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Ease Elder Clients Into New Year With These Ideas

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To help clients position themselves for the year ahead, members of the American Institute of CPAs (AICPA) shared planning tips to help Americans improve their financial situation.

1. Start the new year with a new plan. “First you have to update your balance sheet, so you know your starting point. Then set goals — reduce debt or increase investments or something else — and attach a dollar amount,” Lisa Featherngill, a member of the AICPA PFP Executive Committee, suggests.

Then, a plan can be created to achieve those goals.

2. Review 2018 spending in conjunction with 2019 budgeting. The new year is a good time to review prior-year expenses and develop a reasonable budget for the current year, according to Michael Landsberg, a member of the AICPA PFP Executive Committee. He suggests stripping out one-time nonrecurring expenses — such as emergency room visit or housing repairs — and then plot a course for 2019 spending that includes a buffer for future unforeseen expenses.

3. Review automatic payment subscriptions and renewals. Now is the time to review all the various automatic payments and subscriptions previously set up, Brooke Salvini, a member of the AICPA PFP Executive Committee, says.

“Some expenses, such as entertainment streaming services, a gym membership or an old magazine subscription may no longer fit into your budget, lifestyle, or new year priorities,” Salvini said in a statement.

4. Update your Form W-4 for withholding. As Julie Welch pointed out, “2018 saw major changes to individual taxes. The IRS substantially revised the withholding tables in early 2018.”

Now that 2019 has begun, Welch, a member of the AICPA PFP Executive Committee, suggested that individuals check their withholding to see if they need more or less withheld in 2019.

5. Make an early calculation of 2018 taxes. The new tax bill has likely made significant changes to individuals’ taxes, according to David Stolz, a member of the AICPA PFS Credential Committee.

“Don’t wait until April to understand what those opportunities are for you,” Stolz says. “You may need to adjust your withholding, change your charitable giving strategy, take advantage of new tax brackets or depreciation rules among many other strategies.”

6. Revisit workplace retirement plan contributions. Robert Westley, AICPA PFS Credential Committee member, suggests that employees strive to increase their retirement plan contribution percentage from 2018.

“Pairing the deferral increase with a salary raise is a painless way to boost retirement savings. For example, if you received a 4% raise in salary and increased your contribution rate by 2%, your net paycheck and savings will both be higher,” Westley says.

7. Make an IRA and HSA contribution for 2018 (if you haven’t already). David Oransky, a member of the AICPA PFP Executive Committee, points out that individuals have until April 15 to make eligible IRA and HSA contributions for 2018. The combined traditional and Roth IRA contribution limit is the lesser of $5,500 or an individual’s taxable compensation.

If the individual is filing a joint return but doesn’t have any taxable compensation of his or her own, that individual may still be able to contribute under the spousal IRA provisions, Oransky notes.

Meanwhile, for an HSA, the contribution limit is $6,900 if the individual has a family high-deductible health plan, or $3,450 for self-only HDHP coverage, according to Oransky. 8. Contribute to your IRA now. David Desmarais, member of the AICPA PFP Executive Committee, has some tips on how individuals should contribute to their IRA.

“For married couples with modified adjusted gross income over $203,000, you cannot make direct Roth contributions. However, there are no income limitations on doing a Roth conversion or nondeductible IRA contribution,” he says.

Individuals can make a nondeductible IRA contribution and immediately roll it over into a Roth, according to Desmarais.

“The reason why you roll it over immediately is if there are no earnings in the IRA before it is rolled into a Roth, there is no income to pick up on the conversion,” he explains. However, he noted that this doesn’t work if the individual has other traditional IRAs that have untaxed earnings — whether it be from unrealized gains or prior deductible IRA contributions.

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9. Take a look at your current allocation. “With increased market volatility during 2018, your various asset classes may have drifted out of balance,” says Michael Landsberg, member of the AICPA PFP Executive Committee.

Landsberg suggests individuals use the beginning of January to analyze any material shifts that may have occurred due to 2018 performance.

10. Make annual exclusion gifts to heirs now. Robert Westley, a member of the AICPA PFS Credential Committee, suggests that individuals consider making gifts to beneficiaries at the beginning of the year.

“For those looking to reduce their estate tax exposure, individuals can give up to $15,000 to an unlimited number of beneficiaries per year without utilizing their lifetime estate tax exclusion amount or paying a gift tax,” Westley says.

3 Growing Financial Risks

As the number of retirees 75 and older grows, so do the financial risks they face, and many will be unprepared to address those risks, according to a new report from the Center for Retirement Research at Boston College.

“The future will see an increasing number of older retirees relying on relatively small 401(k) balances and on Social Security checks that do not stretch as far,” according to the report. Citing research from the U.S. Social Security Administration’s Retirement Research Consortium, CRR identifies three primary financial risks that retirees 75 and older face: out-of-pocket medical expenses, financial mistakes due to cognitive impairment and widowhood. By 2040, roughly 43 million retirees will be 75 or older, almost double the 23 million projected for 2020.

Out-of-Pocket Medical Expenses The report cites several studies about increasing out-of-pocket medical expenses for retirees 75 and older, with costs ranging from an average 20% of total income to as much as 142% for those who are 85 or older and in the top decile of health care spenders, including long-term care costs.

“Analysts expect out-of-pocket health costs to continue to grow faster than retirees’ income,” states the CRR report.

Cognitive Decline and Financial Mistakes “Financial skill tends to deteriorate for many in their 70s,” states CRR. It often begins with minor misses like forgetting to pay bills, then gradually evolves to a complete inability to manage finances.

Having someone to help with finances can mitigate this problem, and that becomes more important “as less income comes from Society Security [due to the rising full retirement age] and traditional pensions,” according to the report.

Compounding the problem is the growing dependence of retirees on defined contribution plans, which many manage themselves and which are therefore more vulnerable to fraud than defined benefit pensions managed by former employers, according to CRR. In addition, “tomorrow’s retirees will have fewer children to support them than their parents did,” the report says.

The typical household nearing retirement has about $135,000 in 401(k) assets, which if annuitized, would provide about $600 per month, and one-third have no savings, according to the CRR report.

Widowhood Widowhood is one reason Social Security checks won’t be as large for some many retirees — in addition to the rising retirement age.

Widows are entitled to the benefits they have earned based on their own work history, as well as survivor benefits, based on their deceased spouse’s work history — but they cannot collect both at the same time. Since women are working more and earning more relative to their husbands, more widows in the future will end up with less Social Security income than many had earned previously, due to Social Security’s arcane rules.

Their standard of living will be lower, and they will have to dig further into their other retirement savings. “Widowhood may affect women’s finances more in the future than it does today,” states CRR.

Bernice Napach, senior writer for, can be reached at [email protected] Emily Zulz, staff writer for, can be reached at [email protected]