At a time when the American economy has enjoyed a relative period of growth, workers nearing retirement still worry about financial security in their golden years, according to a recent survey.
Conducted between Aug. 20 and Sept. 24, 2018, the American Institute of CPAs' (AICPA) annual Personal Financial Planning Trends Survey asked 631 certified public accountant (CPA) financial planners what their clients were most worried about when preparing for retirement.
Released earlier today, the study's findings reveal that the most pressing financial concern among respondents' clients was that they had not saved up enough money for retirement. This worry was reflected in 30 percent of individuals polled. However, this year's figure shows a marked improvement from the 41 percent that shared the same concern in 2016.
While the improved figure could be attributed to the economy's relative growth in recent years, Michael Landsberg, CPA/PFS member of the AICPA Personal Financial Planning Executive Committee, said clients are worried that trend won't last.
"Of course, all of this can change, which is why it is important to revisit asset allocation, make appropriate adjustments, and ensure your savings and investments will be able to fund the lifestyle you envision in retirement," he said.
The survey also revealed that 28 percent of clients were concerned about their ability to "maintain their current lifestyle and spending level, while 18 percent were concerned about rising health care costs. The latter figure shows a seven-point increase from 2016."
Aside from immediate financial concerns, the AICPA's study also showed that 48 percent of clients were worried that they would outlive their money. That figure is nine points higher than the percentage of planners who share that concern.
According to the survey, this shows "the extent to which even well-positioned clients are stressed over the prospect they'll outlive their cash." The top three sources for this anxiety are healthcare costs (77 percent), stock market fluctuations (53 percent) and unexpected costs (50 percent).
Other sources of financial tension among prospective retirees were "lifestyle expenses (42 percent), the possibility of being a financial burden on their relatives (22 percent) and the desire to leave an inheritance for their children (21 percent)," according to the report.
Andrea Millar, CPA/PFS and the Association of International Certified Professional Accountants director of financial planning, said each of those fears can be mitigated by carefully crafting a personal financial plan.
"To mitigate the fear of the unknown, CPA financial planners map out a wide range of future scenarios, establish long-term goals and work with their clients to ensure they have adequate coverage to cover the healthcare costs that may crop up in their retirement ahead," she said.
Age a factor in retirement planning
Planning for retirement also becomes trickier as a client grows older. More than half of respondents (57 percent) said they noticed long-term care having an impact on retirement planning more frequently than they did in 2014. Exactly half of CPAs also saw clients caring for aging relatives, and 45 percent reported "diminished capacity as an issue impacting clients' retirement planning."
The survey also found that 70 percent of CPA financial planners reported discussing their clients' estate plans at least once a year, with 23 percent saying they do so every three to five years.
"It is incumbent on financial planners to act sooner than later when planning for their clients' late retirement years," Millar said. "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."
Positive takeaways and planning tips
The survey wasn't all worry and distress. Due to a strengthening job market, 36 percent of responding CPAs said job loss was impacting their clients' retirement plans less than it did five years ago. Half of the CPA respondents said their clients were more confident in their retirement goals than they were in 2014. Just 33 percent responded that clients were less confident, and the remaining 17 percent said they saw no change. [Read related: How to Prepare for Retirement.]
In response to the survey, the AICPA said people planning for retirement should consider these five tips:
Don't let long-term care coverage become an afterthought. Planning ahead for a sudden illness or injury is important for retirees. Having a plan in place for handling expensive medical costs within your post-work financial means could include "traditional long-term care insurance, hybrid long-term care insurance, Medicaid options, or self-insuring." Doing this earlier is better, as older clients tend to have a harder time finding long-term healthcare.
There's no need to obsess over your portfolio. The stock market fluctuates wildly on a daily basis, but it has a general historical trend of increasing over time. Looking at your portfolio may tempt you to make short-term decisions that will impact your long-term financial goals.
Utilize your catch-up contributions. People over 50 years of age can contribute an additional $6,000 to their 401(k) or other employer-sponsored retirement plans for 2019, while IRAs can get an additional $1,000.
Devise a tax-efficient strategy for withdrawals. When withdrawing from your retirement funds, it's important to know that they can push you into a higher tax bracket, affect taxes on Social Security benefits and trigger higher capital gains taxes, among other tax issues. Planning to use your retirement savings efficiently will keep taxes from cutting into your funds.
- Try to manage any existing debt before retirement. Debt and accruing credit may be good in your earlier years but should be reconsidered later in life. Living on a fixed income requires the ability to manage cash flow, so resolving any financial liabilities should be a priority.