section 1 - The American College Online Learning Center

years of service with the employer). Some employers are willing to offer incentivesbecause they are happy to replace a long-service employee who is highly paidwith a newer and less costly employee. Since discrimination laws make itimpossible to fire your long service client, the employer may be willing to talkabout a “deal” for voluntarily retiring. (The employer will probably not be awarethat the employee needed to retire for family reasons.)4. Reemployment risk is the inability to supplement retirement income with part timeemployment due to tight job markets, poor health and/or caregiving responsibilities.Your clients should be concerned about the ability to supplement retirement income withearnings from employment during retirement for a variety of reasons.a. Many retirees engage in an informal type of phased retirement by taking consultingpositions, part time jobs or even turning their hobbies into profit-making activities.This avenue of financial relief may be unavailable to your client under certaincircumstances.b. Example: Robert is an avid wood worker who had intended to make furniture andsell it on eBay throughout his retirement. However, poor physical health impededhis ability to practice his craft.5. Reemployment risk can be minimized in the following ways:a. Suggest that the client save for graded levels of retirement security at differentages. In other words, instead of thinking of the goal for retirement savings tobe X dollars by Y year (the year of projected retirement), think about saving forretirement as providing for a specified standard of living by, for example, ten yearsbefore retirement; a more comfortable standard of living, for example, at 5 yearsbefore retirement; and the desired standard of living at retirement. By settingthe savings program up to meet graded goals you may encourage the client tosave earlier and to assess what the final years of work will mean to his or herretirement. Most importantly, however, you will have prepared a level of security incase an early termination occurs. The start of retirement should be thought of as aperiod (age 60–70) not a date (the July after my 65 th birthday).6. Public policy change risk is an unanticipated transition in government programs that wereembedded in the retirement planning process, including, but not limited to, significant taxincreases (tax risk), elimination of tax benefits (tax risk), and elimination or minimizationof government programs such as Medicare and/or Social Security to the point where theywill not provide sufficient protection during retirement. Your clients should be concernedabout changing government policies for a variety of reasons.a. Example: Walt has saved diligently for retirement only to find the government hasadopted “means testing” and he is no longer eligible for certain programs becausehis income is too high.b. Example: Kathy who has decided to age in place may be affected by significantincreases in property taxes.7. Public policy change risk can be minimized in the following ways:a. Planning Point: There are a lot less product and planning solutions available tocombat public policy change risk than there are for most other risks clients face.b. Clients will sometimes be “grandfathered” so that the public policy change will notimpact their particular situation.c. Use tax-free investments to avoid increases in the client’s marginal tax rateadversely affecting her rate of return.5.28