David Kramer, owner of Retirement Wealth & Tax Advisors in Pleasant Hill, Calif., was reviewing a client's balance sheets during a routine update meeting when they both realized something: The client had accumulated a net worth of about $4 million, so he and his wife didn't need to continue building wealth for the lifestyle they wanted. The couple could stop working and retire comfortably for the rest of their lives, if they wished. They had reached the client's paradise - and a financial planner's, for that matter.
Except it didn't last. Shortly after, the husband rejected retirement and decided to change careers.
The husband, 67, is a physician who had been running a non- profit research foundation. He had built its new headquarters, expanded its programs and recruited research scientists during his tenure, Kramer says. He loved the administrative aspect of his work, but his true passion lay in the applied scientific research that underpinned all of it, and that is how he wanted to spend his time going forward.
The change was somewhat expected, especially because the husband was never interested in going into full retirement immediately, Kramer says. That's true for a lot of his other clients, typically the ones with households with between $1 million and $5 million in investable assets.
"There is a growing gravitation toward a two-tiered retirement process," Kramer says. "Instead of in the past dropping everything and stopping work, it has been more of a tendency for a pullback stage, where the client will continue to work in some manner, but not at the same pace as before." Frequently, those clients don't end up working in the same career as before, either.
Career changes are common for older Americans, according to statistics from the AARP Public Policy Institute. In a 2009 study, Older Workers on the Move: Recareering in Later Life, AARP found that more than 80% of 51- to 55-year-olds working full- time in 1992 had left their employers by 1996. Half of the workers had taken positions with new employers by 2006. Almost 66% of those older workers who changed jobs had switched occupations, according to the study.
Mature American workers switch jobs and careers in their peak years for various reasons, whether they are seeking more personal fulfillment or need to rebound after a layoff. Planning each client's career transition will involve different fine details, depending on an advisor's practice. Broadly speaking, however, there are four critical steps to follow, according to planners with experience helping clients change careers.
STEP ONE: DEFINING VALUES
Mapping out and fulfilling a client's financial life plan is a complex undertaking, even in times of long-term income stability. Creating a financial plan on a shifting revenue foundation requires even more meticulous maneuvering, Kramer believes.
Indeed, the AARP study found that layoffs or failed businesses force 30% of late-in-life career changes. Also, by 2006, 40% of adults between 51 and 55 who were employed full-time lost their jobs because of a layoff or shuttered business. When they find new employment, older workers earn less. The median wage of older career changers fell by 57% for those who had been laid off, and 5% for those who left their jobs.
A detailed conversation about a client's core personal values is a critical component of the first step, as is basic fact-finding. Money is simply the dispassionate enabler of what is most meaningful to clients. What do they care about? What are their leisure activities and hobbies? To what degree do they want to help children and grandchildren?
"That can be the subject of a fairly detailed conversation," Kramer says. "Some financial plans might focus on just the numbers, but we see ourselves as life planners."
Once the values have been established, planners do a balance sheet analysis of all the clients' assets and expected income, including Social Security benefits. The planner also needs to figure out how much monthly income a client needs to support his or her lifestyle during the transition and after, according to Kramer.
STEP TWO: GET ORGANIZED
Once a client and planner hammer out the critical values and financial considerations, Kramer says the information needs to be organized in a clear way. This creates a framework where clients can make critical decisions, without being paternalistic, he explains. Sometimes, the planning for career changes and retirement intersect. The idea is to develop a preliminary retirement scenario for clients to consider. During this step, planners ensure that the clients have enough assets to accomplish their objectives.
If Kramer is working with a couple who are close in age, he will run projections through age 95. Actuarial statistics predict that with couples where both are 65, there is a 50/50 chance that one or both will live to 92, Kramer says. If the financial projection falls short, then there needs to be a discussion about what trade-offs clients need to make in order to meet lifestyle objectives.
Depending on the projections from step two, the outcomes diverge. "In many cases we can say, 'Good news. You have enough. Let's go,' " Kramer says. If income projections fall short of what clients will need to lead their ideal lifestyle, however, they might have to work longer or change investment strategies, he explains.
STEP THREE: MANAGE MONEY
Once a client has put all of the information in perspective and decided what to do, a planner can start making choices. He or she must decide which vehicles - investments, trusts or insurance policies - should be used to provide cash for a client's everyday living expenses.
Then, Kramer says, he goes shopping for money managers or money-management programs. The managers carry out his marching orders according to the clients' wishes and set up income distribution, depending on how much a client needs every month. Morningstar, for instance, has a money-management division that offers several different portfolios based on a client's risk tolerance. The money manager selects the investments and does the rebalancing.
STEP FOUR: FOLLOW-UP
About three or four months after income distribution begins, Kramer's firm schedules a follow-up appointment to see if a client has questions or new concerns.
"By that time, they would have started to receive the checks and would have been living under the new system for a while," Kramer says. "So we'd check in to see how it's going."
When clients are switching fields entirely, a planner can sometimes act like a career planner, too, says Bryan Lee, founder and owner of Strategic Financial Planning, in Plano, Texas. One of Lee's clients, a married man in his early 60s, was a California-based technology consultant for more than 20 years.
He used to write software for companies that made satellite and cable television equipment. As the stagnant economy slowed payments from some of his customers, his business' revenue flow began to dry up.
The client had moved to Texas from California because he was worried about the pending fallout of a real estate market collapse. He also thought Texas, with fewer spending initiatives, had a more business-friendly environment. Yet after the client arrived, his consulting business did not take off, so he started a long process of exploring alternate ventures.
Lee encouraged his client to tie the new business to something he was passionate about, so now they are exploring how that client might invest in a gun range. His client became an instructor for people seeking handgun licenses, and came up with that idea after noticing that he had problems finding ranges where he could shoot. Sometimes, he would have to drive 25 minutes to get to a range.
As time went on, he started looking for suitable property for a range. Indoor ranges were better for handguns and shotguns, and he wanted to ensure that no other similar businesses were nearby.
Meanwhile, Lee had to help the client and his wife figure out how to maintain a comfortable lifestyle while he researched the gun ranges. They assembled cash flow from a taxable brokerage account, the client's wife's Social Security income and her part-time job.
Recently, Lee's client made contact with another entrepreneur who had filed paperwork to open a gun range in an area he was eyeing. He was considering whether to invest in the range with that man.
Mature workers are sometimes forced into career changes because of layoffs, and the job market hits some of them particularly hard, says Paul Ewing, president of Prosperity Advisory Group in Overland Park, Kan. In those cases, a planner is thrust into the role of a counselor. Ewing works with an organization called New Landings, a Kansas City-area job and networking club for professionals.
Citing statistics from a number of placement firms, Ewing says it takes an average of one month to replace every $10,000 in gross pay from a lost job. A professional who lost a $100,000-a-year job, therefore, might be looking for at least 10 months before finding an equivalent position to replace it.
When people have been out of work for six months, or even six quarters, they can experience a gripping helplessness that could influence investment decisions, Ewing says. It is important that clients resist letting immediate-term circumstances cloud their long-term judgments.
When clients who have been laid off come into his office, Ewing says, he tells them it is a judgment-free zone. "We tell them, 'We recognize that this does not define you or who you are. We're not here to judge you. We're here to help,' " Ewing says.
The first thing he tells his clients is how long it might take them to replace the lost income. After allowing that to sink in, they will weigh the risks and rewards of finding another job or starting a business.
SINK OR SWIM
Ewing worked with one client who was laid off from his executive position in correspondent banking. He had several employment prospects, however. After the client lost the job, he used his experience and industry contacts to do consulting work on troubled assets. When that work dried up, the client started an epoxy flooring business for garages, Ewing says.
Although the client landed another correspondent banking position, he held on to the epoxy flooring business, hiring workers to do the labor while managing the books on the weekends. The client cherishes the security of that small business.
Certainly, the correspondent banker's experience was comparatively unusual. A mere one-third of laid-off mature workers will be able to get new jobs that equal the ones they lost in pay and benefits, Ewing says. "About 53% will go on to start their own businesses and either struggle at it, or be more successful than they ever were."
Whatever the outcome of mature workers' situations, Ewing says he admires the resiliency he sees in the correspondent banker and other clients who have handled layoffs particularly well. Sometimes an extended job loss forces a client to rethink his or her life.
Some clients commit to losing weight and taking better care of their health, all in the name of looking and feeling competitive in the job market. They also spend time staying socially connected.
"If you go on the other side, feeling hopeless, feeling depressed, that is a pretty desperate spiral," Ewing says. Trying a new career instead "keeps them out of that spiral."
Donna Mitchell is a senior editor at Financial Planning.