Retirement transition: Crucial decisions

By Theodore J. Sarenski, CPA/PFS

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" (below) 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 not accrue the extra 8% per year from FRA to age 70.

However, planning for couples can be intricate, with many factors to consider. Health, age differential, family history, wealth (or lack of wealth), each person's work history, and earning potential between age 62 and FRA are only a few of the factors to consider.

Generally, if a couple or individual has a large amount of invested assets, starting benefits at FRA makes sense. Why not receive more funds when you are able to enjoy them by traveling, buying a second home, or visiting children and grandchildren, compared to later years, when the ability or desire to do those activities wanes? Waiting until age 70 to start the Social Security benefits of a couple's higher wage earner is important when the couple do not have significant assets saved. The higher wage earner or his or her survivor keeps the higher of the two Social Security benefits for the rest of his or her life.

No individual or couple is average. An individual analysis must be undertaken for each of your clients' lives to offer good Social Security advice. The AICPA PFP Division has a Guide to Social Security Planning that is available free to PFP Section members. This publication can assist you in the many aspects of Social Security.

Health insurance

Health insurance is costly when not provided as a subsidized benefit from an employer. What options are available for someone who no longer has that benefit? Coverage from traditional health insurance companies is expensive. An alternative for someone who does not qualify for other coverage is to buy a policy through an Affordable Care Act (ACA) health care exchange.

It is important to plan for the period from the loss of employer-sponsored health insurance and the beginning of Medicare at age 65. Limiting the amount of taxable income each year can provide great advantages for the cost of insurance under the ACA.

Medicare becomes your health insurance at age 65 if you are no longer receiving coverage under an employer plan that has more than 20 participants. There are two basic coverages under Medicare, Parts A and B. Part A covers hospitalization and home health services, and Part B covers physician and most outpatient services (generally, with a 20% copay). Part D covers prescription drugs. A supplemental insurance policy is recommended to assist with coverage for the 20% copay. Supplemental health insurance can cost from $170 to $300 per month, depending on the coverage chosen.

It is extremely important to plan for taxable income beyond age 65, as stock option exercises, installment sales of businesses, or large required minimum distributions (RMDs) from IRAs and 401(k) plans can increase the monthly per person cost of Medicare Part B, as shown in the chart "Medicare Part B Premiums by Income Level" (below).


Depending on the Part D and supplemental policies chosen, a couple in the lowest income tier can incur a total premium cost annually for Parts A, B, and D and supplemental coverage of approximately $10,000, but couples with income at the highest level can pay double that amount. The cost of Medicare is something to apprise your clients of long before they turn 65. You should also plan as necessary to keep them from paying extra for the coverage.

The other Medicare coverage is Part C, Medicare Advantage (MA). Numerous television commercials appear between Oct. 15 and Dec. 7 each year, which is the open enrollment period for people who wish to switch from traditional Medicare coverage to MA. MA includes health maintenance organizations (HMOs), preferred provider organizations (PPOs), private fee-for-service plans (PFFS), and Medicare medical savings account plans (MSAs). Many of these plans have vision and dental coverage, which traditional Medicare does not include.

An individual still pays for Medicare Part B under MA. Medicare then bundles the Part B premiums (and any Part A premiums paid by beneficiaries who do not receive it free) of the participants in an MA and gives them to the MA to provide health care for that group.

Roth conversions

The perfect time for Roth conversions is the period from leaving full-time employment until the beginning of Social Security benefits and/or RMDs from IRAs and 401(k) plans. The ability to tax these conversions at lower tax rates for seven to 10 years accomplishes wonders in reducing RMDs in the future, potentially keeping Medicare costs lower and creating a tax-free pot of money for the person's lifetime or for future beneficiaries.

Sustainable withdrawal rates

The challenge for PFP advisers is making sure their clients' money will last longer than they do. Establishing a withdrawal rate that will allow for the desired lifestyle and that lasts for the lifetime of the client must overcome six major challenges. The challenges, in no specific order, are (1) stock and bond market volatility; (2) sensitivity to the date of retirement; (3) fees and taxes; (4) the withdrawal rate that would survive any 30-year historical period; (5) the optimal asset allocation; and (6) portfolio changes to manage risk.

What happens in markets in the early years after someone stops working full time significantly affects his or her financial health for the rest of his or her life. The early years are when someone needs to be the least exposed to risk in a portfolio. Risk can be increased the older someone gets, as fewer years remain needed to fund the lifestyle. Studies by Michael Kitces, head of planning strategy at Buckingham Strategic Wealth, are essential reading if you are assisting clients with their investments and budget (available at


Medical advances and healthy lifestyles have extended peoples' lives to where a CPA needs to be concerned about how to protect clients' finances longer than has been necessary in the past. A study by Chmielewski, Boryslawski, and Strzelec, "Contemporary Views on Human Aging and Longevity," 79-2 Anthropological Review 115 (2016), attributed extended longevity to the following factors: genetics, lifestyle, level of hygiene, social support, socio-economic status, level of education, personality, intelligence, and more. CPAs and their clients possess many of the traits listed for longevity.

Online calculators you can use or have your clients use to test for longevity include the Social Security Administration's Retirement & Survivors Benefits: Life Expectancy Calculator, the Actuaries Longevity Illustrator, and the Living to 100 Life Expectancy Calculator.

One way to protect a future cash flow is using a qualified longevity annuity contract (QLAC). Using IRA funds, a client can purchase a QLAC as early as age 55 and choose when he or she would like the annuity to begin paying benefits. The largest expense that can ruin a financial plan for a healthy spouse is a long-term-care (LTC) event for the less-healthy spouse. Suggest to your clients that they purchase LTC insurance, or at least speak to them about the costs of long-term care, whether at home or in a facility. No matter how much wealth someone has, why not protect assets by passing the risk to an insurance company? People purchase automobile insurance and homeowner's insurance without hoping to use the policies. Why should LTC insurance be any different? The insurance industry has responded to the need by offering not just stand-alone LTC policies but also adding long-term care as a rider to life insurance policies or as an LTC rider to an annuity.

Many of the author's clients are guided by the chart "Protection Costs Based on Liquid Net Worth" (below) to show the cost of a stand-alone LTC policy as a percentage of their net worth. The chart shows the small percentage necessary to protect all their wealth.


Lasting financial security

The CPA profession is in the best position to assist clients in the many transition phases of their lives. Clients need the proactive planning CPAs can provide to assure a financially secure lifestyle for the rest of their lives. Mistakes made as someone leaves full-time employment can cause significant financial problems for the rest of their lives. CPAs know more about a client's financial, estate, business, and family situation than any other professional they work with. CPAs work with very diverse client bases, so they have the experience and expertise in many areas. CPAs continuously deal with clients' questions about saving for college, saving for retirement, cash flow, insurance needs, and estate planning. Clients deal with each of these items only once in their life. They want their CPA to help.


AICPA Resources

PFP credential

Personal Financial Specialist Experienced CPA Pathway

Videos from the PFP Learning Library Webcast Archive

"Estimating the End of Retirement"

"Financial Independence: Rethinking Retirement"

"Social Security and Medicare: Maximizing Retirement Benefits"

Publications (for PFP Section members)

Guide to Social Security Planning

Guide to Retirement & Elder Planning: Healthcare Coverage Planning



Theodore J. Sarenski, CPA/PFS, CFP, is a wealth manager at Capital One/United Income in Syracuse, N.Y. Mr. Sarenski is chairman of the AICPA Advanced Personal Financial Planning Conference. He is also a past chairman of the AICPA Personal Financial Planning Executive Committee and a former member of the Tax Literacy Commission. For more information about this column, contact


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