The 631 CPA financial planners surveyed said 48% of their clients have expressed concerns about outliving their money. However, only 39% of the financial planners share this concern. As to what top three factors the financial planners’ clients think could cause them to outlive their money, the planners say it is health care costs (77%), market fluctuations (53%) and unexpected costs (50%). Additional causes for financial stress include lifestyle expenses (42%), the possibility of being a financial burden on relatives (22%) and the desire to leave an inheritance for their children (21%).
Fifty-seven percent of the financial planners say long-term care issues impact their clients’ financial planning more frequently than they did five years ago, but 42% said these issues have remained steady. Fifty percent said they have witnessed an increase in clients taking care of aging relatives, but 47% said it has remained steady. Forty-five percent said diminished capacity is impacting their clients’ financial planning more than it was five years ago, but 53% said it is the same.
On a positive note, 36% said job losses are impacting their clients’ retirement planning less than they were five years ago, but 55% said it is the same. Additionally, 50% of the financial planners said their clients are more confident they are ready for retirement compared to five years ago. However, 33% said their clients are less confident and 17% saw no change.
“There’s been a relatively steady increase in asset values over the last few years,” says Michael Landsberg, member of AICPA Personal Financial Planning Executive Committee. “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.”
Andrea Millar, director of financial planning at the Association of International Certified Professional Accountants, adds: “It is incumbent on financial planners to act sooner than later when planning for their clients’ 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.”
To improve Americans’ retirement readiness, AICPA suggests five tips:
- Explore long-term care coverage early—this includes traditional long-term care insurance, hybrid long-term care insurance, Medicaid options or self-insuring.
- Don’t look at your portfolio too often—the AICPA notes that in any given year, the stock market has a 70% chance of increasing in value. People need to appreciate that markets fluctuate but, in general, historically have risen over long periods of time.
- Take advantage of catch-up contributions once you reach age 50—individuals age 50 and older can contribute an additional $6,000 to their 401(k) and $1,000 to an individual retirement account (IRA).
- Have a tax-efficient drawdown strategy—because taxes can take a hefty bite out of cash flow, it’s critical to be mindful of retirement withdrawals bouncing a person into a higher tax bracket, affecting taxes on Social Security benefits and triggering higher capital gains taxes and other adverse tax consequences.
- Plan to pay off or pay down debt before retiring—debt is generally unfavorable for individuals in retirement, as it hurts their cash flow, AICPA says.
AICPA conducted the online survey between August 20 and September 24, 2018.