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How to Help Your Clients Get Ready for Retirement

Retirement pigClients approaching retirement may be eager to make lifestyle changes, find a second profession or hobby, or even punch out their bucket list. Before they retire, they should consider income tax planning, healthcare coverage, long-term recordkeeping and housing options as part of their preparation plans.

Minimizing Taxes and Healthcare Costs

Clients want to know how much retirement is going to cost and how you can help them minimize those costs. Here are four strategies to consider with your pre-retiree clients:

Before collecting Social Security: Help your clients lessen their tax brackets in retirement by timing ROTH IRA conversions or traditional IRA withdrawals to fully use lower tax brackets each year from ages 60 to 71.

When transitioning from employer-sponsored health coverage to retirement health coverage: Your clients must consider COBRA along with Medicare and Medicare supplemental policies so they can avoid gaps in coverage. Help them do this by offering them education and guidance. Also understand that Medicare supplemental policies do not consider COBRA as creditable coverage, so make sure you consult with a qualified professional that specializes in Medicare and Medicare supplemental policies whenever your clients have COBRA or are continuing work with employer or union coverage after age 65.

When using inherited IRAs: Since inherited IRAs are no longer protected under Federal bankruptcy rules, one alternative to providing cash flow before age 59 ½ is to use the “substantially equal payments exceptions" of IRC 72(t) for spousal rollovers. This takes careful planning on your part to ensure your client makes withdrawals for at least five years after the first payment and until after the employee attains age 59 ½.

Long-Term Recordkeeping

Clients may hate recordkeeping, but it’s a must if they are going to avoid or reduce income tax and IRS nightmares.

The key is transparency and accountability. No matter what it is – a legal document, birth or marriage certificates, passports, driver’s licenses, childhood health records of immunizations and illnesses, Social Security cards, voter registration cards, or credit cards – scan and back up all of them. Remember to rescan these items as documents change or are updated.

If the client owned real estate, make sure they retain the closing statements and records of all improvements made for at least five years after their property is disposed of; this enables them to have a record of the cost basis if the IRS or state authorities come calling.

Keep an Excel or spreadsheet file on home improvements in order to report property gains when a home is sold. Update it periodically so that recreating the cost of owning the property for 40 years is possible. Document property received in a divorce, making sure each asset or investment is assigned with the cost basis accounted for. Consider a one-page summary of all life insurance, disability and long-term care policies still in force showing all contact information of agents, carriers and the level of coverage provided.

Housing Considerations

Adding a second home or relocating to a different part of the country is very common in retirement. Since housing is generally the biggest cost for a retiree, look at the cost of your clients’ real estate taxes and utilities if they are relocating. Here are some factors to consider with regard to housing:

  • Renting: In retirement, it’s not unusual for clients to make rash decisions without thinking things through. For example, some may buy a home, but may not be able to keep up with the emotional toll of living away from friends and family, not to mention the comfortable environment they once called home. As a result, renting may be the best move to see how your clients like the change of scenery and accommodations before advising them to fully commit to buying.
  • Buying: On the other hand, buying a new home can decrease the size of your clients’ empty nest, and avoid the rising maintenance costs associated with an aging home.
  • Income and estate taxes: In a move, check out all local and state taxes first, as income taxes can greatly lower cash flow during retirement, while legacies will be affected by high estate or inheritance taxes at the local or state level.

Be an Advocate for Your Clients

These are just three of the many issues to consider with your pre-retiree clients. Keep clients informed, educated and ready for all the ups and downs of pre-retirement so that they can best enjoy their lives after retirement.

More information on retirement can be found in James A. Shambo’s The CPA’s Guide to Practical Retirement Planning. Members of the PFP Section have full access to the entire guide, and retirement planning topics in the PFP Learning Library; nonmembers can access an excerpt here or buy the Guide through the AICPA Store. Visit the PFP Division’s Retirement Planning Center for more information on a variety of retirement topics. Jim will also be speaking on retirement planning at the Advanced PFP Conference in January 2016 as a part of the retirement planning track.

James A. Shambo, CPA/PFS, Lifetime Planning Concepts, Inc. In addition to running his own financial planning and investment advisory firm, Jim is a regular speaker on financial planning topics at AICPA PFP conferences, various state CPA societies and Financial Planning Association (FPA) state chapters.

Retirement pig courtesy of Shutterstock.


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