Planning for cash flows in retirement.

• Author: Luck, Lori Pajunen

Americans are living longer, and projected life expectancies are increasing. For many, it is scary to think that they may need to prepare themselves for being "unemployed" for at least 20 or 30 years when they retire from their jobs at age 65. Running out of money in retirement is clients' No. 1 financial concern, followed by worries about health care costs and asset withdrawal decisions, according to the AICPA Personal Financial Planning Trend Survey of CPA financial planners who were polled about their clients' concerns during the first quarter of 2015 (the survey is available at tinyurl.com/PFPTrend).

Those approaching retirement and current retirees are looking for someone to turn to who can help them make well-thought-out decisions about cash flow planning. CPA financial planners can help their clients predict how they may fare financially in their retirement years and also help them simulate the financial impact of different decisions, on paper, before committing to a particular course of action, by preparing retirement cash flow projections.

To prepare retirement cash flow projections, the CPA financial planner needs to actively integrate the client into the planning process. It starts with helping the client envision life as a retiree and for the planner to learn about the client's goals. Next, the planner gathers detailed financial information from the client about investment assets, expected retirement income, and current annual spending. Finally, after inputting the data into retirement planning software to calculate and project various scenarios, the planner can use his or her expertise to interpret the results and help clients to align their values and expectations with their available assets. This realistic snapshot of the future can assist clients with important decisions.

Envisioning Retirement

Conversations about retirement plans with the planner may be the first time the client has ever discussed these topics with anyone--or that a couple have ever discussed these topics together--and they can be sensitive topics. Often, couples need to sort out blended-family obligations. The planner must find out who is important to them and whom they need to take care of. Also, what is important to them? How do they currently manage their money and make financial decisions? What do they dream about doing when they retire? What are they afraid of? How is their health, and do they have longevity in their family? When do they want to retire? It is important that the planner encourage both spouses in a couple to speak and express their thoughts. Different personalities require different approaches.

Visualizing retirement is instrumental in helping clients have a purposeful retirement, that is, so they can retire to something, rather than just from something. Asking clients to imagine what a day of retired fife might be like may help make it become more real. Sometimes that vision might include starting a second career, pursuing a hobby, or volunteering time and talents to favorite causes. Often one's life work, whether paid or unpaid, helps people thrive.

After the planner has learned about what is important to his or her client, he or she can begin gathering the quantitative information necessary to prepare retirement cash flow projections.

Simulating Retirement

A planner can prepare a cash flow projection to simulate retirement by considering how various assumptions and decisions may affect the client's retirement. It is also a document that the planner and the client can use to compare to actual results to track progress and see if the client is on course as he or she navigates pre-retirement and post-retirement decisions.

Data-Gathering Process

The planner needs to gather the most accurate, detailed information possible from his or her client, input those data into retirement planning software, and, ultimately, calculate relevant retirement cash flow projections. Throughout the process, the planner should educate the...