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The road to retirement starts here

Older couple riding a bikeWhen it comes to saving for retirement, there is no one-size-fits-all plan. Each American has a unique and fluid situation, impacted by a variety of factors. Fortunately, CPA financial planners are well-versed in the different aspects that go into a tailoring a retirement plan that best fits their client’s needs.

I sat down with Leonard Wright, CPA/PFS and member of the AICPA Personal Financial Specialist Credential Committee, to learn some best practices for starting a retirement plan that helps maximize enjoyment during your golden years.

Jonathan Lynch: A recent survey found that less than half of non-retired Americans are confident they will reach their retirement goals. With all the uncertainty surrounding retirement -- where should someone without a plan begin?

Leonard Wright: Before bringing numbers and calculations into retirement planning, simply think about where you want to be when you reach that stage of your life. Ask yourself how you envision enjoying your retirement years. Define exactly what your desired lifestyle will entail. Will you downsize your residence? Do you plan on travelling? Would you consider working part-time? And perhaps most importantly, what age would you like to retire?

Once you have a clear vision in mind, you can start building the plan to make it a reality.

JL: A survey of CPA financial planners found that running out of money and maintaining current lifestyle topped the list of clients’ financial concerns. How does a budget today play into retirement later?

LW: Creating and sticking to a specific, detailed budget can be the difference between a relaxed retirement and years of penny-pinching anxiety. It is never too early to create a budget. Start simple. Calculate how much money is coming in, how much debt you owe and how much money it will cost to reach your desired retirement lifestyle. To help with these calculations, visit the AICPA’s 360FinLit.com where you’ll find free retirement planning calculators, monthly debt payment calculators, a retirement budget building checklists and other free resources.

Once you have a budget you know you can stick to, put it into action!

JL: What are some often overlooked factors someone just setting out to create a retirement plan should take into consideration?

LW: People should learn to expect the unexpected. Accidents and illness happen. It is an unfortunate fact of life we must prepare for in advance. Take time now to consider how you'd pay for everything from minor issues like a car repair to a serious one like a grave illness. Are you protected in case of disaster? Do you have enough homeowner's insurance and the proper riders to cover a major calamity? Is your health insurance / long-term care insurance sufficient?

People also forget to take into consideration how the transition into retirement changes opportunity. For instance, consider what impact that old life insurance policy may have. It may be able to serve as an asset to pay for your long-term care insurance tax free. Also, if you have the long-term care covered, you may be able to shift your life insurance policy to an annuity to pay you and your spouse income for the rest of your life. Or, if your pension ends when you pass away, it may pay to convert some of your term insurance to make sure your spouse has enough to live on for the rest of their life.

Lastly, if you have disability income insurance, maybe it is time to consider scaling back your coverage if you have been a good saver over your lifetime. If you’re in your 60s, disability income policies may limit the number of years you are paid to only a couple of years. You must evaluate the terms and conditions of your policy in order to arrive at decisions that are in your best interest.

JL: How do retirement-saving strategies differ for someone in their 20s compared to someone in their 50s?

LW: As much as Americans want there to be a set-it-and-forget-it option – best practices say to check in regularly. The issues impacting retirement planning are constantly evolving, underscoring the need for a sophisticated financial plan that changes with your situation. For instance, as you get older, it is usually a good idea to diversify assets and switch your retirement savings to include a more conservative mix. Also, as personal income and tax policy change, tax planning strategies that are integrated into the best retirement plans evolve over time. To help with the retirement planning basics, the 360 Degrees of Financial Literacy website provides articles, calculators and Q&A’s.

For the more complicated issues, a CPA financial planner is the perfect advisor to help save you time, money and confusion.

Jonathan Lynch, Manager - Public Relations, Association of International Certified Professional Accountants

Retired couple riding a bike courtesy of Shutterstock.


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