic steps to helping your clients build a solid retirement income plan. HOW TO CREATE A RETIREMENT STEP : ENVISION GOALS. ENVISION GOALS Define the retirement vision, including hopes, dreams and fears. 2. DETERMINE NEEDS Determine income needed for essential and discretionary expenses. No two individuals picture retirement in quite the same way, which is why it is important to start the process by establishing and prioritizing your client s unique vision of retirement. What has your client been dreaming about for the last 40 years? Are there people they admire for living a certain way in retirement? If so, what does that retirement look like? Retirement is the time to do what they want to do, but they need to have a plan in place. 3. ASSESS SOURCES Assess sources of guaranteed income. THE 3 PRIMARY GOALS ARE TYPICALLY: 4. IDENTIFY ASSETS Identify assets available to fund retirement. 5. CREATE AND IMPLEMENT THE PLAN Create and implement the retirement income plan with customized strategies. 6. MONITOR THE PLAN Ensure the plan remains aligned with goals. MEETING BASIC EXPENSES LIVING A DESIRED LIFESTYLE LEAVING INHERITANCES AND/OR CHARITABLE DONATIONS Take Action Send out Your Retirement Vision (RF258) in advance of your meeting. In this piece, your clients can note their future goals and retirement vision. 4

5 STEP 2: DETERMINE NEEDS In the second step, your client goes through the budgeting process, identifying both current and projected expenses. Direct them to A Guide to Your Retirement Income Needs (RF958B), where he or she can itemize and estimate expected expenses that will last throughout retirement. Retirees can categorize expenses into one of two buckets: essential or discretionary. Walk through the final numbers with your client to make sure he or she understands the differences between each bucket, as well as where cuts can potentially be made to get to his or her desired lifestyle. Once all estimates are documented, review the final total. This is a point where it s appropriate to discuss how an account balance of $300,000, $400,000 or even $500,000 may not equate to the annual income your client needs in retirement to cover all expenses. Reinforce that building an income plan is the next step in figuring out how to turn that account balance into a paycheck that can last throughout retirement. Ta ke Action Walk through A Guide to Your Retirement Income Needs (RF958B) with your client. This helps document retirement expenses as must-haves (essential) or nice-to-haves (discretionary). VS DISCRETIONARY Expenses Retirees may decide to cover ESSENTIAL EXPENSES housing, food, health expenses with guaranteed income products and DISCRETIONARY EXPENSES entertainment, apparel, etc. with nonguaranteed products. This strategy allows basic needs to be covered, even during times of market volatility. Keep in mind, what is discretionary for one person can be essential to another; it s best not to make assumptions. 5

6 STEP 3: ASSESS SOURCES SOURCES OF GUARANTEED INCOME IN RETIREMENT SOCIAL SECURITY PENSION PLANS ANNUITIES The third step focuses on assessing all sources of guaranteed income, which for most includes Social Security, and may include pensions and annuity income as well. SOCIAL SECURITY Social Security, in particular, is complex. Many individuals don t understand how the timing of retirement can impact their retirement income from Social Security, or they may not realize they can delay claiming Social Security even if they are retired. Focus client conversations on: How benefit decisions can impact the overall retirement income plan Questions to ask during the enrollment process Ta ke Action For more details on Social Security planning and what your client should consider, see the Social Security Planning kit (RF87). The impact delaying Social Security can have on benefits Why to consider a spouse Other special provisions that can help maximize benefits For example, by discussing Full Retirement Age, earnings history, the decision to continue working and possible tax implications with your client, you can guide him or her through the decision-making process. 6

7 Many people don t realize that Social Security, pensions and annuities are the only options that provide guaranteed income in retirement. Explain to them that in this case, we re defining guaranteed as a payment guaranteed to provide a paycheck on a regular basis until death. Of the 00 largest companies in the U.S., the number of them offering a defined benefit plan has decreased over the years. PENSION PLANS While the number of companies offering a pension plan is decreasing, some retirees may still be lucky enough to have the guaranteed income stream one can provide. Educate yourself on the details of your client s pension plan so you can make the best recommendations to generate additional income. ANNUITIES Annuities are becoming more popular among retirees as the only guaranteed income individuals can fund on their own. Income annuities allow individuals to pensionize a portion of their own assets. And variable annuities with living benefit riders provide market growth potential, downside protection and guaranteed income Take Action Have your client complete A Guide to Your Retirement Income Needs (RF958B). This piece includes space to list Social Security amounts and any applicable pension plans or annuities. Remind him or her to visit ssa.gov for Social Security statement details. Source: The IFID Centre, Calculations January 202 7

8 STEP 4: IDENTIFY ASSETS The fourth step of the review helps you identify the assets available to create income in retirement. This may be separate from savings earmarked for things like charitable giving and inheritance. Ask the following questions: What assets are available for creating income? How are the assets allocated? Are you comfortable with these allocations? Review your client s risk tolerance to ensure it hasn t changed; he or she may need to take a new questionnaire, as one s risk tolerance for saving may not be the same as for taking income. For new clients, complete a risk tolerance questionnaire to make sure assets are currently on track with risk tolerance. Reinforce the importance of knowing risk tolerance in order to properly diversify assets. Take Action A Guide to Your Retirement Income Needs (RF958B) asks your client to note assets available to fund retirement income, including personal savings, life insurance cash value, investments and wages, and the allocation for each. This information can help you set the stage for the non-guaranteed portion of the retirement income plan. 8

9 STEP 5: CREATE AND IMPLEMENT THE PLAN This next step involves determining your client s retirement income sustainability based on their current situation, making any necessary changes and eventually implementing the plan. Review your client s expenses, guaranteed income sources and assets available to fund retirement income. Is there a gap? In the absence of a paycheck, they need you to tell them how to create their own checks in retirement. This may be the time to discuss product allocation where clients place their savings in a mix of investment products appropriate for their situation, including guaranteed and non-guaranteed solutions, to help balance income and security with the need for continued growth and liquidity. Product allocation is one approach to helping your clients with retirement income decisions. Take Action When discussing the plan, share Income Strategies (RF779) and Understanding the 5 Retirement Risks (RF294) with your clients. These pieces help explain the risks, as well as the strategies available to help tackle those risks. WITHDRAWAL STRATEGIES TO CONSIDER The withdrawal strategy you choose for your client can vary based on goals and risk tolerance. SYSTEMATIC WITHDRAWAL: Regular payments from investment account at either a variable or fixed amount until the account value is exhausted. INCOME FLOORING APPROACH: Distinguishes between essential and discretionary expenses in retirement and creates a strategy to address both. Typically, essential needs are covered through guaranteed income sources. BUCKET APPROACH: Also known as age banding, this approach breaks up retirement into distinct time increments or buckets of three to 0 years. Each bucket employs different investments and risk mitigation techniques to reach the desired time frame. You can use a hybrid approach, which combines two or more of the strategies for a unique solution. 9

10 YOUR CLIENT SHOULD UNDERSTAND THE FOLLOWING: 7 The importance of regular plan reviews His or her objectives and how your recommendations and action steps can help meet the objectives 6 The priority of next steps based on goals NEXT STEPS 2 The proportion of assets that will be allocated to each investment product 5 Tax decisions, including when required minimum distributions should begin and from which accounts 4 The strategy to maximize Social Security benefits 3 When and how to take income from each investment product 0

11 STEP 6: MONITOR THE PLAN Creating a retirement income plan doesn t end when it s implemented. Changes in your client s life or financial situation are linked to the plan and its action steps. Ideally, the retirement income plan you create for your clients will help them maximize savings, optimize income for life and provide growth potential. To ensure the plan remains on track, meet with your client on an annual basis. These plan reviews promote your relationship, which is beneficial to your client, and continue to promote your role as a valued retirement income resource. Follow-up meetings should focus on: MAXIMIZE SAVINGS Life changes since last meeting Plan priorities If withdrawals are meeting needs and remain within the plan s guidelines OPTIMIZE INCOME FOR LIFE Any adjustments needed due to fluctuations in the market Additional action steps that may be necessary to continue or alter movement toward retirement goals PROVIDE GROWTH POTENTIAL Questions and feedback Timing for the next plan review You can help your clients by providing valued service as a retirement income resource. It s time to seize the opportunity to help retirees move forward with confidence and control.

12 HOW TO GET STARTED Using Retirement Income Planning to Get More Business Step : Contact your wholesaler or regional marketing contact to request your supply of marketing materials, or order online at advisors.principal.com. Pre-approach materials Postcard (RFC3367) (RF258A) Approach materials Letter (RF258B) (RF258C) Your Retirement Vision (RF258) A Guide to Your Retirement Income Needs (RF958B) Understanding the 5 Key Retirement Risks (RF294) Income Strategies (RF779) Step 2: Connect with prospective or existing clients Send the pre-approach postcard (RFC3367) Follow up with the pre-approach (RF258A) 2

13 Step 3: Remind client of upcoming meeting and what to bring Send approach letter (RF258B) or (RF258C) If you want your client to complete worksheets ahead of time, include Your Retirement Vision (RF258) and A Guide to Your Retirement Income Needs (RF958B) If you need a more detailed budget, send the Household Budget Worksheet (RF55) Step 4: During initial client meetings, discuss any completed goal or budget worksheets, along with client statements Step 5: Develop the plan and schedule a plan presentation meeting Use Income Strategies (RF779) and Understanding the 5 Key Retirement Risks (RF294) to support your recommendations Discuss next steps Schedule any necessary follow up meetings Step 6: Send a thank-you note; confirm what was decided at the meeting and any action steps Step 7: Meet annually to confirm the plan is still on track 3

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15 Online Resources Benefits to your clients. Building a retirement income plan helps your clients: Increase awareness about retirement risks, preparing to make better decisions in the future Understand their current financial situation, including assets, income sources and expenses Gain confidence, knowing they have a customized strategy to help generate sustainable retirement income Benefits to you. Building a retirement income plan for your clients can help you: Differentiate yourself from others who may be focused only on the accumulation phase of retirement planning Build strong client relationships Create opportunities to gather assets and increase referrals Curriculum: RETIREMENT

16 Not FDIC or NCUA insured May lose value Not a deposit No bank or credit union guarantee Not insured by any Federal government agency For financial professional use only. Not for distribution to the public. Principal Life Insurance Company, Des Moines, Iowa , principal.com RF Principal Financial Services, Inc. t50500pt 06/205