As published 6/26/14 in the
The Wall Street Journal:
The shifting jobs landscape, with higher-paying positions shrinking and low-wage work growing, is more than just a monthly set of statistics for many financial advisers.
Advisers are helping people directly affected by the change make adjustments in their lives and rework their plans for the future.
Often, working with a client in a job crisis involves “opening their eyes to something they didn’t think was possible,” says Patrick Deeg, vice president of investments at Marks Group Wealth Management in Minnetonka, Minn. It can create a deeper relationship than more standard advising and, ultimately, lead to strong referrals, he says.
One longtime client, a 58-year-old executive with Honeywell International Inc., was offered early retirement about a year ago, Mr. Deeg recalls. The man’s salary was about $850,000 a year, but for years he had talked about wanting to teach and spend more time with family.
Mr. Deeg, whose firm manages $335 million, assembled a team to review the client’s situation. It included an accountant, an estate-planning attorney and an insurance specialist, who together developed a plan that would enable the client to take the buyout and pursue his dreams.
The client then took a teaching job paying just $55,000. But it supplies health-care benefits and his plan is to keep working until he reaches full retirement age, when he’ll qualify for Medicare and start collecting Social Security.
Mr. Deeg recommended some changes in investments, including cashing in some Honeywell stock options that had vested, trimming his overall exposure to equities and funneling that money into fixed-income investments. “It was a lot of work to put a suitable plan in place,” says Mr. Deeg.
But when clients lose their jobs, the effects often linger and require both creativity and compromise.
Mo Vidwans of Vidwans Financial in Saline, Mich., has been working with a 52-year-old high-school math teacher who was laid off in the 2008-2009 recession. She then took on the care of her disabled mother, which was a full-time if unpaid job of its own for several years. After her mother died, she tried but couldn’t find new work.
By the time she sought help from Mr. Vidwans, who charges an hourly fee for advice, she was tapping her savings and considering dipping into her tax-deferred account, even though she’d have to pay a penalty.
She finally managed to find part-time work as a salesperson for a large retailer, with hours that change weekly. At Mr. Vidwans’s suggestion, she began tutoring students on a private basis, which brings in some extra money. In about nine months, she’ll inherit some money from her mother’s estate, which may enable her to drop the sales job and live off tutoring alone.
A key role for advisers in a job crisis is to help keep clients from overreacting, says Nancy Skeans, a partner at Schneider Downs Wealth Management Advisors. The Pittsburgh-based firm manages $971 million.
The shale-oil-and-gas boom has improved the economy in the area now, she says, but it was hit hard in 2008-2009, when many executives, including some of her clients, were laid off. One client lost his job as an accountant with a small manufacturing firm and, at 61, simply wanted to retire, but didn’t know if he could afford to. His wife wasn’t working.
“They were both scared when they came in,” says Ms. Skeans.
The worst knee-jerk move fearful clients can make–and one Ms. Skeans has seen over and over–is to tap into individual-retirement accounts without considering the tax consequences. In this case, the clients came to her first, and she ran tax projections before they touched any of their retirement funds.
She helped them rework their budget with an eye to
ward pinpointing savings. Clients can generally save by cutting back on vacations or entertainment expenses at least temporarily. Ms. Skeans says. They might, for example, cut their dining out to two times a week from four times a week, she says.
She looked at their retirement savings accounts, and trimmed their exposure to more risky stocks. That “was a tough decision–you limit their ability to grow, but if there’s a double dip recession, it could be bad,” she says.
The couple took some money out of their after-tax accounts and began taking distributions from their individual-retirement account after the market moved up in 2013.
“They’re happy as clams now,” says Ms. Skeans.
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This situations are hypothetical and based on real life examples. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investments or strategies may be appropriate for you, consult your financial advisor prior to investing. No strategy assures success or protects against loss. Marks Group Wealth Management and LPL do not provide legal or tax advice.