retirement planning and issues related to aging planning and issues related to aging ... the present...

Retirement Planning and Issues Related to Aging Presented by: Lyle Benson, CPA/PFS (Moderator) Jean-Luc Bourdon, CPA/PFS Lori Luck, CPA/PFS Ted Sarenski, CPA/PFS

American Institute of CPAs® Personal Financial Planning Section

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About the PFP Section & PFS Credential The AICPA 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/or investment planning advice to individuals, families and business owners. (Learn more at aicpa.org/PFP.)

The Personal Financial Specialist (PFS) program allows CPAs to gain and demonstrate competence and confidence in providing estate, tax, retirement, risk management and/or investment planning advice to individuals, families and business owners through experience, education, examination, and a resulting credential. (Learn more at aicpa.org/PFS.)

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Introductions

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Lyle Benson, CPA/PFS (Moderator) L.K. Benson & Company

Jean-Luc Bourdon, CPA/PFS BrightPath Wealth Planning

Lori Luck, CPA/PFS CLS Financial Advisors

Ted Sarenski, CPA/PFS Blue Ocean Strategic Capital


Agenda

Planning for retirement • Longevity outlook for aging clients • Social Security planning • Asset sufficiency and rising equity glidepaths • Impact of inflation on retirement and health care planning

Planning for end-of-life • Estate and elder issues • Long-term care strategies and options • Survivor issues

Q&A and related PFP resources and events

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Planning for retirement

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US population by sex and age groups

Source: Annual Estimates of the Resident Population by Sex and Five-Year Age Groups for the United States: April 1, 2000 to July 1, 2009 (NC-EST2009-01) U.S. Census Bureau, Population Division - Release Date: June 10, 2010 - US Administration on Aging

Population Estimates by Age and Sex BOTH SEXES MALE FEMALE FEMALE %

Total - All Ages 307,006,550 151,449,490 155,557,060 51%.Under 60 years 251,624,037 127,048,997 124,575,040 50%.60 to 64 years 15,811,923 7,576,933 8,234,990 52%.65 to 69 years 11,784,320 5,511,164 6,273,156 53%.70 to 74 years 9,007,747 4,082,226 4,925,521 55%.75 to 79 years 7,325,528 3,149,236 4,176,292 57%.80 to 84 years 5,822,334 2,298,260 3,524,074 61%.85 to 89 years 3,662,397 1,266,899 2,395,498 65%.90 to 94 years 1,502,263 424,882 1,077,381 72%.95 to 99 years 401,977 82,135 319,842 80%.100 years and over 64,024 8,758 55,266 86%

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Aging population

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Blended families

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Multi-generational households

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Parents should help their children with:

Source: MetLife Mature Market Institute https://www.metlife.com/assets/cao/mmi/publications/studies/2012/studies/mmi-multi-generational-family-obligations.pdf

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Retirees in good health face higher lifetime health care costs than those in poor health

A typical healthy couple at age 65 can expect to spend $260,000 with a 5-percent risk of exceeding $570,000 A typical unhealthy couple can expect to spend $220,000 with a 5-percent risk of exceeding $465,000 Those in good health live longer, eventually become less healthy, and often need nursing home care

Source: Center for Retirement Research at Boston College

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Risk of not being able to maintain pre-retirement standards of living in retirement

Households “at risk” at age 65

Source: Center for Retirement Research at Boston College http://crr.bc.edu/wp-content/uploads/2013/12/IB_13-17.pdf

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Ongoing retirement planning need

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Higher income longer life

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Higher income longer life

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American Institute of CPAs® Personal Financial Planning Section 18


Social Security matters

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Annual Report of the Board of Trustees – May 31, 2013

For the 75-year projection period, the present value of UNFUNDED obligations is $9.6 Trillion

Reserves for Social Security will be fully depleted in 2033

Once depleted, annual Social Security receipts would be sufficient to pay 77% of scheduled benefits

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2013 Social Security facts

58 million people received benefits totaling $816 • 39.9 million retirees and dependents – 74% • 11.0 million disabled workers and dependents – 16% • 6.2 million survivors – 10%

Among the Elderly • Social Security represents 50% or more of the income of:

- 53% of married couples - 74% of unmarried persons

• Social Security represents 90% or more of the income of: - 23% of married couples - 46% of unmarried persons

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2013 Social Security facts

In 1940, life expectancy of a 65 year-old was almost 14 years – today it is more than 20 years

By 2033, the number of Americans 62 and over will be 77.4 million – today 45.1 million

By 2033, there will be 2.1 workers for every recipient – today it is 2.8 workers for every recipient

Today – 51% of the workforce has no private pension coverage

Today – 34% of the workforce has no savings set aside specifically for retirement

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Basics: Breakeven point

Breakeven point if you start at age 62 rather than waiting to age 66 – Age 77, when waiting would have been better Breakeven point if you start at age 62 rather than waiting to age 70 – Age 80, when waiting would have been better Breakeven point if you start at age 66 rather than waiting to age 70 – Age 82, when waiting would have been better 23


No wage earner timeline

Higher wage earner 62 FRA 70 $2,000 FRA Benefit File and Begin $2,640 Suspend Benefit

No Wage Earner

OR Begin $1,000 Spousal Benefit

Begin $750 Spousal Benefit

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Significant lower wage earner timeline

Higher wage earner 62 FRA 70 $2,000 FRA Benefit File and Begin $2,640 Suspend Benefit

Lower Wage Earner $600 at FRA

OR Begin $1,000 Spousal Benefit

Begin Reduced Add Spousal for total Own of $450 of $850

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Not significant lower wage earner timeline

Higher wage earner 62 FRA 70 $2,000 FRA Benefit File for$700 Begin $2,640 Spousal Benefit Benefit Only

Lower Wage Earner $1,400 at FRA Begin Reduced $1,050 Benefit

a

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Other ideas

For single people – a recipient can suspend anytime between 66 and 70 to earn the 8% per year increase even if they began benefits at age 62

Example: An individual with benefit of $750 at age 62 and $1,000 at age 66 Start at age 62, suspend from 67 to 70 and start again, using a 2% COLA

Age 63 64 65 66 67 68 69 70 Ben. 765 780 796 812 0 0 0 1081

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Additional planning considerations

Survivor (death) benefits Repay and re-apply Disability benefits Windfall eliminations provision Government pension offset Divorce Medicare planning

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New retirement planning research

“Reducing Retirement Risk with a Rising Equity Glidepath” by Wade Pfau and Michael Kitces (2013) • New research on asset sufficiency and withdrawal rates related

to asset allocation and equity glide paths in retirement • Purpose : Find the sustainability of constant inflation adjusted

spending from a portfolio

Research results across all time horizons and withdrawal rates (based on certain assumptions & testing methods) • Supports asset allocations with equity percentages of 20-40% at

retirement, increased gradually to 40% -80% at the end of life • Reduces probability of failure and magnitude of failure • Is counter intuitive to conventional wisdom

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New retirement planning research

Implications for CPA financial planners • How do advisors use this research in light of ultra-low interest

rates and potential future bond value losses? • Introducing to risk averse seniors in retirement years • Incorporating and customizing for your clients

- Bucket strategy - Match assets with liabilities throughout retirement - Build plan with 2 phases: one for the next 10 years and one

for when rates are more normal - Consider role of annuities in this strategy - Discuss rate of return and inflation assumptions - Customize individual recommendations monitored on an

ongoing basis, approximately every 3 years or if a major life event occurs

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Impact of inflation on retirement and health care planning

Methods to allocate expenses over retirement period Planning considerations to address increase in medical spending in retirement years Differences of opinion advisor to advisor as to how to approach inflation and rates of return Risks of being too conservative when setting investment rates of return and life expectancies Best practices • Revisit projections at least every 3 years, and more often if a

major event occurs

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Planning for end-of-life

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Estate and elder issues

Practical estate planning tips • POA, health care proxies, living wills (“in case of emergency…”) • Re-read estate planning documents annually for clients over 75

& attend meetings with attorneys

Dealing with declining mental capacity and elder abuse • Resignation and capacity issues • Trustee designation • Conservatorship • Mandated reporter rules

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Long-term care strategies and options

Hybrid long-term care and life insurance policies Housing decisions • Nursing homes versus continuing care retirement communities • Advisers can add value by analyzing cost of staying in their

home versus CCRCs for clients (entrance fee, monthly costs, whether LTCI is included)

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Survivor issues

Education • Expenses, needs, care • Income, tax issue

Preparation • Team relationships • Documents • Financial stewardship

Support • Trustee responsibilities • Blended families

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Gathering and organizing Planning for… • Yourself • Your dependents • Your property and assets • Your estate

Meeting financial needs • Debt and credit management • Your income and expenses • Government programs

Survivor issues • Timeline and checklist of tasks • SS survivor benefits • Life insurance benefits • Retirement accounts • Other benefits • Tax status

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Available free: aicpa.org/pfp/consumer

http://www.aicpa.org/InterestAreas/PersonalFinancialPlanning/Resources/ConsumerContent/Pages/ConsumerContent.aspx


Questions

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Resources for PFP/PFS Members

aicpa.org/pfp/retirement • The CPA’s Guide to Social Security Planning • The CPA's Guide to Financing Retirement Healthcare • Resources on safe withdrawal rates, long-term care, and more

aicpa.org/pfp/estate

• The CPA’s Guide to Financial and Estate Planning • Planning After ATRA and Net Investment Income Tax Toolkit

Forefield Advisor (aicpa.org/pfp/forefield) • Client education and communication tool • Written by CPAs, attorneys and other subject matter experts • More than 3,000 resources covering personal financial planning, including

estate, tax, retirement, investment and risk management planning Visit joinpfp.org to become a member

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http://www.aicpa.org/InterestAreas/PersonalFinancialPlanning/Resources/EstatePlanning/Pages/EstatePlanning.aspx

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Upcoming PFP Section Events Webcasts: free for PFP/PFS members without optional discounted CPE

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June 11 1-2:45p.m. ET

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Statement on Standards in PFP Services SSPFPS has been issued and becomes effective on July 1, 2014. Learn more about the new standard and the resources available to assist you with compliance in the archived sessions* below:

• Do the New PFP Standards Apply to You? • Understanding the Requirements of SSPFPS • Practical Applications: Using the Compliance Toolkit • Leveraging SSPFPS to Elevate Your Practice

Upcoming conferences where SSPFPS is on the agenda • AICPA Advanced Estate Planning Conference** July 21-23, 2014 at Swisshotel, Chicago • National Tax Conference November 3-4, 2014 in Washington DC • AICPA Sophisticated Tax Planning for Your Wealthy Clients** November 17-18, 2014

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