This is the time of year when I annually confer with my financial adviser. As I drove to meet him in his office a couple weeks ago, I had reason to expect we’d both be in jovial moods. The stock market’s performance over the past year has been stellar, after all, and my account has tallied corresponding gains.
But as we talked, I was quickly reacquainted with reality. His role is not to be jovial or complacent. A big part of his role, as far as I can discern, is to remind me to stay on the straight and narrow with my financial goals. So after noting I’ve done a good job accumulating a nest egg, he figuratively splashed ice water in my face. “Consider what would happen if you had to retire today on what you’ve got,” he noted with admirable sternness. “You wouldn’t be living very lavishly.”
Ouch. That hurt. But then, what could I have expected him to say? “You’ve got a nice chunk of change there, so withdraw all of it, jet off to Monte Carlo and bet it all on black at the glittering casino’s spinning roulette wheel”?
From bad to worst
The advice I’ve garnered from my adviser since Day One has been along the same strict, flinty and severe lines. All words of wisdom are geared to reminding me of the worst-case scenario, and enabling me to ride out such a circumstance.
Disability insurance, long-term-care insurance, powers of attorney for health care and finances and a complete estate plan have all been advanced. And those have merely been the warm-up acts for the headliner, a disciplined, tax-advantaged retirement savings plan. That’s what a financial adviser is for.
But most Americans don’t have financial advisers. And that may be part of the reason many dwell on too rosy a vision of the future instead of a more realistic view, the kind that usually leads to more conscientious money management.
Want an example? I happen to have one right here. Thirty years ago I worked down the hall at an advertising agency from a petite young art director. Then in her late 20s, she was all about capturing creative awards and blowing her pay at as many dazzling new nightspots as she could fit into her schedule.
She wasn’t the type to dwell much on preparing for her financial future. Why should she? She was young, talented, had a track record of success, and could assume many facets of the classic American Dream would be hers in time.
Eventually, she honed a bit of financial discipline, landed a high-yield savings account and a few of the best credit cards and started banking some savings. Over time, her cash reserves surged into the low six-figure range, and she bought a condo. But by then, she was in her 40s, and the advertising industry isn’t always kind to those who’ve piled up birthdays. She lost her job.
She was able to freelance for a while, which kept her nest egg from being pared too severely. But then the freelance dried up. So she invested in courses to become a pastry chef. That turned out to be not nearly as lucrative as ad work, and the job security was just as dicey. She lost her job, or quit, and went back to freelance art direction. That proved as elusive as before.
Today, as she hurtles headlong toward 60, her savings are gone, as are her prospects of landing another advertising job. She works part-time in food service for near minimum wage, for a boss about the same age as she was when first I met her. It also looks like she will have to sell her home. The future? I hear she may move back to her East Coast hometown and settle in with her surviving parent at the old house she grew up in, before she embarked on a 40-year journey of discovery only to find that worst-case scenarios can actually occur.
Not enough dough
It’s a story as sad as it is true, but it’s hardly unique. I’ve heard a number of tales that followed similar plot lines. Starring in all of them were people who were once young, earning the kind of large salaries youth-oriented employers bestow and anticipating bright futures. Today, they are old or nearly so, and have no money. The years when they could have really built savings are behind them. All of them were folks who, like my ex-colleague the would-be pastry chef, used too much sugar and not enough dough in their flaky recipes for the future.
So what I’m urging is that if you’re just starting out in a career, forget about silver linings and start assembling what I call a “worst-case scenario playbook.” Here are some questions to ponder as you create that book.
- Will Social Security and Medicare exist when you are eligible for them?
- Will the taxes you face become larger, to fund spending on the large voting bloc of Boomers?
- Will climate change’s impact on aging infrastructure hike your taxes?
- What will swift technological change do to your job security?
- Are you sure you won’t be supporting your parents in their old age?
- Are you sure you won’t be supporting your children in their 20s and 30s?
- What if your child is a special-needs child?
- Are you covered in case of a medical crisis?
- If you don’t marry, how will that affect your finances?
- If you do marry and end up divorced, how will that affect your finances?
I’m not suggesting young folks become depressed about the future. By all means hope for blue skies. But plan for grey and overcast heavens, with a chance of a couple funnel clouds emerging and possibly even touching down.
When it comes to the size of your late-life finances, spending your career anticipating the worst can actually be for the best.