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

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.

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 jschiavone@aicpa.org.

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.

Contacts

American Institute of CPAs
James Schiavone, 212-596-6119
jschiavone@aicpa.org