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LEARNING RESOURCES

Creating, Implementing and Monitoring the
Retirement Plan realistic withdrawal rate is critical. Including the
value of defined contribution plans when calculat-
In this four-part narrated PowerPoint presentation, ing a person’s net worth is easy, though. Because
Tom Tillery discusses contributions to, and
distributions from, various types of retirement plans, the present value of the benefit earned at any point
enabling you to better review your client’s existing in time is equal to the account balance at that time,
estate plan or create an estate plan, which may be you simply look up the balance and add it to net
even more critical than the assets themselves. worth.

CPE SELF-STUDY
Defined benefit plans’ effect on net worth is
harder to assess
In a defined benefit plan, retirement income is
Retirement Planning Certificate Program (Exam guaranteed and is usually calculated by multiplying
+ Course)
three variables: (1) the number of years worked
Designed for practitioners who want a thorough for the company, (2) salary (typically an average
understanding of retirement planning, the AICPA’s of a specified number of years), and (3) a specified
Retirement Planning Certificate Program is a series percentage, such as 2%. For example, suppose A
of courses covering the retirement planning life
cycle, including planning for aging and chronically worked for his employer for 20 years, and for each
ill clients. year of service his pension plan offered retirement
income of 2.2% of his average salary over the last
CPE SELF-STUDY
four years, which was $150,000. A’s pension would
be $66,000 per year (20 × 2.2% × $150,000).
For more information or to make a purchase, go to Although annual retirement income earned by
aicpa.org/cpe-learning or call the Institute at 888-777-7077. any point in time can be easily calculated, defined
benefit plans present a challenge when calculating
net worth because they only represent a stream
of potential future income. That is, the employee
must live in order to collect, which is why defined
AICPA RESOURCE benefit plans are often omitted from total assets.
PFP Member Section and PFS credential This, however, presents a very incomplete picture
of financial health for workers who have been on
Membership in the Personal Financial Planning (PFP) Section provides
access to specialized resources in the area of personal financial planning, the job for a while. So how should a future stream
including complimentary access to Broadridge Advisor. Visit the PFP of income from a defined benefit plan factor into
Center. Members with a specialization in personal financial planning net-worth calculations?
may be interested in applying for the Personal Financial Specialist (PFS) First, it must be understood that pension valu-
credential.
ation is dependent on how the net-worth figure is
being used. For example, if you want to determine

IN BRIEF point is simply the account balance using inappropriate benchmarks. To
at that time. For defined benefit plans, determine how a person compares to
■ Properly understood, net worth the analysis is more complicated. A the middle of the pack, median net
provides a good snapshot of financial good rule of thumb is that a retiree worth is a far better measurement to
health at a point in time. It is easy to would need $18,000 in retirement use than average net worth because
make mistakes, however, in estimating savings for every $1,200 per year ($100 averages are skewed by extremely
and using net-worth figures. per month) of earned income from a large net worths at the top of the
■ One common mistake involves defined benefit plan. For retirement distribution. In addition, net-worth
erroneously calculating the amount planning purposes, this is a useful way comparisons must properly count
that a retirement plan adds to net to approximate how much a defined income from defined benefit plans,
worth. For a defined contribution benefit plan adds to net worth. which is often ignored in published
plan, the addition to net worth at any ■ People often judge their net worth net-worth averages.

To comment on this article or to suggest an idea for another article, contact Dave Strausfeld at David.Strausfeld@aicpa-cima.com.

il 2022
Apr
24 | J our nal of A ccountanc y April 2022
24 | Journal of Accountancy