7 Ways to Help Employees Nearing Retirement

Strong 401(k) and other savings plans have set up millions of Americans for a financially stable retirement. But many of those same employees aren’t necessarily prepared to retire.

Why? They may have adequate savings, but don’t know how to convert that into income for the rest of their lives.

Here are seven best practices for plan sponsors to help people approaching retirement make a successful transition:

  1. Focus on needs versus wants. Employees nearing retirement should visualize what their lifestyle will be in retirement and itemize their needs versus wants. They need to be realistic about discretionary expenses. Educate employees to identify essentials and so they truly understand their needs.
  2. Start at least five years before retirement. Planning for retirement is most effective when people have time to adapt, such as saving more or scaling back plans if they’re unaffordable. Making these changes is easier when considered over years instead of months.
  3. Guide participants through the implications of which account to tap for income. As their retirement nears, employees often need guidance on which accounts they should access in retirement (taxed, deferred taxed or tax free), which can affect long-term portfolio performance and taxes. Giving plan participants access to professional retirement advice can help them understand that’s it’s important to know which account they should use first in retirement.
  4. Urge participants to wait on Social Security. For every year that someone delays collecting Social Security, their monthly benefits will grow 8% for life. Unfortunately, the opposite is true: the sooner they take benefits, the less income they will receive. It’s important that potential retirees understand the difference in benefits if they can wait until they’re 67 (or older), and how that will affect planning for their 401(k) or other employer retirement plan.
  5. Education on annuities. Employees are often interested in turning their savings into guaranteed lifetime income through an annuity. Although only a small handful of 401(k) plans offer annuities, making that option available can improve engagement with the plan, especially for those nearing retirement.
  6. Take the three-bucket approach. A critical planning tool is to create three buckets of assets: a bucket for short-term income (less than two years), the medium term (two to 10 years) and long term (beyond 10 years). Separating retirement savings into buckets creates diverse and time-appropriate asset allocation within each one, with secure assets for the short term, income-producing assets in the medium term and growth-oriented assets for the long-term.
  7. Get on board with managed accounts. Managed accounts offer a viable alternative to target-date funds, giving participants access to a professional money management service that selects portfolio assets based on needs, not simply a target retirement date. It’s a cost-effective way to have financial planning experts help guide plan participants, particularly as they transition into retirement — a period that can prove to be difficult even without the stress of financial uncertainty.

This content is for general information only and is not intended to provide investment, tax or legal advice or recommendations for any particular situation or type of retirement plan. Please consult with a financial, tax or legal advisor on your own particular circumstances.

Securities offered through LPL Financial, member FINRA/SIPC. Investment advisory services offered through Global Retirement Partners, LLC (GRP), a registered investment advisor. Insurance services offered through HUB International. GRP, Washington Financial Group and HUB International are separate and unaffiliated with LPL Financial. Washington Financial Group is the approved name under which LPL Financial business is conducted.

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