How to Help Your Clients Replace Their Paychecks in Retirement

Author: Joe Turek, CFP®, Wealth Management Financial Planning Consultant

As your clients near retirement age, one of the questions on their minds is: How do I replace my salary when I retire?

Many of your clients have spent decades receiving a paycheck and putting a portion of it away for retirement savings. But as retirement nears, clients may be wary about the prospect of no longer having a regular paycheck and will want reassurance that they have adequate income sources to support their desired retirement lifestyle.

As a financial advisor, you have an opportunity to help your clients assess their current readiness for retirement and implement additional strategies to ensure they can access the funds they need during retirement. Let’s look at the top considerations for clients as you work with them to create a “retirement paycheck.”

Calculate Essential Living Expenses

How much retirement income will your client need? A general rule of thumb is that they will need to replace about 80% of pre-retirement income, according to the CFP Board. In general, expenses will decline for retirees; taxes are typically smaller and work-related expenses disappear. On the other hand, medical expenses tend to rise. Make sure your client is taking into consideration all essential expenses and basing what they need on their peak earnings so you can help them make good projections.

Keep in mind, however, that no rule of thumb fits every situation. Factors like your client’s planned age of retirement, location where they plan to retire, and desired lifestyle will impact the percentage of pre-retirement income they need to replace.

Be Realistic About Discretionary Expenses

What type of retirement does your client dream about? Some clients dream about traveling, giving back, and spoiling their grandchildren. Others may plan a simpler lifestyle, staying closer to home and volunteering at local non-profit organizations. Whatever the plan, clients need to be realistic about expected discretionary spending in retirement. Many people fail to plan for or underestimate their discretionary spending, which can leave retirement savings underfunded. Examples of discretionary spending are: 1) donations and gifts; 2) expenses related to hobbies; 3) travel expenses; and entertainment expenses.

Account for Changes Over Time

The cost of your client’s retirement will likely go up every year due to inflation. The annual inflation rate is about 3 percent, but it varies over time. For instance, right now we are experiencing a high inflation rate. As of February 2022, the inflation rate is 7.9% and analysts expect that rate to rise. But the rate will be lower at other times during your client’s lifetime, so it will average out to a lower rate over time. In general, you may want to factor in a slightly higher rate than 3 percent to ensure your client doesn’t run out of money in retirement.

Factor in Social Security 

Sometimes clients forget to consider Social Security as an important part of their retirement income. Since it is guaranteed income, it can take some stress off your client’s investment portfolio. Using planning software, you can help your clients determine the best time to begin collecting Social Security. While they may start collecting it at age 62, benefits will increase each year they wait, up to age 70. Typically, it can be beneficial to delay tapping into Social Security benefits, but in certain situations, it might make sense to consider claiming benefits sooner.

Use Annuities to Help Guarantee Income and Reduce Stress on the Investment Portfolio

Depending on your client’s risk tolerance, they may want to consider using annuities to guarantee income and take stress off their investment portfolio. Annuities can help insure your client against the risk of outliving their retirement savings or losing savings due to low or negative investment returns. You may want to set up the annuity for your client about 5-10 years prior to retirement to give it time to grow. A single premium payment at that time also allows you to project expected income more accurately.

Use Bonds and Other More Conservative Investments that Pay Regular Income

As your clients get closer to retirement, most will naturally want to ease their portfolio into a larger percentage of more conservative investments to help preserve income. You can help your clients select bonds or other less risky investments that pay out regular income to help supplement their retirement paycheck. Use planning software and consult with your firm’s financial planning consultants to select the best options for each client’s situation.

Take Advantage of Pensions, Where Applicable

Is your client a government employee or someone who works in an industry that still offers a pension? Pensions are another great way to add guaranteed income to your client’s retirement paycheck and something to ask about during planning conversations

Factor in Taxes 

Considering taxes, particularly when it comes to withdrawals from retirement accounts, is an important part of ensuring you maximize the income available to your clients. Tax rules are complex so this is an area where you can add value to your client’s retirement planning. In general, it makes sense to consider drawing from savings in taxable investment accounts, allowing earnings in retirement accounts to grow and remain tax deferred. The state where your client resides – or plans to reside in retirement – may impact planning since some states have more favorable taxes for retirees while others are notoriously high.

Consider Passive Strategies

Your clients may also want to consider owning assets with the specific purpose of generating income. Over time, a client may be able to use one of more of these passive income streams to partially defray living costs in retirement. For example, investing in Real Estate Investment Trusts (REITs) may be a way for clients to generate income. Since REITS are required by the IRS to pay out 90% of their taxable income to shareholders, REIT dividends are often higher than the average stock on the S&P 500. Clients may also wish to invest directly in real estate and use the monthly rental collection as income to cover retirement costs.

Moving Forward 

Once you help your client develop a strategy for replacing their paycheck in retirement, it’s important to check in with them regularly to ensure the plan continues to meet their needs and to make adjustments as their goals or situation changes.

For more information on these strategies, please contact Joe Turek, CFP® at 214-859-5142 or

To learn more about Momentum Independent Network, contact Wealth Management at or 833-4HILLTOP.

The paper/commentary was prepared by Momentum Independent Network (MIN). Momentum Independent Network Inc. is a registered broker-dealer and registered investment adviser that does not provide tax or legal advice. MIN and HilltopSecurities are wholly owned subsidiaries of Hilltop Holdings, Inc. (NYSE: HTH) located at 717 N. Harwood St., Suite 3400, Dallas, TX 75201 (214) 859-1800, 833-4HILLTOP. Member FINRA/SIPC

For Professional use only.

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