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This Is Your Clients' Top Retirement Planning Fear, According to CPAs

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Running out of money is the No. 1 financial concern of clients planning for retirement, according to CPA financial planners in a new survey, the American Institute of CPAs reported Thursday.

Thirty percent of CPA planners said this, an improvement from the AICPA’s 2016 survey, in which 41% of planners listed it as a top concern.

“There’s been a relatively steady increase in asset values over the last few years,” Michael Landsberg, member of the AICPA personal financial planning executive committee, said in a statement. “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.

“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.”

The AICPA conducted the online survey from Aug. 20 through Sept. 24, and received responses from 631 CPA financial planners.

Twenty-eight percent of CPA financial planners said their clients were most worried about maintaining their current lifestyle and spending level in retirement, and 18% about rising health care costs. Though a much lower source of concern, the latter result was seven percentage points higher than in 2016, perhaps not surprising given that medical costs are forecast to continue growing throughout 2019.

Forty-eight percent of clients have expressed concerns about outliving their money, according to the survey, though only 39% of planners shared their concerns. The report said this underscores the extent to which even well-positioned clients are stressed over the prospect of going broke in retirement.

Asked about the chief sources of client financial and emotional stress concerning outliving their money, 77% of respondents cited health care costs, 53% market fluctuations and 50% unexpected costs. Other causes for financial stress were lifestyle expenses, the possibility of being a financial burden on their relatives and the desire to leave an inheritance for their children.

“A sophisticated financial plan takes into account both the client’s financial and emotional concerns,” Andrea Millar, director of financial planning for the Association of International Certified Professional Accountants, said in the statement.

“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 health care costs that may crop up in their retirement ahead.”

Longevity Complications

The AICPA noted that retirement becomes more complicated as clients age, even with adequate planning.

Fifty-seven percent of CPAs in the survey said they were seeing long-term care issues affecting their clients’ retirement planning more frequently than they did five years ago. Only 1% saw this issue crop up less often, and 42% said they had not seen a change.

Half of respondents had noted an increase in clients taking care of aging relatives, with only 3% saying there had been a decrease and 47% saying numbers were about the same as five years ago.

And 45% of CPAs cited diminished capacity as an issue affecting clients’ retirement planning more often than five years ago, compared with 3% less often and 53% about the same.

Collectively, the AICPA said, 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, 36% of CPAs said job loss was affecting their clients’ retirement planning less often than five years ago, thanks to the labor market’s continued improvement; 55% said it was about the same, and 9% said more often.

“It is incumbent on financial planners to act sooner than later when planning for their client’s late retirement years,” Millar said. “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.”

The AICPA report said the overall retirement picture for clients of CPA financial planners was improving despite the concerns. Asked to compare their clients’ current situation with that five years ago, 50% said their clients were more confident that they were ready for retirement.

That outweighed the 33% who said they found their clients less confident and 17% who had seen no change.

In another survey finding, 70% of CPA financial planners said they discussed their clients’ estate plans with them at least once a year, and 23% said they did this once every three to five years.

5 Tips for Retirement Readiness

The AICPA’s personal financial planning executive committee has put together pointers to help Americans feel more confident about their retirement readiness.

1. Explore long-term care coverage early

Given longer life spans, having a plan in place for a serious illness or incapacity is critical for maintaining peace of mind. Individuals should not wait to explore 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. Applicants over 70 run an increased risk of being denied long-term care insurance because of health issues.

2. Don’t look at your portfolio too often

Understand that markets will fluctuate wildly in both directions, but have historically gone up over long periods of time. Checking one’s portfolio daily can tempt one to make short-sighted decisions that can easily derail an otherwise sound portfolio allocation.

3. Take advantage of catch-up contributions at age 50

Catch-up contributions are a robust strategy for those looking to secure the likelihood of a successful retirement. Individuals 50 and older can add $6,000 to their 401(k) or most other employer-sponsored retirement plans for 2019, and can contribute an additional $1,000 to IRAs.

4. Have a tax-efficient drawdown strategy

Be sure to have a plan for how to best consume retirement savings tax efficiently in retirement. It is critical to be mindful of retirement withdrawals that bounce a retiree 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 reduce debt before retirement

Debt is generally unfavorable for retirees as it hurts cash flow 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 one still has the financial flexibility to do so.

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