Top Retirement Prep Questions to Ask Clients

Are your clients prepared for retirement? According to the 2023 version of the U.S. Federal Reserve’s annual report on the financial wellness of Americans, less than a third of non-retirees said their retirement savings were on track. This marks a substantial drop from five years and a pandemic earlier when the figure was almost 40%—already worrisome.

Unsurprisingly, preparedness varies significantly by age. Only 24% of adults under 30 think they’re on pace with retirement savings, but the numbers are striking for those closing in on retirement: only 34% for those age 45-59 and 41% for those 60 and over think they’re prepared. Racial disparities persist, with about one in five Black and Hispanic non-retirees seeing themselves on track, and those with disabilities dropping in feeling prepared by two-thirds.

These statistics show wider societal issues for consideration by policymakers and community stakeholders. But as a financial advisor, you know the crucial role you have in helping clients assess their retirement readiness and helping them get on track. By asking the right questions, you can guide them to create a realistic retirement plan and make better financial moves. Let’s explore the most critical retirement questions to discuss with clients during your next meeting.

1. What Does Your Ideal Retirement Lifestyle Look Like?

This is an excellent time to have your clients dream big and visualize what they want to do once they retire. This could include travel, moving to a different location, doing charity and community service work, or any number of other activities. Some clients may even want to quit their jobs to start a business, taking up a passion they’ve long had.

Clients and their financial advisors need to understand how much their desired retirement lifestyle will cost. While there are rules of thumb about the percentage of preretirement income people spend in retirement, everyone is different.

In addition, retirement spending is not linear. The early retirement years tend to be more active, with increased expenses for activities like travel. However, these costs typically dip as people age. The best approach is to have clients create a detailed retirement budget, helping them along as they consider these questions:

• Where will they live?
• Do they want to downsize (or even upsize) their homes?
• What do they plan to do for hobbies and activities?
• Do they have other major plans for retirement?

The statistics below show that, for many, there will be much work to do to prepare for these plans.

2. How Will You Fund Retirement?

Financial advisors can help their clients understand the financial resources available (or not) to fund their retirement. While most non-retired adults (72%) have some form of retirement savings, 28% have none at all. Among those with retirement savings, defined contribution plans like 401(k) or 403(b) accounts are the most common, with about 54% of non-retirees participating.

These findings underscore the crucial role you play in helping clients understand their retirement options. By discussing the relative benefits of different savings vehicles and designing a plan that aligns with their specific goals and needs, you can significantly improve your clients’ retirement preparedness and overall financial well-being.

The report’s data also serves as a reminder that you may often work with those with little or no retirement savings in place. Given the disparities across diverse characteristics, you’ll also want to be attuned to each client’s specific circumstances. No longer do the bulk of financial advisors mostly serve relatively well-heeled clients. This has made financial advising more complex but, no doubt, helping clients who thought retirement wouldn’t otherwise be possible to find a path to do so is among the most rewarding aspects of this work.

Initiating conversations about retirement planning early on can help identify gaps and ensure clients take full advantage of their investment and savings options. Here are some potential sources below that breakdown the forms of savings Americans report having:

• Annuities
• Interest in a business
• Pensions, including those from old employers
• Retirement accounts such as individual retirement accounts (IRAs), 401(k) plans, 403(b)s, and other workplace retirement plans
• Social Security
• Stock options or restricted stock units from their employer
• Taxable investment accounts

There could be other financial assets available for retirement. The key here is to help clients determine what type of ongoing retirement cash flow their financial assets will generate. This is also an excellent time to run financial planning projections to help determine how much income can be supported and for how long. Given increases in life expectancy, projections out to at least age 100 are prudent. This is hardly hyperbole. According to U.S. federal actuaries, men and women retiring in the mid-2020s at the classic retirement age of 65 can expect to live on average an additional 19 and 22 years, respectively. Given medical advances, it’s no surprise that those numbers are expected to increase in the coming years for each new cohort of retirees, nearing 25 years beyond 65 for those in their mid-20s today.

To confirm clients are well prepared for retirement, ideally, you could begin discussing retirement with them at least 10 years before their planned retirement date. Starting early, you can revisit and refine the client’s retirement plans as their target date approaches. This allows more time, too, should adjustments be needed if any changes mean the projected retirement cash flow won’t support your client’s desired lifestyle. Options to consider at this point might include the following:

• Working a bit longer
• Working part-time in retirement
• Reducing anticipated expenses
• Saving more in the remaining years until retirement

The more time you and your client have to plan, the broader your choices for making the strategic changes that align with the client’s long-term financial goals.

Question 3: Which Retirement Accounts Will You Tap First?

For clients with several retirement accounts, deciding which to use first is critical, though the answer may change over time as their situation evolves. While some retirees automatically withdraw from accounts with the lowest tax bill first, this may not always be the best strategy for everyone.

Clients younger than the age for required minimum distributions (RMDs) may benefit from tapping tax-deferred retirement accounts, at least to some extent, particularly if their income is relatively low and they have room for more income within their present tax bracket. This approach can also help reduce their future RMDs—something favorable if they don’t need the additional income.

Of course, things can change year to year—often more quickly—so you’ll help them reassess their distributions at least annually. For example, if clients have high medical expenses that allow a portion to be tax-deductible, they might consider withdrawing more from their tax-deferred accounts since the medical deduction can offset the tax due on these distributions.

Question 4: When Will You Take Social Security?

Deciding when to claim Social Security benefits is a critical question for retirees. Eligible clients can start receiving benefits as early as age 62. However, waiting until the full retirement age (FRA) of 66 and two months (or 67 for those born in 1960 or later) results in a benefit about 30% higher. Delaying until age 70 increases the benefit by about another 32%. Not only are benefits higher, but any cost of living increases will be higher as they are based on the higher benefit amounts.

For those who are working, any income over the Social Security minimum limit will result in a $1 cut in benefits for every $2 in income over that threshold. This restriction goes away once you reach the FRA age.

Married couples may have additional claiming strategies available to them, depending on their specific situation. In some cases, it can be worthwhile for one spouse to claim benefits early while the other delays, or for both to delay benefits if they have enough income from other sources.

Question 5: How Will You Pay for Healthcare?

Healthcare costs are a significant portion of retirement expenses for many Americans. However, companies offering retiree medical benefits are becoming increasingly rare. According to Kaiser Family Foundation, the percentage of large firms offering retiree health benefits dropped by nearly a quarter, from 29% in 2020 to 21% in 2023. The likelihood of having access to such benefits is higher for clients who worked for larger firms, with almost half of companies employing 5,000 or more workers offering these plans.

To avoid running out of money in retirement, clients have to account for their medical costs. One strategy for funding retirement healthcare costs is a health savings account (HSA) if the client has access to one through a high-deductible insurance plan, either on their own or from their workplace. These accounts allow tax-deferred contributions and tax-free withdrawals for qualified medical expenses.

Ideally, clients will contribute to their HSA while still working, using out-of-pocket funds to cover any preretirement medical expenses. This approach allows the HSA balance to grow tax-free, providing a dedicated fund for Medicare supplements and other healthcare costs in retirement. Retiree medical costs must be factored into your client’s retirement plans, or else they could find themselves doomed to run out of money.

The Bottom Line

As a financial advisor, you play a crucial role in helping clients navigate their financial lives. By starting off with the right retirement prep questions, you can help ensure they are well prepared for the financial challenges and opportunities ahead.