“You can’t retire yet.”
This is about the worst news a client can hear during a pre-retirement
planning consultation. Here they’ve come to you for confirmation of their
decision to retire—you know, just run the numbers so there won’t be any
surprises—and you discover that the numbers just don’t work out. Based on
reasonable inputs, your analysis shows that the client is likely to run out of
money if he retires now.
This scenario is likely to occur with more frequency as under-saved baby
boomers long to quit their jobs and start living it up. The amount they have
saved may seem like a lot—but when you factor inflation and an ultra-long life
expectancy into the formula, it simply won’t last.
But telling pre-retirees flat-out that they can’t retire yet won’t win you
any popularity contests and may even drive them away for good. Once your
client’s head goes back into the sand, she may attempt to retire without any
financial guidance at all. And that could be devastating.
A better way to break the grim news to would-be retirees is to focus on the
positive. First find out why they are so eager to retire—most likely it’s
because they hate their job. Next suggest that they might be able to leave their
present job without having to dip into their nest egg; they may even be able to
continue adding to it, which will make final retirement, if and when it happens,
all the more comfortable. All they have to do is find a different line of work
that gets them pumped and excited about going to work in the morning. Spending
their days doing something they like, and drawing a paycheck at the same time,
could make all the difference in their quality of life going forward. Enter the
age of financial advisor as career counselor.
Baby boomers have always been an industrious generation. When they say they
want to “retire,” they may just mean they want something different, something
meaningful or rewarding or fun. Read this excellent essay for an interesting
perspective on “Social
Security and my G-g-generation.” Suggest that your clients read it too. It
may help boomers reject the soon-to-be-outmoded notion of retiring at age 65, as
they may be inclined to do anyway.
Working into one’s 60s, 70s, or 80s need not be a sign of poverty or lack of
preparedness, but rather a vibrancy and a desire to keep contributing to the
world. Getting paid for the work doesn’t have to make it any less important or
enjoyable. In fact, working boomers might just salvage the Social Security
system, one individual at a time. According to the paper “Working
for a Good Retirement,” if every worker delayed retirement by five years,
the additional revenue generated by income and payroll taxes would more than
cover the Social Security trust fund deficit for the foreseeable future.
Fun jobs, meaningful work
Take some time to explore your clients’ interests and provide resources to
help steer them in the right direction. If you have clients who have
successfully transitioned into new careers, use them as examples to motivate
others who have hit the wall in their present jobs. The Wall Street
Journal‘s “Encore” section periodically profiles retirees who are starting
over later in life. These stories serve as wonderful inspiration. A recent
column highlighted a former Exxon engineer who became a yoga teacher, a former
marketing executive who started a for-profit company importing artisanal
products from Africa, a former corporate administrator who became a potter, and
a former high-tech salesman who became a wine pourer.
Many second careers evolve out of interests and activities that were once
enjoyed on the side—and which the client was paying to enjoy. By turning the
obsession into a full- or part-time career, the client gets the best of both
worlds, involvement in something he enjoys and extra income to boot. Here are
some resources to help clients take the next step:
- Third Age. This
website for boomers offers many articles on starting a new career and job
transitions. - Your Encore. Aimed primarily at
technical professionals, this website recruits retired engineers, scientists,
and research and development experts for specialized projects at Boeing, Eli
Lilly, Procter & Gamble, and other companies. - Retired Brains. A job board for
retired baby boomers, this website lists openings and resources from a number of
different large firms and employment agencies. - Alumni in Touch. Retirees from
major corporations register with this site to learn about work opportunities at
their former employers and to network with fellow alumni. Communities are formed
around such employers as Amoco, Cisco, Lockheed Martin, and hundreds more. - Quint
Careers. This website offers tools and resources to assist with career
assessment and research. - The Baby Boomer’s Guide to the New Workplace. This book by
Richard Fein, founding director of the Isenberg School of Management Career
Services Center at University of Massachusetts, is a step-by-step guide for baby
boomers transitioning to new careers.
Determining salary requirements
The great thing about retirement jobs and second (or third!) careers is that
the client’s salary requirements may be lower now than when the budget included
a hefty mortgage and tuition payments for kids who are now successfully
launched. You’ll have to run the numbers, but it may be possible for a client to
accept a dramatic cut in pay that wasn’t possible before in order to pursue a
passion.
If a client is disappointed that he can’t quit her job in order to spend more
time volunteering, suggest that he get a staff job with a nonprofit organization
whose programs he supports. The pay and benefits may be a fraction of what he
was earning before, but at least he won’t be draining the nest egg. Meaningful
work, fewer hours, and the flexibility to work from home are all saving graces
for prospective retirees who can’t afford to quit for good but are willing to
take a smaller paycheck to have a life they love.
A recent study, “Job
Changes at Older Ages: Effects on Wages, Benefits, and Other Attributes,”
found that about 85% of older people who worked after retirement changed
occupations, and some 80% changed industries. The median hourly wage in
post-retirement jobs was less than half the median wage in pre-retirement
long-term career jobs, but post-retirement work was less stressful.
Another compromise for retiree-hopefuls is a sabbatical or a much-needed
vacation. This will help clients clear their heads and think about what they
want to do with the rest of their lives. Taking this pause may require cracking
the nest egg just a little and taking withdrawals for a predetermined period of
time before getting back to a regular paycheck from a new job or business that
they enjoy. Help clients figure out how they can do this by calculating the
long-term effect on their nest egg of withdrawals during the sabbatical as well
as how much they will need to earn once they resume working to get their
retirement plan back on track.
The value of benefits
A big downside to part-time work or contract jobs is that they often do not
come with benefits, the most important being, of course, health insurance. When
counseling pre-retirees about changing jobs, be sure to address their health
care funding needs. Some clients may be lucky enough to work for an employer
that offers generous retiree health benefits; others may have coverage through a
spouse’s employer. But if your client is forced to rely on COBRA or, worse,
works for a small employer that doesn’t even offer COBRA, health insurance
coverage could wreck the budget (assuming the client’s medical condition even
allows him to obtain coverage).
If your client has a preexisting condition or otherwise would have difficulty
obtaining individual health insurance, you may have to issue the ultimate in bad
news: not only can you not retire yet, you’re stuck with this employer until you
qualify for Medicare at age 65.
Once again, try not to make this sound like a death sentence. Help clients
search for and evaluate health insurance options in relation to their individual
health care needs. A healthy client with no chronic conditions may be able to
obtain an individual high-deductible policy and pay reasonable premiums out of
pocket. Then the client would be free to pursue any job opportunity without
regard to health benefits. On the other hand, if obtaining an individual policy
is not feasible due to the client’s health status, she will have to limit her
employment options to positions that come with adequate health insurance.
The important thing here is to remind clients of the valuable health care
safety net they may now be taking for granted. Before shifting into
semi-retirement or a second career, it is essential that they have a plan in
place before quitting their jobs.
