Steps to Prepare for Retirement
U.S. Companies Can't Continue Offering Adequate Pensions, AICPA Survey Reveals
by Joel Allegretti
April 27, 2006
The vast majority of CPAs serving as corporate CEOs, CFOs, Controllers and in other
executive positions believe American companies can't continue providing pensions
that adequately cover their employees' retirement years, according to the results
of a new survey by the American Institute of Certified Public Accountants (AICPA).
Moreover, many CPA executives believe reductions in pension benefits pose a threat
to a company's ability to attract and retain the talent they need to compete.
"These findings are a wake-up call," said John Morrow, Vice President of the AICPA's
division for CPAs in business and industry. "The traditional system of rewarding
employees with pensions after long years of service is on its way out, because companies
simply cannot bear the cost. Therefore, employees will have to find alternate methods
of funding their retirement."
The AICPA surveyed more than 3,100 of its members in business and industry during
the month of April. Of them, 59.5 percent work for private companies, and 21.4 percent
are employed in public corporations. The remaining respondents are in the not-for-profit
and government arenas.
When asked if U.S. companies could continue providing employees with pensions that
adequately cover their retirement years, nearly three in four (74 percent) of the
respondents said no. More than half (54 percent) indicated that the erosion of these
benefits would hurt recruiting and retention efforts. A slightly higher number (57
percent) believe rising healthcare costs are the biggest barrier to a company's
ability to offer pension benefits; nearly a third (30 percent) said the pressures
to compete in the marketplace outweighed the pressures to provide retirement benefits.
Virtually all the respondents said their companies offer some type of retirement
benefit today, with the majority offering a 401(k) plan with matching contributions
(65.6 percent). Less than 5 percent said their companies offer no retirement plan
Interestingly, well over half the respondents (59 percent) believe Americans have
to educate themselves about retirement savings strategies.
"American workers have to understand the pension safety net will probably not be
there for them and that planning for retirement is their personal responsibility"
said Carl George, Chair of the AICPA's National CPA Financial Literacy Commission.
"Americans must recognize that unless they take a more active role in their own
retirement planning, they may find themselves working far longer than they had intended."
Steps to Prepare for Retirement
The AICPA's "360 Degrees of Financial Literacy" program has set up a consumer Web
with hundreds of "free" tools and resources to help educate consumers about personal
finance matters, including retirement. The basic retirement planning steps recommended
on the site include the following:
1.) Know Your Retirement Needs
Experts estimate that you'll need about 70 percent of your pre-retirement income
-- lower earners, 90 percent or more -- to maintain your standard of living when
you stop working.
2.) Find Out About Your Social Security Benefits
Social Security pays the average retiree about 40 percent of pre-retirement earnings.
Call the Social Security Administration at 1-800-772-1213 for a free Social Security
Statement and find out more about your benefits at
3.) Learn About Your Employer's Pension or Profit-Sharing Plan
If your employer offers a plan, check to see what your benefit is worth. Most employers
will provide an individual benefit statement if you request one. Before you change
jobs, find out what will happen to your pension. Learn what benefits you may have
from previous employment. Find out if you will be entitled to benefits from your
4.) Contribute to a Tax-Deferred Savings Plan
If your employer offers a tax-deferred savings plan, such as a 401(k), sign up and
contribute all you can. Your taxes will be lower, your company may kick in more,
and automatic deductions make it easy. Over time, compound interest and tax deferrals
make a big difference in the amount you will accumulate.
5.) Put Your Money in an Individual Retirement Account
You can put up to $3,000 a year into an Individual Retirement Account (IRA) and
gain tax advantages. When you open an IRA, you have two options -- a traditional
IRA or the newer Roth IRA. The tax treatment of your contributions and withdrawals
will depend on which option you select. Also, you should know that the after-tax
value of your withdrawal will depend on inflation and the type of IRA you choose.
6.) Don't Touch Your Savings
Don't dip into your retirement savings unless it's an absolute necessity. You'll
lose principal and interest, and you may lose tax benefits. If you change jobs,
roll over your savings directly into an IRA or your new employer's retirement plan.
7.) Start Now, Set Goals and Stick to Them
Start early. The sooner you start saving, the more time your money has to grow.
Put time on your side. Make retirement savings a high priority. Devise a plan, stick
to it, and set goals for yourself.
8.) Consider Basic Investment Principles
How you save can be as important as how much you save. Inflation and the type of
investments you make play important roles in how much you'll have saved at retirement.
Know how your pension or savings plan is invested. Financial security and knowledge
go hand in hand.
9.) Ask Questions. Check Out Free Resources
Talk to your employer, your bank, your union, or your CPA. Ask questions and make
sure the answers make sense to you.
The American Institute of Certified Public Accountants (www.aicpa.org)
is the national, professional association of CPAs, with approximately 330,000 members,
including CPAs in business and industry, public practice, government, and education.
It sets ethical standards for the profession and U.S. auditing standards for audits
of private companies; federal, state and local governments; and non-profit organizations.
It also develops and grades the Uniform CPA Examination.