By: David Vaikness, CLU, ChFC®, Director of Distribution Planning, 1st Global
A recent study from the Employee Benefit Research Institute (EBRI) shows that people are not confident they will have enough saved for retirement.[i] The March 2013 Retirement Confidence Survey revealed that 49 percent of those polled indicate they are "not very confident" or "not at all confident" they will have enough income in retirement. Regarding savings, twenty-eight percent of those surveyed indicated they are "not at all confident" they have enough saved, while another 21 percent said they are "not too confident."
The results of this survey confirmed something that many of us in the accounting and financial industries have been aware of for quite some time. Seven out of 10 people have never talked to a professional about their financial situation nor do they have a plan in place for when they retire.[ii] If this trend continues, I believe we are headed for a major crisis.
Taking Personal Responsibility
Statistics show that a significant number of people believe that someone else will take care of them once they retire because they won't be financially prepared to take care of themselves. If this trend holds true, we will eventually see a drastic change in our way of life and family structure. Homes will begin to consolidate as parents move in with their children and this shift may have an impact on the real estate market. We may also see an increasing number of elderly homeless people as those who don't have families to turn to are forced from their homes. Individuals without a plan will be left out in the cold.
As CPAs and financial advisors, it is our responsibility to make sure people don't run out of money in their retirement. We need to take it upon ourselves to address the situation and we need to do it now. Think of it like this: When a natural disaster strikes, people tend to band together to help those affected. After Hurricane Katrina hit New Orleans, people from around the country stepped up to provide food, water, clothing, financial donations and other forms of aid to the city's residents.
CPAs and financial advisors need to get themselves in motion in the same way, but keeping one important difference in mind: hurricane victims are aware that they're victims because of the devastation to their families, homes and communities. People who aren't adequately planning for retirement don't realize they are victims until it's too late. That's why it's our job as CPAs and financial professionals to make people aware of their financial future and help them develop a plan.
Luck Favors the Prepared – Take the First Step
The first step in combatting this increasing trend is believing that you can help. As a financial advisor or a CPA, you must believe that your knowledge and services can actually help people avoid these pitfalls. Five out of 10 people will fall into a group where their retirement may be in peril. Don't let your clients or prospects be part of that group. If you truly believe that you can help, then it's much easier to reach out and do so.
Secondly, you have to ask your clients about retirement. Do they have a long-term vision? Do they feel that they will be able to retire comfortably? Are they currently working with another financial professional? If so, are they comfortable with the plan that they have established? This conversation has to take place.
Convince your clients that they have to dedicate time for financial planning just as they would for their summer vacation. We've all heard the vacation analogy before. If your client is spending five or six hours planning a week-long vacation, but only dedicating 15 minutes a year on retirement planning, then something is seriously wrong with that picture. If people don't prepare, they might get lucky down the road, but luck favors the prepared.
Encourage your clients to sit down and spend the necessary time planning for retirement and impress upon them that retirement plans are not "one and done" solutions but objective strategies based on information available at the time. Start by scheduling three separate appointments that last one to two hours each. Then use that time to develop a comprehensive personalized plan. Help them determine how they spend their money and compare that with their assets and sources of income. Will they be able to continue their current level of spending in retirement?
When people actually sit down and look at what they'll have to spend, they are usually surprised. I can't tell you how many of the client cases that I've reviewed where the clients were totally unaware of how much they are spending relative to their means. I'm sure you've seen it many times yourself. As CPAs and financial advisors, we owe it to our clients to make them aware of their future.
Go out and ask. Explain what you do. Offer to help. Be accountable to those around you and don't stop until you've done your part.
David Vaikness is director of distribution planning for 1st Global. He is dedicated to educating 1st Global advisors on the benefits of utilizing the five steps of solutions-based financial planning.
1st Global Capital Corp. is a member of FINRA and SIPC and is headquartered at 12750 Merit Drive, Suite 1200, in Dallas, Texas 75251; (214) 294-5000. Additional information about 1st Global is available at www.1stGlobal.com.
[i] Employee Benefit Research Institute – Issue Brief March 2013, No. 384