Retirement Planning

Retirement planning is the most common service offered by personal financial advisors. Many personal financial advisors offer retirement planning services as one component of the overall financial planning process, while some specialize and market themselves specifically as retirement planners.

Retirement planning involves helping people grow savings and invest wisely in preparation for retirement, as well as helping retirees manage their money once the income stream their jobs once provided comes to an end. Ideally, retirement planning begins with clients in their 20s or 30s because of a number of factors. For example, because of the nature of compound interest, a 20-year-old who invests $5,000 one time and averages a return of eight percent each year would end up with $160,000 at age 65. However, a 39-year-old who makes a one-time investment of $5,000 and averages the same eight percent return would only grow that investment to $40,000 by age 65.

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Retirement planners help clients:

  • Set retirement goals, including the income-stream needed in retirement
  • Identify and manage special needs, opportunities, and risks
  • Determine appropriate strategies and investments
  • Implement, monitor, and update strategies and investments based on changing circumstances and needs
  • Manage retirement income after they retire

Tax Deferred Retirement Investment and Savings Options

Retirement planning includes taking into account employer-sponsored retirement plans and Social Security benefits. Although some employers still offer defined benefit pension plans, which pay a specific retirement benefit for life, more employers are moving to defined contribution plans, where the employee, employer, or both contribute to the employee’s individual account. Retirement payments are then based on the balance in the account. Examples are 401(k) plans, available from many employers; 403(b) plans, which are for employees of public schools, employees of certain non-profit entities, and some members of the clergy; and 457 plans, available to state and local public employees and employees of certain nonprofit organizations.

Beyond employer-sponsored retirement plans and Social Security, the appropriate investments for a retirement plan vary depending on many factors, including a person’s age, current income, risk tolerance, desired retirement age, and desired income during retirement.

Individual retirement accounts (IRAs) are a popular option. They come in two types that are available to almost anyone: traditional and Roth. The main difference between the two is when income taxes are paid on the money put in the accounts. Traditional IRAs offer a tax deduction now, with taxes paid when the money is taken out, while money put into a Roth IRA is not tax deductible now, so no taxes are owed when the money is withdrawn. The earnings on both types are tax-deferred, meaning taxes aren’t paid until the earnings are taken out of the account.

IRAs traditionally invest in stocks, bonds, and securities. However, another, and somewhat riskier option, is the self-directed IRA, which lets investors buy rental properties, private businesses, precious metals, and other hard assets.

Another investment often used for retirement is the annuity. With an annuity, the buyer makes present-day premium payments to an insurance company that invests the money and then makes payments to the buyer (or designated annuitant) at a later time.

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Self-employed individuals and small business owners have other retirement plan options:

  • In a Simplified Employee Pension (SEP), the self-employed person or small business owner makes contributions to their own retirement and their employees’ retirement by putting money into an individual retirement arrangement called a SEP-IRA. Small business owners who want to use a SEP must set up and contribute to one for all eligible employees. Employees own and control their own SEP-IRAs.
  • A savings incentive match plan for employees (SIMPLE plan) lets employees have contributions deducted from their salaries, with the employer making matching contributions. The two types are a SIMPLE IRA and a SIMPLE 401(k) plan. These plans are limited to businesses with no more than 100 employees, and again, must be set up for all eligible employees.
  • Keogh plans are another option for the self-employed and can be set up as either a defined benefit or defined contribution plan. However, these plans are less popular since the introduction of SEP-IRAs, which have the same contribution limits but require less paperwork.
  • Individual 401(k) plans are available only for sole proprietors with no employees.

Of course, retirement money doesn’t have to go into specific retirement plans or tax-deferred options. Any investment can be part of a retirement plan.

Planning Education

It’s very difficult to become a personal financial advisor and offer retirement planning services without at least a bachelor’s degree. Employers don’t necessarily look for a specific major but do look for math, analytical, and interpersonal skills, including sales ability and the ability to comfortably work with diverse populations. Degrees in accounting, business, economics, finance, mathematics, or law are good educational choices. Useful courses include investments, taxes, estate planning, and risk management. Some colleges and universities even offer programs specific to financial planning.

Planning Licensing

Personal financial advisors who offer investment advice as proprietors of their own investment adviser (IA) firms, as well as those employed by these firms as investment adviser representatives (IAR) need to hold the appropriate licenses earned by exam and registration at either the state or federal level. State level registrants are investment advisers with client assets under management that total less than $100 million. They are licensed by the state securities commissions in each state they operate and are subject to the statutes set forth in the Securities or Investment Adviser Act specific to each of these states. Investment advisers that manage total client assets in excess of $100 million register at the federal level with the Securities and Exchange Commission.

Exam requirements can differ between states; however, most require investment adviser firm principals and representatives to pass either the North American Securities Administrators Association (NASAA) Series 65 Uniform Investment Adviser Law Examination or the NASAA Series 63 Exam in combination with the Financial Industry Regulatory Authority’s (FINRA’s) Series 7 General Securities Representative Exam.

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If acting in a sales capacity as a securities and commodities sales agent, commonly known as stockbroker or registered representative of a broker-dealer firm, a securities license is required, as is state and Self Regulatory Organization (SRO) registration. Securities sales agents directly solicit clients and buy or sell products such as stocks, bonds, options, and variable contracts.

Selling securities requires sponsorship through a broker-dealer firm and a passing score on the Series 7 General Securities Representative Exam.

Annuities remain one of the most commonly used investment vehicles for retirement planning. Selling life insurance and fixed annuities requires a license from the state insurance commissioner of each state in which the life insurance agent engages clients. Licensing requirements differ between states, but most require prospective agents to participate in pre-licensing education courses through a state-approved provider in addition to passing a state-specific life/annuity producer exam.

Selling variable and equity-indexed annuities, which have a stock market component, requires a securities license in addition to a state-issued insurance producer license. The Series 6 Investment Company Products/Variable Contracts Limited Representative Exam and license satisfies the basic securities license requirement for these products, although some opt for the broader Series 7 Exam and license, which covers securities and other investment vehicles in addition to variable contracts.

Planning Certifications Specific to Retirement Planning Specialists

The Society Of Certified Retirement Financial Advisors offers the Certified Retirement Financial Advisor (CRFA) designation. This certification focuses on the distribution years of retirement, not the planning leading up to retirement. Applicants must have at least two years of related financial planning experience, attend a five-week training program, and pass a certification exam containing 100 questions related to financial planning for retirees. Required continuing education is 15 credits yearly.

The Certified Senior Advisor (CSA) from the Society of Certified Senior Advisors is not a finance-specific designation, but is designed for anyone working with senior citizens and is frequently pursued by financial planners who specialize in this area. Getting this certification requires passing a background check; passing a 150-question exam that covers social, health, financial, and legal aspects of aging, government assistance for senior citizens, and communicating with senior citizens; and meeting one of the following education/experience requirements:

  • Completion of the CSA course or an equivalent training program, plus one year of paid experience working with seniors or 50 hours of volunteer work with seniors in the past three years
  • Two years of paid experience working with seniors or 100 hours of volunteer work with seniors in the past three years
  • A certificate or degree in a field related to working with seniors from an accredited college or university

Chartered Advisor for Senior Living (CASL) from The American College requires completing five courses that teach how to guide clients from middle age through retirement, assisting them with managing, preserving, and transferring wealth. Applicants can meet the experience requirements for this certification in either of two ways: The first option is having three years of experience during the last five years advising clients on financial or practical subjects relating to retirement or aging issues. The second option is to earn one of the following designations from The American College:

  • Chartered Life Underwriter (CLU)
  • Chartered Financial Consultant (ChFC)
  • Chartered Leadership Fellow (CLF)
  • Registered Employee Benefits Consultant (REBC)
  • Registered Health Underwriter (RHU)

The continuing education requirement for the CASL is 15 hours every two years.

The College for Financial Planning offers the Chartered Retirement Planning Counselor (CRPC) designation. This program focuses on the pre- and post-retirement needs of individuals and requires completing designated classes and passing a final exam. The continuing education requirement is 16 hours every two years.

The College for Financial Planning also offers a certification for retirement planners involved in setting up and maintaining retirement plans for businesses. The Chartered Retirement Plans Specialist (CRPS) designation requires completing designated classes and passing a final exam. The continuing education requirement is 16 hours every two years.

Planning Employment and Salary

As of May 2010, the BLS reported that about 63 percent of personal financial advisors worked in the finance and insurance industries, for employers that include securities and commodity broker-dealer firms, banks, financial investment firms, and insurance carriers. About 29 percent of personal financial advisors were self-employed.

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The BLS expects the employment of personal financial advisors to increase by 30 percent between 2008 and 2018, largely due to the needs of millions of workers expected to retire during this ten-year period.

The BLS also reports that the mean salary nationally for all personal financial advisors was $91,220. The median salary was $64,750, with 50 percent of financial advisors earning between $42,100 and $111,990.