As the Covid pandemic deepened in 2020, many late-career employees decided they had simply had enough. Their shift to working from home and mastering new virtual technologies—and their growing sense of isolation from the workplace—led millions of Americans to retire en masse.
Yet seemingly overnight, the factors behind decisions to leave the workforce have changed: Inflation has emerged as a potential long-term challenge, diminishing the buying power of retirement nest eggs. Stock markets are no longer pumping up those nest eggs as the major indices tumble from recent peaks. And savings built up during the pandemic are quickly receding. The personal savings rate, which is the amount of income a household saves each month, soared to 34% in April 2020, but has been steadily declining, to around 6.5% this past winter.
In a survey completed by online research firm Momentive this past winter, only 21% of adults said their finances were better off than a year ago. And nearly 90% of respondents said they were at least “somewhat concerned” about inflation, according to the New York Times.
With finances no longer looking quite as solid as they were just a year or two ago, many people are rethinking their choices, contemplating how they might re-enter the workforce. Ric Edelman, co-founder of Edelman Financial Engines, one of the nation’s largest RIA firms, suggests that many people merely embarked on a “premature sabbatical.”
Just as advisors helped clients assess the merits and challenges of an early retirement, we’re now being called on to help sort out clients’ options as résumés get dusted off and a fresh job hunt ensues.
Sam Englander, a client of mine who worked for the human resources department of a Fortune 500 tech company for 16½ years, has had a challenging job search, despite his impressive résumé. “I’m finding that there can be a gap between my past salary levels and experience and what I am seeing out there in the job market,” he says. Moreover, younger potential hires “may have exposure to the latest technologies and skills.”
As anyone who has been out of work for an extended stretch can attest, staying focused and positive is a core challenge. Sam says he has “maintained a pattern and rhythm that keeps me busy and engaged.” What he misses most is “the opportunity to interact with colleagues on a daily basis,” he says.
For this period of unemployment for people like Sam, “this is a time to recalibrate your goals and needs,” says Jim Emanuel, an advisor at the Society for Human Resource Management (SHRM). “Do you need to earn the same income as you did before?” he asks. A willingness to take a pay cut may open the door to more job offers.
While Sam has concerns that he’s “overqualified” for many job openings he sees, Emanuel says Sam should “leverage his stability, proven longevity and commitment.” These are traits that younger “job hoppers” can’t always demonstrate. (Incidentally, the word “overqualified” is no longer much in use, as it is seen as a form of age discrimination.)
Emanuel stresses that people should use the time between jobs productively—by volunteering, taking courses, getting certifications or freelancing. “This approach will keep you busy and help provide valuable talking points when you meet with a recruiter or hiring manager,” he says.
Those on extended job searches (like Sam) are likely becoming concerned about the “gaps” in their résumés since their last jobs ended. While that stigma was a clear problem in the past, attitudes are changing. A survey by employment site Monster in late 2020 found that 49% of U.S. recruiters believed résumé gaps had become more acceptable and were no longer just red flags. That’s especially the case in the current job market, where more than 11 million open jobs remain unfilled.
“Having an employment gap isn’t a deal-breaker,” notes Emanuel. “But if you let it interfere with your mindset and self-confidence, it could prevent you from landing the job. Focus on highlighting your accomplishments and the valuable skills you bring to the table.”
What’s Driving You?
Amy Ouellette, vice president of product at Vestwell, a savings and investment platform, says that clients need to better understand the emotions driving their decisions. When many people left their jobs during the past few years, “they were running away from a lifestyle that no longer worked for them.” Yet before these same people reverse course, she suggests they consider “what are they running to?” Presumably, it’s a job or lifestyle that’s different from what they had before.
Let’s get back to that notion of the “sabbatical” cited by Edelman. Ouellette calls it a “gap year,” which can be a useful time to gear down from a heavy load of responsibilities and ponder future outcomes. This chance to step away and reconnect with your values can take many months to work through and can help you “visualize how you’ll spend your time and see if you can move towards what you really want to do,” says Ouellette. Oftentimes, that may mean a different vocation than you had before.
Jim McDonald, a client of mine who worked three decades at a national telecom company, needed the help of a financial planner to determine whether he could leave a six-figure job and start working as a substance abuse counselor.
Despite taking a sharp pay cut, Jim tells me, “I’ve never been happier. In 31 years, I never talked about my job with my wife after work,” he says. “Now, we talk every night about how my day went.” He adds, “I wouldn’t have had the courage and clarity to make such a big leap if I hadn’t worked through my choices with a financial planner.”
The Halfway Choice
For many clients, the binary path of full-time work or full retirement isn’t ideal. Instead, a shift toward part time may be ideal for people leaving a job or those looking to re-enter the workforce. For those still working but contemplating a change, a “phased retirement” may be ideal. This allows clients to cut back on their hours while keeping some pay and benefits. The pandemic has ushered in a new era of more flexible work arrangements, and employers may be thrilled to hear that your clients can still contribute to the team, perhaps training successors to gradually learn the ropes before they fully retire.
According to a survey completed by consultant Mercer LLC, nearly 40% of large employers now offer some form of phased retirement, up from around 17% before the pandemic. Those workers most likely to be offered a phase-out will be those with specialized or hard-to-replace skills.
For those clients now out of work and looking for a job, it may be helpful to take on projects or contract work, “which enables the employer and employee to do a ‘test drive’ to see if they are a good fit for each other,” says Emanuel. Oftentimes, “this can lead to a more permanent part-time arrangement,” he adds.
Also, people could always take their career and income into their own hands, launching businesses that provide flexible work hours and still-reasonable levels of income. Many are doing just that. The Economic Innovation Group notes that 5.4 million new business applications were filed in 2021, around one million more filings than in 2020.
There is a growing array of websites that connect employers and those seeking short-term projects. LinkedIn, for example, has a new feature that targets self-employed people in fields such as marketing, design, engineering and video editing.
Some advisors seek out retirement coaches to help, through organizations such as the Retirement Coaches Association, which offers the Certified Professional Retirement Coach designation.
The important point is that advisors can play a very powerful role in helping their clients navigate crucial decisions about when to retire and the financial implications of such moves.
David Sterman is a financial advisor and freelance writer in New Paltz, N.Y.