3 Critical Shifts For Clients In Retirement

3 Critical Shifts For Clients In Retirement

Whether we are your business advisors or your tax preparers,  if you are one of the 10,000 Baby Boomers turning 65 every day, your need for retirement planning has never been greater. Retirees need to make three critical shifts in thinking to obtain the most enjoyment out of their golden years, and as CPAs, we can help with several additional financial planning areas.

Those shifts in thinking are:

    • Shifting away from earning toward spending savings without feeling like a moral failing;
    • Shifting the tax goal away from minimizing taxes on a year-by-year basis toward sometimes intentionally incurring taxation to minimize the total retirement tax bill; and
    • Shifting from the belief that durable and medical powers of attorney should be given to one’s spouse toward naming younger family members or trusted local professionals who could potentially manage both spouses’ day-to-day financial and/or health care affairs.

Shifting from saving to spending

When clients say that they are looking for help answering the question of how much they can safely spend in retirement, what they’re also looking for is coaching around how to even start spending when most of their adult life has likely been focused on earning and saving. For more frugal clients, a CPA’s role may actually be to encourage spending.

For instance, many wealthy retirees got that way because they’ve mastered the art of thrift; they are proud of how little they spend and often skimp to live solely from guaranteed income sources such as Social Security, annuities, and/or pension payments. During their working years, having to tap savings was often a sign that things had gone wrong, and this mindset doesn’t go away in retirement.

For other retirees, transitioning from a regular paycheck that essentially determined how much they could spend each month to a savings drawdown may put them at risk of outliving savings. Clients who are used to spending according to what’s available may view their penalty-free access to larger sums of money as a windfall and be more inclined to elevate their lifestyle through overspending, especially in the early years of retirement. In these cases, CPAs may opt to center retirement plans around spending/withdrawal limits.

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