Clients’ top retirement fear: Running out of money

Nearly one-third (30%) of financial planners say their clients’ top retirement fear is running out of money, according to a recent AICPA survey of 631 CPA financial planners.

“This is a huge issue as people approach retirement, particularly with longevity improving and the length of time in retirement, for some, approaching the amount of time spent working,” said Leonard Wright, CPA/PFS, member of the AICPA Personal Financial Specialist (PFS) Credential Committee.

The online survey was conducted from Aug. 20 through Sept. 24, 2018. Participants were CPAs who are members of the AICPA Personal Financial Planning Section.

Another 28% of respondents said their clients’ top concern was not being able to maintain their current lifestyle and spending habits in retirement. Eighteen percent named health care costs as their clients’ top concern.

“We all know that medical expenses are rising faster than other expenses, so it’s a little more difficult to plan for this,” said Dave Stolz, CPA/PFS, a member of the AICPA PFS Credential Committee. To get a rough idea of how health care expenses might impact clients in retirement, he suggested that planners assume a higher rate of inflation for health care costs than they do for other expenses.

To prepare for unknown health care costs, Wright suggested making a plan that considers “the big three”: Medicare deducted directly from Social Security benefits, supplemental coverage, and long-term-care insurance, which clients might consider adding around age 50.

“Those three items, planned for, go a long way to creating peace of mind when the paychecks end,” Wright said.

Half (50%) of the CPA financial planners surveyed said their clients were more confident about their retirement readiness compared with five years ago. One-third (33%) said their clients were less confident, while 17% saw no change.

“As clients get closer to the actual date, the nerves show a little more,” Stolz said. “When retirement is a ways off, it’s more theoretical; but as it gets closer, the reality of the details become very important.”

Whether a client intends to spend more in retirement than when he or she was working or less, the best plans start with a detailed budget — and that means accounting for everything, Stolz said.

He recommended that people perform a detailed analysis of their spending on vehicles, groceries, entertainment, hobbies, and other items, and then integrate that amount into their retirement plan. “Don’t just use estimates,” he said. “Look back to see what you actually spent.”

— Samiha Khanna is a freelance writer based in North Carolina. To comment on this article or to suggest an idea for another article, contact Ken Tysiac, a JofA senior editor, at Kenneth.Tysiac@aicpa-cima.com.