Going Broke Remains Top Concern in Retirement: Survey of CPA Financial Planners

  • Despite concerns, overall client confidence in their ability to retire
    has increased from five years ago
  • Healthcare costs and market volatility driving fears of running out of
    money
  • CPA financial planners say to plan for future healthcare costs early,
    don’t try to time the market, and have a tax efficient plan to draw
    down assets to increase retirement readiness

NEW YORK–(BUSINESS WIRE)–Of all the concerns impacting Americans’ retirement today, running out
of money, maintaining their lifestyle and rising healthcare expenses
continue to top the list. This according to the American Institute of
CPAs (AICPA) Personal
Financial Planning Trends Survey
which was conducted August 20
through September 24, 2018 and includes responses from 631 CPA financial
planners.

Running out of money is the top financial concern of clients planning
for retirement, cited by 30 percent of CPA financial planners. This
reflects an improvement from the AICPA’s 2016
survey
, which found 41 percent of clients listing it as a top
concern. This is likely due to the economy’s steady improvement over the
last few years, with the stock market continuing to climb despite
volatility. Clients worried about maintaining their current lifestyle
and spending level (28 percent) in retirement was a close second
financial concern. Stress from rising health care costs (18 percent) was
a distant third. However, with medical costs forecast to continue
growing throughout 2019,
it is not surprising that this concern is up 7 percentage points from
2016.

“There’s been a relatively steady increase in asset values over the last
few years. This, in turn, has led to stronger client balance sheets and
presumably increased confidence that their money will continue working
for them well into retirement,” said Michael Landsberg, CPA/PFS member
of the AICPA Personal Financial Planning Executive Committee. “Of
course, all of this can change which is why it is important to revisit
asset allocation, make appropriate adjustments and ensure your savings
and investments will be able to fund the lifestyle you envision in
retirement.”

Nearly half (48 percent) of clients have expressed concerns about
outliving their money, according to the survey. Interestingly, that
outweighs the 39 percent of planners who have concerns about their
clients outliving their money. This underscores the extent to which even
well-positioned clients are stressed over the prospect they’ll outlive
their cash. When asked about the top three sources of client financial
and emotional stress concerning outliving their money, healthcare costs
(77 percent), market fluctuations (53 percent) and unexpected costs (50
percent) were cited as the top issues. Additional causes for financial
stress include lifestyle expenses (42 percent), the possibility of being
a financial burden on their relatives (22 percent) and the desire to
leave an inheritance for their children (21 percent).

“A sophisticated financial plan takes into account both the client’s
financial and emotional concerns,” said Andrea Millar, CPA/PFS,
Association of International Certified Professional Accountants Director
of Financial Planning. “To mitigate the fear of the unknown, CPA
financial planners map out a wide range of future scenarios, establish
long term goals and work with their clients to ensure they have adequate
coverage to cover the healthcare costs that may crop up in their
retirement ahead.”

Even with adequate planning, retirement becomes more complicated as
clients age. In fact, 57 percent of CPAs are seeing long term care
issues impact their clients’ retirement planning more frequently than
they did five years ago. Only one percent saw this issue crop up less
often, with 42 percent saying they had not seen a change. Fifty percent
of CPAs saw an increase in clients taking care of aging relatives, with
only 3 percent seeing this issue less often, and 47 percent saying about
the same as five years ago. The survey also found 45 percent of CPAs
citing diminished capacity as an issue impacting clients’ retirement
planning more often (3 percent less often, 53 percent about the same)
than five years ago.

Collectively, these issues demonstrate the competing challenges
individuals face when planning for their retirement and the need for
expert planning advice to meet their goals. On a positive note, as the
labor market has continued to improve more than a third (36 percent) of
CPAs said job loss is impacting their clients’ retirement planning less
often compared to five years ago (55 percent about the same, 9 percent
more often).

“It is incumbent on financial planners to act sooner than later when
planning for their client’s late retirement years. Particularly, they
should address client concerns about long-term care and the prospect of
diminished capacity to ensure their clients wishes will be carried out,”
added Millar.

Despite a number of concerns, the overall retirement picture for clients
of CPA financial planners is improving. When asked to compare their
clients’ current situation to five years ago, half of CPA financial
planners (50 percent) say their clients have more confidence they’re
ready for retirement. That outweighs the third (33 percent) that stated
they find their clients to be less confident. Another 17 percent saw no
change.

To help Americans feel more confident about their retirement
readiness, members of the American Institute of CPAs’ Personal Financial
Planning Executive Committee have put together these 5 tips:

1. Don’t Wait, Explore Long Term Care Coverage Early.

As individuals are living longer lives, having a plan in place for a
serious illness or incapacity is critical for maintaining peace of mind.
Individuals should first consider all the options available for dealing
with prolonged medical and personal care in a way that accomplishes
their goals within the constraints of their financial situation.
Individuals should compare the relevant options such as traditional
long-term care insurance, hybrid long term care insurance, Medicaid
options, or self-insuring. However, they should not wait to explore
coverage options. Applicants over 70 years old run an increased risk of
being denied long-term care insurance due to health issues.

2. Don’t Look at Your Portfolio Too Often.

In any given year, the stock market has an approximately 70% chance of
going up in value. However, on a daily basis that likelihood decreases
to approximately 53%. Just understand that markets will fluctuate wildly
in both directions but have historically gone up over long periods of
time. Checking your portfolio daily can tempt investors to make
short-sighted decisions that can easily derail an otherwise sound
portfolio allocation.

3. Ramp up Savings by Taking Advantage of Catch-Up Contributions Once
Age 50.

Catch-up contributions are a great strategy for those who are age 50 and
over and looking to secure the likelihood of a successful retirement.
Individuals age 50 and over can make an additional $6,000 contribution
to their 401(k) or most other employer-sponsored retirement plans for
2019. For IRAs, an individual can contribute an additional $1,000.

4. Have a Tax-Efficient Drawdown Strategy.

Be sure to have a plan for how to best consume retirement savings
tax-efficiently in retirement. Without thoughtful planning, taxes can
take a hefty bite out of cash flow and that’s especially painful when
living on a fixed income in retirement. It’s critical to be mindful of
retirement withdrawals bouncing you into a higher tax bracket, affecting
taxes on Social Security benefits, and triggering higher capital gains
taxes and other adverse tax consequences.

5. Plan to Pay off or Pay down Debt Before Retirement.

As individuals enter retirement and reach the end of the accumulation
phase of their life, the continued use of debt should be revisited. Debt
is generally unfavorable for individuals in retirement as it hurts their
cash flow. Managing cash flow is critical because retirees typically
live on a fixed income derived from their investment portfolio, social
security, and pension plans. When approaching retirement, it is prudent
to review all outstanding liabilities and decide whether any debt should
be paid down or paid off while you still have the financial flexibility
to do so.

Additional PFP Trends Findings:

  • Seven in ten CPA financial planners (70 percent) say they discuss
    their clients’ estate plans with them at least once a year, and nearly
    a quarter (23 percent) do it once every 3-5 years.

Methodology

The AICPA’s PFP Trends Survey is administered as an online survey to
CPAs who are members of the AICPA Personal Financial Planning Section,
including those holding the CPA/PFS credential. It was conducted from
August 20 through September 24, 2018.

About the AICPA’s PFP Division

The AICPA’s Personal Financial Planning (PFP) Section is the premier
provider of information, tools, advocacy, and guidance for CPAs who
specialize in providing estate, tax, retirement, risk management, and
investment planning advice to individuals, families, and business
owners. The primary objective of the PFP Section is to support its
members by providing resources that enable them to perform valuable PFP
services in the highest professional manner.

CPA financial planners are held to the highest ethical standards and are
uniquely able to integrate their extensive knowledge of tax and business
planning with all areas of personal financial planning to provide
objective and comprehensive guidance for their clients. The AICPA offers
the Personal Financial Specialist (PFS) credential exclusively to CPAs
who have demonstrated their expertise in personal financial planning
through testing, experience and learning.

About the American Institute of CPAs

The American Institute of CPAs (AICPA) is the world’s largest member
association representing the CPA profession, with more than 431,000
members in 137 countries and territories, and a history of serving the
public interest since 1887. AICPA members represent many areas of
practice, including business and industry, public practice, government,
education and consulting. The AICPA sets ethical standards for its
members and U.S. auditing standards for private companies, nonprofit
organizations, federal, state and local governments. It develops and
grades the Uniform CPA Examination, offers specialized credentials,
builds the pipeline of future talent and drives professional competency
development to advance the vitality, relevance and quality of the
profession.

The AICPA maintains offices in New York, Washington, DC, Durham, NC, and
Ewing, NJ.

Media representatives are invited to visit the AICPA Press Center at www.aicpa.org/press.

About the Association of International Certified Professional
Accountants

The Association of International Certified Professional Accountants (the
Association) is the most influential body of professional accountants,
combining the strengths of the American Institute of CPAs (AICPA) and
The Chartered Institute of Management Accountants (CIMA) to power
opportunity, trust and prosperity for people, businesses and economies
worldwide. It represents 667,000 members and students across 184
counties and territories in public and management accounting and
advocates for the public interest and business sustainability on current
and emerging issues. With broad reach, rigor and resources, the
Association advances the reputation, employability and quality of CPAs,
CGMAs and accounting and finance professionals globally.

Contacts

Jonathan Lynch
212-596-6033

Jonathan.Lynch@aicpa-cima.com

James Schiavone
212-596-6119
James.Schiavone@aicpa-cima.com

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