How CPAs Can Protect Baby Boomers' Nest Eggs from Derailers

  1. Take a leadership role.
  2. Use a financial planning system to identify risks and solutions.
  3. Educate clients' children on the basics of financial planning.
1. Take a leadership role: Although there are many definitions of leadership, the one that stands out for Magson is when a person partners with someone else to achieve a goal that couldn't be achieved on his or her own. In this case, baby boomers partnering with a CPA to achieve their financial goals.
 
According to the survey, 42 percent of respondents rely on a financial advisor to get their retirement finances back on track. Those who work with a financial advisor are much more likely than those who don't to have a written financial plan (74 percent versus 39 percent).
 
"CPAs are ranked extremely high as a trusted service provider on surveys, right up there with clergy and police officers and other trust professions," Magson said. "They have a responsibility to leverage that trust by taking a position of leadership and having the courage to address some of these potentially emotional topics with their clients."

Risk Management Conversation

Jeff Magson, vice president of sales and platforms for 1st Global in Dallas, said CPAs should talk to their clients about the following three strategies during a risk management conversation:
 
1. Accept the risk. Identify the probability and magnitude of the risks - then discuss risk management strategies that make the most sense for the client.
 
2. Transfer the risk. Determine how that risk can be transferred outside of the household (such as insurance).
 
3. Combine the two. Develop a plan that combines the other two strategies.
 
2. Use a financial planning system to identify risks and solutions: Magson said CPAs should use a financial planning tool to show their clients how prepared they are financially to deal with unexpected events that could hamper their savings efforts.
 
1st Global offers a software program called Sustainable Income Solutions that's specifically designed for CPAs to assess several different risks that can take a toll on a retirement plan, Magson said.
 
"It's almost like a retirement stress test," he added. "You can toggle up or down and show your clients the things that could go right or wrong in retirement. Some of the risks could be helping out a child, inflation, market risk, or long-term care  the effects of an unexpected illness or injury. CPAs can put these risks in as a one-time expense and show their clients what that expense would do to their retirement nest egg and how much less they could take out each month and not run out of money."
 
The risk management conversation would be different with a client who has never been affected by a derailer versus a client who has.
 
"Simply open that discussion by asking this question: Have you ever experienced something like this, or are you close with someone who has? Trying to understand what the client's perspective is of the magnitude or probability of a derailer happening is a good start," Magson said. "If someone has had a derailer in the past, it probably expedites the discussion on solutions because he or she has seen this happen before. Folks who have had an experience with a derailer probably are more likely to talk about it."
 
3. Educate clients' children on the basics of financial planning: One aspect of the Ameriprise Financial survey that fascinated Magson was how kids can be a potential derailer to their parents' savings. He said CPAs can have a basic financial planning conversation with baby boomer clients and their children to help the kids become better financial decision makers.
 
"I wouldn't recommend that the CPA approach the conversation with the kids as a way to protect their parents," Magson said. "Instead, I would approach it by saying, 'Your parents, who have done well financially, have asked me to talk to you about how you can make the same types of decisions that they've made so you can be as successful as they are.' Then you would follow the same basic course for your financial planning discussion."
 
Magson also said the discussion should touch on savings rates and how a portion of income should be saved into an account for emergencies.
 
"People talk about setting aside three months of expenses as a good savings. That's not a good savings; it's a good start," he said. "People are out of work now for six months to a year. Having a conversation about having liquidity that can sustain a family up to a year makes more sense in this day and age. It's hard to get there; I understand that. But every day that you put something toward that yearlong goal is one more day that you're safe should anything happen."
 
About the survey:
The Retirement Derailers survey was created by Ameriprise Financial Inc. utilizing survey responses from 1,000 employed and retired Americans ages fifty to seventy. All respondents have investable assets of at least $100,000 (including employer retirement plans, but not real estate). The survey was commissioned by Ameriprise Financial and conducted via telephone interviews by Koski Research from February 21 to February 28.
 
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