CEOs of well-run firms get there because they’re good at taking care of companies. But they’re not always as adept at taking care of themselves.
Robert DeHollander, managing partner of DeHollander & Janse Financial Group of Greenville, said he sees it all the time: executive level men and women who poured so much creativity and energy into building career and company that they didn’t put much thought into a retirement plan and are not quite ready for a sudden decline of income.
“At the higher levels of management I’m still pretty stunned at the number of executives that we work with that walk in our front door that are just totally unprepared for retirement,” said DeHollander, a certified financial planner and accredited investment fiduciary. “This isn’t downward looking; this is direct at the management ranks who need to be making sure they’re ready to retire to something — i.e., a financially independent, fulfilling retirement at some point — not just from something.
“It’s the same old classic problem: that they’re spending so much time in the business that they don’t work on the business. But from a personal standpoint they’re not working on their own financial security.”
DeHollander said most executives are involved in some kind of work-sponsored formal retirement plan, and since they have done that much, there is a tendency to think it’s enough.
“They’re saving in the 401(k), they might have stock options, there are other programs available but I bet you could get less than 2 out of 10 people that could even tell you within 20% what their target number needs to be for liquid savings at the point they hit retirement,” he said. “You know the old saying, ‘Who cuts the barber’s hair?’ They spend so much time developing the organization and the employees underneath them that they don’t really look closely at their own personal financial situation.”
Part of the reason is they spend some of that time thinking about retirement for their employees, who may be even less prepared for life after a career.
“First of all, on a macro level we’re in a real retirement/savings crisis in the U.S.,” DeHollander said. “That’s a pretty big hot-button topic. Most of the business owners we work with target that from two angles. I think the primary benefit is they have kind of a stewardship mindset where they say, “Look, I don’t want my employees — especially my longer-term employees — be one of these statistics where they’re just not ready for retirement. The last numbers I saw were 41% of folks ages 55 to 64 — these aren’t even 20-year-olds — have nothing saved for retirement in America so they (executives) have a desire to provide for those folks.”
There are ancillary benefits for the employer, such as higher worker satisfaction, better retention and better performance, he said.
“That’s harder to quantify. Employees, in my experience, are going to be stressed out about something, anyway, but I do think that retirement piece is a big one,” DeHollander said. “And a lot of the retirement plans that we manage are bundled programs that they can use to be built in so it’s a service that’s available to take off the employer’s plate.”
Those programs for employees come with a lot of passive information and advice on preparing for the future, he said. Executives, meanwhile, are making more money and living a more expensive lifestyle. They may be prepared for a modest retirement, but not one that matches the life they intend to live after the paychecks are turned off.
“So the first step would be, do you have a target time frame for retirement and if you do, have you run numbers to determine if you have enough savings in place, and other passive sources of income, to provide — and these two elements are key — inflation-adjusted after-tax income to maintain your desired standard of living?” he said. “The ability to really rigorously measure what it’s going to look like in the future after taxes and inflation adjusted, we think, is really important.”
DeHollander said his clients often don’t start thinking about their post-retirement style of life until a couple of years before they expect to stop working.
“If you put as much energy and creativity and thought into how you’re going to spend the next 20 years of your life as you did building this career, that’s what you need,” he said. “We want clients that are thoughtful about that — retiring to something, not from something.”
There’s no magic number for what is needed because everyone’s needs are different, he said. A homebody will need less than someone intent on traveling the world, for example. But DeHollander puts the cost of life after retirement for most people at about $6,500 a month, at least.
“I’m convinced just the average, middle class standard of living, assuming you’re debt free — you’re not carrying a Lexus lease or a mortgage on a big executive home — is between $6,000 and $7,000 a month. That includes a little bit of travel, that includes food on the table, that includes spoiling the grandkids a little.”
Bottom line advice from DeHollander: set that initial target now, while the money is still flowing.
“Executives, the analogy I use is they’re like great athletes because they earn so much money that they don’t have to operate on a budget and so their earnings outpace what their needs are. If you’re making $150,000, $250,000, or $300,000 a year, you don’t really need to run a grocery budget. You turn that income off and all of a sudden it’s like a great athlete that’s gone deep in a career and didn’t have to worry about the fundamentals but now they’ve slowed down a step and need to worry about the fundamentals again.”