EstatePlanning
    By Michael Wegge, CFP and Michael B. Allmon, CPA




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EstatePlanning
favorable treatment. It’s likely, for example, that   life. A more “normal” investment portfolio       a fi...
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Changing Landscape: Are Aging Baby Boomers Ready for Retirement?

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SEPTEMBER 2008 Discusses various methods of saving for retirement in a changing economic landscape.

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Transcript of "Changing Landscape: Are Aging Baby Boomers Ready for Retirement?"

  1. 1. EstatePlanning By Michael Wegge, CFP and Michael B. Allmon, CPA Changing Landscape Are Aging Baby Boomers Ready for Retirement? income and assets to withstand a long-term participation rate of all age groups, says illness or disabling condition totaling $150,000 SmartMoney.com. The key is contributing as over three years. much as possible into such plans. Likewise, While in 1900, retirement lasted an consistently putting money into an IRA average of only one year, the U.S. Department or other retirement plans may gain tax of Labor reports that Americans now spend advantages and grow one’s nest egg, but it’s an average of 18 years in retirement. important for CPAs to review each client’s Since health and long-term care are, situation in this regard. R by their very nature, unpredictable and CPAs will want to consider: risk tolerance risky, clients will need to answer a number verification, adherence to contribution limits, Ready or not, there they go. America’s of questions regarding their health, family potential Roth IRA conversions, and taxable baby boomer generation—more than longevity and preferences for care to help growth (and short-term/long-term capital 78 million strong—is fast approaching advisers address their needs. gains treatment) versus tax-deferred growth retirement. And many, especially the eldest Often, a prudent path for clients is to (and ordinary income treatment). boomers, are rethinking how they will spend, transfer risk by using Medicare at 65 in Following this inquiry, CPAs can provide and pay for, their retirement years. addition to a health insurance supplement the client with specific questions to ask an With life expectancies increasing, some and a long-term care policy. Otherwise, it’s investment adviser that will help educate the 80 percent of boomers plan to work after nearly impossible to budget for a retirement client about the plan, or to give the client a retiring, according to AARP estimates. In fact, in which you could easily spend anywhere second opinion about the investment the Bureau of Labor Statistics projects that adviser’s recommendations. the number of employed Americans ages 55– CPAs who want to be a trusted adviser 64 will increase by 51 percent between 2002 in this matter will explain the process of and 2012, while those ages 65–74 will increase by 48 percent. CareerBuilder.com indicates Some 80% of evaluating investments and advisers and then encourage the client to apply what’s valuable that three out of five workers over age 50 plan to find new jobs when they retire, and 51 boomers plan to to their own situation. A business owner with consistent percent intend to work full time until age 65. work after retiring, income might put a pension plan in place With so much fundamental change, as to put away more than $100,000 per year financial advisers, we have had to change according to based on income and age to deduct from how we work with—and talk to—our clients about retirement. AARP estimates. current income (assuming a defined benefit pension plan makes sense considering other employees). At retirement, that same business Retirement Reality Check owner could collect up to $160,000 annually In addition to helping clients determine the from an additional $220,000 for short-term for the rest of his life. initial amount of income they will need at the health care needs to several million dollars for Other high-income earners can look time of their retirement, you also will need a long-term nursing situation, not to mention at long-term tax deferral of real estate and to follow up with clients at least annually to pharmaceutical and medical care. certain insurance products. Especially timely review any changes to their income needs due may be the implementation of such plans in to employment status, portfolio performance Funding Strategies case the next administration raises taxes on or health issues. More work: Continuing to work (even part incomes and investments. Because each person’s financial situation time) after age 65 can pay off. Those who As Congress acted in 1988, certain is different, there is no hard and fast rule retire at 65, work two days a week and earn insurance policies may effectively be as to how often the calculations should be 40 percent of their pre-retirement salary, can “grandfathered” allowing the most favorable performed. Generally, the closer to actual increase their savings by 30 percent during a tax treatment. Some employers offer deferred retirement, the more often calculations should five-year period. compensation plans giving a current tax be performed. deduction and deferral, but executives AARP estimates 73 percent of people Sock it away: Some 85 percent of boomers should understand that they are subject to aged 50 years and older do not have sufficient participate in 401(k) plans, the highest the company’s long-term viability to get the 24 C a l i f o r n i a C P a September 2008 www.calcpa.org
  2. 2. EstatePlanning favorable treatment. It’s likely, for example, that life. A more “normal” investment portfolio a fixed immediate annuity would receive the top executives of IndyMac felt great about would consist of diversified investments in approximately $9,825 per month for the their plan two years ago. stocks and bonds. rest of his life, while a variable immediate However, the annuity can be used to annuity would produce an initial payment Social Security: Social Security was intended demonstrate payouts. The annuity income of approximately $8,250 per month. to be one leg of a three-legged stool for However, while the fixed payout remains retirement income that also includes employer the same, had the variable payout been started pensions and personal savings. Even the in 1982, the payout would have increased to most pessimistic forecasts predict full payouts Some 85% of approximately $35,500 per month in 2008. through 2041. Using a combination of Social Security and employment income—even part boomers participate This is why a combination of plans may allow clients both the guarantees of security and the time—may curb the urge to dip heavily into savings too soon. in 401(k) plans, opportunity to outpace inflation. The above are but a few of the tactics out the highest there. Keep abreast of the changing landscape Savings/investments: Retirees looking to and you will be better able to help your client compliment their guaranteed Social Security participation rate adapt and have a happy retirement. CPA base with additional guarantees from their employer-sponsored retirement plans should of all age groups. consider increasing certain savings and Michael Wegge, CFP is a financial adviser personal investments. at Strategic Financial Group. Michael B. Just a generation ago, many companies stream can be structured as a fixed amount Allmon, CPA is a partner at Michael B. Allmon provided pensions for employees. In 1979, every month, or as a monthly payment, which & Assoc. LLP CPAs and founding chair of 84 percent of workers were covered by a fluctuates with the performance of the chosen the CalCPA Estate Planning Committee pension, as compared to 37 percent in 2005. underlying investment accounts. (www.calcpa.org/estate). You can reach them Today we can use an immediate annuity For example, based on current rates, a at michael.wegge@nmfn.com and to provide a guaranteed income for the client’s 65-year-old male depositing $1.5 million into mike@mbacpas.com.

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