The New Frontier of Retirement Planning: 2017 Outlook

Curtis Cloke

After just returning from an amazing trip to Singapore working with financial advisors, I began to think about the retirement trends in 2017 on my long flight back. The event was a collection of financial planners all across Asia eager to learn about retirement strategies used in the United States and how to apply them. Each country and group of advisors brought their own unique challenges to the table which provided me with a wealth of knowledge to learn from. Regardless of the product availability and structure of each of the attendees economies, the fact remains simple: people understand how to save, or at least the concept of saving, but struggle to comprehend how to convert that savings into an optimal income solution. Major income trends are emerging in the United States for 2017. As world economies continue to be volatile, it was quite evident while talking to advisors in Singapore, retirees are looking for risk adverse solutions more than ever as we embark into 2017.

3 Top Trends for 2017

  1. Hesitancy in the US Markets Creates Future Opportunity – It is no secret that the Department of Labor release has created uncertainty amongst the large corporations on their long term corporate strategy. At the time I am writing this article, there is a lot of ambiguity about what will happen but regardless of the ruling, the perception will have a dramatic effect on the marketplace. Perception meet reality. We are already seeing this corporate matriculation affect annuity sales in late 2016. The Insured Retirement Institute found that industrywide annuity sales in the third quarter totaled $51.3 billion, an 8.2% drop from sales of $55.9 billion during the second quarter of 2016, and a 12.3% decline from $58.5 billion in the third quarter of 2015. Overall, with less annuity sales anticipated in 2017, conceptually there should be more mortality credits available. With more mortality credits available, interest rates trending upwards, there is reason for optimism within the annuity marketplace! Retirees transitioning into the distribution phase are ideally suited to start capitalizing on this trend in 2017.
  2. Social Security had a very subtle change that will affect a lot of people in 2017 – Every year, around October/November the Social Security Administration (SSA) releases its changes for the following year. This year we saw a nominal increase in Cost of Living(COLA) adjustments at .3 % which made little effect on monthly benefits but the major change is in payroll taxes. Nearly 12 million people will be affected by the change and especially small business owners. The Social Security Administration raised the amount of income subject to taxation 7.3% which is the highest rate increase in over 30 years. The amount raised from $118,500 to $127,200. If you make less than $127,200 in 2017, then this change won’t have an effect on how you are taxed. Why is this an important trend heading into 2017? For employers that pay the 6.2 payroll tax, their costs will increase and even more dramatic will be for self-employed workers. Self-employed workers could see an increase tax of over $1,000. Keep an eye out for how this can affect your insurance practice as employees will be eager to know more.
  3. Home Equity Strategies will emerge – The majority of baby boomers have purchased a home during their lifetime and for many families this is the largest asset they have. Most people heading into retirement want to stay in the comfort of their home or slightly downsize. Despite reverse mortgages being available, the negative stigma that surrounds them has been difficult to alter. The Bi-Partisan Policy Center released a report recently stating that half of all Americans are “home rich, cash poor”, indicating that, at minimum, half of their net worth is in their home equity. Before you rush to judgement on considering strategies about how your mortgage can work within your retirement plan, understand the landscape. If more than half of Americans are home rich and cash poor, you are eliminating potentially half of your prospects by not understanding how to implement home equity into a clients’ complete retirement plan. In years past, financial advisors and consumers alike scoffed at using clients’ mortgage as a way to generate retirement income but regulation, education and learning by mistake, has shown more clarity within various strategies. I anticipate home equity strategies being more involved in retirement income conversations in 2017 and in the next few years.

While these 3 major trends show some light into the United States retirement spectrum, there are many outlying influences elsewhere in the world on the horizon. Aging demographics around the world will sway economic trends for years down the road and after years of dwindling interest rates, we are seeing a slow recovery towards normalcy. Despite what appears to be a bounce back from 2008, as advisors, we still need to keep track of other related trends elsewhere around the world. The key is to be prepared for anything and everything.

Click here to watch my web class replay, “Foundation Realities: Agnosticism in Financial Planning!”