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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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American Institute of CPAs® Personal Financial Planning Section
Continuing Professional Education You must answer at least 75% of the random, attendance checks to earn CPE credit.
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American Institute of CPAs® Personal Financial Planning Section
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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American Institute of CPAs® Personal Financial Planning Section
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
American Institute of CPAs® Personal Financial Planning Section
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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American Institute of CPAs® Personal Financial Planning Section
Planning for retirement
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American Institute of CPAs® Personal Financial Planning Section
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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American Institute of CPAs® Personal Financial Planning Section
Aging population
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American Institute of CPAs® Personal Financial Planning Section
Blended families
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American Institute of CPAs® Personal Financial Planning Section
Multi-generational households
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American Institute of CPAs® Personal Financial Planning Section
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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American Institute of CPAs® Personal Financial Planning Section
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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American Institute of CPAs® Personal Financial Planning Section
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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American Institute of CPAs® Personal Financial Planning Section
Ongoing retirement planning need
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American Institute of CPAs® Personal Financial Planning Section
Higher income longer life
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American Institute of CPAs® Personal Financial Planning Section
Higher income longer life
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American Institute of CPAs® Personal Financial Planning Section 18
American Institute of CPAs® Personal Financial Planning Section
Social Security matters
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American Institute of CPAs® Personal Financial Planning Section
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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American Institute of CPAs® Personal Financial Planning Section
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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American Institute of CPAs® Personal Financial Planning Section
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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American Institute of CPAs® Personal Financial Planning Section
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
American Institute of CPAs® Personal Financial Planning Section
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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American Institute of CPAs® Personal Financial Planning Section
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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American Institute of CPAs® Personal Financial Planning Section
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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American Institute of CPAs® Personal Financial Planning Section
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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American Institute of CPAs® Personal Financial Planning Section
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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American Institute of CPAs® Personal Financial Planning Section
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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American Institute of CPAs® Personal Financial Planning Section
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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American Institute of CPAs® Personal Financial Planning Section
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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American Institute of CPAs® Personal Financial Planning Section
Planning for end-of-life
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American Institute of CPAs® Personal Financial Planning Section
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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American Institute of CPAs® Personal Financial Planning Section
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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American Institute of CPAs® Personal Financial Planning Section
Survivor issues
Education • Expenses, needs, care • Income, tax issue
Preparation • Team relationships • Documents • Financial stewardship
Support • Trustee responsibilities • Blended families
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American Institute of CPAs® Personal Financial Planning Section
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
American Institute of CPAs® Personal Financial Planning Section
Questions
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American Institute of CPAs® Personal Financial Planning Section
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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American Institute of CPAs® Personal Financial Planning Section
Upcoming PFP Section Events Webcasts: free for PFP/PFS members without optional discounted CPE
AICPA Advanced Personal Financial Planning Conference (cpa2biz.com/PFP) – January 19-21, 2015 in Las Vegas Implementing PFP Services: Step-by-Step Plans for Success – January 17-18, 2015 in Las Vegas (2-day session only or bundle with PFP conference) For the full calendar of upcoming PFP Section events, visit aicpa.org/PFP and click on CPE & Events. Access the archives at aicpa.org/pfp/webseminars.
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June 11 1-2:45p.m. ET
The Mathematics of Portability
June 18 1-2:45p.m. ET
A Qualitative Approach to the 1040
June 18 1-2p.m. ET
Washington Tax Brief
July 8 1-2:45pm ET
Advanced Financial Planning Strategies Using Roth IRAs
American Institute of CPAs® Personal Financial Planning Section
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
Philadelphia, PA • Various CPA associations and state societies
Visit aicpa.org/pfp/standards
*Archives for PFP/PFS members available at aicpa.org/pfp/webseminars. **PFP/PFS and Tax Section members receive additional discounts on the early-bird & AICPA member price.
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American Institute of CPAs® Personal Financial Planning Section
CPA/PFS News and Events
PFS Referral Program • Receive 100% credit to apply toward future CPA/PFS dues by
referring a CPA to become a PFS or sit for the PFS exam
PFS Exam • Register by June 12 for Summer window (open June 19-July 31) • Discounts, sponsorships and volume pricing available
Education Opportunities • In-depth courses in estate, retirement, tax, investments,
insurance, and PFP process • In-person and online PFP Boot Camp • Self-study PFS exam review course
Learn more at aicpa.org/pfp/pfs
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