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Clients’ Top Retirement Worry Is Going Broke: AICPA

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Americans worry most about running out of money in retirement, according to a survey released in April by the American Institute of CPAs.

The institute’s first quarter personal financial planners (PFP) sentiment survey, which 548 members completed online in February, found that 57% of planners said it was their clients’ main retirement worry.

The next most prevalent concerns were health care costs and deciding how much to withdraw from assets. Longevity, Social Security decisions, and issues around diminished capacity and dementia rounded out the top six client concerns.

Outliving Assets

Half of the CPA financial planners surveyed said their clients had raised the concern of outliving their money, but respondents also said they had similar concerns for only 37% of their clients.

According to the institute, this suggested that some clients were in fact better prepared for retirement than they thought, and the CPA financial planner’s involvement and knowledge of the client’s goals and plan was an opportunity to help reduce client stress about outliving their money.

Three issues caused the most client stress regarding outliving their money: health care costs, for 76% of clients; market fluctuations, for 62%; and lifestyle expenses, for 52%.

However, 47% of the respondents also placed unexpected costs in the top three client concerns.

Long-term health care was the biggest uncertainty, with an average of 42% of CPA financial planners’ clients currently affected, and 59% of respondents reporting increased client impact over the last five years.

Other unexpected costs that tended to have a larger effect on retirement were taking care of aging relatives, with 29% of respondents’ clients currently affected; and dealing with diminished capacity and dementia, with 26% of clients currently affected.

Job loss and adult children returning home each affected only 18% of the respondents’ clients.

Diminished Capacity, Divorce and Gender

Nineteen percent of financial planners said that addressing diminished capacity during retirement was at least one of their top three client retirement planning issues.

While 55% of respondents said their clients discussed the issue but were unsure what to do in this area, 34% said clients either ignored the matter or simply reacted when it arose.

In general, divorce was not a widespread concern for clients in retirement planning, according to the survey respondents.

When divorced clients did focus on retirement planning, 64% of respondents said their female clients were more likely to actively seek out financial advice, 47% to change current spending patterns, 69% to remarry for financial security and 50% to seek a job.

Conversely, 52% said of respondents said their male clients would be more likely to remarry for companionship.

Annuities and Social Security

The survey found that specific sources of a stable income stream during retirement that address longevity concerns could include annuities and Social Security benefits. Sixty-six percent of respondents said that up to a quarter of their clients used annuities as an investment or income vehicle for longevity, while 19% said that none of their clients used annuities.

Sixty-three percent of financial planners said half or fewer of their clients had discussed Social Security benefit maximization strategies with them. About 25% of respondents’ retired clients had taken reduced Social Security benefits at age 62, and only 21% had deferred until age 70.

This indicated an opportunity for CPAs to discuss these strategies with their clients, the report said.

Planning Strategies

The institute listed several strategies it said planners were currently using with their high-net-worth clients:

  • Helping clients understand the effects of their lifestyle spending and implementing a plan that balances current income level and asset base with retirement goals.

  • Working with clients to understand their Medicare and insurance options so they can better plan for potential healthcare costs they might need to cover.

  • Identifying ways to both control costs and save on taxes, such as use of continuing care retirement communities.

  • Coordinating Roth conversions with IRA required minimum distributions, investing in assets with a lower tax rate and maximizing Social Security income.

  • Mitigating the effect of market fluctuations with proper asset allocation, bucket strategies and use of single premium annuities.

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