Our daily roundup of retirement news your clients may be thinking about.
Watch out, retirement savers, your choices are poised to shrink
Investors can expect limited options or higher fees in their retirement plans as brokerage firms are evaluating their pricing structures to comply with federal rules that impose the fiduciary standard on financial advisers when providing guidance on retirement accounts, according to this Wall Street Journal article. Edward Jones has announced it will drop mutual funds and ETFs from retirement accounts that charge a commission on investors. "We shared the concern we’re not offering mutual funds in a transaction-based IRA" with mutual-fund managers, an Edward Jones executive says. "If they can bring a more aligned approach to that pricing, we would reconsider including them in the future."
How should younger investors think about Social Security?
Although younger investors will receive their Social Security benefits after they retire, clients should assume that the benefit value will be reduced because of the program's solvency issues, according to this article on Morningstar. "From our perspective, if [a person is] under 45, we use a one-third deduction in the benefit that comes out of SocialSecurity.gov or what some of the calculators suggest would be the benefit," an expert says. The estimate may differ depending on the clients' individual circumstances, but "in the standard setting for running projections, we reduce it by a third."
Why clients should stop using retirement accounts as emergency funds
A study has found that one in 10 401(k) participants opted for a hardship withdrawal, with 13% making a loan from their plan, according to this article on CNBC. Experts encourage workers to avoid tapping into their 401(k) plans to cover their emergency needs, as this move could hurt their retirement prospects. "When people take a loan, they typically stop saving," one expert suggests. "They can't afford to pay back the loan and continue [regular contributions] at the same time."
10 nontraditional ways for clients to fund their retirement
Some clients opt for nontraditional ways to support their lifestyle in retirement, such as buying rental properties or renting out a portion of their home, or the entire property, according to this article on U.S. News & World Report. They also fund their retirement by seeking a reverse mortgage, selling off assets, reselling collectibles and monetizing a hobby. Other retirees move to a smaller home to reduce their costs, get an encore career or join the gig economy.
Strategies to increase retirement income
Clients are better off adopting a diversified, portfolio approach that includes Social Security, fixed income investments and low-cost annuities to secure sustainable income in retirement, an expert with the Society of Actuaries says in an article in Fox Business News. Retirees may seek help from their plan sponsor in converting their savings into retirement income, as their plan can create systematic withdrawal programs, the expert says, adding that delaying Social Security benefits can maximize their benefits and their spouse's survivor benefits. "A retiree could make withdrawals from savings to cover living expenses while delaying Social Security benefits."