PLANADVISER - September/October 2020 - 39

example, " she says. " Put it into context for people. "
A good starting point is to help the client plan to become
debt-free. " That's where a budget worksheet comes in, "
Isabelle says. " It lets them analyze whether they have money
they can use to pay off debt or save. " Also talk about the individual's
mortgage debt, if he has one, and help him budget to
pay it off while still working, she says.
Part of the discussion should also be about having emergency
savings so the person need not take drastic actions if a
major expense crops up, Isabelle adds.
Another " first thing " a late starter should do is take a financial
inventory, says Ryan Marshall, a partner at Ela Financial
Group, a Cetera-affiliated firm in Wyckoff, New Jersey. What
assets do they have? What assets might they have in the
future? What liabilities do they have? What liabilities can be
paid off before retirement? They also should determine how
they want to live in retirement.
According to Marshall, if you show someone with credit
card debt where they stand financially and where they will
stand at retirement age if they fail to make lifestyle changes
now, it frightens them and can prompt a change.
Start Saving in the Employer Plan
" Part of taking inventory is identifying whether they are
offered a DC [defined contribution] plan by their employer, "
Marshall says. " They need to know the employer match limit
and save up to that. They may have questions about whether
to save on a pre-tax or Roth basis. " Even if a Roth option makes
less sense for late savers, the firm still models for them the
outcomes of both that and pre-tax options.
Starting with their employer plan is easiest, he notes,
because the savings comes out of their paycheck before the
rest goes into their bank account. " Much of this is behavioral
more than anything else, " he says.
The reality, of course, is that individuals getting a late
start will have to save more now than if they had started
earlier, Isabelle says. " Talk to them about tucking away as
much as they can, taking advantage of statutory limits and
catch-up contributions, " she advises.
There is always a risk that individuals will feel they need
to invest aggressively in order to catch up, she observes, and
they should be reminded that they can no longer invest like
they could in their 20s. " While it's tempting, especially when
the markets are doing well, they can't take on the same risk. "
To encourage all late-starting employees to save, advisers
can work with the plan sponsor to create targeted messaging,
she says. " Sponsors and recordkeepers can use plan data to
identify what targeted education is needed and for whom, "
she says. Data that can be leveraged include plan demographics
such as department, role, salary grade, age-uncovering
where participation might be low, where deferral rates
might be low, where extra attention might be needed.
Distribution Planning Is Just as Important
Having different types of accounts is a powerful tool in a
person's distribution strategy, Milan says. For example, for
a distribution from a brokerage account, a person is taxed
on capital gains, which is less than ordinary income tax.
So, a person in the distribution phase may pay 22% or 25%
for distributions from his DC plan, but only 15% on capital
gains for a distribution from a taxable brokerage account.
" This means he will need to take out less from the brokerage
account to reach his monthly or yearly income goal, " Milan
says. " Blending those two together allows for a lower gross
income distribution. "
He adds that people rarely think about manipulating
assets for distributions-usually they focus on accumulation-but
distribution planning can be just as useful as
accumulating more dollars.
Likewise, attempting to reduce long-term asset requirements
can help someone who got a late start saving for
retirement. " Specifically, people can focus on health care and
long-term care, " Milan says. " The risk of long-term care in
financial planning can be extremely onerous. " He says people
who use long-term care asset strategies to eliminate that
potential asset requirement will not have to save as much
for it or use savings to pay for it. " If you use $110,000 today
to cover a $300,000 future expense, it reduces the amount of
money you will need to have accumulated, " Milan says.
Employees can also strategize how they draw Social
Security; for example, the person who got a late start saving
may need to postpone filing until age 70. He may have to
retire at a later age than planned or retire from one job and
work part-time at another.
Still, advisers should remember that there are as many
visions for retirement as there are workers, and each will
require a different amount of savings, Marshall points out.
" Sometimes I don't agree when someone says, 'If I just put
'X' dollars away, I'll be good,' because everyone's goals are
different. Each person needs an independent plan for retirement
to help them save enough. "
" For people who are starting late, once they sit down and
talk through their situation, there's a huge sense of relief, "
Isabelle says. " The goal of any adviser is to help create peace
of mind. " -Rebecca Moore
OTHER PLACES TO SAVE
If an individual is not offered an employer plan, the two
main savings vehicles are individual retirement accounts
(IRAs) and Roth IRAs, says Ryan Marshall of Ela Financial
Group. Saving into one type of account alone probably
will be insufficient, he says, so the individual may also
need to open a brokerage account or other type of
investment vehicle.
A further strategy is using real estate, suggests Daniel
Milan of Cornerstone Financial. " It's a niche market of
ours, working with real estate investors, " he says. " This
year specifically, we've seen many individuals who have
accumulated a lot of additional value in personal real
estate refinance and take the cash from their equity and
divert it to their investment portfolio. " -RM
planadviser.com September-October 2020 | 39
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