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Despite Improvements, Going Broke in Retirement Remains Top Concern

Retirement Income

While confidence in the ability to retire has increased from five years ago, increasing health care costs and market volatility continue to drive clients' fears of going broke in retirement, new survey results show. 

According to the AICPA’s Personal Financial Planning Trends Survey, 30% of CPA financial planners cite “running out of money” as the top financial concern of clients planning for retirement. This reflects an improvement, however, from the organization’s 2016 survey, which found that 41% of clients listed it as a top financial concern.

Maintaining current lifestyle in retirement was also a top concern of clients, coming in a close second at 28%, while stress from rising health care costs followed not far behind at 18%. The AICPA emphasizes, however, that concern over health care costs is up 7 percentage points from 2016, and with medical costs forecast to continue growing, it won’t be surprising if this concern increases in the ranks.  

Despite these concerns, the AICPA notes that the overall retirement picture for clients of CPA financial planners is improving. When asked to compare their clients’ current situation to five years ago, half say their clients have more confidence they’re ready for retirement. That outweighs the third of respondents who stated they find their clients to be less confident, while another 17% saw no change.

Aging and Long-term Care

The results further show that addressing aging issues continue to increase in significance. In fact, 57% of CPAs report that they are seeing long-term care issues impact their clients’ retirement planning more frequently than they did five years ago. What’s more, 50% of CPAs saw an increase in clients taking care of aging relatives and 45% cite diminished capacity as an issue affecting clients’ retirement planning more often, compared to five years ago. 

Overall, the AICPA emphasizes that these issues demonstrate the competing challenges individuals face when planning for their retirement and the need for expert planning advice to meet their goals. 

“It is incumbent on financial planners to act sooner than later when planning for their client’s late retirement years,” notes Andrea Millar, Association of International Certified Professional Accountants Director of Financial Planning. “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.” 

5 Tips to Get Ready

To that end, the AICPA offers five tips to help future retirees feel more confident about their retirement readiness. 

  • Don’t look at your portfolio too often. In any given year, the stock market has an approximately 70% chance of going up in value. However, on a daily basis that likelihood decreases to approximately 53%. Given market fluctuations, checking a portfolio daily can tempt investors to make short-sighted decisions that can easily derail an otherwise sound portfolio allocation, the AICPA notes. 
  • Take advantage of catch-up contributions. Catch-up contributions are a great strategy for those who are age 50 and over and looking to secure the likelihood of a successful retirement. 
  • Have a tax-efficient drawdown strategy. The AICPA emphasizes that it’s critical to be mindful of retirement withdrawals bouncing you into a higher tax bracket, affecting taxes on Social Security benefits and other adverse tax consequences.
  • Plan to pay off or pay down debt before retirement. Because debt is generally unfavorable for individuals in retirement, the organization recommends reviewing all outstanding liabilities and decide whether any debt should be paid off while still having the financial flexibility to do so.   
  • Explore long-term care coverage early. Having a plan in place for a serious illness or incapacity is critical for maintaining peace of mind, the organization suggests. It notes that individuals should first consider 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. 

Conducted from Aug. 20 to Sept. 24, 2018, the online survey includes responses from 631 CPAs who are members of the AICPA Personal Financial Planning Section. 

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