Are you in the most critical zone of your investment life? Do you know what that critical zone is and how important it is to ensure you make the right moves now? In your financial planning life, there are three phases of investment savings. There is the accumulation phase, the preservation phase, and the distribution phase. Each has its own strategies and tools to meet the goals of that particular phase. In this episode, Joe Anderson, CFP®, and Alan Clopine, CPA, will help you navigate your way through the critical zone.
In this episode, we navigate the “Retirement Critical Zone”
- Asset Allocation Adjustment
- Critical Zone Risks
- Withdrawal Strategy
(0:00) – Intro
(1:55) – Zone Overview
(2:47) – Asset Allocation
(5:16) – Bonds/Interest Rates
(8:33) – Market Downturns
(10:42) – Sequence of Returns
(12:59) – Zone Risks
(17:10) – Withdrawal Strategy
(21:29) – Ask the experts
(23:27) – Pure Takeaway
Joe: Do you know the most critical part of your overall retirement? If you don’t, you need to watch this show. Welcome, everyone. The show is called Your Money, Your Wealth®. Joe Anderson here, CERTIFIED FINANCIAL PLANNER™, president of Pure Financial Advisors, and, of course, I’m with the big man, Big Al Clopine, he’s sitting right over there. When you look at retirement, folks, there’s different phases in the strategy. The strategies you use to accumulate wealth. Needs to change once you hit retirement, but do you know when to make those adjustments? That’s today’s financial focus. The critical zone, right, this is, like, 5 to 10 years before your overall retirement and probably 5 years after. This is when you have to start looking at different strategies. As I said, as you’re saving money, volatility is your best friend. As markets go down, you’re buying more shares, but when you start taking money out and the market goes down, it’s called reverse dollar cost averaging, and it can destroy your overall retirement, so as you’re accumulating, you don’t want to flip the switch and say, “turn on income.” you have to have a strategy in this critical zone. That’s what we’re talking about. Let’s bring in the big man.
Al: All right, so the retirement critical zone, we’re going to talk about a few things that you really need to know during this 5 to 10 year before and after retirement. The first one is their asset allocation–do you need to make an adjustment? And for many of you, the answer is yes because when you’re taking money out, it’s a different strategy. You need money there now that’s not going to necessarily go down in down markets. The second thing we’re going to talk about, critical zone, risks, things that can destroy your portfolio and mess up your retirement, and the third one is your withdrawal strategy. You’ve heard about the 4% rule. We’ll dive into that and some other alternatives so that you don’t run out of money, so I think, Joe, I mean, this is an important topic, right?
Joe: It’s probably one of the most important, and it’s missed quite a bit by people because it’s like, “well, I’m saving money. I want to retire.” you’re thinking about, you know, the RV and the vacations, but how’s the income going to come to you? What are your other fixed-income sources, and what does your portfolio look like? So asset allocation adjustments are key. Real quick example, we see people that have an 80/20. They like the growth, and they can handle the overall volatility, right, so they’re enjoying a good growth rate on their portfolio, and they say, “well, why would I want to change? Because I have 30 years of retirement.” that could be detrimental to the retirement plan that you have because the volatility as you take dollars out could really hurt you. You might want to switch to more of an income portfolio. This is high-level just for an example, but you still see you can get a really good rate of return, but this is risk. It’s going to cut the risk in half, and you have to have a risk-management strategy as you’re creating income.
Al: Well, you do, Joe, and it’s such a critical thing because people want to grow their retirement and–we get it–you want to have enough growth to build up the assets that you need for retirement, but then when you’re getting close to retirement, let’s just say you’re in all stocks, for example, and when the market declines, right, then it’s, like, the last thing you want to do is pull money out of your stock portfolio when the market is down. It’s great when you’re adding new money because you’re getting cheaper prices, but you need to have more safe money based upon your cash flow, and I think one of the biggest things to think about is what kind of rate of return do you need, right, to make this work. Make this goals-based. It’s not, like, “what’s the highest return I can get?” No. That’s not the right question. The right question is, “what rate of return do I need so that I can pay my bills, take care of my goals, go on vacations, and whatever?” And then stick to the safest portfolio to get you that rate of return.
Joe: Here’s a quick example, right? You might want to flip from 80% stocks, 20% bonds, maybe to 35% stocks. This still gives you the growth to outpace inflation, but maybe a little bit more on the fixed income. This is a hypothetical, but still we see portfolios of someone in their 60s that looks like someone that should be in their 30s, right? You might be just taking on too much risk, so reviewing your portfolio, figuring out what rate of return, and then devising a strategy long-term to get you the income that you need.
Al: Yeah, and I think that’s key because, like I said, if you have all stocks or all equities and the markets go down, it’s very difficult, but realize, this is just an example. It’s going to be different for everybody. We know 80-, 90-year-olds that are 100% in the market. Why? Because it’s for their kids and grandkids. They don’t necessarily need the money, so they’re looking at their kids’ and grandkids’ time horizon, so it really comes down to your own goals. It’s not necessarily at 60, you got to have this much in bonds, 70, this much. It’s based upon your goals.
Joe: You know, you look at fixed income here, Al, we’re seeing interest rates rise, and so that’s good and bad. Since 1926, if you look at bond yields, it’s averaged right around 5%, but over the last several years, we were lucky to have any type of return, you know, on cash, CDs, bonds, short-term bonds, but as you see interest rates are going to potentially rise, that’s going to help bonds longer term, right, but you’re going to have some volatility in the overall bond market, too, so you need to go back here to kind of figure out, “well, what type of bonds do I want to own?” are they short-term? Are they high-yield? Are they emerging market debt? There are all different flavors here to keep you safe, but also if you don’t know what you’re doing potentially, you could add a lot more risk to the portfolio than you might be aware of.
Al: Well, I think that’s a really good point, and when you think about it, interest rates currently are rising, and so that’s great for the long term for bonds in terms of fixed income, but what happens when interest rates rise as the principal amount or– I shouldn’t say the principal–the value of bonds, actually declines? Because if you think about it, if interest rates are going up– you know, they were 2%, 3%, 4%–now they’re 4% and you have a 2% bond, it’s going to be less valuable because people can buy a 4% bond, but this is temporary. When the bond matures, you get your principal back, and then you get higher interest rates, so it’s actually a good thing, even though in the short term, there may be a little bit of reduction in value on your monthly statements.
Joe: You know, if you’re in this critical zone, I highly recommend that you review your overall situation. We have a critical zone review this week, so if you’d like to take advantage of that, go to yourmoneyyourwealth.com. Click on that special offer. It’s our critical zone review, so if you’re 5 years to retirement, you don’t want to wait until, like, the day before you retire to make these wholesale changes, so look where are you at in the zone and make sure that you look at your situation and have a strategy that’s right for you. Go to yourmoneyyourwealth.com. Click on that special offer. It’s our critical zone review. We got to take a quick break. We’ll be back in just a second.
Pash: so pure financial was very successful in San Diego, so orange county was a natural progression for us. Annie Chen: here at Brea, I work with a really great team. I think that clients who live locally are really appreciative and excited that there’s a local office. Jake Greenberg: a lot of success here with a lot of the local community, we get a lot of people in here from Yorba Linda, Anaheim hills, Orange, Brea, of course. Peter Stokes: we moved straight up the coast and opened an office in Los Angeles. You know, we have a tremendous amount of people that want to work with a firm like ours where, you know, we’re truly partnering with them. We’re not selling products. We’re on the same side of the table with our clients, and people really appreciate that. Rachel fuss: markets go up and down, but we’ve got some big powerhouses here in Seattle, and they’re creating a new economy. We really want to be here for those employees to help them achieve their long-term retirement goals. Scott Huband: we definitely take a collaborative approach to managing our client relationships, and the financial planning that we do involves teamwork. There’s never just one set of eyes looking at a situation. We lean on each other for each other’s expertise. Greenberg: our goal is to just identify areas that we could add value and so that when they leave our office, their lives are better financially than they were when they came in.
Joe: Hey, welcome back to the show. The show is called Your Money, Your Wealth®, Joe Anderson Big Al. We’re talking about the critical zone. Are you familiar with it? Probably not. It’s the time frame right before you retire. It’s about 5 years before you retire and then 5 years into your overall retirement. This is the most critical part of your overall retirement. Let’s see how you did on the true/false question.
Al: “The market downturn of 2001 had a small impact on saver’s decisions to retire.” well, 2001, what was going on? We had the dotcom bust, and we had 9/11, and I think a lot of people, Joe, changed their retirement plans as a result of the market downturn.
Joe: Yeah, without question, because they didn’t necessarily have a strategy in place beforehand. You know what I mean? It’s like, “hey, I want to retire over the next year or so,” and then we get a big market downturn, and then people get freaked out a little bit, and it’s probably wise, too, because right here, 46% of you decided not to retire, but if that’s truly your goal and you’re like, “this is my date. This is what I want to do,” well, then have a strategy because as soon as that market downturn hit and you weren’t prepared for it, markets go up and down–we all know that–but we don’t know when the market’s going to react at what time, so we have to anticipate that probably 5 years before your retirement date to get you gradually set up in the appropriate situation or the appropriate strategy. Now, when you’re thinking about retirement, there’s a lot of different risks that you’re going to face, right? Real simply, right off the bat, Big Al, longevity.
Al: Yeah, longevity, and so this actually is talking about life expectancy at birth, so males are 76 and females are 81. However, it’s actually, even though you see this all the time, it’s not really the right thing to focus on. The right thing to focus on is how much longer are you going to live when you’re 65, and here’s the latest stats, right? A male would live to 84, a female to 88, but a couple, 50% chance that at least one of you will live till age 92, so it’s like, you know, we’re going to live a long time in retirement, so we got a plan for it.
Joe: And also with the advancements of health care and everything else, I mean, who knows? In the next 20, 30 years, we could be living to what your buddy says, about 150, right?
Al: Well, that’s right, and, you know, when you think about it, you look at the 76, right, so it’s like, “well, what happens in 76? Am I dead? I have a zero life expectancy?” no. It keeps advancing, so just be aware of that. Another risk, of course, is how much money have you saved, right, and so fidelity kind of takes a look at this, and they come up with a– it’s a rule of thumb, and what they’re suggesting is, at age 55, you should have 7 times your salary. Age 60, it’s 8 times, and then by age 67, it’s 10 times. Take your salary times 10, that’s about what you should have. This is not a hard and fast rule. It’s just an indication whether you’re on track.
Joe: Again, this is not including your fixed income, social security. You know, you might work part time–who knows?–but at least this gets you in the ballpark. Now, probably the biggest risk that most of you are not aware of is called sequence of return risk, and what the heck does that mean, right? And this is going back to that survey of 2001 when the market declined or even this year, right, 2022, when the market declines 20% or 21%, 22%. What are you going to do? Are you going to hold off your overall retirement? Because retiring in a bear market if you don’t have the appropriate strategy could kill your retirement because as markets go down and if you don’t have an income strategy, right, it’s very difficult to get caught up because if the market drops 50%, right, most people think, “ok. Well, I need a 50% rate of return to get my money back.” no. You need 100% return just to break even. That’s the big deal because– here’s an example. All right, so I’m kind of in my retirement. Intended retirement is here, and so I’m loving the bull market. I got 12%. I got 10%. Oop, market turns a little bit on me. I’m down 19%. The next year, I’m down 15%. Well, how do I get to my high-water mark? You need a 45% rate of return just to get to square one, and a lot of you are thinking, “all right. Well, I have 250,000 here. I’m going to retire in 5 years. I should have around, you know, 300,000, 400,000. If I keep saving and the market does 6%, I’m in good shape,” but as that bear market, you know, roars its ugly head here, you needed to be prepared back here.
Al: This slide here, it takes you 45% to recover in one year, or it takes you 21% two years in a row to recover and so forth, so it can take a while. This is why we’re telling you, as you’re getting close to retirement, make sure you have enough safe money so if market does have a downturn, you can pull from the safe money instead of pulling from stocks when they’re down.
Joe: Right. I mean, so true. You have to have a retirement income strategy, right? A lot of you say, “well, I want to live off of dividends.” ok. Well, if you have a heavily weighted stock portfolio, right, who knows? The companies could cut their dividends, as they have, right? You still need a long way to go. You need a huge return just to break even, right? Here’s a quick example. You got Angie, and you got Mark. They both retired, but Angie, she was lucky. She retired in a bull market. The market is doing well. Angie’s taken– they both have the same amount of money, around $500,000. They’re taking 5% out each year, ok, adjusted for inflation, so, hey, we’re living in the bull market. Take it out. “All right. I’m doing all right.” Mark, on the other hand, he’s in a bear market. He takes the money out, he’s going to run out at age 83, or he’s got, what, 20 grand left. Angie at age 83 has about the same amount of money, so it’s that sequence of return risk is key and then also understanding how you’re going to create the income and how’s it going to be taxed and everything else.
Al: Yeah, and I think we’ll get into that the next segment because how you take your income is just as critical as how you invest.
Joe: Yeah, without question, so when you look at your critical zone, right, do you have a strategy? Do you have a plan? We are giving a critical zone review. Go to yourmoneyyourwealth.com. Click on that special offer this week–critical zone review, right, so as you approach retirement, you want to make sure that you check all the boxes so you don’t run into what good, old mark did here where he crashed and burned and ran out of money, so go to yourmoneyyourwealth.com. We’ll be back in just a second to talk about withdrawal strategies, to look at the bigger picture now when you throw in tax and inflation and investments and everything else that we could possibly talk about when we get back. The show is called Your Money, Your Wealth®.
Announcer: are you saving enough to retire or even know what your financial goals should be? Join pure financial for a free lunch n’ learn. During the lunch n’ learn, you’ll explore the tools and strategies for putting your custom financial plan in place, all with a CERTIFIED FINANCIAL PLANNER™. Lunch n’ learn is a tool to empower you to take control of your financial future one step at a time. Pure Financial Advisors–trustworthy by design.
Joe: Welcome back to the show. The show is called Your Money, Your Wealth®. Joe Anderson here. I’m a CERTIFIED FINANCIAL PLANNER™, and I’m with Big Al. He’s a CPA. We’re talking about the critical zone… Right, 5 years before you retire, 5 years after you retire, making sure that you’re dialed in, you have the right strategy in place to make sure that you have the best retirement possible. If you want a critical zone review, go to yourmoneyyourwealth.com. Click on that special offer this week. It’s our critical zone review. We can help you determine are you on the right path, do you have the right strategy, and what things that you probably should be taking a look at to make sure that you have that best retirement. Let’s see how you did on the true/false question.
Al: “More than 3/4 of Americans over the age 40 do not know how much of their retirement savings they can safely spend without outliving their assets.” that sounds like a true statement. In fact, when we talk to folks, I would say the majority of people have no idea how much to save, how much they can spend, when to retire. Joe, these are all kind of critical things to get this right.
Joe: Yeah. I mean, it’s a crapshoot, to be honest with you. You know, no one really understands what– I mean, no one knows what the market’s going to do on a year- by-year basis. No one really knows what inflation’s going to do. We can’t predict the future of what our life is going to bring, right? Is there going to be a health issue? Is there going to be a windfall? There’s all sorts of different variables that happen, you know, as we live, and you have to really get nailed down or dialed in as you get in this critical zone because, “a,” a lot of us don’t want to go back to work once you retire, but the sad truth is, a lot us of have to go back to work because they didn’t do the appropriate planning or they don’t know how much money that they can take out of their portfolio, so, I mean, just recently, it’s like, well, the market, we’ve been in a 15-year bull market, right, and individuals are taking 5%, 6%, 7% out, and they’re still have more money at the end of the year, and they’re like, “yeah. This is great. The market does 12%, I can take 8%, and I’m still making money.” well, that’s not going to happen when the market’s down 20%.
Al: Exactly right, and, you know, I think people have been complacent that we had such a good market for such a long time. Let’s talk about some withdrawal strategies that you may find helpful that may help you successfully get through retirement. Here’s 3 of them. There are others, but the first one is what we call fixed dollar, so you have a million dollars at retirement, you take 4% of that. That’s 40,000 a year in year one, 40,000 year two, 40,000 year 3, fixed amount, same amount, right, so that’s a very conservative way to go. It depends upon your portfolio, though. This would be probably more appropriate if you have less growth and it’s more fixed income. You kind of want to keep that similar. Another one would be the 4% rule–we’ve talked about that before–4% of your balance, your investment balances at year end, ok, so million dollars, 4%’s 40,000. Year two, your portfolio has gone up, so now you can take 40,800, third year, 41,000, so 4% of whatever you have, so that’s a good way to go, and another one is fixed percentage, which is basically just taking the same percentage out of your portfolio as it grows, but that can fall. That can fall. In other words, if the market goes down, as it is right now, that 40,000 might be 35,000, right? Can you spend less? Maybe you can. Maybe you can’t, and, Joe, that’s one thing that many people do if they have some flexibility in their spending, is, they just try to spend less when the market’s down, but that’s hard for a lot of people.
Joe: Well, I mean, all those strategies work great in a bull market, you know? I mean, as the market goes up, who cares, right? Keeps spending–“this is great”–but when that market goes down and you’re taking the same amount of money out, right, that percentage of the overall balance is going to increase, right, so you’re going to have to make adjustments, so probably the appropriate strategy is a combination of all 3 of these, to be honest with you, and probably thrown another, too.
Al: Yeah. I think so, too, and then plus, if you have the ability to make some extra income from part-time work or something like that, that might be something to try in down markets. Another thing is taxes because many of you have what we call, you know, the 3 pools of income–taxable, tax-deferred, tax-exempt–and what that’s referring as taxable is your nonretirement accounts. In other words, you pay taxes as you have interest and dividends, as you sell stocks. Tax-deferred, well, that’s your IRA, 401(k)–you don’t pay any taxes until you pull the money out–and then tax-exempt is typically a Roth IRA it grows to whatever, and you don’t pay any tax, so there’s a couple different ways to do this. A lot of people do one account at a time, and I would say, Joe, that’s probably the most common method that financial planners tell people to do.
Joe: Right. I mean, if you look at some of the rule books, they even teach this, which I totally disagree with, and what we mean by that is, you start with your taxable first, right? Keep your IRAs deferred, deferred, deferred. Don’t touch those until you have to because you’re going to be taxed at ordinary income, so deplete your taxable investments first, and then you go to your IRA, right? You start taking your income from there. Don’t touch your Roth because you’ll never have to pay tax on it and let that thing continue to grow, right, but it doesn’t make a lot of sense, right, because the tax brackets, right, they’re marginal. They stair-step, so you can utilize the tax code to your advantage. In this example, Alan at age 62, he just said, “all right. I’m going to take the taxable accounts.” he paid very little tax, if any, and then he went to the tax-deferred, and you could see how his tax bill went up, and then it goes down to zero again because then he depletes the Roth. Well, you probably want to even out that tax bill because your overall wealth is going to continue to grow and compound, and the amount of money that you can save on taxes is pretty staggering over your lifetime.
Al: Yeah, so in this example, 69,000 is the tax, as you said, nothing up front, but it gets higher. What if he did this a little bit more sensibly? What if you kind of take a little bit from each depending upon your tax bracket? In this example, yeah, you’re paying tax every year, but it’s a lower amount, and at end of life, you actually paid 43,000 instead of 69,000, and you’ve stretched out that liability. In other words, you have more years to keep the money in your portfolio to grow. It works out a lot better if you just think about this a little bit more than just– the common advice is to take it out of your taxable account, your nonretirement account first, defer, defer, defer, defer. That’s actually usually not the best answer. In fact, it hardly ever is the best answer.
Joe: Right. I mean, look at the numbers. It’s almost a third less in taxes over your lifetime, right, so the larger your account balance is and the more strategy that you take advantage of, right, that tax savings is going to roughly be the same from a percentage standpoint if you get it correct. Let’s switch gears. Let’s go to “ask the expert.”
Al: So this is John. “I was planning on retiring next year before interest rates and inflation shot up. With no pension, I’m concerned about running out of money. If I live past 80, what should the market look like before I retire?” john, great question, very difficult to answer. It depends, of course, based upon your situation. Right now, we’re in a declining market. If you have a lot of safety, safe assets, you could probably retire now. You know, we like to see people having–I don’t know– at least 5 years, if not 10 years, of safe money so you can let the market recover. On the other hand, if you’re all equities and you need every penny and you’re riding this thing down, that’s a little different story. You’re going to have to kind of relook at this and figure out when you can retire.
Joe: Yeah. I mean, who knows? We can’t predict the future. That’s why planning is so important.
Al: “I’m retired. I was going to wait another 5 years to claim social security, but with the volatility of the market, I’m concerned about having to use my investments as income. How can I determine what is the best financial choice in the long run?” this is gloria. Kind of the same answer, gloria. It’s, like, you have to look at your portfolio. If you have some safe money, you can pull it out of there and then you can delay social security. If you have all equities and the markets decline, it might be a little bit different story.
Joe: Yeah. Take a look, right? Social security, the longer that you wait, you’re going to have an 8% delayed retirement credit that’s going to be guaranteed for life, so delaying social security in most situations is the right answer, right, because markets go up and down, so it’s, you’re like, “oh, the market’s down. I don’t want to touch my investments,” and then you claim your social security, and you’re going to have a permanent reduction in your benefit for life, so, again, that’s why we’re talking about this critical zone that you have to plan before you retire, several years before you retire, and making sure that you have a buffer on the back end, so when you look at the checklist here, you got to re-evaluate your overall asset allocation. You have to address those risks and decide what withdrawal strategy is appropriate for you, and, of course, right, bear markets, bull markets, they come into play. You just have to put that in the overall strategy. If you need our help, go to yourmoneyyourwealth.com. Click on that critical zone review. Make sure that you have everything dialed in. It is extremely important in this time period that you don’t make any mistakes, go to yourmoneyyourwealth.com. Click on that critical zone review. That’s our gift to you this week. We’ll be more than happy to walk you through it. That’s it for us today. Hopefully, you enjoyed the show. For Big Al Clopine, I’m Joe Anderson, and we’ll see you again next time.
Announcer: Pure financial redefines financial planning. David cook: the culture that we bring in this industry is– I’ve never seen it. Brandeis: I just loved people being able to fulfill on their dreams. Pash: comprehensive, wide-lens financial planning. Announcer: transparency and trusted, credentialed investment professionals are a given. Chen: we are a fee-only financial-planning firm so that we can continue to be fiduciaries and there’s no conflicts of interest. Perry: we’re not trying to sell them a lousy product. We’re trying to give them good, solid financial advice. Announcer: the firm has a long- term investment strategy based on more than 5 decades of Nobel prize-winning research. Balderston: we have designed it and developed it for everybody. It’s just an amazing platform. Announcer: personalized, comprehensive planning is at the heart of the pure difference. Greenberg: the main difference between pure financial and other firms out there is, we are more than just investment brokers. Richard alexander: we look at everything that affects you financially. We’ll ultimately put you on the best possible track to meeting your goals. Announcer: a team that includes skilled, certified public accountants who focus on often-overlooked tax planning. Pash: and so we really take a deep dive into everything in effort to understand exactly who they are, what they need. Announcer: live a life well planned by building your financial success with a proven team you can trust. Cook: it is kind of being a financial coach. It’s being a mentor. It’s being a teacher, but it’s also being a friend. Chen: I think the biggest benefit for our clients is that they just have a lot of peace of mind. Announcer: experience the Pure difference.
• Investment Advisory and Financial Planning Services are offered through Pure Financial Advisors, LLC. A Registered Investment Advisor.
• Pure Financial Advisors, LLC. does not offer tax or legal advice. Consult with a tax advisor or attorney regarding specific situations.
• Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.
• Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.
• All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy.
• Intended for educational purposes only and are not intended as individualized advice or a guarantee that you will achieve a desired result. Before implementing any strategies discussed you should consult your tax and financial advisors.
CFP® – The CERTIFIED FINANCIAL PLANNER™ certification is by the Certified Financial Planner Board of Standards, Inc. To attain the right to use the CFP® designation, an individual must satisfactorily fulfill education, experience, and ethics requirements as well as pass a comprehensive exam. Thirty hours of continuing education is required every two years to maintain the designation.
AIF® – Accredited Investment Fiduciary designation is administered by the Center for Fiduciary Studies fi360. To receive the AIF Designation, an individual must meet prerequisite criteria, complete a training program, and pass a comprehensive examination. Six hours of continuing education is required annually to maintain the designation.
CPA – Certified Public Accountant is a license set by the American Institute of Certified Public Accountants and administered by the National Association of State Boards of Accountancy. Eligibility to sit for the Uniform CPA Exam is determined by individual State Boards of Accountancy. Typically, the requirement is a U.S. bachelor’s degree which includes a minimum number of qualifying credit hours in accounting and business administration with an additional one-year study. All CPA candidates must pass the Uniform CPA Examination to qualify for a CPA certificate and license (i.e., permit to practice) to practice public accounting. CPAs are required to take continuing education courses to renew their license, and most states require CPAs to complete an ethics course during every renewal period.