Like many advisers today, Jason Ting embraces a holistic approach, asking clients about their life goals and priorities, and what retirement looks like to them.
He also talks with clients about another increasingly prominent aspect of retirement: getting a job.
“How I do retirement plans today is very different from how I did it 15 years ago,” the Merrill Lynch adviser says.
Faced with a changing retirement landscape, advisers are increasingly talking up the benefit of working longer to clients who want to retire at age 60, 62 or even older. Advisers across the country are exploring ways to present this to clients as not only a viable option, but a desirable one. Some advisers, such as Michael Haubrich, are taking it a step further by connecting clients with career coaches in order to help them stay in the workforce for as long as possible.
To explain why, Haubrich points to one of his clients, whose net worth exceeds $2 million.
“So what’s the big deal?” Haubrich says. “He’s 62. Quite frankly, if he lives for 30 years, then I don’t know if we have a good handle on a distribution rate. What if interest rates stay near zero for a long, long time? What if the projections we have for all these asset classes have to be thrown out the window?”
Advisers can’t predict the future, says Haubrich, whose independent practice, Financial Services Group, is based in Milwaukee. “But I do know that if I keep my clients engaged in their careers for longer, then it helps them deal with the uncertainties going forward.”
WORKING FOR A LIFETIME
Working past traditional retirement age is also on the minds of many clients. According to a 2015 AARP study, 37% of Americans expect to continue working after they formally retire from their current careers.
Several factors — some new, some longstanding — are driving this development. Perhaps the most obvious is increasing longevity.
“If you have a 65-year-old couple, there is a 50% chance one of them will live to age 90,” says Scott Thoma, investment strategist at Edward Jones.
Lengthening lifespans in the U.S. mean there is more time to spend with family, but there are also higher lifetime spending needs. This has been affecting retirement planning for even the most diligent savers.
QuoteAdviser Michael Haubrich says that “if I keep my clients engaged in their careers for longer, then it helps them deal with the uncertainties going forward.”
Rachel McNeil, a Raymond James & Associates adviser in St. Petersburg, Fla., says she had a client in his late 40s who had already saved about $500,000 for his retirement, and wanted to stop working at age 55 while still paying private college tuition for his kids. McNeil ran the numbers and came back to him with several scenarios, including what it would take to meet his retirement goals and quit working at that age.
“It came down to either you need to save three times what you are saving now, or work longer,” she says. “It took a while [for the client] to digest that. It wasn’t easy.”
Compounding matters for retirees or soon-to-be retirees, medical costs have risen considerably over the decades and, more recently, investment yields have fallen dramatically, clouding the outlook for some clients.
Alistair Harding-Smith, an adviser with the WHMZ Group at Morgan Stanley, says there is a “chronic concern” among clients about the current yield environment.
“It’s obviously important to convert to a more total-return conversation, but that can be a lot less comforting to a client than talking about specific yields on a particular bond or stock,” says Harding-Smith, who is based in Tuscaloosa, Ala.
Meanwhile, some clients are still helping their children pay for college tuition, while others may be supporting elderly parents.
Morgan Stanley adviser Michael Warr says he supported both his parents with living and medical costs.
Quote“If you have a 65-year-old couple, there is a 50% chance one of them will live to age 90,” says Scott Thoma, investment strategist at Edward Jones.
“It changes your perspective,” says Warr, who is on the same team as Harding-Smith. “I had to start making sure that I had to be ready for anything unexpected. I got a little bit more liquid in anticipation of something. And I’ve seen that in some cases with clients.”
And though many clients have heard sound advice about focusing on the long term, market volatility this year may have served as an unwelcome reminder of their vulnerability, advisers say.
“The 2008/2009 crisis is still having a major psychological impact [on clients] because it hit them in their 50s, when they were just starting to accumulate balances, right before they were going to hit their red zone for retirement,” Harding-Smith says.
Pensions, far less prevalent for retirees, also have been replaced by defined-contribution plans.
“It’s a more complex thing for them to navigate. If your pension kicked in at age 65, why would you keep working? It’s a much easier thing to understand,” says Michael Herndon, AARP’s vice president for financial resilience programming.
These factors are spurring more clients to feel anxious about how they’ll fare in retirement, presenting a question to clients and advisers: What does working longer look like?
Every adviser interviewed for this article emphasized the importance of communication, particularly when dealing with clients set on retiring at a specific age and with a specific lifestyle, but who may lack the means to achieve loftier goals.
Most clients won’t push back if you are up front with them about the reality of their situation, advisers say.
“One of the things about our team is that we are dead honest. We’re going to give you the good news and the bad news — because telling you that is going to protect you,” Ting says.
Ting doesn’t like to take on clients who will not agree to meet him and his team face-to-face at least twice a year.
“If you can’t do that, then you can’t be my client. I think communication is key to having a successful adviser-client relationship. I want to be talking to my clients as often as I can,” he says.
Advisers say some clients react well once they see the numbers and various scenarios.
“If they give me the data, it takes me one conversation to deliver tough news,” says Raymond James’ McNeil. “After that, they kind of need some time to let that soak in. That’s where the process unfolds because it’s, ‘What do we do? There are trade-offs here.’”
“If we are working with someone who is falling a little short [of their retirement goals], it basically comes down to three things: Save more before retirement, spend less during retirement or work longer before you get to retirement,” says Tim Steffen, director of financial planning at Baird.
Unfortunately, some clients can’t increase their savings rate. And advisers say too many clients underestimate how much they’ll spend in retirement.
Quote“One of the things about our team is that we are dead honest. We’re going to give you the good news and the bad news — because telling you that is going to protect you,” says Jason Ting, an adviser at Merrill Lynch.
Raymond James’ McNeill says she has a handful of clients who crave a simpler lifestyle. “They’re happier to scale down and sell everything off,” she says. “I had one couple that sold their big house for a two-bedroom apartment. They are as happy as clams.”
But most clients, accustomed to living standards adopted in their prime earning years, can’t easily slash their budgets. And even while some costs can be reduced, other expenses — such as medical bills — can soar in retirement.
“A year or two of extra working can make a huge difference,” says Steffen. “It’s an extra year of saving. It’s an extra year of not spending. You’re compounding Social Security benefits.”
When it comes to working in retirement, a majority of Americans — 57% — say they would prefer to be an employee rather than an entrepreneur, according to AARP’s study. That figure is even higher for women, 63% of whom say they would prefer to be W-2 employees. And about three-quarters of Americans say they want part-time employment.
Ting says one of his clients sold his business in the San Francisco Bay area and became a consultant, and ultimately made more money while experiencing considerably less stress.
Another client worked in sales and desperately wanted to retire, but was afraid to give up his large salary for fear of falling short of retirement goals. Ting says he and his teammates ran the numbers for him to illustrate different possibilities. “We were able to show that, even if you make a third of what you do now, we can still reach all your goals,” he says.
Quote“A year or two of extra working can make a huge difference,” says Tim Steffen, director of financial planning at Baird.
But identifying that lower-paying-yet-satisfying job can be a challenge.
Haubrich has made addressing that issue a key aspect of his practice. He connects clients with career coaches to help them stay in the workforce. When meeting with new clients, Haubrich sometimes finds they may be looking to fully retire when what they really need is a career change.
He likes to ask clients questions about how they feel before going to work and what their career satisfaction is on a scale of one to 10.
“Sometimes they’ve been in a bad situation for so long, they can’t imagine it improving,” he says.
He’s suggested that clients take a sabbatical if possible, in order to experiment with other career options. In some cases, he suggests they quit, take a gap year to recharge and then come back to the job market.
In one case, he helped a Spanish teacher — exhausted from the classroom but too young to retire — reinvent herself as an executive coach.
Another client had transitioned from chemical engineer to unhappy manager. Haubrich says that after the client met with him and a career coach, the manager negotiated with his employer to return to the lab and give up his supervisor duties. He’s still working today.
Haubrich says the modus operandi is simple: How can we use resources to prolong clients’ productivity?
“If you’re good at what you are doing and you add value and you’re relevant to the marketplace, you really do have negotiating power. But the thing is that, if you aren’t adding value and aren’t relevant to the marketplace, then you’re in quicksand,” he says.
Unfortunately, sometimes clients are laid off or downsized, especially if their industry is going through a lot of disruption.
“I worked with a client where we had about 18 months to make an adjustment,” Haubrich says. “She was making more than $200,000 per year, and her career coach benchmarked her at $125,000 to maybe $150,000.”
That’s an undesirable situation to be in, Haubrich says. But it’s in those tough conversations that advisers who have a deep understanding of clients’ goals and resources can help make a meaningful difference in their lives.
“It takes a while to work with these clients. You can’t throw this all at them at once. That’s where the career coach comes in,” Haubrich says.
Advisers, he says, should be adding career coaches to their reference list, right along with the typical estate attorneys and CPAs.
RBC adviser Darla Kashian says that assessing retirement options is an opportunity for clients to become more visionary.
“I say to clients, let’s get into a creative space,” says Kashian, who is based in Minneapolis. “That may not bring in the six-figure income you are accustomed to, but it may give you other things. Does it give you health insurance? Does it give you an opportunity to travel? To work in a nonprofit? It doesn’t necessarily have to be a punitive thing.”
And yet it may be necessary for more clients to face a future full of uncertainties, including how long that future may be. Several advisers also pointed to an uncomfortable fact: Today you may have the ability to work, but that may not be the case when you’re elderly.
“All of us envision life in a certain way,” says Thomas Dedrick, a Raymond James & Associates adviser in Tuscaloosa, Ala. “When you find life isn’t as you envisioned, then you have to accept reality as it is. Maybe that means working more. Whatever the realities are, sometimes that is challenging.”
Those conversations are tough, Dedrick admits, but they can definitely have happy outcomes. He points to one client who retired after three decades of working at a job that he no longer loved.
The client’s funds, however, fell short of his retirement goals. He followed Dedrick’s advice to look into getting a part-time job more to his liking.
Now, Dedrick says, his client “seems quite frankly happier now than I’ve seen him in years.”