cpas see a generation with underfunded plans.
by rick telberg
at large
not since the advent of the pill have so many baby boomers been caught with their pants down.
so say the vast majority of cpas (albeit in other words) who see their clients as woefully unprepared for the financial rigors of retirement.
by “vast,†i mean 92 percent. by “pants down,†i mean caught by surprise and less than ideally positioned for a post-retirement trek that 80 percent of our survey respondents predicted will last at least 21 years. forty percent, in fact, said boomers had better be ready to fund themselves for at least 26 years after they retire.
cpas can expect the so-called “silver tsunami†to start hitting their shores this year. it may have already begun when, a few weeks ago, kathleen casey-kirschling filed for social security benefits. the 62-year-old new jersey grandmother was born jan. 1, 1946, in philadelphia—the first of 80 million boomers to be born from 1946 to 1964. she’s now the first of the generation to be eligible for benefits.
our survey is uncovering some of the reasons the bulk of the boomers will likely face hardships just as they expect to kick back and relax. eighty-one percent of our respondents believe their clients have inadequately funded their iras, 401(k)s, and other retirement accounts. fifty-three percent say their clients don’t follow through on their plans, and slightly more say client portfolios are unbalanced or improperly invested. a third say clients fail to follow professional advice.
maybe the economic boom of the last 50 years has left the boomers a little too optimistic. fifty-six percent of our respondents said their clients have unreasonably high expectations for their investments’ rate of return. just under half said they used six to seven percent as a rule-of-thumb rate for the upcoming 20 years. only 25 percent expected a rate of eight to ten percent. almost as many—19 percent—tell boomers they can count on only four to five percent.
between sloppy portfolios, underfunded plans, and low rates of return, 47 percent say, boomers are going to have to work longer than they currently expect.
gary davis, cpa, a partner with davis & brandel cpas, inc., in columbus, ohio, cut to the crux of the problem: “we should also be known as the grasshopper generation,†he quipped. “play all summer and don’t think too much about the winter.â€
ron dickinson, president of dickinson & clark cpas in council bluffs, iowa, gives boomers a little more credit, saying, “many have a general idea whether they have enough pensions, social security, and investments, but they don’t understand the long-term implications of inflation and taxes.â€
and that brings up a related issue: who’s advising boomers as they slouch through the late autumn of their lives?
we found that only 37 percent of our respondents provide savings and investment advice, and only 20 percent are working with funds, reits, etc. but 57 percent are involved in retirement planning, the spend-down side of the retirement process.
the survey didn’t reveal much enthusiasm for partnering with third-party financial services providers. sixty-five percent said those providers were too “sales-oriented,†35 percent said they weren’t as concerned as the cpa with what’s best for the client, and 48 percent feared that a mistake on the provider’s part could hurt the cpa’s relationship with the client.
the clear need for better financial counseling, the lack of confidence in the providers of financial services, and the perceived independence of the cpa add up to a final statistic that seems almost inevitable: 86 percent of respondents thought cpas will become at least somewhat more involved in personal financial planning over the next three to five years.
that’s a major shift in the function of the cpa. and it comes not a moment too soon. the boomers are lining up, and they sure aren’t babies anymore.
copyright © 2008 bay street group llc. all rights reserved. used by permission. first published by the aicpa.
5 responses to “boomers face bleak retirement”
gareth degollier, mba
rick—i don’t know how old you are and what you’ve been brought up on, so you may or may not relate to the following.
i am a leading edge boomer, and i hope i don’t sound too radical, but human beings were never intended to retire 2/3 of the way through their adult life and in their prime. retirement is a relatively recent concept. people who think they are entitled to retire comfortably in their 50’s and 60’s, and have their healthcare and other needs met, have been sold the bankrupt “great society†socialistic bill of goods. work it from any standpoint you want, it is absolutely not economically feasible. it all eventually has to balance. it also shortchanges society as a whole depriving society of what could have been contributed by the retired individual otherwise.
people don’t seem to realize that it all has to be paid for one way or another, and all the jockeying around seems to be not about how do we live within (or lower than) our means; rather, it is about who (else) is going to pay for it. most people don’t understand there is no “they†who will pay for it. it is the individual who has to pay; not the government via taxes paid by the individual; not businesses and their retirement plans via either profits from the sale of goods and services paid by the individual or compensation less than could have been; not investments via funds ultimately routed with individuals being the ultimate payers in one form or another. there aren’t enough funds to go around especially once you factor in healthcare expenses. of course, there may not be adequate staffing to meet healthcare needs if too many think it their right to retire once they reach an arbitrary age. staffing shortages are already cropping up.
and i guess this relates to your point, individuals have not adequately prepared. having said all of this, my biggest concern is that the current mindset is that people are going to retire regardless, and nobody is pushing the message that society (collective individuals) can not and will not support a large population of unproductive individuals. that may even be true if the individual has socked away enough to support himself. politicians will never own up to the reality that they can’t provide the solution. even when failure is obvious, they won’t say we are on our own, but they will say that they tried/are trying everything possible. (falling all over themselves to see who could throw the most money at the katrina situation for example, c’mon) the fact is that those who have not prepared will be sol.
by the way, i live in the minneapolis area where bridges collapse because there is an untold amount of “deferred maintenance†because government has a higher priority for other things and can’t afford everything, but the department of transportation will not own up to it and press for what is essential (as opposed to optional) and make the governor look bad by doing so. federal government; same way; over promising for exciting “new†programs with the bills yet to come due for existing programs and with unexciting/non-newsworthy areas of infrastructure needing shoring up. why on earth a new federal drug program when there are concerns about roads, bridges, education, healthcare, power grid, air traffic controllers, you name it?
people weren’t expected to live to 65 when social security was implemented. and now what is the average life span? in the eighties now, and soon to be a lot older with medical and technological advances? (that is except for those people who are unfortunate enough to be unhealthy or to have abused their health). the clear solution to me is to quickly reset retirement age to 75 or 80, or say to 90-95% of life expectancy. by quickly, i don’t mean this nominal phase-in from 65 to 67 over an extended period crap. when was that passed? in the early 80’s? i mean something like add a half year for every year that elapses. this will take care of both the cost and the staffing issues. medical studies have proven people, especially those who have taken care of themselves, are viable and capable much later in life. the length of the end-life stage has remained relatively constant. being productive and not retiring can take many forms other than a “regular†job and most likely will add to the quality of the individual’s life.
all of this may not be what you are expecting to hear. i hope it hasn’t sounded too negative, but i have little patience for the smoke and mirrors or the lack of real solutions. i personally believe many people will delay their retirement on their own as employers recognize the value of experience and encourage people to stay. there will be innovation, and we will see more flexibility in hours and in location of work as well as job sharing. alternatively, those who enjoy staying active will either start businesses, maybe with the help of the former employer, or if they are financially set, will volunteer their experience for the overall good of society. individuals will directly help others in need without incurring the overhead and administrative burden of governmental agencies as long as they have resources available not taken with confiscatory taxing.
hey rick—i’ve vented and burned through a bit of time here, but i feel somewhat better. i hope i didn’t spoil your day while doing so.
best wishes,
g. ray degol, mba
jeff
your articles and topics are always so negative. is there never anything positive to report about?
jeffrey l. saltzer, cpa, partner
hi rick,
interesting related story i heard just this weekend that gave me great pause for thought. some economists were predicting as much as a 50% reduction in the dow as a result of boomers taking their nest eggs out of the investment markets and living on it. talk about dis-intermediation. wow!
jeffrey l. saltzer, cpa, partner
marcum & kliegman llp
655 third avenue-16th floor
new york, ny 10017
edward e. walton, cpa (inactive), cebs
dear mr. telberg,
the gist of your article about the boomers’ unprepared financial condition for retirement matches exactly what i gather from conversations with fellow boomers. as a year two (1947) boomer myself, i would like to offer some additional factors that contribute to this unpleasant, unplanned scenario. first and foremost is the continuing decline in defined benefit retirement plans, second is the number and frequency of job changes for boomers, third is the fact that defined contribution retirement accounts and iras did not become common until twenty years into the work life of early boomers, fourth is the relatively late improvement in erisa vesting requirements in the work life of boomers (impact on # 2), fifth is the lack of financial training for the first generation that is responsible for its own retirement planning, sixth is the huge increase in medical costs that has out-paced inflation and medicare, and seventh but not least, what i call america’s conversion to a materialistic society that goes beyond the grasshopper generation you mention to a world view based on current consumption instead of investment.
if there is a formula for the perfect financial storm facing a generation planning to retire, the conditions above are a close definition. the one bright spot i hear again and again is that most boomers don’t plan to retire at 55 or 65 but plan to work to age 70 and beyond. this will be both possible and practical because there has been a deficit in the number of new workers entering the work force for years with the trend expected to continue for many more years. the only exceptions to retirement age are those who worked for governments or the few companies with defined benefit plans where one can still have a thirty plus year career. the “work longer†solution solves three problems: continued medical insurance, five to ten more years of contributions to retirement accounts, and five to ten fewer years to draw against those retirement accounts.
a good read is craig s. karpel’s 1995 book, the retirement myth. there are lots of similar books with the same message about unrealistic expectations for the u.s. economy to continue supporting millions of able bodied citizens as the proportion of aged increases relative to the number in the working population.
the cincinnati enquirer just ran a headline article on the impending worker shortage for ohio estimated to hit in 2012 when boomers really start retiring.
thanks for a good article and keep up the efforts to get cpas involved with educating the public on topics like retirement planning as well as retirement spending.
edward e. walton, cpa (inactive), cebs
cfo union institute & university
cincinnati, ohio
mike strelka
dear rick: one piece of the retirement puzzle i think you (and other cpa’s) might be missing is the wealth from the ww2 generation that will be handed down over the next few years. that might be what the boomers are counting on to secure their retirements.