The stereotypical financial planning client is somebody making a lot of money, with lots of money to manage in retirement.
While that’s certainly true of some clients, there are many who have saved little or nothing. And some of those are even high earners.

While an underfunded retirement account is often the result of a low-paying career, John Benedict, the CEO of J2 Capital Management in Troy, Mich., sometimes sees  late starters with paltry portfolios only because they have been overspending for years. “If they don’t have the income to begin with, they don’t reach my doorstep,” Benedict says. “But sometimes those who come in have a really good income, but not much money saved. It boils down to not having priorities in order—living by a budget and getting spending under control.”

Benedict isn’t the only one who has seen high-income clients with skimpy savings. In December, trend researcher Financial Finesse issued a report titled 2012 Generational Research. It examined the state of financial planning among millennials (those under 30), Generation X (those between 30 and 44), late baby boomers (people between 45 and 54) and early baby boomers (those 55 and over).

The early boomers, a group who are still in their prime working years but who have an eye on retirement, have some clear deficiencies when it comes to planning. According to Financial Finesse, 75% of late boomers are not contributing to an IRA. Twenty percent are not contributing enough to get the match in a company plan. Forty-eight percent have no emergency fund; 32% don’t have a good grasp on their cash flow; 38% are uncomfortable about the amount of non-mortgage debt they carry; and 44% are not regularly paying off credit card balances.

These numbers may seem daunting, but advisors say there is a way to help clients who are not saving enough, and whose overall finances may be in disarray. Before he can give them advice about fixing the problem, Benedict says, “I like to understand the reasons why they don’t have much money saved.”

Elyse Foster, president and CEO of Harbor Financial Group in Boulder, Colo., also says advisors must understand some psychology when dealing with late retirement savers. “I would encourage them that they’re doing a very good thing, and there’s no time like the present to begin planning,” Foster says.

She advises late starters to begin the savings process in bite-sized pieces, so they don’t become overwhelmed. Some people are in good enough shape that she can help them with her financial planning and even asset management services. But others are better off starting the process by themselves.

“For people who have truly limited resources late in life, we’ll give them a primer and a checklist, and ask them to do a lot of the work on their own,” she says. “It would be less expensive for them, and they can take the money they would have paid us and put it into savings. In some cases, this is critical.”

One of the items on the checklist is for the clients to get their income, debt and assets organized. They must also look for immediate savings opportunities, such as overlooked 401(k) plans. And they must begin a savings program. She also encourages people to cut back on expenses wherever possible—even when it means buying a smaller house to pocket some more cash.

One of the tougher things she has to tell clients is to focus on their own retirement savings ahead of their children’s college expenses. “We encourage them to look for less expensive schools, look for grants, have the kids take out loans, work in the summer and even take part-time jobs during school to reduce the burden on the parents. This can get in the way of retirement savings, and, if necessary, we’ll have this talk early in a client relationship.”

Tracy Ann Miller is a partner at Portfolio LLC and the CEO of Red River Advisors in Oklahoma City. Her advice for those with little in savings is simple: Get started.

“Any amount of savings is helpful,” she says. “I’m always telling people to put $50 a month into a savings account at the bank. It’s not helping me, but it’s helping them. And once they have more than about $3,000 in there, we can talk about investing.”

Miller also likes to see late savers dig a bit deeper for resources, even if they believe the till is empty. About half the time, she says, they can be prodded to recall long-forgotten bank accounts, IRAs, 401(k)s and certificates of deposit. “So we look at how all these can work together for a person’s benefit, rather than having them not knowing where it all is,” she says.

In situations where an individual or couple has some money that needs to be protected, Miller will often turn to annuities. “If people go into an insurance product, they are much more likely to stay with the program and not use the money for a trip or to help their children. They’ll find that money somewhere else, and then have the annuities when they retire,” she explains.

“It’s income they can’t outlive, and it helps supplement other income, and it keeps their children from getting it—which is another big thing,” she adds. “A lot of times, I’m talking to the client, and they tell me they can’t save money because their adult children always need it. So with a person like that, we’ll put it into an annuity. Annuities are pretty cost-effective, and all the penalties are a psychological roadblock that keeps them from being parted with their money.”

Lee Baker, founder of Apex Financial in Tucker, Ga., finds himself counseling people to take their actual financial situation into account when they are planning their retirement lifestyle. “It’s easy to say, ‘I’ll retire and do some traveling.’ But let’s be honest about this: What kind of travel expectations do you have?” he asks. “Traveling the world? Going to exotic places? Or going to the beach? For the typical person, there’s a huge difference.”

When potential clients with very little saved come to his office, Baker advises them to begin saving immediately, but he also wants them to be realistic about their situation. “From a purely planning standpoint, I can help them,” he says. “We can sit down and go through the process. If they have a mortgage, the way interest rates are, let’s do a refi. But if you’re 45, let’s not do it for 30 years. Let’s look at the 20-year number and the 15-year number, and see if you can swing it.”

Baker says he also has to manage late starters’ expectations about their assets’ performance. “There’s going to be a lot of education involved,” he says. “By that, I mean making sure they have a good grasp of what we can reasonably expect from the market going forward.”

He also tells them to be realistic about expenses, especially if they have scant resources. Health-care costs, naturally, are among the first items a client has to consider when developing a savings plan. “Take a really hard look at what your expenses might be. Once you’ve done that, the biggest thing you can do … it’s less about investment returns than it is about being diligent about putting the money away.”

Oliver Pursche, president of Gary Goldberg Financial Services in Suffern, N.Y., says that many late-starting savers can retire, but not necessarily in the style they had imagined. Like Foster, he thinks selling a home may be a crucial step in boosting retirement savings to a more comfortable level.

“You just have to have some very unpleasant but honest conversations,” he says. “Here’s what the reality looks like. And then you talk about some of the choices they are making and where they are spending money. In some cases, you have to bring up, ‘There’s another asset you have here, and you don’t want to touch, but you may have to.’ I’m not saying they have to touch it now, but there may come a time, whether it’s 10 years, 20 years down the road, that they may have to sell their home.”

Many people misunderstand how far their retirement savings will actually take them, he says. Many of them come into retirement believing they are finally going to enjoy life the way they always wanted to.

“But it has to be said: The less you spend now, the more you will have later,” Pursche says. “It’s a very simple concept that no one can disagree with, but that’s a tough pill for people to swallow. Because they had envisioned that long cruise or that trip to wherever, and those things seemed to be in their immediate future.”

On the topic of managing expectations, some late starters believe that a very aggressive program of trading stocks or options is the ticket to that golden retirement. Jerry Slusiewicz, a principal at Pacific Financial Planners in Laguna Hills, Calif., sometimes sees late-starting clients, particularly men in their late 40s and early 50s who are panicked about their lack of savings, try to catch up by actively trading. That mentality flies in the face of his basic tenets of financial management.

To build a solid retirement portfolio, Slusiewicz says clients must avoid panicking and start immediately. He says Americans have a good understanding of the need to meet financial obligations, but they fail at saving.

“Americans are great at paying their bills,” he says. “We somehow learned that when we get a paycheck, you pay your mortgage, then your car payment, then your utility bills, your Visa credit card, your kids’ education—whatever bills you have. And then you look, and there’s not much left after that for the month. So people say, ‘I need that new dress.’ Or, ‘The holidays are coming up.’”

He maintains that Americans could turn their financial situation around dramatically by habitually setting aside 8% to 10% of monthly salary. “In today’s world, that would put you in the hall of fame in the American economy,” he jokes. “In Chinese society, they put away 40% of their pay. But we Americans are consumers. We can’t even conceptualize that.”

He points out how a 10% savings rate could benefit a 45- or 50-year-old. In 10 years, that person would have stashed away a year’s worth of pay. Compounding would add significantly to that stockpile.

Richardson, Texas-based advisor Hank Mulvihill also recommends a consistent savings plan. He suggests that someone who is 45 or over, with little in the bank, approach the situation as if he or she had nothing. “If my clients are not saving, I’m not doing my job,” he says. “If a person doesn’t want to eat cat food and live in public housing, what are they going to do?”

Like other advisors, Mulvihill notes that the phenomenon of low saving is not limited to low earners. “I talk to a lot of highly compensated corporate folks who have full health benefits and all that. Lots of them have not saved either,” he says.
When he talks to people without employer-sponsored retirement plans, he emphasizes that they should save a little bit every day. “What could you do if someone told you that you could have a secure life if you just put aside $5 a day?” he asks.

Although it’s a small amount to save, Mulvihill believes the act of setting aside money precipitates a mental shift toward accumulating wealth. He also has some words about asset management for late starters over 45. He steers clear of the old pie chart allocation method, which recommends shifting away from equities into fixed income as a person ages. That’s not a formula for those needing to play catch-up.

“I am alerting the world that you cannot get there on a zero percent portfolio. You have to move into equities,” he says. “Not bonds. They are not going to get you there.”

In other words, late starters need to take a certain amount of risk in their portfolios. But advisors tend to agree: While investment strategy is a crucial component, developing a savings plan is the first step.

John Benedict sums it up: “It’s not a function of how much you make, but how much you save. Start very simply, sock away as much money as you can. Once you get enough money saved up, let’s discuss something a little bit more savvy, whatever that strategy may be.”