Would a Victory Lap Career Work for You?
Rob Morrison of Huber Financial says a retirement plan that takes more of a glide path approach can work for some if it is well planned.
Christine Benz: Hi, I'm Christine Benz for Morningstar.com. Should retirement be a full stop or a more gradual transition? Joining me to discuss the gradual approach is Rob Morrison. He is president of Huber Financial in the Chicago area.
Rob, thank you so much for being here.
Rob Morrison: Thanks for having me.
Benz: You have been talking and writing about this victory lap concept, but I want to just start with the financial piece of retirement readiness. I imagine you have a lot of clients coming to you these days asking, am I ready to retire, because they are looking at their enlarged portfolio balances. What are the key factors that you walk them through when you think about the financial aspect of retirement readiness?
Morrison: I think, the obvious go-to things are sources of income in retirement, so Social Security, pensions, obviously the asset levels, what their …
Benz: Portfolio balances.
Morrison: Yeah. What their spending is going to be in retirement, and of course, what the expectation is on the rate of return.
Benz: Looking at balances today, people have enjoyed a really good run recently or really for 8-plus years now. What do you think about market returns going forward and what sort of assumptions do you embed when you are thinking about client plans over the next, say, decade or even two decades?
Morrison: I think we continue to tamp down return expectations, especially after a year like this year where you say going forward can we continue to earn at this level. We've been adjusting our return assumptions pretty regularly over the last few years. What used to be maybe a high-single-digit return in retirement, you might now look at mid- or even low-single-digit depending on the client.
Benz: Let's talk about this victory lap concept. It was something that evolved for you after your years of working with clients. You wrote about an experience that you had with a client who had retired after years of working very hard and then shortly thereafter encountered a serious health issue. Let's talk about what sort of experiences prompted this victory lap concept for you.
Morrison: I think we all have grown up as planners thinking about the 30-year, two-person retirement, but we are making a lot of bets there about our health and longevity. What we see a lot is people where either they have to sacrifice their health or a spouse or they are caring for a parent. The desire to maybe start the process sooner and think about how could I gain some measure of independence sooner than, say, 65.
Benz: What do you mean by that? Do you mean sort of a hybrid, continuing to work and also being semiretired? How does that work in practice?
Morrison: I think about it like, if you think of traditional retirement, like a cliff, a hard stop, right? I go from complete work to complete not work. This is more of a glide path, a transition where perhaps I go out on my own. We see lots of clients transitioning into consulting, maybe teaching, doing board work, things like that where they can work more on their own terms. Maybe it's three days a week, maybe they are working remotely. They have more control, as a result, they have more flexibility and ultimately, balance in their lives.
Benz: Let's talk about the financial piece of that. If you are talking to clients and maybe it's a 55-year-old and you are encouraging them to maybe think broadly about what the next several decades will look like for them, how do you walk them through some of the financial trade-offs that they should be considering if maybe they are going to pull back on the full-time, hardcore job and pursue something that they find more beneficial?
Morrison: Well, it won't surprise you as a planner that it comes back to getting your financial house in order. We need to understand what's going to be required in terms of income and savings and can we get a glide path-type of approach. The individual has to take a lot of time to look at this and see what are their real options. Can they earn a reasonable income? We certainly don't want people to step into this lightly. It starts with the financial planning analysis, usually running a multitude of scenarios and saying, OK, let's try this on. What if you had 50% of your former income, how would that look, and would you be willing and interested in working more years perhaps at that level.
Benz: You shared with me an example of a client who was trying to weigh two jobs, one a higher-paying job, one that was less remunerative but more fulfilling. Let's talk about how you walk the client through that analysis.
Morrison: We typically do a side-by-side, and one of the things we see is that the last, say, five years or so of work, the amount of dollars that I add to my portfolio don't have as much impact obviously as when I did early in my career. I don't get that compounding.
Benz: And you get less benefit from the tax breaks that you might get as well?
Morrison: That's right. We want to look at it from both perspectives and see, again, it's a feasibility study and trying this on and saying, can they make this happen.
Benz: Let's talk about the financial risks that could come into play. One, I think that people should be thinking about is, what are they going to do to cover healthcare costs. So, say, they are not yet Medicare eligible and the position that they are considering doesn't provide healthcare, that's a big risk factor, right?
Morrison: That is. In fact, I'd say that's probably the number-one reason people stay with the corporate job is that's such a big bogey for most of us. If there's uncertainty, I may not have a good choice there to step off of that. A lot of times if there's an option with the company to stay full time but reduce hours, maybe there is an option to keep the benefits. Or if your spouse has health insurance options, you are both working, you can slide that way. This needs to definitely be well thought out in advance, because there are some risks. It's a very entrepreneurial type of move, and some people, either their occupation doesn't lend itself well to doing partial work, or they are just not the personality type. If you are the type of individual that needs that paycheck every couple of weeks and needs that so-called security, then it may or may not be a good fit.
Benz: Are there any other risks in terms of being able to find the right sort of victory lap career? Any other things that people should be thinking through?
Morrison: I think what I have seen people that do it successfully, there's kind of two key things they are doing. One is putting the time in. As busy as most folks are, this falls to the bottom of the to-do list often.
Benz: To find that second career phase.
Morrison: And it's probably going to take three to five years to figure it out. You've got to do it well in advance. If you just got the pink slip and you've been furloughed, that's probably not the right time to do it. It needs to be a thoughtful process where you are examining your options. Talking to lots of people, that's the second key. Discussing with other people who have gone and done this before, building your team. I think everybody needs a support team, coaches, people that they are going to outsource various elements if they are going to into business for themselves, mentors, all of those types of things. That takes a little bit of time to put together.
Benz: We are not just talking about sort of the age 55 to 65 period here. You are also talking about potentially some of these victory lap careers could carry someone further into their lives.
Morrison: My father was probably my first example of this. Back in the 80s, if you recall, the airline industry going through tremendous consolidation. He elected back then to go off on his own and start consulting. I think his last contract is finalizing at the end of this year. He ended up going very long because again he enjoyed it. He was well-compensated. There were lots of other social benefits, professional benefits. He got to maintain a lot of relationships. Finding that right fit, I think there is a real possibility you are creating a long-term, almost personal pension in this residual income, and why not keep doing it, if you are having fun doing it?
Benz: Do you have any other tips for people who might be considering this sort of victory lap idea?
Morrison: Sure. We have seen a number of things that people do that I think are best practices. First of all, if there was an opportunity to test track your idea, meaning--and do this in coordination with your employer--try it out. I have a friend who decided to get into teaching and his employer agreed to allow him to teach some night classes. He did that as a way to try this on and make sure that it was a fit before he made the move.
The other thing is, if you are going into contract or consulting work, getting that first committed anchor client, that's a big shift in order to know that you can pay the bills and begin to replace your income. Building that anchor client first and then making the move.
I guess, lastly, I would say, while there are a lot of people that probably will elect not to make this kind of move and there are risks to it, I'm reminded of a friend of mine who worked at a big corporation, and he said he walked into a leadership meeting one day and he looked around, there was no one with gray hair. He realized I'm going away. I think we all need to be aware of that and if nothing else is a sort of career insurance policy, have a backup plan that will work in the event that we get shown the door earlier that we'd like, it will make that transition smoother.
Benz: Rob, thank you so much for being here to discuss the victory lap concept.
Morrison: Thanks for having me.
Benz: Thanks for watching. I'm Christine Benz for Morningstar.com.