President Perceptive Business Solutions Inc.
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How to Help Clients Hopelessly Behind in Retirement Planning

Apr 5th 2018
President Perceptive Business Solutions Inc.
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Financial Advisor Talking To Senior Couple At Home

At tax time, many accountants offer clients advice concerning things to do differently next year; being inadequately prepared for retirement is a problem most Americans face and an opportunity for CPAs to help.

Some clients simply give up. Your salaried clients might say they will never be able to afford to retire and will be carried out of their office feet first someday. Other clients who own businesses find the vast majority of their wealth is tied up in the firm.  What’s their exit strategy?

These are areas where your help can range from offering free advice to providing advisory services focused on retirement planning or business valuation.

10 Discussion Points

As an experienced professional, you can offer an objective point of view.  The first step to helping a client solve a problem is defining the scope.

Let’s assume you’ve already taken this step. You bring enormous value because you are a fiduciary. You are selling advice, not a product and business valuation is also a billable transaction, so here are 10 points you can discuss with your clients regarding their retirement plans.

  1. The Three Options. Assuming your client is behind the eight ball concerning tax deferred retirement savings, they have three basic options: Save more while they are working, decide to postpone retirement and work longer and consider reducing the amount of income they expect in retirement.  It’s likely they won’t like any of the choice, but it’s a starting point.
  2. Four Sources of Income.  Your client might be scared because the combination of Social Security, Asset income and retirement benefits might not provide enough income. Many people choose to stay in the workforce on a part time basis, generating employment income. Your client might consult in their industry.  Their hobby might be a moneymaker.  It might not be a huge amount, but it keeps them occupied and brings in money.
  3. Taking Advantage.  Most clients probably participate in 401(k) plans at work.  They might have an employee stock purchase plan, often allowing them to put money aside to buy their company’s stock at a discount.  In both cases, the company is putting money on the table alongside the funds your client commits.  Are they taking full advantage?
  4. Total Return vs. Income.  Traditionally people thought about investing for growth during their working years, then converting to income investments in retirement.  People often refer to retirees as living on a fixed income.  Your client might be lagging because we are in a low interest rate environment and the conversion to fixed income leaves them short.  Explain the equity investing concept of total return.  They collect income from stock dividends while occasionally selling a security, hopefully with an additional capital gain.  For years, the 4% rule has been an industry norm when projecting retirement account withdrawals, but this has issues.
  5. Spending Principal.  Traditionally people (certainly future heirs) thought you kept the principal intact, spent the income and passed your next egg intact to the next generation.  This might have been true when almost everyone had a generous defined benefit pension plan, but times have changed.  Clients may want to provide income for their spouse and themselves in retirement, but there’s no rule saying you need to provide your heirs with a windfall.  It’s acceptable to reach into principal during retirement.  Many financial planning tools run detailed “what if” scenarios.
  6. Pull Down the Sails.  As your client approaches retirement, it’s time to take a hard look at their fun assets and toys.  They might own a summer house at the shore or a cabin in the mountains.  They might collect wine or restore classic cars.  These represent ongoing expenses and are a potentially valuable asset if sold.  They should be considered as sources of potential retirement income.
  7. Reducing Debt.  One of the easiest ways to earn a 15% return on your money is to stop paying 15 percent interest on consumer debt.  Many people carry revolving charge card balances.  If they can reduce debt by paying off those cards, that’s great.  At least they should shop around for a lower rate on transfer balances, hopefully with a lower rate after the honeymoon period.  Converting home equity lines of credit into a fixed rate mortgage can be a smart strategy in a rising interest rate environment.
  8. Downsizing.  For many Americans, their home is their largest asset.  It also costs money to maintain, not even counting taxes and insurance.  As clients age, stairs might become a problem.  Maintenance becomes a chore.  Should they consider downsizing?  This can provide additional cash for retirement living.
  9. Where to Retire?  Many parts of the country offer quality of life, nearby medical care and a low cost of living.  A 2017 AARP article referenced a Forbes study showing the top 25 places to retire in the US. Your client might find this attractive.
  10. Selling the Business.  Your business owning client likely has the majority of their wealth tied up in the firm.  Something needs to happen if they want to release funds for retirement.  They might choose to transition the business to the next generation, sell the business to their employees through an Employee Stock Ownership Plan (ESOP).  In 2010 Money magazine told how Bob’s Red Mill Natural Foods created a plan to reward their employees and develop an exit strategy for themselves. Your client might choose to simply sell the company to an interested buyer.  It all starts with getting an accurate business valuation.

Clients look to you for advice, especially around tax time. Retirement planning is a huge issue for many Americans, and, more importantly, it’s another area where you can demonstrate your value. 

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