Although there are reams of literature and generally accepted guidelines stating that people typically spend 75 percent to 80 percent of their pre-retirement income during retirement, some advisors have found that's not necessarily the case.In fact, some say the spending levels are about the same.

"We're not sure that people are spending anything less in retirement," said David Morganstern, CFP and co-president of CMC Advisers in Portland, Ore. "The line items have changed. They're not buying business suits any more, and they're not parking downtown to go to work. But they're joining health clubs, they're traveling, they're eating out a lot more and they're joining a country club."

Much has been written about planning for retirement on the front end and creating estate plans and transferring assets on the back end of retirement. But what about the middle stage, the actual retirement years during which people live on their retirement income after leaving full-time employment? And more important, what roles can accountants play in helping their clients manage their retirement years?

Experts say the retirement management process can be broken down into a number of distinct categories.

BUDGETING AND ALLOCATING ASSETS

"Managing cash flow is critical. Many people during their working years have more discretionary income than they need; they're in a savings mode. When they retire, they're typically living off their savings, drawing down the portfolio, so it becomes really important that they understand, heading into retirement, what their spending needs are," explained Morganstern.

"The best thing the accountant can do is help the client marshal their financial assets and help them with a budget," said South Pasadena, Calif.-based Victor Robinette, CPA, CFP. Robinette recommended spending time explaining to clients what effect taxes will have on their retirement income.

"They don't get a feel for what their tax burden is going to be when they're making their withdrawals [from retirement accounts]," said Robinette. "It's a good opportunity to build loyalty with your clients, to sit down and spend an hour with them, when you're not in your busy season, and run the numbers. Try to plan out the distributions over a number of years and plan the taxes accordingly."

HOUSING DECISIONS

There are several factors that can influence decisions to change living arrangements upon retirement. Some of the reasons for moving include reducing space, lowering housing costs, moving to a more comfortable climate, moving closer to family or to friends, changing to a more secure environment, or changing to a community that includes retirement programs or health care.

However, any decisions about moving should include a tax-planning consultation.

Stan DiLiberto, a CPA and CFP based in Seal Beach, Calif., suggested that if a person reaches retirement and still carries a mortgage on a home, care should be taken to ensure that a person isn't paying off the mortgage with tax-deferred funds. "If you have a home and you haven't paid it off, I would continue to pay it off according to the payment schedule. I wouldn't pay it off by taking money out of your retirement account. Let your deferred account work for you," he said.

On the other hand, CMC's Morganstern recommended that accountants advise clients to pay off as much debt as possible as they head into retirement, "so that they enter retirement with no debt, meaning mortgage, cars, home equity loans, whatever it might be, so they're debt-free. That eases cash flow."

Paying off the debt does not necessarily prevent a person from accessing cash. DiLiberto suggested that in some circumstances, a reverse mortgage is a useful tool for managing cash. "There are people that spend a little bit more than they get on their pension. For the right person, [the reverse mortgage] is a good deal."

LESS SPECULATION

While the tradition in years past has been to leave the speculation out of investments once people reach retirement, the rules have changed to some extent today.

Many of today's retirees are funding their own retirement and relying less on fixed-pension payments.

"They may not want to be too conservative," said DiLiberto. "If you retire at 65 and you're going to live until you're 90, that's 25 years. Your account's got to grow."

"When you move into retirement, depending on other sources of income, you move your portfolio to more of an income-generating with some growth, but less growth than when you were working," said Morganstern. "You can't take an ultra-conservative approach or you'd spend your portfolio down too quickly."

Nevertheless, older investors have to watch their investments closely. "When you're retired and you're drawing on your funds, if there's a downturn in the market, it has more of a compounding effect, because not only is your account going down, but you are also drawing out. That's very bad," said DiLiberto.

PROTECTING ASSETS

Asset protection can come in many forms, and it's easy to get overwhelmed with the choices. Different types of insurance coverage, trusts, and safer investment vehicles such as certificates of deposit and annuities are some of the options that a person can consider. The cost of asset protection has to be weighed against the value of the assets being protected.

TAX-DEFERRED ACCOUNTS

Once a person reaches retirement, careful planning can ensure that money withdrawn from tax-deferred accounts, including IRAs, 401(k)s, 403(b)s and others, is done properly and in such a way as to minimize income taxes and protect the taxpayer from penalties.

The Internal Revenue Service publishes tables to help taxpayers determine how much they're required to withdraw each year. As a result, accountants can help retirees understand the tables and determine the best method of withdrawal.

In order to avoid surprises, "plan out the distributions over a number of years, and plan the taxes accordingly," said Robinette. He suggested meeting with retired clients to discuss various income scenarios in order to protect clients from such pitfalls as unnecessary taxation on Social Security, or the alternative minimum tax. He also suggested regular analysis of the market to ensure that the planned future rate of return on investments is reasonable. "Help them make sure they're not going to run out of money in 15 years," said Robinette.

DiLiberto suggests keeping tabs on the marginal tax rate. "If you have a low-income year, transfer some traditional IRA money into a Roth IRA. You're going to pay taxes as it goes over to the Roth, but in a low-tax-bracket year, you're paying very little tax."

Morganstern advised that retirees "spend down their taxable accounts and let the tax-deterred ones continue to grow." He said that he also reminds his clients that new tax rules allow people to make charitable contributions out of their tax-deferred accounts. "They can continue to be philanthropic and not recognize the ordinary income."

MINIMIZING TAXES

There are always plenty of ways in which accountants can help their clients minimize taxes, and the actions of retiree clients can open new doors to tax savings.

Morganstern pointed out that some retirees might find themselves with new types of deductions on their tax returns. "Some people turn a hobby into a business when they retire. That offers them possibilities of new tax deductions and some losses, potentially, as they're getting the business started," he said. "We're seeing this more and more with Baby Boomers."

He also said that many retirees take advantage of opportunities to gift some of their assets to children and grandchildren, and require advice regarding tax benefits and the timing of such payments.

HEALTH CARE CONCERNS

Many older Americans are considering long-term care insurance, still a relatively new kid on the insurance block.

"You can get a paid-up LTC policy so you won't have to make any more premiums, or you can make monthly payments," explained DiLiberto. He suggested that people start considering LTC insurance around age 55. Waiting until an older age can result in cost-prohibitive premiums.

Morganstern said that health care is the biggest issue his firm faces when consulting with retirees. "When we run retirement projections out 15, 20, 25 years, health-care premiums is the biggest line item in the entire budget - it surmounts every other line item combined." He describes the costs as "unsustainable."

"We don't know what's coming down the road, whether it's some sort of socialized medicine or a form of Medicare, but people can't spend more than half their budget just on health-care premiums alone."

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