Late savers

What to do when the new client is over 40

A new client comes into the office. Not young, not even in their 30s. The new client is a 40-something with no retirement savings. They woke up in the middle of the night in an anxious sweat. They waited too long to start saving—and now they’re darkening your door.

What do you tell them? Are they screwed? Is this person destined to be eating cat food in retirement?

The answer is an unequivocal yes. At least according to Robert Stammers, director of investor education at CFA Institute, “The answer is yes, there is still enough time.”
That is, forty is getting late in the game. But it’s never too late to start saving. There are, however, some ideas to keep in mind.

“The person, who is in their ‘40s, really has to build fiscal discipline. They need to maximize efficiency. They have to increase savings and account for where it is every dollar is going. You have to put away as much as you can. You need to begin tracking household budgets, expenses. I can’t how many people I meet—even people with lots of money—who have no idea where it all goes. Many people are leaking money,” says Stammers.

The first thing to do is create an emergency fund. “When people get in trouble they tend to go to retirement money. But you want to avoid fees and taxes associated with taking money out of retirement fund. You can’t rely on those funds. Once you’ve put money in there, you can’t take it back out. You’ve got to avoid taking paying those fees and taxes,” says Stammers.
If this sounds like a real cut in the lifestyle, keep in mind, it is important for someone just beginning to save and invest to maintain a certain lifestyle they are comfortable with. Sudden, attempted, forced austerity will make it hard to save. So it is important to get a certain basic, acceptable, lifestyle in place. “Once you do that, you can put any bonus money or any raises from work into savings,” says Stammers. “Many people, when they make more money, keep buying bigger houses and spending more. It is important to set income and lifestyle at some point and then live on that.”
As well, don’t expect the market to bail you out. “Hopefully it’s going to help. And if you’ve started young, that’s a good assumption. But as you get older, there is going to be less return from markets. It will be more about the amount of money you are able to put away. It’s more about knowing what you make, and being efficient in terms of savings,” says Stammers.
That is, your client isn’t doomed if they only start saving in their ‘40s. But that client does represent a unique case. Stammers offered up his comments as part of a CFA Institute effort to promote its Future of Finance project. The FoF project represents an effort to inject values into the business of finance, retirement and wealth management. As part of that effort the company has released a new document, Essentials of a More Stable Retirement,” found here,
Stammers offers up these suggestions for helping a 40-something ‘late saver’:
  • Good news, there is time to catch up. If you’re behind in the savings race, you have a lot of ground to make up; but starting today is better than not starting at all.
  • Understand your saving options and how you can make the most of them. There are lots of financial tools to help you reach your saving goals, RRSP, TFSA, work-place pensions etc.; with less time to save you will need to maximize your savings options.
  • You can't reach your financial goals if you don't know what they are. Think about what you want to do in retirement and how you will afford it?
  • Create a fiscal discipline. Analyze your current lifestyle. What have you be spending your money on until now? Where can you cut back?
  • Get some financial help.   If you have waited this late in the game in order to start saving it’s likely that you will need some help from a trusted advisor.