Retirement Planning and Issues Related to Aging

Transcription

1 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

2 Administrative Notes Please ensure your pop-up blocker is disabled. Note the interactive toolbar at the bottom of your screen. Download slides and materials by clicking this icon. Ask questions by entering your question in the Q&A box. Please click the Help and/or Contact Us at the bottom of your screen. Call AICPA Member Service at

3 Continuing Professional Education You must answer at least 75% of the random, attendance checks to earn CPE credit. Please respond to the attendance checks during the live presentation. You are not eligible to earn CPE by watching the archive of this event. After answering the required number of attendance checks, you can access your CPE certificate by clicking this orange icon. 3

4 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.) 4

5 Introductions Lyle Benson, CPA/PFS (Moderator) Jean-Luc Bourdon, CPA/PFS Lori Luck, CPA/PFS Ted Sarenski, CPA/PFS L.K. Benson & Company BrightPath Wealth Planning CLS Financial Advisors Blue Ocean Strategic Capital 5

6 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 6

7 Planning for retirement 7

8 US population by sex and age groups Population Estimates by Age and Sex BOTH SEXES MALE FEMALE FEMALE % Total - All Ages 307,006, ,449, ,557,060 51%.Under 60 years 251,624, ,048, ,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, ,882 1,077,381 72%.95 to 99 years 401,977 82, ,842 80%.100 years and over 64,024 8,758 55,266 86% 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-EST ) U.S. Census Bureau, Population Division - Release Date: June 10, US Administration on Aging 8

9 Aging population 9

10 Blended families 10

11 Multi-generational households 11

12 Parents should help their children with: Source: MetLife Mature Market Institute 12

13 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 13

14 Households at risk at age 65 Risk of not being able to maintain pre-retirement standards of living in retirement Source: Center for Retirement Research at Boston College 14

15 Ongoing retirement planning need 15

16 Higher income longer life 16

17 Higher income longer life 17

18 18

19 Social Security matters 19

20 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 20

21 2013 Social Security facts 58 million people received benefits totaling $ 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 21

22 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 22

23 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

24 No wage earner timeline Higher wage earner 62 FRA 70 $2,000 FRA Benefit File and Begin $2,640 Suspend Benefit No Wage Earner Begin $750 Spousal Benefit OR Begin $1,000 Spousal Benefit 24

25 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 Begin Reduced Own of $450 of $850 Add Spousal for total OR Begin $1,000 Spousal Benefit 25

26 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 26

27 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 Ben

28 Additional planning considerations Survivor (death) benefits Repay and re-apply Disability benefits Windfall eliminations provision Government pension offset Divorce Medicare planning 28

29 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 29

30 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 30

31 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 31

32 Planning for end-of-life 32

33 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 33

34 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) 34

35 Survivor issues Education Expenses, needs, care Income, tax issue Preparation Team relationships Documents Financial stewardship Support Trustee responsibilities Blended families 35

36 Available free: aicpa.org/pfp/consumer 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 36

37 Questions 37

38 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 38

39 Upcoming PFP Section Events Webcasts: free for PFP/PFS members without optional discounted CPE June :45p.m. ET June :45p.m. ET June p.m. ET July 8 1-2:45pm ET The Mathematics of Portability A Qualitative Approach to the 1040 Washington Tax Brief Advanced Financial Planning Strategies Using Roth IRAs 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. 39

40 Statement on Standards in PFP Services SSPFPS has been issued and becomes effective on July 1, 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. 40

41 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 41