Special Report: A comprehensive survey reveals Americans financial planning attitudes …

Survey Points the Way to Opportunities

Your clients have problems. The smart practitioner knows, however, “There are no problems, only opportunities.” If that’s true, CPA financial planners face an array of opportunities in 1998.

Every year, the Phoenix Home Life Mutual Insurance Co. conducts its Fiscal Fitness Survey to discover Americans’ financial planning attitudes and practices. Compared with previous years’ surveys, Americans are more optimistic and more likely to loosen their purse strings for extravagant purchases. But is the public’s good mood based on a belief that the good times will last forever? “Everyone should know the best time for financial planning is when times are good,” said Walter Zultowski, Phoenix’s senior vice president of marketing and market research. “I find the possible diversion of retirement savings to other purchases a disturbing trend.”

The Journal asked three CPAs—current or former members of the AICPA PFP executive committee—to look at the Fiscal Fitness Survey and identify problem areas for consumers that represent opportunities for practitioners. (The CPAs, their firms and the Institute were not involved in conducting the survey.)

Long-term planning

“First, I’m concerned that so many people are taking money out of retirement savings to buy a car or take a vacation,” said Lyle K. Benson, president of his own firm in Baltimore. Nevertheless, a substantial minority expect a higher standard of living in retirement than they have now. “If people looked closely at the numbers, would they really see that as true?” Steven I. Levey, director with Gelfond, Hochstadt, Pangburn, P.C., in Denver, added that people were not taking advantage of all the retirement planning options. “They need to consider the Roth IRA, educational IRA, IRA/SEPs, or SIMPLE plans. Social Security is not going to be enough.” CPA financial planners, of course, can explain these options.

William J. Goldberg, of KPMG Peat Marwick in Houston, found it interesting that nearly a quarter of the respondents had no single greatest financial concern. “Do these people even have a plan? Do they need someone to tell them that a big bonus this year does not necessarily mean a big one next year? I want to know what those who expect a higher standard of living in retirement are basing their conclusions on.” Goldberg said clients may need a brief economics lesson. “The economy is cyclical. Good times and bad times never last—something many don’t seem to understand. Some of my clients are optimistic about a stock they bought as an investment while remaining unsure about the market as a whole. They don’t think how difficult it would be for their stock to continue to rise if the market goes down.”

A generational sandwich

Clients may simultaneously be dealing with grown children and aging parents. “The issue of elderly parents is critical,” said Benson. “I’ve had too many clients who come to me when their parents have to go to a nursing home and they suddenly realize there isn’t enough money. This isn’t just a tough financial planning issue; it’s a tough psychological one as well.”

Levey also stressed the importance of examining generational issues. “In an estate planning engagement, we always ask clients about their parents’ and children’s situation. Perhaps they’re candidates for generation-skipping techniques. Many clients do not know that if grandparents pay their grandchildren’s tuition directly to the school it does not count as part of the $10,000 annual gift limit.”

Meanwhile, Benson said his professional experience taught him that parents give their children insufficient financial education. “My high-net-worth clients, especially, ask me to educate their children about finances. The kids won’t listen to their parents or have gotten into some kind of financial trouble. I serve as the ‘independent court.'” Scholarships are another older-children problem; parents may be making overly optimistic assumptions. “Expectations are way out of line,” said Benson. “People just don’t realize how expensive college is,” said Levey.

What goes around, comes around . Clients are feeling optimistic with the good economy. They may not be thinking of difficult years that come with retirement, college, elderly parents and other financial pitfalls. But during the fat years, clients have time and resources to prepare. Concluded Goldberg, “When everything looks this good, it’s time to check your plan.”

Demographics: Yankelovich Partners Inc. survey of 1,006 respondents, ages 30 to 59, in households in which at least one person earns $40,000 or more annually. Student responses are from 1,200 young people, ages 12 to 21, in demographically similar households.

Single greatest concern

Extravagant purchases

Retirement savings

Expectations

Aged parents

College funds

Family finance