Practical Planning for Aging and Elder Issues. Presented by: James Shambo, Moderator Jean-Luc Bourdon Dirk Edwards

Transcription

1 Practical Planning for Aging and Elder Issues Presented by: James Shambo, Moderator Jean-Luc Bourdon Dirk Edwards

2 Helpful Hints Adjust your volume Be sure your computer s sound is turned on as well. Click this blue button. Slide the control to the left or right to fit your needs. Ask your questions Feel free to submit content related questions to the speaker by clicking this red button. Someone is available to assist with your technology and CPE related questions as well. Download your materials Access today s slides and learning materials by clicking this green Resources button at any time during this presentation If you need help accessing these materials send a message through the Q&A application Personal Financial Planning Section #AICPApfp 2

3 About the PFP Section & PFS Credential The AICPA Personal Financial Planning (PFP) Section is the premier provider of information, tools, advocacy and guidance for CPAs who specialize in providing estate, tax, retirement, risk management and/or investment planning advice to individuals, families and business owners. (Learn more at aicpa.org/pfp.) The Personal Financial Specialist (PFS) program allows CPAs to gain and demonstrate competence and confidence in providing estate, tax, retirement, risk management and/or investment planning advice to individuals, families and business owners through experience, education, examination, and a resulting credential. (Learn more at aicpa.org/pfs.) Personal Financial Planning Section #AICPApfp 3

4 Today s Speakers James Shambo, CPA/PFS (Moderator) Lifetime Planning Concepts, Inc. Jean-Luc Bourdon, CPA/PFS BrightPath Wealth Planning Dirk Edwards, CPA/PFS, JD, MBA Edwards Consulting LLC Personal Financial Planning Section #AICPApfp 4

5 Today s Agenda AICPA PFP survey on retirement planning trends Retiree health care statistics and studies Discussing the human issues Tax, insurance, and benefits planning Managing documents Retirement projection issues Elder care resources Elders on the move resources PFP Section resources Personal Financial Planning Section #AICPApfp 5

6 AICPA PFP Survey on Retirement Planning Trends Personal Financial Planning Section #AICPApfp 6

7 Quarterly PFP Trends Survey Quarterly survey of CPA financial planners on specific topics Quantifies trends and issues to talk about proactively with clients, media and other professionals The inaugural Q1 survey addressed general retirement planning trends Use these statistics and trends to open conversations on these issues with your clients, to broaden relationships with your local media, and to communicate the value that you can provide to your clients The complete executive summary and the media release can be found at: Personal Financial Planning Section #AICPApfp 7

8 Overall Retirement Planning Concerns for Clients 57% said running out #1 of Concern money was #2 their Concern client s #3 Concern top concern, followed by health care costs and asset withdrawal decisions Running out of money 79% Healthcare costs 56% Asset withdrawal decisions 50% Longevity concerns 29% Social Secutiy decisions 20% Dealing with diminished capacity and dementia issues 19% % of CPA's that identified this as a concern of their clients Source: 2015 Q1 AICPA PFP Trends Survey Personal Financial Planning Section #AICPApfp 8

9 % of CPA's Identifying Stress Factors Factors Causing Client Stress About Running Out of Money #1 Factor #2 Factor #3 Factor 80% A "top 3" concern for: 70% 60% 50% 18% 27% 76% 17% 62% 14% 52% 46% Top 3: staying healthy, investments, managing lifestyle 40% 18% 20% 30% 19% 24% 21% 20% 10% 31% 27% 19% 18% 9% 8% 8% 7% 13% 12% 7% 0% Healthcare costs Market fluctuations Lifestyle expenses Unexpected costs Being a financial burden Desire to leave inheritance Financial support of children Source: 2015 Q1 AICPA PFP Trends Survey Personal Financial Planning Section #AICPApfp 9

10 Unexpected Events Impact Retirement Planning Healthcare concerns 42% Other (most freq: income/market changes) 30% Care for aging relatives 29% Diminished capacity/dimentia 26% Divorce 18% Job loss 18% Adult child returning home 18% % of Clients That Experience These Unexpected Events Source: 2015 Q1 AICPA PFP Trends Survey Personal Financial Planning Section #AICPApfp 10

11 Client Attitudes on Potential for Diminished Capacity During Retirement Planning Ignoring the issue 13% Reacting to it when and if it happens 21% Discussing but not sure what to do 55% Taking proactive steps now to prepare 11% % of Respondents In spite of CPA financial planners involvement, 55% had clients discussing actions but still not making a decision. 34% reported clients either ignoring, or reacting to it after the fact. Source: 2015 Q1 AICPA PFP Trends Survey Personal Financial Planning Section #AICPApfp 11

12 Q2 Survey on elder planning issues The nd quarter survey addresses elder planning issues of housing decisions, financial abuse and fraud, and financial services needed Plan now to use the results of this survey with your clients, media, and other professionals Look for results to be available shortly in the weekly PFP News and posted at: Personal Financial Planning Section #AICPApfp 12

13 Health Care Statistics and Studies Personal Financial Planning Section #AICPApfp 13

14 Annual health care costs study Percentile Ages 65 to 79 Ages 80 to 89 Over age th percentile $1,285 $1,452 $858 Median $3,210 $3,417 $3, th percentile $6,219 $6,429 $6, th percentile $10,456 $11,229 $15, th percentile $13,918 $15,492 $28,339 Includes out of pocket uninsured costs of health insurance including Medigap supplemental insurance, out of pocket costs for medical supplies, drugs, hospital care, doctor services, lab tests, eye, dental and nursing home care. Source: Employee Benefits Research Institute September 2014 Personal Financial Planning Section #AICPApfp 14

15 Average couple s lifetime health care costs in today s dollars Age of Retirement Lifetime estimated costs Age 62 $271,000 Age 65 $220,000 Age 67 $200,000 Hypothetical couple with life expectancies of 82 male and 85 female Estimated costs do not include nursing home care, over the counter medications or most dental services and applies only to retirees with traditional Medicare coverage. Source: Fidelity Benefits Consulting 2014 Study Personal Financial Planning Section #AICPApfp 15

16 Pre-retirees expectations for lifetime health care costs Expected Costs Percentage of respondents $200,000 or more 10% $150,000 to $200,000 3% $100,000 to $150,000 8% $ 50,000 to $100,000 11% Under $50,000 57% Source: Fidelity Benefits Consulting 2014 Study Personal Financial Planning Section #AICPApfp 16

17 Where are health care dollars spent? Description Percentage of costs Out of pocket prescription drugs 23% Medicare Parts B & D 32% Other out of pocket costs including co-pays, co-insurance and deductibles 45% Source: Fidelity Benefits Consulting 2014 Study Personal Financial Planning Section #AICPApfp 17

18 Cost of health care Service/Facility National Median Rates Increase over 2014 Five Year Annual Growth Rate Homemaker services $20/Hr. 2.63% 1.61% Home Health Aide Services $20/Hr. 1.27% 1.03% Adult Day Health Care $69/Hr. 5.94% 2.79% Assisted Living Facility $3,600/month 2.86% 2.48% Nursing Home Care Semi Private Room $220/day 3.77% 3.53% Nursing Home Care Private Room Source: Genworth 2015 Cost of Care Survey $250/day 4.17% 3.95% Personal Financial Planning Section #AICPApfp 18

19 Personal Financial Planning Section #AICPApfp 19

20 Discussing the Human Issues Personal Financial Planning Section #AICPApfp 20

21 The impact on family caregivers Caregiver Impact Percent of caregivers Spent more than 30 hours per week on caregiving 33% Experienced care related distractions such as phone calls or s while working 66% Caregiving duties had a negative effect on their jobs 60% Source: Genworth 2015 Cost of Care Survey Personal Financial Planning Section #AICPApfp 21

22 Retirees in good health face higher lifetime health care costs than those in poor health. A typical healthy couple at age 65 can expect to spend $260,000 with a 5-percent risk of exceeding $570,000 A typical unhealthy couple can expect to spend $220,000 with a 5-percent risk of exceeding $465,000. Those in good health live longer, eventually become less healthy, and often need nursing home care. Source: Center for Retirement Research at Boston College Personal Financial Planning Section #AICPApfp 22

23 Source: Harris AICPA survey 2012 Personal Financial Planning Section #AICPApfp 23

24 Blended families Personal Financial Planning Section #AICPApfp 24

25 Long Term Care Demographics Description Americans over 65 needed LT Care in 2012 Americans over 65 expected to need LT Care by 2020 % of Americans in need of LT Care who receive care from family and friends Statistics 9 Million 12 Million 78% Average age for admittance to nursing home 79 Percent who reach age 65 who will enter a nursing home 40% Average length of stay years Percent whose stay will exceed five years 10% Source: 40 Must Know Statistics About LT Care Morningstar article Personal Financial Planning Section #AICPApfp 25

26 Personal Financial Planning Section #AICPApfp 26

27 Tax, Insurance and Benefits Planning Personal Financial Planning Section #AICPApfp 27

28 Medicare means testing monthly premiums Lower MAGI limits apply in 2018 (see red $) Single MAGI Married MAGI Part B Premium Part D Premium $85,000 or less $170,000 or less $ Your Plan s premium $85k to $107K $170K to $214K $ Add $12.30 $107k to $160K $107K to $133.5K $214K to $320K $214k to $267K $ Add $31.80 $160K to $214K $133.5K to $160K $214k $160K $320K to $428K $267K to $320K $428K $320K $ Add $51.30 $ Add $70.80 Personal Financial Planning Section #AICPApfp 28

29 Extending tax projections for key retirement dates and year end planning AICPA Tax Evaluator Bob Keebler 10 Year projection periods to manage tax brackets Key retirement date planning 62 early SS 65 Medicare eligible 66 Full retirement age 70 Late SS 70 ½ RMDs must begin Year end medical deduction planning key for retirees Planning for the surviving now single client Personal Financial Planning Section #AICPApfp 29

30 Challenge employer benefit assumptions Always ask if clients are eligible for VA Benefits including survivor benefits Expect and explore additional retirement resources for civil servants and state employees Seek help in understanding social security spousal benefit offsets for government employees Seek help in understanding the windfall elimination provisions for workers who did not have SS withheld on at least one job (does not apply to survivor benefits) Personal Financial Planning Section #AICPApfp 30

31 I ve run out of money now what? Medicaid eligibility planning Finding a Medicaid bed Resource: Personal Financial Planning Section #AICPApfp 31

32 Medicare basics Part A (paid during working years) Part B (Means tested premiums) Part C Medicare Advantage Plans in lieu of Parts A and B and sometimes D Part D Drug Coverage Medigap Supplemental coverage Personal Financial Planning Section #AICPApfp 32

33 Before you move State income, estate and inheritance laws can have a huge impact on decisions where to live at retirement Numbercruncher software provides state by state estate and inheritance calculations Personal Financial Planning Section #AICPApfp 33

34 Managing Documents Personal Financial Planning Section #AICPApfp 34

35 Challenges from diminished capacity at retirement Ownership/beneficiary designations Not current, difficulty in updating Bank Accounts Retirement Accounts Real property titling Problems after refinancing Personal Financial Planning Section #AICPApfp 35

36 Challenges from diminished capacity at retirement Trusts not updated for mandatory funding formula when combined estate under threshold Trust protection still appropriate? Increased use of disclaimers burden on administration Outdated provisions for children issues Spouses now ex-spouses Substance abuse Selection of right current Trustee/Fiduciary Sibling issues leading to litigation Personal Financial Planning Section #AICPApfp 36

37 Challenges from diminished capacity at retirement Challenge of getting qualified plan assets in trust Is goal of deferral still effective Have RMD begun, what is real period of deferral? Guardianship appointment for yourself Mechanics Family challenges Power of Attorney Not updated: aged brother-in-law, child resentment Financial institution non-acceptance Changed jurisdiction Personal Financial Planning Section #AICPApfp 37

38 Other documents to consider Physician s Orders for Life-Sustaining Treatment (POLST) -resources/resource-library/ Caregiver agreements Advisor consent to contact pre-determined person to notify if advisor notices cognitive decline Personal Financial Planning Section #AICPApfp 38

39 Retirement Projections Personal Financial Planning Section #AICPApfp 39

40 Chronic diseases - one wild card for retirees The leading cause of death and disability ½ of all adults have one or more chronic diseases while 1 in four have two or more 7 of the top 10 causes of death were from chronic diseases. Heart disease and cancer accounted for 48% of these deaths Arthritis is the most common cause of disability More than 1/3 of adults and 20% of youths ages 2 to 19 are considered obese Diabetes is the leading cause of kidney failure, lower limb amputations and new cases of blindness Source: Center for Disease Control 2012 Personal Financial Planning Section #AICPApfp 40

41 Including health care costs in retirement projections option 1 Use a present value amount for future health care costs excluding long term care, dental and over the counter medications. (Fidelity $220,000 study for 65 year old couple) Set this amount aside from retirement resources before running retirement projections Consider creating dedicated accounts for these funds HSA accounts Additional savings dedicated to health care costs Long term care insurance should be used to cover the large uncertainty not considered in this approach Personal Financial Planning Section #AICPApfp 41

42 Including health care costs in retirement projections option 2 Considers annual cost projections for different clients based on health. Life expectancy tables assume ½ of population will die prior to the estimated life expectancy Health clients should live longer than these tables while unhealthy clients would be expected to have shorter life expectancies Uses estimated annual costs based on age and general health of client. (EBRI 9/14 Study) Use 25 percentile of expected costs for extremely healthy clients Use median costs for clients without chronic diseases Use 75 percentile of expected costs for clients with more than one chronic disease Use 90 to 95 th percentile for candidates for long-term care needs. Personal Financial Planning Section #AICPApfp 42

43 Addressing longevity in retirement Prepare stress tests to living to older ages in all retirement projections. Make sure adequate inflation protection is included in investments Own long term care policies for unexpected costs Consider using up to $125,000 of IRA to buy Qualified Deferred Income Annuities Consider adding low cost cash flow products such as the Single Premium Immediate Annuity Reduces initial withdrawal rate on remaining portfolio Provides mortality insurance for those who live long lives Personal Financial Planning Section #AICPApfp 43

44 Deciding on a withdrawal regime 4% rule static withdrawal adjusted for inflation only RMD rules withdrawals adjusted for age and account balances Safety first rules focus on covering basic living needs with social security and other guaranteed payments Dynamic rules withdrawals adjusted for changes in account values Guyton Decision Rules and Portfolio Guardrails Vanguards floor and ceiling rules Personal Financial Planning Section #AICPApfp 44

45 Addressing other personal risks Sensitivity to inflation: Client s age and life expectancy Sources of inflation adjusted income (e.g. pension, rental income, social security) Fixed expenses vs. inflation sensitive expenses Sensitivity to survivor longevity: Expected survivor longevity (e.g. age & health gap) Pension benefit to survivor Single vs. MFJ tax brackets Personal Financial Planning Section #AICPApfp 45

46 Best practices by creating policy statements Retirement Savings Policy Statement Create a five year plan to use raises to increase savings rate to at least 15% Investment Policy Statement Establishes investment guidelines based on client specific facts Withdrawal Policy Statement Establishes withdrawal rules and how a client will react when portfolio losses arise Personal Financial Planning Section #AICPApfp 46

47 Elder Care Resources Personal Financial Planning Section #AICPApfp 47

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55 Digital inventory resources QTqxAJ:apps.americanbar.org/dch/thedl.cfm%3Ffilename%3D/ RP190000/otherlinks_files/DigitalEstateInformationForm.pdf+&c d=3&hl=en&ct=clnk&gl=us Personal Financial Planning Section #AICPApfp 55

56 Elders on the Move Resources Personal Financial Planning Section #AICPApfp 56

57 Personal Financial Planning Section #AICPApfp 57

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60 Questions? Personal Financial Planning Section #AICPApfp 60

61 AICPA PFP Section Member Resources PFP Section members, inclusive of CPA/PFS credential holders, have access to resources on the latest planning strategies and trends in personal financial planning services so that they can practice competently and profitably. Visit aicpa.org/pfp/resources. Estate Tax Retirement Investment Insurance & Risk Management Practice Management Legislative/ Regulatory Professional Responsibilities Consumer Content Personal Financial Planning Section #AICPApfp 61

62 The CPA s Guide to Practical Retirement Planning Discusses the science of retirement planning As an advisor, what do I need to know to be competent? Provides practical application of various research studies Discusses impact of assumptions, risks, software simulation approaches, and product selection Identifies components of the planning process including advisors value, data gathering, and key decisions by age Recognizes the art of retirement planning As an advisor, how do I communicate in an effective manner? Discusses needs of special groups: women, LGBT, divorcees Organized according to client decision-making periods: Saver, pre-retiree, and retirees in early and late years Addressing unique issues during each time-frame Personal Financial Planning Section #AICPApfp 62

63 Upcoming PFP Section Events Webcasts* Practical Planning, Thought Leadership and Best Practices for Retirement Planning Series (events are free to everyone; no CPE offered) August 5, 1-2:45pm ET August 27, 1-2pm ET November 4, 1-2:45pm ET Practical Planning for Cash Flows and Withdrawal Strategies in Retirement Planning for Spending in Retirement (consumer event) Practical Planning for Social Security and Healthcare in Retirement Conferences January 18-20, 2016 July 20-22, 2015 November 16-17, 2015 AICPA Advanced Personal Financial Planning Conference (cpa2biz.com/pfp) AICPA Advanced Estate Planning Conference AICPA Sophisticated Tax Planning for Your Wealthy Clients PFP/PFS members are eligible to attend 4 free events with CPE. For a listing of all PFP webcasts, including free events, visit aicpa.org/pfp/upcomingevents. For the full calendar of upcoming PFP Section events, visit aicpa.org/pfp/events and click on CPE & Events. PFP/PFS Members can access the archives (no CPE) for free at aicpa.org/pfp/library. Personal Financial Planning Section #AICPApfp 63

64 CPA/PFS News and Events PFS Referral Program Receive 100% credit to apply toward future CPA/PFS dues by referring a CPA to become a PFS or sit for the PFS exam PFS Exam Register now for upcoming exam windows Discounts, sponsorships and volume pricing available Education Opportunities In-depth courses in estate, retirement, tax, investments, insurance, and PFP process In-person and online PFP Boot Camp Self-study PFS exam review course Learn more at aicpa.org/pfp/pfs Personal Financial Planning Section #AICPApfp 64

65 A CPA Financial Planner is a trusted advisor who Operates at the highest professional level when delivering PFP services to clients, acting in the clients best interest. Adheres to high standards as required by the Code of Professional Conduct and the Statement on Standards in PFP Services through the application of objectivity, integrity, due care and competence required by CPAs. Is regulated by state boards of accountancy. Integrates advanced planning concepts, including tax and business considerations, with the entire financial plan. Personal Financial Planning Section #AICPApfp 65