MONEY

Hate Your Company’s 401(k)? Here’s How to Squeeze the Most From Any Plan

squeezing orange
Tooga Productions—Getty Images

Four steps to getting your savings plan right—even if your employer didn't.

Your 401(k) plan is potentially one the best tools you have to save for retirement. You get a tax advantage and often a partial match from your employer. But let’s face it: Not all company plans have the most compelling investment options. These strategies will help you use your plan to maximum advantage.

Money

1. Plug the biggest hole in your account: Costs.

Mutual fund charges look small, but the cost of paying an extra 1% a year in fees is that you give up 33% of your potential wealth over the course of 40 years. If there’s at least a basic S&P 500 or total stock market index fund in your plan, that’s often your best option for your equity allocation. Some charge as little as 0.1%, vs. 1% or more for actively managed funds.

2. Look beyond the company plan.

If your 401(k) doesn’t offer other low-cost investment options, diversify elsewhere. First, save enough in the 401(k) to get the company match. Then fund an IRA, which offers similar tax advantage. You can then choose your own funds, including bond funds and foreign stock funds, to complement what’s in your workplace plan.

3. While you’re at it, dump company stock.

About $1 out of every $7 in 401(k)s is invested in employer shares. But your income is already tied to that company. Your retirement shouldn’t be too.

4. Share strategy with your spouse.

It’s a good idea no matter how much you like your plan: If you hold a third of your 401(k) in bonds, for example, your combined mix may be riskier than you think if your spouse is 100% in stocks. But coordinating also improves your options. If your spouse’s plan has a better foreign fund, you can focus your joint international allocation there.

Adapted from “101 Ways to Build Wealth,” by Daniel Bortz, Kara Brandeisky, Paul J. Lim, and Taylor Tepper, which originally appeared in the May 2015 issue of MONEY magazine.

Read next: What You Can Learn From 401(k) Millionaires in the Making

TIME Television

Jon Stewart’s Departure From The Daily Show Now Has a Firm Date

Director/writer/producer Jon Stewart attends "Rosewater" New York Premiere at AMC Lincoln Square Theater on November 12, 2014 in New York City
Desiree Navarro—WireImage/Getty Images Director-writer-producer Jon Stewart attends the New York premiere of his movie Rosewater at AMC Lincoln Square Theater in New York City on Nov. 12, 2014

There's just a little over three months left of his legendary run

Fans of Jon Stewart have a little over three months to get their fill of the comedian and Daily Show host.

Stewart announced on the show’s Monday night broadcast that he would go off the air on Aug. 6 this year, Variety reports.

The 52-year-old comedian said in February that he would be retiring from the iconic satirical newscast after 16 years. Filling big shoes will be Trevor Noah, whom Stewart has warmly endorsed in spite of the South African funnyman’s involvement in a Twitter storm that occurred after some of his tweeted jokes were criticized for being “anti-Semitic” and “sexist.”

[Variety]

MONEY second acts

Surprising Secrets of Successful Second-Act Career Changers

man showing insect specimens to students
Gallery Stock

A new report dashes stereotypes about older workers and their ability to find rewarding jobs.

Some upbeat news for older workers looking for a fresh start: It may be easier than you think to launch a second act—if you make the right moves.

Most older workers who seek career changes are successful, especially if they use skills from their previous careers, according to a new report out Thursday from the American Institute for Economic Research (AIER), a nonprofit organization dedicated to economic literacy. In the survey of 2,000 people, a career change was defined as a change in jobs that involves a new role with either the same or a different employer, in either the same or a different field.

According to the report, 82% of people 47 and older who tried to transition to new careers in the last two years were successful. Nearly 70% of successful changers saw their pay either stay the same (18%) or increase (50%), while 31% took a pay cut. As for job satisfaction, 87% of successful changers said they were happy with their change, and 65% felt less stress at work.

The findings fly in the face of stereotypes about older workers and their ability to find new jobs. It’s true that when older workers lose their jobs, it takes longer to find one. But many older people are in fact fully employed. The unemployment rate for workers 55 and older is less than 3.7%, compared with 5.5% for the national average.

And the number of older people working is growing: The percentage of people 55 and older in the labor force is more than 40%, up from 29% in 1993, according to the Bureau of Labor Statistics.

Still, the report is encouraging because an increasing number of older workers say they want to or need to work past traditional retirement age, but they don’t want to continue to do the same thing. Many are looking for a change and a new challenge, as well as less stress.

“Our research shows that older workers are finding rewarding careers, not just new jobs, later in life,” says Stephen Adams, AIER president.

The findings back up another recent survey by the AARP Public Policy Institute that was positive about older workers’ ability to make a career change, even those who had been unemployed for a while. The survey focused on workers 45 to 70 who had been jobless at some point in the last five years. Almost two-thirds of reemployed older workers found jobs in an entirely new occupation.

Of course, some of the unemployed didn’t choose to switch occupations; they were forced to do so by layoffs or changes in their industry. But for others, the change was a decision to do work that was more personally rewarding and interesting, or just less demanding with fewer hours.

It makes sense that pursuing a new career is a viable option for older workers, says Adams. “Older workers tend to have more experience and stronger networks, which they can leverage to make that transition.”

The AIER research found distinct patterns among those career changers who were successful compared with those who tried but didn’t make the leap into a new field or occupation. In some cases, workers remained at the same company but in a new role. For others, they changed where they worked, their occupation. and/or their field. Here are some lessons from the successful career changers.

Identify and capitalize on your transferable skills. The people who were successful assessed their skills and figured out how their job experience could apply to a new occupation. In some cases, changers took courses or additional training to hone those skills or develop new ones. But additional education wasn’t necessarily a hallmark of successful career changers. Many people become trainers in their field, consultants to their old firms, or teachers in their field of expertise. Others used their knowledge to launch a business. In one case, a medical school administrator left academia after 22 years and started his own business of freestanding clinics. In another, a truck mechanic who already had much of the required licensing started his own hauling business after taking seminars on relevant regulations.

Be realistic. People who weren’t successful tended to be those who wanted to leap into an entirely different line of work. It sounds great to open a restaurant or buy a vineyard, but it’s much harder to pull off. It’s a bigger risk financially, and your network of contacts will be less relevant. “The notion of ‘follow your dream’ is a wonderful sentiment, but you have to have a clear-eyed vision of what you bring to the table for your employer or a new venture,” says Adams.

It’s not good to be a lifer. Successful job seekers spent fewer years at the same employer and worked in a variety of roles for different companies over their lifetime. The longer you’ve been working, the more likely it is you’ve held several jobs, so the job-changing experience isn’t so new. But if you’ve been stuck in one job a long time, it’s going to be harder to make a transition.

Enlist family and friends. The most successful career changers said family support was important. That means having encouragement from friends and relatives, and a willingness for family to change their lifestyle to accommodate a different career. Successful career changers also asked for feedback from colleagues, friends, and family members about their aspirations. “People who were successful had encouragement and honest feedback from people who knew them well,” Adams says.

 

TIME

This Is the Retirement Regret Nobody Talks About

This is a big myth about retirement nobody talks about

There is ample evidence that baby boomers are working longer than any generation before them, pushing the “traditional” retirement age of 55 into the 60s, and with many — for personal or financial reasons — working right up to Social Security’s full retirement age of 67 and beyond.

People are living longer, and many older investors suffered losses when the stock market fell in the Great Recession. Today’s workplaces have been adjusting to accommodate for a growing number of older workers, and this trend towards putting off retirement is hailed as a generally positive shift in boomers’ approach to their golden years.

There’s just one thing: A lot of them regret it afterwards.

A new survey of retirees between the ages of 62 and 70 with $100,000 or more in investable assets conducted on behalf of New York Life found that nearly half of respondents wished they had retired earlier. More than half who were 60 or older when they retired regretted waiting so long.

On average, respondents wished they’d retired a full four years earlier than they actually did.

Three out of 10 retirees who had accumulated between $100,000 and $249,999 wished they’d retired sooner. About a quarter of those with between $250,000 and $1 million said the same, and even 20% of millionaires regretted not bowing out of the corporate rat race sooner.

“Investable assets and retirement age impact desire to retire sooner,” says David Cruz, a senior managing director at New York Life.

A lot of workers have been pushing themselves to work later in life, but hindsight makes them second-guess their decisions.

“As people age, they realize that during the time right before they retired they still had as much energy” as they did during their years in the professional world, Cruz says. Then as they age, it dawns on them that they were wasting the potentially best years of their retirement in the office. “They realize that having flexibility during those earliest potential retirement years can be priceless,” he says.

It’s a classic case of not knowing what you’ve got until it’s gone — and it’s something that’s conspicuously absent in most of the conversations we have today about what makes for a satisfying retirement.

“We think that as people age and slow down, they realize how much they would have enjoyed additional years of flexibility when they were younger and more energetic,” Cruz says. “Most people spend a lifetime accumulating retirement assets but don’t know how to turn those assets into a fulfilling retirement.”

MONEY Sports

Why NFL Players Are So Likely to Declare Bankruptcy

Former Tampa Bay Buccaneers defensive tackle Warren Sapp wipes his face as he is inducted into the team's Ring of Honor during half time in an NFL football game against the Miami Dolphins Monday, Nov. 11, 2013, in Tampa, Fla.
Brian Blanco—AP Former Tampa Bay Buccaneers defensive tackle Warren Sapp wipes his face as he is inducted into the team's Ring of Honor during half time in an NFL football game against the Miami Dolphins Monday, Nov. 11, 2013, in Tampa, Fla.

Retirement is supposed to represent one's golden years. But for former NFL players—who are typically out of the game by age 30—retirement is often accompanied by a slew of problems.

According to a new study in the National Bureau of Economic Research (NBER), former NFL players go broke at an alarmingly high rate considering how much money they make as pro athletes.

The median NFL player is in the league for six years and during that time earns $3.2 million in 2000 dollars—more than a typical college graduate makes in a lifetime, noted this Quartz post. And yet, nearly 16% of the players included in the study—everyone drafted from 1996 to 2003—filed for bankruptcy within 12 years of retirement.

A 2009 report from Sports Illustrated found that “78% of former NFL players have gone bankrupt or are under financial stress because of joblessness or divorce” after they’d been retired only two years. Some of the stories of pro athletes losing their fortunes, chronicled in the ESPN documentary “Broke” and elsewhere, are astonishing. Warren Sapp, the seven-time Pro Bowler and Hall of Fame defensive tackle, earned $82 million during a 13-year career that ended in 2007. By the spring of 2012, however, he filed for bankruptcy, even though he was still pulling in $116,000 per month at the time as a TV analyst.

What is it about so many professional athletes—and football players in particular—that causes them to go broke in swift and dramatic fashion, despite their lofty salaries? Here are some the key factors–several of which can potentially screw up the retirement plans of anyone, not just a pro athlete.

NFL careers (and peak earning years) are short. The average annual salaries and career lengths for NFL players are smaller than their counterparts in other big-time sports. A 2013 study showed that the average (as opposed to the median noted above) NFL player earned $1.9 million per year and was in the league for 3.5 years. Both are much lower than the averages in Major League Baseball ($3.2 million annually, 5.6-year career) and the National Basketball Association ($5.15 million, 4.8-year career).

Not only do NFL players tend to earn less overall, their careers are over much more quickly. The typical NFLer is out of the game and done with his peak earning years well before he’s even turned 30. This is when the typical worker’s earning potential is just taking off.

They ignore sound investing advice. “If they are forward-looking and patient, they should save a large fraction of their income to provide for when they retire from the NFL,” the NBER study explains. But many NFL players are neither forward-looking nor patient, and they don’t save much, if anything. That goes even for players with good careers, per the study: “Having played for a long time and having been a successful and well-paid player does not provide much protection against the risk of going bankrupt.”

In the opening anecdote of the Sports Illustrated story, Raghib (Rocket) Ismail, the Notre Dame superstar who played in the CFL and NFL and earned as much as $4.5 million per year, recalled how impervious he was to financial advice early on in his career. “I once had a meeting with J.P. Morgan,” he said, “and it was literally like listening to Charlie Brown’s teacher.”

They get bad advice and make bad decisions. Ismail blew money on a wide range of sketchy investments, including a religious movie, a music label, and various high-risk restaurant and retail endeavors. Many players have sued their advisors after allegedly being scammed out of millions. In one suit filed in 2013, a group of 16 former and current NFL players claimed they were collectively bilked for more than $50 million based on the actions of an advisor who had allegedly invested the money in an illegal casino.

“Regulated or not, shady advisors have made quite a mark on the NFL financial scene,” the authors of the 2014 book Is There Life After Football? Surviving the NFL wrote. “Before closer scrutiny was instituted, at least 78 players lost more than $42 million between 1999 and 2002 because they trusted money to agents and financial advisors with questionable backgrounds.”

More recently, seven-time Pro Bowler Dwight Freeney sued Bank of America for $20 million, because a former adviser from the bank supposedly defrauded him by (illegally) wiring millions of dollars out of Freeney’s account. In another recent case, it is a former NFL player who is himself being accused of operating a sketchy investing scheme. In early April, the SEC filed a federal fraud complaint against former NFL player Will Allen and a business associate, who together allegedly ran a Ponzi scheme, using money from some investors to pay off others. The operation was supposed to be loaning money to athletes who were short of cash, but the suit claims roughly $7 million raised from investors was used instead for personal expenses of Allen and his associate.

They get used to a certain lifestyle. Warren Sapp reportedly had 240 pairs of collectible sneakers, including 213 sets of Air Jordans, which wound up selling for more than $6,000 at auction. Former standout wide receiver Andre Rison famously blew $1 million on jewelry and routinely walked around clubs with tens of thousands of dollars in cash in his pockets, he recalled in the “Broke” documentary. Troubled cornerback Adam “Pacman” Jones has said that he once dropped $1 million in a single weekend in Las Vegas.

Extravagant spending is ingrained in NFL culture, insiders say. “Around the locker room, players’ cars, clothes, houses and ‘bling’ are constantly scrutinized. If they’re not up to par, they’re ridiculed,” former Green Bay Packers’ George E. Koonce, Jr. and his fellow authors explained in Is There Life After Football? “Players don’t see their bills or keep track of their payments. They’re in the dark about taxes. They lose touch with their own money.”

Once they retire and the millions stop flowing into their bank accounts, many players find it impossible to dramatically shift gears and adapt to life on a limited fixed income. It’s all the more difficult because they’re still relatively young and aren’t anywhere near ready to embrace the sensible, low-key, downsized lifestyle of the typical 70-year-old retiree.

They’re often crippled, mentally and physically. The consensus is that of all the major pro sports, football takes the largest toll on the minds and bodies of its combatants—making it exceptionally difficult to make a living once their (short) athletic careers are over. Studies show that players suffer concussions at disturbingly high rates, and that the frequent brain injuries of players cause a wide range of neurological problems down the road. The high level of former NFL players committing suicide (Junior Seau among others) has been tied to concussions in football games as well.

Even if players retain their cognitive skills, they often live with chronic pain in knees, hips, and joints. Debilitating pain, debilitating brain disease, or both obviously hamper one’s ability to make a living outside of football.

UPDATE: An earlier version of this story included widely disseminated information regarding the likelihood of lower life expectancy among former pro football players. Harvard researchers working on a multi-year project with the NFL concerning the medical risks of playing football say the information is outdated and inaccurate. The NFL disputes the data indicating that its players have shorter life expectancies as well, pointing to a 2012 National Institute for Occupational Safety and Health study in which researchers “found the players in our study had a much lower rate of death overall compared to men in the general population. This means that, on average, NFL players are actually living longer than men in the general population.”

The same study also found that NFL “players may be at a higher risk of death associated with Alzheimer’s and other impairments of the brain and nervous system than the general U.S. population. These results are consistent with recent studies by other research institutions that suggest an increased risk of neurodegenerative disease among football players,” though the report noted that the “findings do not establish a direct cause-effect relationship between football-related concussions and death from these neurodegenerative disorders.”

MONEY Careers

A Good Reason to Tap Your Roth IRA Early

Concentrating surgeons performing operation in operating room
Alamy

You shouldn't always wait until you retire to pull money from your retirement account.

The Roth IRA is a great tool for retirement savings. But here’s something not as well-known: It’s great for developing your career as well.

Many of my young clients in their 20s and 30s struggle to balance current spending, saving for the next 10 years, and stowing away money for retirement. With so many life changes to deal with (weddings, home purchases, children, new jobs), their financial environment is anything but stable. And their retirement will look completely different than it does for today’s retirees.

To my clients, separating themselves from their current cash flow for the next 30 years feels like sentencing their innocent income to a long prison term.

They ask, “Why should we save our hard-earned money for retirement when we have no idea what our financial circumstances will be in 15 years, never mind 30? What if we want to go back to school or pay for additional training to improve our careers? We might also decide to start a business. How can we plan for these potential life changes and still be responsible about our future?”

The answers to those questions are simple. Start investing in a Roth IRA — the earlier you do it, the better.

There is a stigma that says anyone who touches retirement money before retirement is making a mistake, but this is what we call blanket advice: Although it’s safe and may be correct for many people, each situation is different.

The Roth IRA has very unique features that allow it to be used as a flexible tool for specific life stages.

Unlike contributions to a traditional IRA, which are locked up except for certain circumstances, money that you add to a Roth IRA can be removed at any time. Yes, it’s true. The contributions themselves can be taken out of the account and used for anything at all at any time in your life with no penalty. And, like the traditional IRA, you can also take a distribution of the earnings in the account without penalty for certain reasons, one of which is paying for higher education for you or a family member. (Some fine print: You’ll pay a penalty on withdrawing a contribution that was a rollover from a traditional IRA within the past five years. And you’ll have to pay ordinary income taxes on an early Roth IRA withdrawal for higher education.)

Although you shouldn’t pull money from your retirement account for just any reason, sometimes it’s a smart move.

Let’s say you graduate from college and choose a job based on your major. This first job is great and helps you get your feet wet in the professional world. You’re able to gain some valuable real-world experience and support yourself while you enjoy life after school. And this works for a while…until one day, 10 or 15 years into this career, you wake up and begin to question your choices.

You wonder if this career trajectory is truly putting you where you want to be in life. You think about changing careers or starting a business, but you need your income and have no real savings outside of your retirement accounts.

Now, let’s also say that you were tipped off to the magic of a Roth IRA while you were in college and you contributed to the account each year for the past 15 years. You have $75,000 sitting in the account, $66,000 of which are your yearly contributions from 2000 through 2014. It’s for retirement, though, so you can’t touch it, right? Well, this may be the perfect time to do so.

I recently spoke to a someone who did just this. Actually, his wife did it, but he was part of the decisionmaking process.

The wife has been working for years as a massage therapist for the husband’s company. Things were going quite well, but she had other ideas for her future. She wanted to go back to school to get her degree as a Certified Registered Nurse Anesthetist. The challenge was that this education was going to cost $30,000, and they did not have that kind of money saved.

So, they brainstormed the various options, one being to tap into his Roth IRA money. They determined that this would be a good investment for their future. Once the wife became a CRNA, her annual earnings would rise an estimated $20,000 — money they could easily use to recoup the Roth IRA withdrawal (though the 2015 Roth IRA contribution limit is $5,500 for those under 50 years old).

This decision gave them a sense of freedom. The flexibility of the Roth allowed them to choose an unconventional funding option for their future and gave the couple a new level of satisfaction in their lives.

And, that’s what it’s all about. We have one life to live, and it’s our responsibility to make decisions that will help us live happily today, while still maintaining responsibility for tomorrow.

Whether your savings is in a bank account or a retirement account, it’s your money. Although many advisers will tell you otherwise, you need to make decisions based on what is best for you at various stages of your life. The one-size-fits-all rule just doesn’t work when it come to financial planning. There is no need to rule out a possible solution because society says it’s a mistake.

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Eric Roberge, CFP, is the founder of Beyond Your Hammock, where he works virtually with professionals in their 20s and 30s, helping them use money as a tool to live a life they love. Through personalized coaching, Eric helps clients organize their finances, set goals, and invest for the future.

MONEY Retirement

The Pros and Cons of Hiring a Financial Adviser

Ask the Expert Retirement illustration
Robert A. Di Ieso, Jr.

Q: Should I use a financial adviser to manage my retirement portfolio or should I save money by going it alone? – Carl Vitko, Cicero, Illinois

A: That depends on how comfortable you are doing it yourself. If you are familiar with the basic concept of asset allocation and you’re comfortable choosing investments, you shouldn’t have any trouble building a low-cost diversified portfolio on your own, says Robert Stammers, director of investor education at the CFA Institute.

But you don’t necessarily have to pay an adviser to get help. Most people have the bulk of their retirement savings in a 401(k). Many 401(k) plans offer low-cost index funds and target date funds; the latter is a diversified stock and bond portfolio that becomes more conservative as you age. Many employer plans also offer free tools to help you assess your investing options and assemble a portfolio appropriate for your age and risk tolerance. According to the Plan Sponsor Council of America’s annual survey of 401k plans, 41.4% of plans offer some kind of investment advice.

Taking advantage of that advice can pay off. In a recent Voya Financial survey of full-time workers, people who saved the most for retirement used online financial advice tools and educational materials provided by their employers at more than double the rate of the lowest-scoring savers.

But the do-it-yourself approach requires time to monitor your portfolio and the discipline to adjust to different market conditions. You also have to keep your emotions in check when markets are volatile, which investors admit they have a hard time doing. In a survey by Natixis Global Asset Management, 65% of investors say they struggle to avoid making emotional decisions about their money during market shocks.

Even more worrisome: 81% of investors say expectations for double digit gains going forward are realistic and 54% believe their portfolios will perform better this year than in 2014, when the Standard & Poor’s 500 Index rose by 13%, according to the Natixis survey.

Coming off three consecutive years of market returns that exceed 10%, that kind of enthusiasm is not surprising. But historically, the stock market has averaged 7% annual gains. Having an objective investment adviser can help ground your expectations in reality. And there’s evidence that some investors do better getting some professional advice.

Median annual returns for 401(k) holders who got professional help through target date funds, managed accounts, or their plan’s online advice were 3.32 percentage points higher than returns for people who invested on their own, even after taking fees into account, according a 2014 study by benefits consultant Aon Hewitt and Financial Engines, which provides investment advice to 401(k) plans.

If you decide to go the professional route, you have choices. An adviser at a large investment firm typically charges a fee of about 1% of the assets he or she manages for you. A new type of investment service known as a “robo-adviser” uses computer algorithms to build low-cost portfolios and charges as little as 0.5% a year. (To better understand how robo-advisers work, read “Would You Trust Your Retirement to a Machine?“)

You should consider enlisting a financial adviser who can do more than manage your investments. A certified financial planner (CFP) takes a more holistic approach to your retirement readiness. They can help you figure out whether you are on track with your savings and how other investment options, such as Roth and traditional IRAs, fit into your retirement plans. Best to go with a CFP who charges a fee for advice versus one who takes commissions on products he or she sells you. That cost can range from $2,000 to $5,000 a year. You can find fee-only planners through the Financial Planning Association and National Association of Personal Financial Advisors.

If you decide to go it alone, you’ll need to be vigilant about monitoring your plan, and should take advantage of any free advice available to you through your 401(k) provider. But as you get nearer to retirement, consulting at least once with a professional and reputable financial adviser is a wise move, says Stammers.

MONEY 401(k)s

1 in 3 Older Workers Likely to Be Poor or Near Poor in Retirement

businessman reduced to begging
Eric Hood—iStock

Fewer Americans have access to a retirement plan at work. If you're one of them, here's what you can do.

A third of U.S. workers nearing retirement are destined to live in or near poverty after leaving their jobs, new research shows. One underlying cause: a sharp decline in employer-sponsored retirement plans over the past 15 years.

Just 53% of workers aged 25-64 had access to an employer-sponsored retirement savings plan in 2011, down from 61% in 1999, according to a report from Teresa Ghilarducci, professor of economics at the New School. More recent data was not available, but the downward trend has likely continued, the report finds.

This data includes both traditional pensions and 401(k)-like plans. So the falloff in access to a retirement plan is not simply the result of disappearing defined-benefit plans, though that trend remains firmly entrenched. Just 16% of workers with an employer-sponsored plan have a traditional pension as their primary retirement plan, vs. 63% with a 401(k) plan, Ghilarducci found.

Workers with access to an employer-sponsored plan are most likely to be prepared for retirement, other research shows. So the falling rate of those with access is a big deal. In 2011, 68% of the working-age U.S. population did not participate in an employer-sponsored retirement plan. The reasons ranged from not being eligible to not having a job to choosing to opt out, according to Ghilarducci’s research.

She reports that the median household net worth of couples aged 55-64 is just $325,300 and that 55% of these households will have to subsist almost entirely on Social Security benefits in retirement. The Center for Retirement Research at Boston College and the National Institute on Retirement Security, among others, have also found persistent gaps in retirement readiness. Now we see where insufficient savings and the erosion of employer-based plans is leading—poverty-level retirements for a good chunk of the population.

At the policy level, we need to encourage more employers to offer a retirement plan. On an individual level, you can fix the problem with some discipline. Even those aged 50 and older have time to change the equation by spending less, taking advantage of tax-deferred catch-up savings limits in an IRA or 401(k), and planning to stay on the job a few years longer. That may sound like tough medicine, but it’s nothing next to struggling financially throughout your retirement.

MONEY Financial Planning

Why I Want Clients to Get Emotional About Retirement

216335590
Chutima Chaochaiya—Shutterstock

Digging deep into clients' emotions helps one planner uncover what they're really thinking.

I like to delve into clients’ emotions and feelings. People may tell me one thing initially, but upon further questioning may see that their first response wasn’t emotionally true.

One example of that came up in a recent meeting with a couple who were getting ready to retire. Of course, they had worries about what they should do.

They wondered if they should move all their money into conservative investments. They floated the idea of moving everything into an annuity — an option they believed carried no risk.

When I asked them about longevity in their blood lines, I learned they each had at least one parent in their mid-90s. I then explained to them how we are in a low-rate environment and talked about the danger that their annuities would be capped at very low rates of return that likely would not keep pace with inflation or taxes.

That’s where my emotional questioning began. Let me summarize our conversation:

Question: The chance of your living another 30 to 40 years is extremely possible. How do you feel about that?

Answer: That we won’t have enough money.

Q: How does that make you feel?

A: Afraid and very uncertain.

Q: When you started work and got married, what were the rules?

A: Save money in a retirement account, have children, and make sure they get good education.

Q: What are the rules in retirement?

A: We don’t know of any other than just making your money last.

Q: If all of us are living longer, and you know that certain health care costs and taxes are going up, why would you not want to grow your money? Why would you want to buy this financial product that is not designed to keep pace?

A: That’s just what we were told. And that’s what we thought you did as an adviser.

Q: Well now that you are here, how do you feel about this happening?

A: We are very uncertain and really don’t know what to do!

Q: Has anyone worked with you to put together a plan that is balanced with investments and also has an income component that is adjustable for you?

A: No

Q: If you could become more educated on a balanced plan and how that may help you navigate the next 30 years, how would that make you feel?

A: It would make us feel like we have a chance to succeed.

When clients say that they do not want to lose any money, my response is, “Okay, but how do you feel about not making any money?” They don’t like that idea either.

In today’s marketplace, “no risk” equals minimal return and loss of purchasing power.

It is very important to educate clients on current economic conditions and teach them that calculated risk is worth taking. The average retiree who has a net worth of, say, $500,000 to $1 million either falls prey to annuity salesman or is so shell-shocked from 2009 that he or she only trusts CDs.

There is a real need to educate clients on how rates work and why the market have been the place to be for the past six years. Retirees also need greater clarification on annuities in order to understand their income and growth restrictions.

Asking questions to gauge risk is key to financial success. More importantly, it is key to building a sound relationship between adviser and client.

I always ask my clients, “In the next one to two years, what do I need to make happen to assure you that you have made a good choice in working with me?” These answers vary, but generally speaking, clients want to know that they are staying on the right path and are not falling behind. Keeping in touch with clients and knowing how they feel emotionally is paramount to them feeling good about their adviser.

———-

Matt Jehn, CFP, is managing partner of Royal Oak Financial Group, which offers small businesses and individuals in Columbus and Lancaster, Ohio a complete financial solution through professional accounting, tax and wealth management services. Jehn, who earned a degree in family financial planning from The Ohio State University, enjoys helping his clients grow their businesses by educating them on the meaning behind the numbers.

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