Few people start saving for retirement as early as they should, experts say. But what can advisors do if a midcareer 50-year-old comes in one day and says, “I haven’t saved anything for retirement yet. Can you help me?”
It’s never too late to start retirement planning, advisors say. There are, however, particular challenges for clients who are middle-aged and underprepared.
“Retirement catch-up after age 45 demands a strategic surge,” said Salvatore Capizzi of Dunham & Associates Investment Counsel in San Diego. Specifically, he recommends a combination of “aggressive saving, debt reduction, and a focus on career advancement,” he said. These clients might need to plan on working past age 65, he added, but this kind of intensive approach “transforms limited time into a potential savings accelerator.”
Clients should not panic, though. They might be in better shape than they think, said Jamie Clark of Ruby Pebble Financial Planning in Seattle. “The first step to evaluate your savings progress is to make a list of all your assets,” said Clark, who uses they/them pronouns. “You might have had many jobs and collected a variety of old workplace retirement plans. … You could have multiple different income sources that are harder to keep track of than they used to be.”
Of course, you also have to add up your liabilities, they added.
It’s crucial to pay off high-interest debts as soon as possible, said Skylar Riddle at Fort Pitt Capital Group in Pittsburgh. Midcareer folks, though, are typically “more in control” of their debt than younger folks, he said, and also have the advantage of entering their “higher earnings years.” Nevertheless, they must maintain budget discipline. “Cutting out a $5 coffee is nice for the budget, but spending less on personal items like clothing, vehicles, and homes will have a greater impact,” he said.
Riddle recommended putting more money into tax-advantaged accounts such as Health Savings Accounts (HSAs) and IRAs, and said clients should take full advantage of their employer’s 401(k) matching program. This year, those 50 and over can also make “catch-up” contributions of up to $7,500 to a 401(k), on top of the standard $23,000 limit, and contribute an extra $1,000 to an IRA, beyond the standard $7,000. For those who don’t need a tax deduction this year, the contributions can be made with after-tax dollars to Roth accounts, so that later withdrawals are tax-free. After 2026, though, anyone making at least $145,000 a year can only put catch-up dollars into Roth accounts.
How much savings is enough for retirement is a matter of opinion. Conventional wisdom holds that you should have six times your salary salted away by the time you're 50. While that may be a useful metric for some clients, many advisors favor a more nuanced evaluation.
“A more effective approach is to review your spending over the past three years and determine how much in investable assets you'll need to sustain that level of spending,” said Corey Briggs at Plaza Advisory Group in St. Louis. He said clients should factor in the 4% withdrawal rule, dividing the total annual spending by 0.04 to calculate the necessary savings. For example, a client whose annual spending amounts to $200,000 should ideally have $5 million in retirement savings. Adjustments can be made as needed.
“This method is considered a conservative strategy,” he said.
Establish Benchmarks
Once a plan for budgeting, saving and investing is in place, experts recommend establishing benchmarks to measure progress periodically. Savings and spending habits should be assessed at least quarterly, said John Campbell at Calamos Wealth Management in Chicago, to “allow you the necessary flexibility to make minor adjustments as current unanticipated financial needs might warrant.”
An inventory of potential income sources and financial obligations should be revisited annually, he noted.
These reviews shouldn’t be too drastic or severe, industry insiders say, lest your clients become defensive or, worse, give up hope. “You go all or nothing, and you get demoralized quickly,” said Jamie Battmer, chief investment officer at Creative Planning in Overland Park, Kan. He recommends incremental steps to improving a client’s retirement picture. “You need to be able to walk around the block before attempting a half marathon,” he said.
He also rejects what he calls “the misleading industry dynamic” that near-retirees should move most of their invested assets into bonds and other conservative positions. Clients who have at least 20 years ahead of them—which “everyone from 45 to 65 should still have,” he said—will be more rewarded by owning stocks instead of bonds or cash, he insisted. “Age has very little to do with [retirement success]. The data drives everything,” he said.
But the data clients consider depends on their circumstances. Some want to retire early and travel the world. Others want to downsize and live a simple, relaxed life, perhaps close to children and grandchildren. Clients with an inheritance and sizable Social Security income and a pension might not need to worry about additional savings. On the other hand, some might have severe health issues that require additional budgeting. There are all sorts of variables.
“It all goes back to what your goals and objectives are in combination with your personal financial situation,” said Dave Alison at Prosperity Capital Advisors in Charleston, S.C. “If you have a family history of [people] living into their 90s or 100s, you might need to save more aggressively or look for ways to secure guaranteed lifetime income, whereas if you have poor health you might not have as much longevity risk, but certainly could face higher healthcare expenses in retirement.”
Perhaps most important is that clients who aren’t wealthy by midcareer shouldn’t despair, say advisors. It’s never too late to take the reins. “It's not necessarily those with the most money who successfully retire,” said Gary Schwartz at Madison Planning in White Plains, N.Y. “It's often those who plan well.”