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June 24, 2015 • 5 minutes
Are you worried about outliving your money? Join the club. This is one of Americans’ biggest retirement fears.
More than half (57%) of CPA financial planners cited running out of money as the top concern for their clients, according to the American Institute of CPAs (AICPA) Personal Financial Planning (PFP) Trend Survey.
The 2015 survey sought insight from nearly 550 CPA financial planners, many of whom work with high-net worth individuals, on the major retirement planning challenges and concerns facing Americans today.
When asked about the top three sources of clients’ financial and emotional stress over outliving their money, financial planners cited:
“With all of the financial uncertainty surrounding retirement, running out of money is directly tied to a number of issues that high-net worth clients are juggling simultaneously,” said Lyle K. Benson, chair of the AICPA’s PFP Executive Committee, in a statement on the survey’s findings.
To address this uncertainty, AICPA suggests five ways financial planners can help their clients prepare for retirement to reduce the risk of outliving their money.
AICPA says that you should understand the impact of your lifestyle spending and implement a plan that balances your current income level and asset base with your retirement goals,.
Often, financial planners will suggest their clients either cut back on their current lifestyle or continue working through retirement in order to provide some extra cash flow.
Doing so will help offset some of the costs associated with unexpected events that could derail your retirement if you’re not properly prepared.
Such unexpected events are having a big impact on retirement planning for a large number of clients, according to the AICPA survey. These issues include long-term health care concerns (impacting 42% of clients), caring for aging relatives (28%), diminished capacity (26%), divorce (18%), job loss (18%) and adult children returning home (18%).
“Make sure all your ducks are in a row,” says Troy Simmons, vice president of the Nationwide Retirement Institute. “What have you done to plan for the unexpected?”
AICPA found that it may be possible to identify strategies, such as the use of continuing care retirement communities (CCRCs), to both control costs and save on taxes.
At these senior living communities, residents can have peace of mind knowing that they will be able to age in place without having to worry about such issues as home repairs and modifications, or health care problems.
Other options for cutting housing costs might include consideration of downsizing or securing a reverse mortgage. Learn more about housing and home equity.
AICPA finds that it is important for everyone to understand Medicare and insurance options so you can better plan for potential health care costs you might need to cover.
Behind running out of money in retirement, financial planners reported that their clients’ top retirement concern was uncertainty on how much to withdraw from retirement accounts (14%) and health care costs (11%).
In addressing the rising costs of health care, many financial planners suggest their clients delay collecting Social Security benefits until age 70. Doing so could translate to an additional $300,000 in benefits over the course of a couple’s lifetime or $100,000 during an individual’s lifetime.
Coordinate Roth conversions with IRA-required minimum distributions, investing in assets with a lower tax rate, AICPA suggests.
“To help alleviate their clients’ longevity concerns, CPA financial planners integrate tax planning strategies to maximize income in retirement,” Benson said in a statement. “This approach considers a client’s current situation and anticipates their lifestyle spending in retirement to ensure they stay on track in the event of an unexpected life event.”
Mitigate the effect of market fluctuations with proper asset allocation, bucket strategies and the use of single premium annuities, AICPA says.
Roughly 66% of the survey’s respondents indicated that up to 25% of their clients use annuities as an investment or income vehicle for longevity.
Using such financial products to provide guaranteed income streams can help you feel more comfortable — and confident — when it comes to making your money last in retirement.
However, before signing on the dotted line or making any big financial moves, talk with a financial planner who can help you strategize for your future.
Maybe you have already enacted some of these strategies. Maybe none of this makes any sense at all to you.
Retirement planning is complicated. You can do it on your own or you can get help. Many people opt to work with a financial advisor to help them with investments and an overall retirement plan — but that is not a good option for everyone. You might also want to try the best Retirement Planner available online.
The Boldin Retirement Planner is designed to be fairly sophisticated, but easy to use. You put in your information and the system does hundreds of calculations for you. You can find out when you might run out of money and try out different scenarios to improve your overall plan.
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