Sounding the Retirement Alarm for Baby Boomers: CPAs, Financial Services Providers Heed the Call

Article excerpt

by AICPA Custom Media Solutions

As record numbers of Americans start sprinting toward their retirement years, CPAs are being sought increasingly to help clients develop prudent financial catch-up strategies: many workers finally realize that Social Security and pension benefits may not be waiting for them at the finish line.

An astounding 94% of CPAs surveyed in last month's Bay Street Group/CPA

Insider[TM] reader poll felt that Baby Boomers--Americans born between 1946 and 1964--are not prepared adequately for retirement, with particular disconnects between how long they'll need to keep working, how much they'll need to save, how long they'll be retired and what kind of investment returns they'll earn on their retirement accounts. Nearly 1,200 AICPA members had responded to the survey at press time.

"Assume Social Security will be zero and plan accordingly," advises Richard J. Auld, retired partner of Eide Bailly LLP in Sioux Falls, SD. "Then whatever you get from Social Security will be like finding money in the street."

The good news for aspiring retirees is that, increasingly, CPAs are providing financial planning/advisory services to their clients--nearly 20% are doing so today, almost twice as many as were doing so in 2002, according to research conducted by CEG Worldwide; LLC, Bay Street Group, LLC; and the AICPA's PCPS division. Nearly nine in 10 (87%) respondents to the latest Bay Street Group/CPA Insider[TM] poll thought that CPAs would become more involved in financial planning over the next half decade. Many savvy financial service providers have developed CPA alliance programs to build on this momentum.

Taking a cue from the AICPA's Financial Literacy Program, members can be particularly effective at helping clients overcome their financial inertia. More than half (53%) of CPAs surveyed told us that Baby boomers in general had unbalanced investment portfolios; 52% said boomers were reluctant to "follow through on retirement planning"; and one in three said Boomers "failed to heed professional advice."

"Failing to plan is planning to fail" notes Scott M. Wakerley, CPA, president of a small Newaygo, Michigan firm. Adult workers should be putting "the necessary time and thought into planning, and then stick to it long term. They need to set aside at least 10% of salary for diversified investments utilizing tax advantaged savings."

Five out of six (84%) CPAs surveyed indicated that Baby Boomers have significantly under-funded retirement accounts, compounded by the fact that they'll be earning only 6.2% on average, on their retirement funds--and that's pre-tax. Nearly one third of surveyed CPAs said retirees should project annual rates of return of 5% or less (pre-tax) on their retirement savings.

Not only must aspiring retirees adjust to a single-digit investment climate, they must also stretch out their time horizons. Nearly two-thirds of CPAs surveyed said boomers are going to have to work longer than they planned, and they're going to have to make their retirement assets last longer. More than seven in 10 (71%) CPAs expected the typical boomer to be retired for at least 21 years, and nearly one third expected the typical boomer to be retired for 26 years or more.

"Too many individuals are focused on early retirement instead of working longer and planning a life span of 85 or more years," said Bill Quinn, president of a small firm in Clarksburg, WV. "The question for many should be: 'Would you be willing to postpone your retirement date if you thought you might live to be 85 years old or older?'"

"Personal financial planning is by definition a process," notes Daniel G. Corrigan, President of Middletown, Rhode Island-based Corrigan Financial, Inc. To be successful, clients and their financial advisers need to embrace a three step process: "One: Construct a financial framework. Two: Establish an investment policy. …