Personal Financial Planning Feed

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The AICPA provides information, tools, advocacy and guidance for CPAs who specialize in providing estate, tax, retirement, risk management and investment planning advice.

 

 

 

 

 

 

 

 

 

 

 

 

 

 


 

Getting tech right in a Personal Financial Planning practice

Shutterstock_314913380What’s the right technology for your financial planning practice? In a recent AICPA podcast, I interviewed an expert panel of CPA financial plannersfor advice. Some offer tax compliance and investment management, while others do not. To learn more about their practices, check out this podcast.

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Helping your tax clients manage risk

Shutterstock_401845456After another successful busy season, it’s time to take a broader look at your clients’ needs. While tax is one important component of your clients’ financial picture, they need help in other important areas.

They may not be aware that managing risk affects their financial picture. There’s a significant relationship between your clients’ financial well-being and risk management.

Here’s one great example: The greatest potential economic loss for most clients is income loss, either through death or disability. Insurance often best addresses that risk because of the potential magnitude of the loss. If a client dies, beneficiaries inherit the death benefit free of any federal and state income tax, which can be tremendously helpful to those who were depending on the decedent’s income stream. If the policy has a cash value feature such as a universal life insurance policy, the cash value accumulates on a tax-deferred basis. It may be accessed through loans and taxed on a first-in, first-out basis, meaning that any premiums paid on the policy are taken out first and would be tax-free.

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Tax tops the list of best jobs. But wait — there’s more

DifferentA day before my meeting with Brooke Salvini, CPA/PFS, she receives a serendipitous note from one of her clients:

Thank you so much for your genuine way of being. You create such an atmosphere of peace, acceptance, and sincere interest in your work and in individuals. It’s just so clear you care. You’re appreciated by me. Please know you make such a difference in my life…

I call this note “serendipitous” because Brooke and I are scheduled to discuss the results of a recent survey published by Glassdoor and popularized by an article in Barron’s. The study reveals that tax managers have the best job in the United States — a claim supported by several measures including median pay, upward mobility and job availability. The study also echoes a popular notion championed by the AICPA — that automation and other technologies are untethering tax professionals from data entry and other repetitive accounting functions, allowing them more time to forge stronger relationships with clients.

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What to do when your client gets terrible health news

Ill client blog postNo one knows when a health crisis will strike. We can take steps to mitigate our risks — eat healthy food, exercise more often, quit smoking — but that doesn’t mean we can plan whether we’ll get sick.

But we can plan financially.

Jim Sullivan, CPA/PFS, specializes in working with clients suffering from chronic illnesses. He has seen firsthand the devastating effects of a sudden, serious health crisis and is an expert at care plan funding and recovery. His work, as he described it, allows his clients to focus on addressing the illness without the worry of how to pay for its costs.

Sullivan said that while he prefers to do proactive planning with clients before they get sick, he often starts working with a client just days after they’ve received terrible health news. Regardless of when he first engages with an ill client, his approach is the same: He creates a financial plan from scratch.

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How to manage clients’ high expectations for retirement

Shutterstock_156509381Mrs. and Mr. Penny are sitting in their CPA financial planner's office. Mrs. Penny, a 66-year-old community college professor, retires at the end of the school year with a modest pension. Mr. Penny, a 67-year-old construction foreman, plans to retire next year.

Neither paid much attention to their retirement savings until about five years ago, when they first engaged their CPA financial planner for tax advice.

“I hear Bora Bora is beautiful in the summers,” Mrs. Penny says to her husband, who nods and mentions taking off for the mountains in Austria after their beach trip.

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New AICPA survey reveals clients’ top retirement fears

Shutterstock_583696213A variety of factors and special situations make each individual’s retirement preparations unique. And because of that, there is no one-size-fits-all retirement plan to maximize enjoyment during your golden years. However, when it comes to retirement planning fears, people have more in common than they might think. The AICPA’s recent Personal Financial Planning Trends Survey explored what factors are impacting clients’ retirement planning peace of mind. When compared to benchmark responses from 2016, we’re able to see how some things have changed while others have held steady.

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Busy season grind got you down? 3 ways to reenergize.

Shutterstock_376060666Late nights. Working weekends. Scads of electronic files. If you’re REALLY unlucky, stacks of paperwork. No one ever said busy season was a walk in the park, but you don’t have to let it sap your energy. And since the season doesn’t get easier as it goes, you need all the energy you can get. What’s a busy CPA to do to? We have three suggestions to help you beat back the busy season blues.

  1. Get organized

This might sound pretty basic, but the realities of good organization are more complex than you might think. You likely already have a system set up for getting your work done, whether prioritized by clients or groups of clients, promised engagement due dates, etc. But are you thinking about that system on a daily basis?

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Don’t overlook this crucial part of estate planning

Shutterstock_590650799We live in a time when numbers are getting so large that they begin to lose meaning. Understanding just how large one million is, is hard enough; when it’s a billion? A trillion? How about 30 trillion?

We’re seeing the largest transfer of wealth in history, as $30 trillion passes to the next generations from the baby boomers over the next two decades. Those estates come in sizes big and small, but they all have one thing in common: taxes. 

In the Tax Cuts and Jobs Act (TCJA) that took effect last year, the individual exclusion from gift/estate and generation-skipping tax was temporarily doubled, and in 2019 now stands at $11.4 million. That means a married couple has an exclusion of $22.8 million to use during their lifetime or at death. Before you go thinking that means estate taxes won’t affect the vast majority of clients, think again: the state your clients live in might not conform to the federal exclusion. It’s important to understand the major tax considerations in estate planning.

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Americans’ financial satisfaction reaches new high—can you feel it?

Shutterstock_1071491411For the fifth quarter in a row, the typical American’s personal financial satisfaction reached an all-time high, according to the AICPA’s Personal Financial Satisfaction Index (PFSi). A record number of job openings, along with the stock market’s bullish performance though Q3 (Oct 1) - despite volatility - boosted Americans’ financial positions. With all these positive records, you may be wondering what it means for you.

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Technically, your planning practice could be better

Shutterstock_304478969Is there even a day that passes anymore in which you don’t read, hear or watch a story about the wonders of technology? New apps, new computer systems and entirely new technologies are emerging and being put into practice at dizzying speeds. Cutting through the noise and knowing which technologies are best for your planning practice can be complicated, but ignoring the value technology can add to your practice carries a heavy price in lost efficiency and opportunity.

Are you still driving a manual?

Spreadsheets used to be the go-to tech for organizing and assessing a client’s finances and your resulting financial plan. Handy but labor-intensive, spreadsheets were and are prone to errors and omissions. Other old-school trappings like physical copies of client’s financial data, wills or healthcare directives presented other problems related to security, inaccessibility or loss of the paperwork due to disaster or misplacement.

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Do you know these three tax client types?

ThreeYour tax practice sees a lot of traffic, no doubt. Clients of every stripe pass through your doors seeking your guidance on all kinds of things. While every CPA tax practitioner is at the ready with good advice and service on all things tax, many go above and beyond with additional planning services. There’s even the occasional left-field question about the best restaurant in town or which university seems best suited to their kids. Over time, you’ve come to identify the personalities of your clients, and you might have noticed that many fit into some broad client types. Do you recognize any of these?

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Ones and zeros aren’t always heroes

Shutterstock_161746904In 1984, an entire profession that had survived more or less intact for 600 years found itself facing a monumental, earth-shattering change. It was that year Apple Computer released the Macintosh. Laughably underpowered by today’s standards, it nonetheless represented the literal future of computing with its graphical user interface (something the consumer market had never seen before) and suite of creative software.

Quickly following its release, industrious programmers took advantage of the available printing abilities of the machine—robust for its time—and created the first desktop publishing software. Just like that, businesses, government agencies, churches and even families who once turned to professional print houses to design, typeset and print everything from flyers and post cards to catalogs, were able to bring at least the design portion of the equation in-house. Suddenly, everyone was a “designer.” It was a game-changer for markets, but it also led to a lot of truly awful design and typesetting, perpetrated by amateurs with little to no training in visual arts.

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4 tips to smart budgeting for new graduates

Shutterstock_690887317What if you put together a budget but forgot about income taxes that would be deducted from each paycheck? That’s what happened to me when I graduated from college, so I can tell you: It would be a disaster! My first paycheck was a huge shock, since I was taking home much less than I had expected. But incorporating a few easy budgeting tips can help set you up for a path to prosperity and avert potential disasters.

Start early. Right after graduation, create a budget before committing to long-term expenses – like rent – so you start with a clean slate. The largest part of any budget will likely be housing costs. A good rule of thumb is that they should not add up to more than 30% of your salary. For example, if you make $50,000 a year, your total rent should be no more than $15,000 a year, or $1,250 a month. If you live in a high rent area, then 30% may not be realistic for an entry-level salary – which means you may have to scrimp on other items or find roommates.

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4 ways to jumpstart the career you really want

GettyImages-180409192Some career paths move in a straight line. Others take twists and turns. Opportunities sometimes crop up when we least expect them, and we have to weigh the pros and cons to determine our next steps. If you were asked ten years ago to accurately describe your career path over the next decade, could you? I know I couldn’t.

I started my career at a large firm in audit and now I’m on an entirely different path that I would have never predicted. The winding road that led me to where I am today was built upon a series of experiences and intentional decisions along the way. Could your career course use more direction? Here are some tips to get on track, based on my own personal experiences throughout my career:

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Needed now: female financial planners

GettyImages-748335013Mind-blowing. That is the word that pops in my head whenever I see the statistics on women needing financial planning and the corresponding number of women planners available to provide those services. The numbers tell a story that needs a new ending:    

  • Women age 65 and older are three times more likely than men to be widowed, and 46% of women over 75 live alone.
  • 55% of women between 25 and 34 prefer working with female financial advisors.
  • Women represent only 15.7% of the financial planning industry
  • Only one third of women surveyed by Prudential in 2015 said they were either on track or ahead in their retirement plan.

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College grads: How to save for retirement when you can barely pay your rent

RetirementGraduated from college. ✓

Got a good job. ✓

Started saving for retirement. WHAT?!

I know what you‘re likely thinking: “I have plenty of time to save! Why would I start now?” I get it, the idea of saving for anything, let alone your distant retirement years, seems crazy. You’re not alone. You might be shocked to hear that only 46% of non-retired Americans believe they will reach their retirement goals and 20% don’t believe they ever will.

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How to take the stress out of debt

Infographic_Millennial_Debt_AICPA (002)If you’re like most Americans, you probably have debt. But don’t worry, you’re not alone. In fact, according to a recent telephone survey of 1,004 U.S. adults conducted by Harris Poll on behalf of the American Institute of CPAs, nearly three-quarters of Americans are living with debt driven by factors like everyday expenses, a lack of income, mortgage costs and student loans. More concerning is the number of Americans whose debt is making them anxious, keeping them up at night and causing problems in their relationships.

I sat down with Dr. Sean Stein Smith, CPA, member of the AICPA’s National CPA Financial Literacy Commission, to talk about how financial planning can help Americans whose lives are negatively impacted by debt.

Jonathan Lynch: For many Americans, living with debt is a mental as well as financial burden. In fact, because of their debt, three-in-ten Americans admit to stressing about everyday financial decisions. For those who feel overwhelmed by their debt, what steps would you suggest they take to take back control?

Dr. Sean Stein Smith: The first thing to realize is that if you are worrying about debt, you are not alone, and this is nothing to be ashamed of. It doesn’t matter how much money you make – there are steps you can take to get back in control.

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Social security benefits hacked: A cautionary tale

Social Security hackIf you or your clients are at or nearing retirement age, you need to know that hackers are targeting social security accounts. I found out the hard way. My career as a CPA Personal Financial Specialist was devoted to advising individuals and families on their most important financial goals, including tax, retirement, estate, risk management, investment and retirement planning. After decades of helping my clients navigate and manage these important decisions, imagine my surprise when I received a letter in the mail shortly after my 67th birthday congratulating me on initiating my Social Security benefits. The trouble was, although I had entered the glory years of retirement, I had not yet applied for Social Security benefits, opting to wait until age 70 to receive my benefits. Further digging uncovered the unfortunate fact that a thief had received $19,236 of my benefits. I was dumbfounded.

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Personal financial satisfaction extends record run…but for how long?

Americans are experiencing unprecedented levels of personal financial satisfaction, the highest in the 24-year history of the AICPA’s Personal Financial Satisfaction Index (PFSi). After seven consecutive quarters on the rise and a second quarter in a row setting at an all-time record, the average Americans’ personal financial satisfaction has been steadily picking up steam. With financial satisfaction climbing to new highs, some can’t help but wonder when this rise will end.

First, some background. The PFSi is a quarterly economic indicator that measures the financial standing of the average American. It’s calculated as the difference between two sub-indexes: The Personal Financial Pleasure Index, which measures the growth of assets and opportunities, and the Personal Financial Pain Index, which calculates the loss of assets and opportunities. The Pleasure Index is made up of four factors, the largest contributor being the PFS 750 Market index. The Pain Index is also comprised of four factors, with the largest contributor being personal taxes. Most recently, the Pleasure Index (69.2) greatly outweighed the Pain Index (42.3) bringing the PFSi to a positive reading of 26.9, the highest reading since 1994.
 


AICPA Q4 PFSi

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Personal financial satisfaction hits record high - what’s in it for me?

Personal finances are like fingerprints, everyone is unique. With the AICPA’s Personal Financial Satisfaction Index (PFSi) at an all-time high, you may be wondering what it means for you.

Let’s start with some background. The PFSi is a quarterly economic indicator that measures the financial standing of the average American. It’s calculated as the difference between two sub-indexes: The Personal Financial Pleasure Index, which measures the growth of assets and opportunities, and the Personal Financial Pain Index, which calculates the loss of assets and opportunities. Most recently, the Pleasure Index (68.1) greatly outweighed the Pain Index (42.1), bringing the PFSi to a positive reading of 25.9, the highest reading since 1994.

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Don’t overlook this important subject with clients

HealthWe’ve all heard the phrase, “Your health is your wealth.” Why then are so many advisers hesitant to talk to their clients about it? Health intersects the planning you provide in many ways, yet practitioners rarely go there. The result is missed opportunities and incomplete planning.

A client of mine suffered a major heart attack and stroke at age 65. In the aftermath, he and his wife resolved to spend his remaining years traveling and gifting the wealth they had amassed. On the surface, their reaction sounded like a generous, intentional plan. Unfortunately, they hadn’t considered that his life expectancy was quite a bit longer than they assumed, even after the scare. In that time, the term insurance he was certain would cover his wife’s living expenses after he was gone would expire.

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Beyond tax: Extending your success

Financial planningAs we near the end of October, tax practitioners across the profession collectively breathe a sigh of relief. Another tax season is in the books, and CPAs find themselves ready for a vacation or a change to their tax-centric practices.

We’ve been there, craving balance as another tax deadline passes. In our search for an alternative, we discovered a complement to our tax skills that has reenergized our careers and opened new opportunities for our clients and practice.

If you find yourself in need of more than just a vacation after October 15, here are a few things we’ve learned as we’ve recently transitioned our careers from tax compliance to advising clients on all aspects of their financial lives, including estate planning, retirement planning and beyond.

The benefits to your practice and clients are vast.

If you’ve been in practice for a while, you probably have a roster that includes many long-time clients. Over the years, clients may have approached you for your thoughts on their plans for retirement or the best way to plan their child’s education. If you’ve had these kinds of conversations, you’ve been doing personal financial planning (PFP) without even realizing it. By formalizing your PFP services, clients will benefit from your holistic understanding of their full financial picture, and you’ll improve both your practice and lifestyle by:

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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.

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The Next Generation: Empowering Future Firm Leaders

Leadership 2“Leadership and learning are indispensable to each other.” –John F. Kennedy

Who represents your future? What’s your professional legacy? How do you know whom to trust with your business when you retire?

Most firm owners know the future of their business relies on the strength of their successors—the individuals most capable of growing and maintaining both client relationships and the service teams within the firm itself. What’s less understood is HOW to identify, nurture and promote the best and brightest candidates in practical terms. What can firm founders and owners do to ensure they’re selecting and preparing the right people to carry on their firms as eventual partners and even owners themselves?

The first task is to recognize the rising stars within your firm. These people are the strongest innovators, always looking for new opportunities to expand client services and grow the business. They’re the ones who naturally lead, and embrace opportunity to build strong teams within their professional circle. And they’re never afraid to assume more responsibility—for not only the daily workings of the firm, but also for the long-term prospects of the business—which includes being personally invested in both client relationships and the firm’s reputation. But once you’ve identified these potential stars, how do you invest in them?

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Are You Overlooking Prospective Clients?

Millennial clientsThere is a huge opportunity that most practitioners are ignoring, or worse, dismissing: an untapped client base.

This population doesn’t fit the profile of the typical client. They aren’t in their early 60s, near retirement and don’t fit the typical client profile. They haven’t worked and earned and leaned on you to help them make it to the retirement “finish line,” where they’ll begin to really enjoy the fruits of their labor. In fact, perhaps to the chagrin or confusion of their baby boomer parents, they’re quite different.

As you may have guessed, I’m talking about millennials. Before you tune out, consider the following:

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The Firm of the Future: Building Value by Evolving

Firm of the futureWhen starting an accounting practice, it’s important to think about the long-term value of the firm. True forward thinkers might even ponder what their end game looks like; is their goal to merge with another firm or sell their firm? To be succeeded by a partner or family member? In real-world terms, that means thinking about inventive and even unconventional opportunities to expand services beyond the realm of tax preparation, auditing and advice with the goal of appealing to the broadest possible client base. In a world where insurance companies, stock brokers, banks and even franchises like H&R Block are expanding client services to include planning for retirement, education or even simply, how to manage cash flow to maximize financial security, no firm can afford to neglect these areas of their clients’ lives. Competition is becoming too intense.

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6 Planning Ideas for Advising Entrepreneurs

Advising entrepreneursIf you work with entrepreneurs or small business owners, you likely have an appreciation of their vision, determination and work ethic.  You may also have run into some common hurdles that can derail their finances.  By focusing on the following planning considerations, CPAs and advisers serving entrepreneurs can keep their clients’ business and personal finances on track.

Choose an appropriate business form

Helping entrepreneurs evaluate key tax and nontax factors when selecting a business entity is not only important to the business’ financial success, but also the owner’s.

Should they operate as an S or C corporation, partnership, limited liability company or sole proprietorship? What are the classes of ownership, special allocations, basis, liability, elections and distributions for each structure and the impact of these factors on the owner? Navigating these complex decisions is crucial to getting their business off on the right foot. If you are an AICPA Personal Financial Planning Section member or CPA/PFS credential holder, see Chapter 18 of The Adviser’s Guide to Financial and Estate Planning for a comprehensive overview of entity selection.

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Winning the Value War

Value propositionAre you looking to expand your practice beyond financial statements and tax returns? If so, providing more personal financial planning advice and support, which will help clients plan for their financial future, may be the key to successful expansion. But how do you express the value you’ll provide to your clients? Here are some value propositions that CPAs can use to both describe and demonstrate value of those services.

Step One: Recognize the Difficulty of Selling an Intangible Value

In the world of investment advice, defining a value proposition is relatively straightforward because the return on investment (ROI) can be easily measured. And tax savings from effective tax strategies is similarly concrete.

However, when it comes to financial planning, defining a value proposition becomes far more difficult because it involves selling an intangible service and the results are hard to measure.

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Myths about Personal Financial Planning Services

MythsThere is a good chance you have visited a physician for a routine check-up. At that appointment, your doctor asked many questions – inquiring about your diet, exercise, stress, and health history – and ran diagnostic tests to assess your overall health. Your physician may not have solved any problems at that appointment, but you undoubtedly valued and were willing to pay for an objective professional to assess your health status.

Why is it, then, that many CPAs doubt the value of offering similar diagnostic and planning services to assist clients in identifying potential problems and improving their overall financial health? Broadening your services by asking the right questions, understanding your clients’ financial situation and delivering advice (or making referrals to trusted specialists) is not only valuable to your clients – but also to your practice.

Before you tune out by citing common objections, allow me the opportunity to debunk some of the common myths about personal financial planning (PFP) services.

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Helping College Graduates Reach Financial Independence

Financial independence“The secret of getting ahead is getting started.” –Mark Twain

Ironically, the knowledge college students gain while studying for their careers is only one aspect of the education they’ll need to succeed in securing a healthy financial future for themselves. Learning how best to manage their finances and make wise decisions requires both individual effort and solid expert advice. That is where CPAs can serve as educators to help their clients – the parents – share tools with their recent college graduates to help them achieve financial success.

Getting started can seem overwhelming, but having an accurate idea of how much it costs a recent graduate to live monthly or annually is an essential first step. Suggesting clients’ children use simple money-tracking apps such as the one available at mint.com, where individuals can examine every aspect of their financial life in one place, can be helpful. After entering some basic information about their income and expenses, users can get a quick overview of their overall financial health.

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Effect of Spending Habits on Retirement Planning

RetireesThe traditional approach to retirement assumes that retirees will maintain their pre-retirement standard of living as they transition into retirement, and then sustain that lifestyle throughout retirement. But a growing base of research that analyzes the actual spending habits of retirees, reveals a different story.

In reality, retirees tend to experience a slow but steady decline in real spending throughout retirement. Spending decreases slowly in the early years of retirement, more rapidly in the middle years, and then slows again in the final years, in a path that looks like a “retirement spending smile.” Even the uptick of health care expenses in a retiree’s later years are generally not enough to offset all the other spending decreases that typically occur in retirement. That’s important, because it means your clients may not need as much money in retirement as they think.

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3 Trust Ideas for Reducing Estate Taxes

Bob Keebler spoke at the AICPA ENGAGE conference on “The Best Estate Planning Ideas Today.” Included in his detailed presentation were numerous points of interest beyond trusts. The following is a small selection from his 50-minute talk.

Because of the high limit on unified credit, many clients believe that estate planning isn’t for them. The truth, however, is much more complicated. Depending on the client’s state of residence, their positions in real estate or partnerships that might survive them and many other considerations, estate loss can be considerable. Your clients shouldn’t have to pay more than necessary in taxes on their estate, and as their trusted adviser, it’s your job to guarantee that the family’s wishes for their wealth are honored to the fullest extent possible.

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Coming Trends in Services to Individuals

CPAs are forward-thinking and relationship-oriented professionals. Taking the time with individual clients to think about their needs holistically has been a growing trend in the profession over the past decade, leading to the many new areas that now benefit mightily from the expertise and insight a CPA can offer. These are exciting times that bring new possibilities for firms that are willing to embrace them. The firms that do will find success, longevity and a satisfied client base.

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4 Things Advisers Should Know about Technology Today

Voice recognition in a carAs practitioners, we have a responsibility to our clients and to ourselves to stay up to date on the latest tools and techniques of our trade. Most CPAs providing advice to individuals do an admirable job of staying current on tax and financial planning techniques, but not as well staying current on technology issues facing their firm. Here are some technology-related issues practitioners should be focusing on today.

The Pace of Change in Financial Technology (FinTech)

A revolution in financial technology has taken place over the last several years. If anything, the pace of change is accelerating, with implications for all financial service professionals. Until recently late adopters of technology were not penalized for being late to the game, because most of their local competitors were also late adopters. Technology has broken down regional barriers, so today you are not only competing against other local providers, but national and perhaps international providers as well. In addition, new players have entered the marketplace. FinTech startups from Silicon Valley and elsewhere are becoming a disruptive force, raising the technology bar and putting pressure on margins. The bottom line for readers is this: If you are not reviewing and upgrading your firm’s technology at least annually, you are falling behind. If there isn’t someone at the firm specifically responsible for this, the odds are that it won’t get done.

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Learning from Prince’s $250 Million Mistake

Prince 2Finally, almost a year and a month to the date of his death, a judge confirmed Prince’s six siblings to be his rightful heirs – after more than 45 people came forward claiming to be his wife, children, siblings or other relatives.

Last year, the legendary musician passed away, leaving behind not only a legacy of unparalleled music, but also a $250 million fortune – with no will or estate plan to be found. With the long-anticipated announcement that his siblings will inherit his fortune, we’re reminded again of the importance of planning ahead and hiring trusted experts to carry out your wishes.

Whether you have people clamoring after your money or not, it’s important to consider hiring an expert to sort through the, at times, very complicated process of estate planning. There are DIY websites and software packages that may seem attractive (and cheap!), but more often than not, you get what you pay for. More complicated life situations, such as children from a prior marriage, children with special needs, or capital gains from property appreciation, require the hands-on insight of an expert.

If you are a CPA or a lawyer, you might consider yourself the expert – but just as authors have other writers proofread their work, it’s important to have an unbiased third party look over your documents. Even U.S. Supreme Court Chief Justice Warren E. Burger, who died in 1995, should have relied on estate planning experts to prepare his estate plan – but instead he took it upon himself, and his family paid over $450,000 in taxes because of his errors.

To be better prepared than Prince and Chief Justice Burger, seek out the assistance of an attorney or a CPA to draft a will and do estate planning, respectively. An attorney will help you navigate a will, and a CPA is best positioned to help with more complicated estate planning.

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How One Next-Gen CPA Dreams Big: Part 2

Jeff Badu - CopyWe spoke with Jeff Badu shortly after he launched his own firm, Badu Tax Services, LLC. Jeff has a bold, intrepid, entrepreneurial spirit and is passionate about helping people and giving back to society. He recently started Badu Investments and is preparing to take the PFS exam this summer so he can broaden the range of services he offers to his clients, who are primarily millennials. In this second part of the interview, we continue to explore Jeff’s journey.

AICPA: We learned a great deal about what drives you in the first part of our conversation. You spoke about your passion to help people and your entrepreneurial spirit. And you’re planning to take the PFS exam this summer. What is motivating you?

Jeff Badu: As a CPA, I get to help people solve some of their most challenging financial problems. I am very passionate about helping people in general, and with their financial future in particular. I work mainly with millennials, like me, and use different strategies to help reduce their income tax liability and maximize retirement and other savings. I find that people tend to prefer working with someone they can relate to, and my clients come to me because we identify with each other.

I have been interested in taxes since I was in middle school. It seems natural to me that tax compliance and planning are key ways to help people plan for their future. It’s very important to me to increase people’s understanding of the significance of making wise financial choices, which I try to do with my radio show, website and social media presence. Being able to increase my own expertise and offer a range of services so that I can be seen as the go-to trusted adviser is what’s prompting me to take the PFS exam this summer.

Continue reading "How One Next-Gen CPA Dreams Big: Part 2" »

Don’t Let Clients’ Retirement Fall into This Trap

TrapHave you ever been at a party where the owner of a company was bragging about how he used a 401k to start his business? Or heard a story about how a couple’s individual retirement account (IRA) is invested in real estate and that’s going to allow them to live in the lap of luxury when they retire?

They’re talking about self-directed retirement vehicles. And much like real vehicles, when they are driven improperly, the result can be disaster.

What Are Self-Directed Retirement Vehicles?

Self-directed IRAs and self-directed 401ks are increasingly popular. While the usual custodians of IRA and 401(k) accounts will only allow certain investments (e.g., stocks, bonds, etc.), a self-directed IRA or 401(k) allows the owner to invest in such things as real estate, precious metals, businesses, etc. and make all the investment decisions. Profits from the investment build up tax-free until the owner reaches retirement and begins to take distributions, usually when the owner’s tax rate is much lower. Sounds good, right? What could go wrong?

Well, actually, a lot can go wrong. As a matter of fact, if you have clients in one of these situations, they could lose substantial amounts, if not all, of their retirement income. How can this happen and what can you do to help?

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How One Next-Gen CPA Dreams Big

Part I

Jeff Badu - CopyOn a mission to help people and entrepreneurially spirited, Jeff Badu represents the next generation of CPAs. At 24 years old, he runs his own firm, hosts a weekly radio show, volunteers his time, and is preparing to take the PFS exam this summer. The AICPA spoke with Jeff about his passion for the profession and his dedication to helping millennials save on their taxes and plan for their financial future.

AICPA: You’ve accomplished quite a bit for someone in their mid-twenties. Can you give us some background on yourself and how you became a CPA?

Jeff Badu: I came to the United States from Ghana when I was just 8 years old. My family settled on the north side of Chicago, where I still live. I have always been a numbers guy, but it was very early on that I discovered my love for accounting and business, and the opportunities those industries present. I was introduced to my first tax return in the eighth grade, and that was when I knew I was interested in this sort of work.

Graduating from the University of Illinois at Urbana-Champaign with both a Bachelor’s of Science and a Master’s of Science in Accountancy, I began doing tax returns for friends my freshman year of college and really enjoyed it, and that helped me set a path for my future. I developed a business plan and mapped out my road to the CPA. I only took one class my second semester of graduate school so I could focus on it. I was the first person in the library every day, and the last to leave at night. I was ecstatic – and exhausted – when I found out I passed.

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5 Silent Killers of a Financial Plan

Silent killer“The best laid plans of mice and men often go awry.”

As it turns out, poet Robert Burns was onto something. All too often, CPAs and advisers construct tax, estate, retirement, risk management and investment plans that are either never implemented or are misaligned with their clients’ values. Some common missteps could keep a client from adopting a well-crafted financial plan, thus diminishing the value you add to the process.

Let’s take a look at some of these silent killers and how to avoid them before another financial plan goes awry.

Unrealistic Expectations
Perhaps the most common (and avoidable) mistake is building a financial plan on highly aspirational, or worse, totally unrealistic expectations. A sound financial plan is only as good as its inputs, so it’s important to ensure that you are forecasting an appropriate rate of return, inflation rate and honest gauge of spending and cash flow needs. Digging into the client’s cash flow today can help determine a realistic spending level in retirement.

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Tax Refunds and Financial Responsibility

Tax refundThe very same week our accountant (my father) informed us we would be getting a $1,550 tax refund (thank you, 2016, for the purchase of our first home and birth of our second child), my husband and I discovered a sizeable leak in our garage roof. So now, instead of using that money for a home repair we actually wanted to make, or to boost our savings account, or add to college savings plans, or more likely, to help pay for two kids in diapers and daycare, we’re buying a new flat roof. Lucky us. But this episode got me thinking—what do most people do with tax refunds? And what do CPAs advise they do? Is there a happy medium between fiscal responsibility and fun?

Aim for No Refund at All

First and foremost, the goal, according to most CPAs, is to not get a refund. While many people love getting a large chunk of change every spring, it indicates you’re overpaying and essentially giving the government an interest-free loan. Getting no refund at all means you’re paying the IRS exactly the right amount. Of course situations change from year to year (see my home purchase and birth of kid references above) so you might not always get it right.

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What the Personal Financial Planning Body of Knowledge Means for You

Shutterstock_431851066Early in 2016, I heard tax icon Sid Kess speak about how important it is for CPAs to understand what housing alternatives our clients might need to consider as they grow older. I thought, well that’s an interesting aspect of our work that I hadn’t considered, and began to educate myself about the options and opportunities in the communities I serve.

That advice couldn’t have come too soon: within a month, my dad began expressing concerns about taking care of his home and asked to look at some local housing alternatives. While I had made myself aware of a few, I quickly realized there are so many choices that I didn’t have time to explore them all. Unfortunately, my father’s health declined rapidly and we had to move him three times: from his home to senior living; from senior living to a nursing home; and from the nursing home to hospice care where he passed away.

What this really brought home is that the work we do as CPAs is not cut and dried, and goes beyond what many people envision when they think of our profession. It’s probably also more than many budding CPAs—and those long in the profession—think we do. But the fact is that we must continue to deepen our knowledge and expertise as our clients’ needs expand and grow.

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Social Security and Divorce: What Clients Need to Know

Shutterstock_334891802

Put powerful emotions in the same cauldron as money and you get a volatile and highly flammable mix. If your clients need one reason to involve a trusted CPA in their divorce process, that argument is as strong as it gets. As a financial professional, you have likely seen first-hand that divorce has the potential to uproot the financial stability of your clients (see more in this latest trend survey released by the AICPA Personal Financial Planning Section). If splitting the family possessions and bank accounts weren’t complex enough, there is also Social Security and Medicare to consider.

By asking the right questions, CPAs can steer their divorcing clients around pitfalls and help them make smart choices that maximize their financial outcomes.

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Elder Financial Abuse: How CPAs Can Help – Part 3

Shutterstock_293152349The face of America is showing its age: According to the National Institute on Aging, the number of Americans age 65 and older is expected to double in the next 25 years, with those 85 and older constituting the fastest-growing segment of the U.S. population. These Americans are increasingly becoming targets for elder financial abuse.

Extent of the Problem

The phenomenon of elder financial abuse is not new. But today, increasingly sophisticated tactics are being used with significantly higher stakes. Assets totaling approximately $23 trillion are the target.

The National Adult Protective Services Association (NAPSA) reports that the rate of elder financial abuse is extremely high, affecting 1 in 20 older adults. However, at the same time, only 1 in 44 cases of elder financial abuse is reported. The greatest number of reported abuses were perpetuated by family or others known to the victim.

Continue reading "Elder Financial Abuse: How CPAs Can Help – Part 3" »

3 Reasons Every Client Should Complete a FAFSA

Shutterstock_538627324Are you wondering if all of your clients should complete the Free Application for Federal Student Aid (FAFSA) for their college-aged children even if they don’t anticipate qualifying for any federal aid?

Consider the following scenario: A successful couple own and operate a business and have two children in college. At 58 years old, the husband suddenly and unexpectedly passes away from a heart attack, rocking the family and ending the business.

The family, however, had faithfully completed the FAFSA annually for their children, although they had never previously qualified for financial aid. Within one week of the death of the father, both universities contacted the children with financial aid packages that allowed them to stay in school.

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Continuing Care Retirement Communities: Helping Clients Choose

Shutterstock_242465323With a rapidly aging population, more people will turn to their CPA in the coming years as a trusted source of guidance, especially when making senior living decisions. A popular, but also rather complex choice is the continuing care retirement community (CCRC or “life plan community”). 

By combining independent living with a continuum of care, CCRCs offer a viable solution for older adults who are healthy today but seek the peace of mind of having care services readily available in the future. Your client’s specific needs will likely determine which CCRC is best for them. There is no “one size fits all” approach here. Yet, due to the financially significant nature of the CCRC decision, it is important to make sure their first choice is the right choice, so you owe it to them to be well-educated and informed on this topic.

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4 Ways to Move Toward Practice Transformation

Shutterstock_538091704“Practice gratitude.”

“Be authentic.”

“Consider your story as you craft your goals.”

Not your typical soundbites from a gathering of CPAs.

When I leave an AICPA conference, I always bring home the best technical thinking in the profession and new and deepened relationships with peers across the country. This content and camaraderie is what brings me back year after year to these events.

As I gathered my thoughts after the recent AICPA Personal Financial Planning Summit, I noticed a shift in the tone of the key takeaways that I was anxious to implement in my firm. This innovative and intimate event sparked new thinking about how I – and other CPAs and planners who serve individual clients with their tax, estate, retirement, risk management and investment needs – can shape our practices for the future. Here are four challenges and some questions to consider from this year’s summit:

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Medicare Patients to be MOONed Soon

Signing medical formYou may soon be MOONed by your hospital. Beginning March 8, 2017, hospitals must now provide patients with the standard Medicare Outpatient Observation Notice (MOON).

When a Medicare beneficiary is admitted to a hospital as an inpatient most of the cost of the stay is paid under Part A, which covers the cost of a hospital stay. In 2017, the only cost the beneficiary must pay for stays of 60 days or fewer is the $1,316 deductible.

Most beneficiaries do not realize that they can also be admitted to a hospital as an outpatient. Your status as an outpatient has nothing to do with where you receive care or the type of care received. You may not even be aware of your status. You can be admitted to the hospital, be assigned a room and receive services as if you were an inpatient, all the while having been admitted as an outpatient by your doctor. Observation status gives the doctor time to decide if he or she should write an order to admit you into the hospital as an inpatient.

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Elder Financial Abuse: How CPAs Can Help – Part 2

SeniorsIn our first blog post of this series, we looked at three typical examples of elder financial abuse and some of the reasons why seniors are attractive targets. Helping safeguard your clients from financial abuse as they age, or experience a serious health problem, is one of the most important and meaningful things you can do for them.  In this article, we will delve deeper into types and signs of financial elder abuse, and ways to prevent it before it starts.

Continue reading "Elder Financial Abuse: How CPAs Can Help – Part 2" »

Elder Financial Abuse: How CPAs Can Help – Part 1

Advising seniors

Scenario 1: Your usually chatty elderly client Nancy has become quiet and refuses to speak with you without her son Chris present. When they come in together, she is timid and acts nervous, while he is combative and secretive about sharing bank statements and other financial information. When you insist, you see discrepancies and unusual cash withdrawals, or other activity that he claims are for “household expenses, which are none of your business”.  

 

Continue reading "Elder Financial Abuse: How CPAs Can Help – Part 1" »

What’s in a Name?

Name TagI recently had the privilege of speaking on financial planning to 150 CPAs at a Washington Society of CPAs conference. I began my remarks by asking how many in the audience considered themselves financial planners. Only two raised their hands.

That surprised me. I know that many CPAs help clients with some aspect of financial planning, from tax, retirement and estate planning to succession planning and wealth management. And, frankly, who better to help clients negotiate their financial futures than CPAs? Clients already rely on us to provide trusted advice on other financial matters.

The sparse response got me thinking back about my own experience coming to terms with the term “CPA financial planner.”

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