Rick Telberg

CPAs Look Beyond Wall Street Carnage

Rule 1: Donít rely on Social Security. Whatís your best financial planning advice? Sound off here.

September 22 2008
by Rick Telberg/At Large

Lehman. Merrill. AIG. Bear. Legendary names all.

And the story of each adds to the uncertainties that CPAs are facing with clients every day.

Looking to help clients financially prepare for the future, CPAs are counseling restraint. But, first of all: don’t count on Social Security.

What to do next? How to fix the markets and the economy?
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“Due to the lack of certainty, Social Security benefits should not be assumed in the financial plan,” said Gary Manion of Olney, Md.

Echoing that sentiment, Mike Williamson, Sr., CPA, CFE, of Ennis, Texas, advises his clients to “plan your retirement as though Social Security and Medicare [do] not exist.”

Many professionals agree with Manion and Williamson and are urging their clients to reduce high interest debt and invest, invest, invest.

These may be uncertain times for investors, but these times may also present opportunities for CPAs to provide needed advice and services.

According to our CPA Trendlines research, nearly half of all CPAs (48%) believe that CPAs will become “somewhat more” involved in personal financial planning services during the next three to five years. When asked what services they or their firm will likely be providing over the next 12 months, more than half (56%) pointed to retirement planning.

These results are hardly surprising given the financial hurdles facing the nation’s retirement system.

Of course, Social Security was never meant to be the sole source of income in retirement and clients are often advised that a comfortable retirement is based on a “three-legged stool” of Social Security, pensions and savings. But the pressures facing pensions and Social Security mean that saving and investing have never been more critical.

“Social Security is not sustainable at currently scheduled levels over the long term with current tax rates [and] without large infusions of additional revenue. There will be a growing shortfall once the trust fund reserves are exhausted in 2041,” according to the Social Security Administration. In 2008, more than 50 million Americans will receive nearly $614 billion in Social Security benefits.

Gary Davis, CPA, of Columbus, Ohio, urges his clients to “start maximizing their retirement savings, contribute to Roth IRAs if possible, create a ‘rainy day’ fund of readily available cash and obtain long-term-care insurance.”

“Obtain and maintain adequate insurance coverages [such as] health, disability and liability.  Save until it hurts, then invest to address longevity risk,” said Hal S. Hershgordon, JD, CPA, PFS, of Maple Glen, Pa.

Professionals are also advising clients — especially today’s younger workers — to adopt a “pay yourself first” attitude and reduce high-interest debt to free up cash.

“Young workers need to immediately adopt a 'pay yourself first' attitude by putting 10 percent to 15 percent of their salary into a retirement investment vehicle. Secondly, credit cards should be used as a convenience only and always paid off in full each month. Third, long-term care insurance should be investigated and planned for by workers at a young age to lock-in rates,” said Cheryl Panther, CPA, PSF, of Nashville, Tenn.

“First get out of high-interest debt, so that not as much cash-flow is needed to meet recurring cash outflows. Second, invest for income and hedge against inflation. Third, establish low-cost lines of credit to plan for contingencies.  Finally, have enough liquid cash available to meet six months worth of expenses,” said Edward Greenlee of Ruidoso, N.M.

It is important, however, that clients maintain realistic goals.

“There are no magic bullets to solve these issues and it will take diligence and objectivity. If you don't know how to plan, save and invest, see someone who does,” advised Milt Fullen of Columbus, Ohio. “Don't assume you know it, find out. Don't be penny-wise and pound-foolish. Time wasted is time that can never be recovered.”

CPA FINANCIAL PLANNING: What’s your best advice for clients today? What are other CPAs recommending? Join the survey; get the results.

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Copyright © 2008 CPA Trendlines/BSG LLC. All Rights Reserved. Used by Permission. First published by the AICPA.

About Rick Telberg

Rick Telberg is editor at large/director of online content.

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