5 retirement planning resolutions for advisers in 2023

After a turbulent year in the markets, many clients are taking a step back and assessing how to recalibrate their plans for securing a comfortable retirement. The experience of the past few years points to a need for a holistic financial approach to retirement planning, and the new year presents an opportunity for advisers to encourage clients to focus on key retirement priorities. Here are five retirement planning resolutions every adviser should consider in 2023.

Help clients know where they stand amid economic stress. Recent high inflation impacted some households much more than others. Some clients, especially those who retired before the pandemic, may own their home outright or have a low interest rate mortgage. This provides a hedge against inflation, which can help their overall financial picture. At the same time, many clients — including high earners — may have faced high rent increases, financed expensive vehicles, taken out relatively high interest rate mortgages or even have credit card debt. Especially in times of economic stress, a basic assessment of earnings, spending and debt provides the best starting point for retirement plan. For those who haven’t retired, a basic goal may be to spend less than you make, while retirees need to make sure they are still on track for the long term.

Prepare for spending and income shocks. After seeing where clients stand, another priority is helping clients build and maintain an adequate emergency reserve if they don’t already have one. Credit card debt does not always indicate chronic overspending. It may be the result of an unexpected expense or a period of unemployment. An emergency reserve of three to six months of expenses can be key to staying on track with a retirement plan for those still working and retirees alike.

Don't overlook disability insurance. While health, life and even long-term care insurance are all frequently considered by clients and their advisers — and rightly so — disability insurance is often overlooked, with only 9% of workers saying they have it, according to research from the Employee Benefit Research Institute. Yet nearly half of retirees say they retired before they planned, and the top negative reason is a health issue or disability. With Covid here for the foreseeable future, disability insurance is even more critical.

For clients who are working and experience a serious health issue, disability benefits can lessen the need to go into debt and help them avoid depleting money invested for retirement, even if they end up retiring before they planned.

Stay calm, stay invested. Over the long term, equities can be a good hedge against inflation, but only if an investor avoids jumping in and out of the market. J.P. Morgan’s 2022 Guide to Retirement outlined the impact of missing out on the best days in the markets, comparing the returns of a $10,000 investment in the S&P 500 over the past 20 years, which included the great recession of 2008. It clearly highlights the benefits of avoiding the temptation to pull out of the market.

On many occasions, the worst days are quickly followed the best days, meaning clients who want to avoid the worst days not only have to know when to get out of the market, they would also have to know when to get back in — which isn’t possible. This chart can be helpful in reminding clients that it isn’t possible to miss the worst days of the market while reaping the rewards of long-term rewards of investing.

Minimize tax bills through tax diversification. Increasing savings during times of inflation may be difficult, but tax efficiency can help clients make the most of their savings. Just as no adviser would recommend clients put all their money into one asset class, investors also shouldn’t save and invest all their money in the same tax-type account when planning for retirement. Having healthy income tax diversification — taxable, tax-deferred, tax-free (Roth) provides greater flexibility in retirement when constructing a retirement income plan. 

Many older investors may have much of their wealth in tax-deferred assets if they were good retirement savers, since Roth accounts may not have been an option for the early part of their career. The Tax and Job Cuts Act’s relatively low federal tax brackets that will sunset after 2025 create a window for some clients to contribute to Roth accounts and potentially convert tax-deferred assets to Roth accounts at a lower cost.

Health savings accounts and 529 college savings accounts can round out a tax-efficient plan, and qualified health savings accounts can help fund health care expenses in retirement. 

Sharon Carson is a retirement strategist at J.P. Morgan Asset Management.