CPAs Can Help Americans Plan for a Secure Retirement

A recent CPA Letter Daily Poll recently asked the question, “What would make you cash in your 401(k) before retirement?” and an astounding 42% said nothing.  It’s not that they didn’t answer the question asked, because they did answer it, only their answer was “nothing.” Nothing would ever make them cash in their retirement savings before retirement. People are beginning to realize that you might need to struggle a little more today so that you do not have to struggle in your later years.

Of the remaining 58% respondents to the poll, 47% would use their 401(k) funds prematurely to supplement cash flow because of a loss of employment or to pay their mortgage.  Both of these choices fall into the category of providing cash for the needed expenses in life, certainly understandable.  The CPA Letter Daily is distributed predominantly to CPAs and I’m sure the respondents were also CPAs who have a current 401(k) plan balance.  What is the average worker in the U.S. doing to save for retirement?

A report issued by the Treasury Inspector General for Tax Administration, “Statistical Trends in Retirement Plans” dated August 9, 2010, reveals more sobering information about the state of retirement planning in the United States. First, as of 2007, the average value of plan assets per individual in an employer-sponsored retirement plan was $62,600. This amount is certainly not going to give anyone a worry free retirement for 30 years! And, this is before we had the financial meltdown of 2008 – 2009. Again, these are folks who are saving money in an employer sponsored plan. How many people are not saving in such a plan? According to the Survey of Consumer Finances cited in the same report, 39% of households at or nearing retirement did not have a formal retirement plan in 2007. Participation in employer sponsored retirement plans grew 102% in the ten years ending in 2007 but the participants represented only 46% of the total working age population as of that date.

What can we CPAs do? Clearly there is a financial challenge facing the population of the United States both from a personal standpoint and a national standpoint. The working population is not saving enough on their own towards retirement and the security of the Social Security system is being threatened by low growth and national deficits. Financial literacy education of our society is a must. CPAs need to be at the forefront of the effort to teach people how to take care of themselves financially.

We have all seen the major effort of the medical community in educating the population about proper nutrition, the value of exercise and the simple testing that can be done to monitor a person’s health.  We CPAs need to lead an effort to educate the population about living within one’s means, the value of compounded savings and monitoring progress in a simple personal financial statement. We need to help people realize that with life expectancy increasing over time, they need to be able to finance retirement well into their 90s.

If you’re not advising individuals on these matters from a professional standpoint, use the resources made available from 360 Degrees of Financial Literacy to educate your community. [Maybe explain that volunteering is not just good for their volunteer sprit, but also for marketing to potential clients?] If you are advising clients on these matters, use resources from the AICPA PFP Section to save you time and strengthen your advice.

Theodore Sarenski, CPA/PFS, President/CEO, Blue Ocean Strategic Capital, LLC. Ted is an appointed member of the AICPA Virtual Grassroots Panel, Social Security Task Force and Planner Magazine Editorial Advisory Board. Ted serves as Chair of the AICPA Elder Planning Task Force and is a liaison to the AICPA PFP Executive Committee. He also serves as a member of the National CPA Financial Literacy Commission.

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