One of the most common nightmares people suffer is the one in which they’re back in high school and haven’t studied for an exam. But adulthood brings a much more frightening thing to be unprepared for: retirement. For some people nearing the end of their time in the workforce, it’s a waking nightmare.
People caught in this predicament sometimes respond with a strategy known as “hurry-up offense” retirement. What this entails is scrambling like mad in the 11th hour to find something to live on. It’s a less-than-ideal situation, but sometimes a well-maintained nest egg resulting from shrewd planning simply doesn’t exist.
“The typical ‘hurry-up’ strategy involves savings, reducing debt, and investing in higher volatile investments to catch up,” says Buff Dormeier, a financial adviser and portfolio manager with Wells Fargo Advisors. He says the wisest investment strategy involves investing in stocks that pay dividends.
“Unlike with bonds, an investor can expect not only growth in capital but also growth in income through rising dividends,” Dormeier says. “When stocks go down temporarily, the dividend yield typically goes up. However, over time, as stocks appreciate, typically the dividend yield stays the same.”
Paul Essner, a partner at The Signature Group of Companies, offers his own advice to the fretful near-retiree — weigh the consequences of breaking into savings or investments.
“Some savings programs, including annuities, have surrender charges for the first several years of the program. A surrender of the annuity could trigger an unexpected charge to the account, and a tax due.” Essner also warns against selling the beach house to create an instant nest egg. “If you have invested in a long term asset, like real estate, often it requires maturing before it can be sold for profit.”
While some advisers have good ideas about providing for retirement at the last minute, many more feel that there’s simply no substitute for financing retirement the old-fashioned way —by planning. Nick Olesen, a private wealth manager for the Philadelphia Group, is one of them. “Although [“hurry-up offense” retirement] may work for a handful of people, I don’t believe it is something that will work for most,” he says.
“I recommend that at least 15 years before an investor’s desired retirement age, they should sit down with an independent financial planner to get an unbiased analysis of where they stand in relation to their retirement goal,” he says. “From this, discuss possible ways to achieve the desired age and start taking action. Even if you saved into cash and earned nothing, over 15 years you could save $54,000 by saving $300 per month. Now imagine trying to save that in just a year or two like those who try the ‘hurry-up offense’ retirement. It just seems impractical and unnecessary.”