Running Out of Money Is Top Retirement Concern, Says AICPA Survey of Financial Planners

Business Wire

Concerns shift from financial to health as retirees age

NEW YORK--(BUSINESS WIRE)-- What do you get when you have 10,000 baby boomers retiring every day, at an average retirement age of 62 with a life expectancy of about 22 years, and retirement savings of only $104,000? If you answered a recipe for fiscal disaster, you’d be right. A recent survey of CPA financial planners conducted by the American Institute of CPAs found that running out of money in retirement is top of mind for many of their clients, including high net-worth individuals.

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AICPA's PFP Trends Survey explores clients top concerns in retirement (Photo: Business Wire)

In fact, the latest AICPA PFP Trends Survey revealed that running out of money topped the list of financial concerns of their clients planning for retirement, cited by 41 percent of CPA financial planners. Maintaining their current lifestyle and spending level, which could be related to running out of money, was the next biggest financial concern for clients (29 percent). A distant third concern was rising health care costs (11 percent).

“Since people are living longer, not having enough money in retirement is a legitimate concern and financial planners should have those difficult conversations with clients about planning for unexpected events and curbing spending if necessary,” said Susan Tillery, CPA/PFS, chair of the AICPA’s PFS Credential Committee. “Developing a comprehensive financial plan, which is flexible and includes tax strategies to increase income in retirement, can address many financial worries confronting retirees.”

The survey also found that clients fear being confronted by different unexpected events as they headed further into retirement. During the first ten years of retirement, clients' biggest fears were a sharp decline in the value of their investments (52 percent), followed by serious illness, including dementia and diminished capacity, (24 percent), and helping their children or grandchildren (11 percent).

Concerns shifted from financial to health after ten years of retirement as serious illness, including dementia and diminished capacity, was the primary concern (44 percent), followed by a sharp decline in the value of their investments (28 percent) and moving out of their home to live in assisted care (19 percent). This underscores the importance of proactively planning for these issues while the client is able to make mindful decisions about the future.

“It is understandable that clients are increasingly worried about the financial implications of their health as they age. CPA financial planners can help alleviate these concerns by having frank discussions with their clients and addressing their financial fears,” added Tillery. “The effects of dementia and diminished capacity are devastating on individuals and their families. Making difficult decisions about their living situation and investments proactively can help put their minds at ease and prevent their families from being burdened down the road.”

The survey found that only 18 percent of clients are taking proactive steps to address the issue, while 35 percent are weighing the issue but have not yet decided on a specific course of action. As the population continues to live longer, diminished capacity issues will only become more prevalent. In fact, the survey found that half of all financial planners had a client exhibit signs of dementia or diminished capacity for the first time in the past year alone. This underscores the need for all planners to prepare themselves to address these issues with clients.

“Financial planners need to be aware of the early signs of dementia and be pro-active with their clients and their families,” said Jean-Luc Bourdon, CPA/PFS, member of the AICPA’s PFP Executive Committee. “These are undoubtedly emotional and difficult discussions, but this is an opportunity for a financial planner to add real value for their clients. Many people are not only unprepared to deal with the emotional impact of dementia, but also how to pay for the long-term care for their loved one. Caregivers sometimes have to quit their jobs or reduce their hours, on top of having to pay for out of pocket medical expenses. Even for families with considerable financial resources, dementia is a major financial obligation.”

Despite growing awareness about diminished capacity, one third of financial planners say their clients are dealing with dementia on a reactionary basis, and 13 percent are ignoring the issue altogether. While it is preferable to develop a plan before clients begin to exhibit diminished capacity, there are multiple steps financial planners can take to protect a client’s assets in retirement after these issues come to light.

The survey found a vast majority (85 percent) of the planners dealt with diminished capacity in their clients by ensuring that powers of attorney and health care proxies were in place, while 61 percent arranged for themselves to contact their client's other professionals and relatives. Other measures taken by these planners was to obtain authorization to contact their client’s attorney (44 percent), moved money to a trust (35 percent), and automated the client’s annual required minimum distributions from their qualified retirement accounts (34 percent). Eighteen percent had their clients move into a previously selected assisted care facility.

With diminished capacity such an important issue, members of the PFP Executive Committee developed a Diminished Mental Capacity Checklist, with key takeaways for planners highlighted below:

Diminished Mental Capacity Checklist

Assess the patient’s group of relative’s friends, neighbors, and professionals for people who would swing into action if needed. Make introductions and set authorizations for each to talk to each other.
Review estate planning documents to make sure they are in place and current. Review beneficiary designations. Identify successor trustee, financial, and medical power of attorney. Make sure they know they are designated and willing to serve.
Mitigate the risk of elder abuse. Establish checks and balances for Power of Attorney, successor trustee, and key professionals so that abuse can be identified early. Consider such actions as using a credit monitoring service and a monthly reconciliation of financial accounts.
Discuss housing options – if the client is still living at home, what are the situations that may cause that to change, what are the options and how do they feel about them, and how will they approach this decision? What resources are available to better understand the local options?

A full copy of the Checklist is available by contacting James Schiavone at [email protected].

As people are living longer and issues such as diminished capacity and elder financial abuse are becoming more prevalent, there is great demand for comprehensive financial planning, particularly for high-net worth individuals. A CPA financial planner serves as a trusted advisor who can understand their client’s needs and priorities both from a financial and personal perspective by having open, and often difficult, discussions with their clients and families.

Methodology

The AICPA’s PFP Trends Survey is administered as an online survey of CPAs who are members of the AICPA Personal Financial Planning Section, including those holding the CPA/PFS credential. Five hundred members responded to the survey.

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, enabling them to gain competence and confidence in PFP disciplines.

About the AICPA

The American Institute of CPAs (AICPA) is the world’s largest member association representing the accounting profession, with more than 418,000 members in 143 countries, 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 the profession and U.S. auditing standards for private companies, nonprofit organizations, federal, state and local governments. It develops and grades the Uniform CPA Examination, and offers specialty credentials for CPAs who concentrate on personal financial planning; forensic accounting; business valuation; and information management and technology assurance. Through a joint venture with the Chartered Institute of Management Accountants (CIMA), it has established the Chartered Global Management Accountant (CGMA) designation which sets a new standard for global recognition of management accounting.

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.