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

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. 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.