Most workers with access to a retirement benefit today must contribute to their plan as opposed to relying on a pension. We’re in the “save for yourself” era. Jacquelyn M. Basso, CPA, CFP, of J.M. Basso & Associates in Downingtown, Pa., believes that employees just aren’t saving enough to live comfortably in retirement. Basso, who is chair of PICPA’s Personal Financial Planning Committee, discusses how her fellow CPAs can help address this retirement crisis with their clients, staff, and the public at large. She also addressed this topic in a PICPA CPA Now blog on June 26, 2019.

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By: Jim DeLuccia, PICPA Communications Manager

Podcast Transcript

Pension plans are nearly extinct, which means most of us are living in the “save for yourself” era. Many companies offer defined contribution plans to their employees so they can save for retirement, but statistics continually show that workers are not saving enough to avoid a retirement crisis. Jacquelyn M. Basso, CPA, a certified financial planner, of J.M. Basso and Associates in Downingtown, joins me today to explain how CPAs can address this crisis with their clients and with the public at large.

Jacqui, thanks so much for joining me on the phone today.

[Basso] Hi, Jim. Glad to join you.

Before I begin, I want to mention a few items. First, this interview is based largely off a blog, Jacqui, that you recently published for our CPA Now series called “How CPA's Can Address the Retirement Crisis,” which listeners can check out on website by searching for that title. I want to also mention that Jacqui is chair of PICPA's Personal Financial Planning Committee. And Jacqui, you've been in that role for some years now, so we appreciate that.

[Basso] Yep. Personal financial planning, it is a personal passion.

Well, that's good to hear. And you, actually, are a perfect segue here, as you mentioned you work extensively as a financial planner. I wanted to start off by asking, what are a few surprising, and perhaps alarming, things you've noticed from clients about their attitude toward retirement?

[Basso] Well, Jim, I find that most of my clients, they just don't prioritize saving for retirement. When I look at, or talk to my younger clients, for them retirement is so far off. They question, "Why should I save now when I'm not going to retire until much later?" And for some of the younger clients, they just may not have room in their budget for retirement savings.

What have you found in your research about the public as a whole, regarding their saving for retirement habits that trouble you, that your CPA colleagues just may not be aware of?

[Basso] Well, one thing is, if an employee works for an employer that has a retirement plan, they will fare better. Our clients are under saved for retirement, though. I try to talk to my clients about reaching a goal of 10 to 15% of their income, in either their 401(k) or if they can also save into an individual retirement account.

The more you save the better prepared you are for retirement. In fact, in Pennsylvania, our workers on average only have a $40,000 to $50,000 balance in their retirement plan.

And how old are these workers? Do you know?

[Basso] I don't know their age, but I would say somewhere in the 40 to 60-year range because of the amount of the balance being that you can only save, historically, maybe somewhere between $15,000 and $18,000 maxing out every year. But most clients do not maximize their retirement contributions.

The folks here that you've worked with, they're clearly pretty short.

[Basso] Yes. Again, you can't stress the fact that retirement saving is about saving for yourself today. Defined contribution pension plans or defined benefit plans are few and far between today. Most workers will live 20 to 30 years in retirement.

And if you were to ask your client today, "What will your retirement income look like when you're retired?" If they say, "I'm going to live off Social Security." Well, the average Social Security check is only $1,400 a month, and the maximum Social Security check is only $2,800 a month.

Social Security may not even be there when they retire. So, again, we keep stressing to our clients as CPAs, you've got to save for yourself first. We're in a “save for yourself” environment.

That's a great point. And things are only getting more expensive, right? You've got people living longer, so clearly that shortfall there is pretty alarming.

[Basso] Right. And to have a worker who makes, let's just say six figures today, having $40,000 to $50,000 saved for retirement is a half a year of living expenses. I mean, most people are short, unprepared, and not denying themselves today in their budget, and prioritizing retirement savings as the first thing you save for, besides an emergency cash fund.

How can CPAs educate their clients? Can non-CFP's make a significant impact with them?

[Basso] As CPAs, I think every opportunity, every interaction you have with your client could be an opportunity to talk to them about retirement, every financial interaction. If you're doing tax planning with them, you ask them, "Are you saving? What are your goals? What percentage of your income are you saving for a specific goal, like saving for a home, saving for education, saving for retirement?" You have to come out and ask them. "Are you saving enough in your retirement plan to help you reduce your next year's federal taxes?"

When I do tax preparation with my clients, and they bring in their W2 at the end of the year, I look at Box 12. Box 12 tells me how much they're saving for retirement. I point that out to my clients, "You're not maximizing. Could you save a little more? You don't want to pay taxes this year, but if you paid the money into your retirement plan, you would be saving for yourself, not paying the IRS."

Right. It seems like a win-win.

[Basso] Right. There's also a reason why the defined contribution world has a catch-up at age 50 because it's usually by then people realize, "Oh my gosh. I'm going to retire in 15 years. Maybe now I can really try to maximize my savings, do my annual contribution plus my catch-up."

But even that, you're only saving 15 more years. You're still going to be short, so you got to do it early, put it on auto save, try to get that 10% goal achieved, and let the magic of compounding, capital gains, and interest, and dividends work in your plan.

Should some type of discussion about retirement be built into all client meetings? I mean, you touched on this a little bit in your previous response, but what are your thoughts on that?

[Basso] Oh, absolutely. I mean, no matter what life event your client is coming to discuss with you ... Or like I said, even if you're just doing tax planning, or tax preparation, or you're actually doing a financial plan for a client, you should always be asking about saving goals, saving for retirement.

How do you think CPAs can play a bigger role in this discussion in the public arena?

[Basso] Well, I mean, again, every opportunity you have with a client or with the public should be an opportunity to provide financial literacy. I mean, it's our duty as CPAs to educate our client and educate our communities.

The PICPA has some great resources that you can use to talk to the public. You could join the PFP Committee, and network with other professionals who can help provide resources to you, you can ask questions, practice management tips. That's another great way for you to provide additional information to your clients.

I encourage CPA's to take personal financial planning CPE to educate themselves because, especially this year with the changes in the tax law, it also provided opportunities for you to talk to your clients about retirement savings and how the current tax law will provide opportunities for you to save for retirement and reduce your taxes.

I mean, you could also offer a seminar at a library. I recently was invited by a client, ironically, to speak at her school, at an in-service day for teachers. We talked about budgeting, savings, and saving for retirement. I always used this phrase, "It's not how much you make but how much you spend."

The number one thing is budgeting. Most people don't budget. So, that's number one. Number two is, they don't put their savings on auto pilot. Auto saving is the best way to save for a specific goal. That's really what saving for a retirement is, is when you get paid, a percent of your income goes right to your retirement plan and you live on less. You learn to live within your budgeted fixed income.

If you look at the statistics, recently Bankrate did a survey. They found that most people don't have $400 saved for an emergency expense. So, if you were to put that in terms that you could talk to your client about, that's not even $10 a week. Surely, everybody can find $10 a week to save to get to $400 or $500, but that is even short.

Right. Emergencies happen all the time.

[Basso] Right. The rule of thumb for an emergency is six to 12 months of your income saved in an emergency cash fund. Well, if we have people that can't even save $500, how will they ever save six to 12 months of their income, without having a budget and tracking their spending?

Great question, Jacqui. I know that it's something that you and I have spoken about before offline. I know that you've told me on a few occasions the mantra of, "It's not how much you make, it's how much you spend." So, I always try to keep that in the back of my mind, with my own personal financial management.

[Basso] It just puts that thought in your head. It's not how much you make, but how much you spend. Nobody likes to say that we're heading for a retirement crisis, but you are hearing that, and why is that? What does crisis actually mean? It's a time of intense difficulty or trouble.

If we have workers who aren't saving today for retirement, imagine what retirement living is going to look like. Our conference, our PFP Conference in November, we're talking about retirement as re-wire-ment. We have workers who are going to be working longer, we're going to have older workers, health care costs are rising.

But our job as CPAs today, is to teach our clients to save for themselves.

It certainly seems like the landscape is changing, and it could be very drastic in the next, what would you say, just 10 years?

[Basso] Oh, the last of the baby boomers are retired, or supposed to be retiring in the next 10 years. But they've under saved as well, so we already have boomers that are realizing that they didn't save enough for themselves. That's why they're working.

Look at any place that you go shop, the grocery store, the drug store, you're seeing older workers. Why is that? They're trying to supplement their monthly fixed income. In most cases, some of them are even working just to have medical benefits.

Hopefully our younger clients, and our younger workers, and our younger small business owners will realize this and set up retirement plans for their workers, and our younger workers will start saving more for themselves.

Let's hope so.

[Basso] Let's hope so. We're going to just keep being responsible, to try to help Pennsylvanians prepare for retirement.

Well, Jacqui, thanks again for sharing this insight with our listeners. I hope you enjoyed the experience.

[Basso] Yeah. Thank you, Jim. As always, the PICPA has great resources when it comes to being an advocate and educating your clients about personal financial planning.

To piggyback off of that comment, you can access those resources at www.picpa.org/m&l, which stands for money and life.

Again, I encourage you to check out Jackie's blog on this topic, which is on our website. If you go to our website and just search for, “How CPA's Can Address the Retirement Crisis,” that should be able to pop right up for you. Again, our website is www.picpa.org.