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Americans are worried about the long-term viability of the safety net programs like Social Security and Medicare as they contend with rising costs, according to a new survey from the CFP Board. Half of advisors surveyed said they have seen clients take actions to try to manage their costs that could put their retirement plans at risk, according to the survey of 440 CFP professionals who work with clients to create financial plans. The CFP Board, which provides the certified financial planner designation for financial advisors, fielded the responses between July 9 and 27. The margin of error was plus or minus 4.7%. Most CFP professionals, 68%, say their clients' overall financial outlook is positive. Yet in the past 12 months, 69% of clients have become more concerned about affordability, the CFP professionals surveyed said. These concerns include worries about both long-term goals, with 60% of respondents, and day-to-day expenses, with 53%. The latest government inflation data for August shows inflation was up 3.4% on an annual basis, well above the Federal Reserve's 2% target. "Americans across the income spectrum, across the wealth spectrum, see affordability as an issue," said Kevin Roth, managing director of research at CFP Board. Policy concerns loom large Social Security, which provides monthly benefits to more than 75 million Americans, is a top concern, the survey found, with 78% of CFP professionals indicating their clients are worried about the program's long-term viability. Social Security faces trust fund depletion dates projected for the next decade that would trigger across-the-board benefit cuts unless lawmakers act sooner. Meanwhile, 73% of CFP professionals say their clients have similar concerns regarding Medicare, which also faces the looming depletion of its hospital insurance trust fund, which funds Medicare Part A services. Those funding shortfalls mean benefits and/or the taxes supporting them may change, Roth said. Clients are also watching other affordability concerns related to public policy. The CFP professionals surveyed cited concerns raised by clients including health care, 88%; retirement plans, also 88%; taxes, 84%; gas and energy prices, 56%; and interest rates, 55%. Rising prices and possible safety net changes point to the need for conversations with a competent financial advisor to stress test financial plans, Roth said. "If you have to make some plan changes, the time to make those changes in your plan is today, and not five months before you retire," Roth said. What investors are doing vs. what advisors recommend Affordability concerns have prompted clients to make reactive decisions, advisors say. That includes early withdrawals from retirement accounts, with 29%; reducing or eliminating retirement contributions, 20%; or taking on high-interest debt, 18%. Most CFP professionals, 85% are making recommendations that focus on preserving clients' long-term goals amid affordability pressures. Those suggestions include stress testing financial plans for potential recession, with 54%; building an emergency savings fund, also 54%; reevaluating retirement savings contribution rates, 34%; and accelerating debt paydown, 33%. Most clients have taken action or considered taking action in response to rising costs, according to 75% of CFP professionals surveyed. Yet just 29% have made financial moves in anticipation of the November election, the CFP professionals said. Notably, CFP professionals surveyed said they do not expect the November elections will have a large impact on their clients' financial health. Still, about two-thirds of CFP professionals expect to revise their clients' plans over the next year, Roth said. That may be partly prompted by the shift in affordability, he said.
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