Retirement transition: Crucial decisions.

• Date: 01 March 2022
• Author: Sarenski, Theodore J.

CPAs are in a unique place. They encounter their clients' life events many times, while each client encounters them just once. This experience allows CPAs to compare, learn, and develop tools to give expert advice to all their clients. Unfortunately, CPAs often get their clients to the point of retirement, and then their advice tapers off. An individual who retires today from primary employment likely has 20 to 30 years of life remaining. CPAs need to continue advising clients throughout their life. Most CPAs' clients are not financial people, which is why they came to a CPA for help. Let us review the factors that you can assist your clients with at a critical time.

The stage, not the age

Barbara Waxman's book The Middlescence Manifesto: Igniting the Passion of Midlife (2016) suggests retiring the word "retire." She defines "middlescence" as adolescence with wisdom. Waxman asks people to shake off the old idea of education/work and family/retire/die to a new paradigm of constant discovery, maximization of joy, and being open to growth.

Social Security

Each year, the trustees of the Social Security trust funds report on the health of the Old-Age and Survivors Insurance (OASI) and Disability Insurance (DI) funds. The report issued in August 2021 predicts that, without reform, under "intermediate assumptions," OASI will run out of trust fund asset reserves in 2033 and then be able to pay only 76% of projected benefits going forward. There will be reform, as there has been repeatedly in the program's 86-year history. Social Security is received by approximately one-fifth of the United States' population, so it cannot disappear. Despite those broadly shared policy concerns, decisions about Social Security benefits are necessarily individual. How do you advise clients on when to begin receiving benefits?

Actuarially, it does not matter. At whatever age between 62 and 70 individuals begin to receive benefits, if they live to their current life expectancy, they will receive approximately the same total lifetime benefits. But who is average? Also, for couples, the planning becomes more complex than for a single person.

The chart "Social Security Starting Ages and Total Benefits" compares three starting age choices by a couple whose higher wage earner's benefit is $2,000 per month. Both spouses are the same age, with a full retirement age (FRA) of 66, and both die in the same year. The lower wage earner's benefit is the spousal benefit of one-half of that of the primary wage earner, as it is better than his or her own benefit.

If they both die at age 75, starting at age 62 would have given them the best benefit total. If they both die at age 85 (roughly, their current life expectancy), starting at FRA would have given them the best benefit total. If they both live to age 95, it is nearly breakeven between starting benefits at FRA or at age 70, because spousal benefits do...