What Can Advisors Do When Clients Can’t Just Save More?

The more isn’t always the merrier.

Most people aren’t going to walk away from a raise. But there comes a point where higher earnings start to coincide with greater financial stress.

High earners report increased rates of delaying financial goals, worrying about retirement savings and struggling to pay off monthly credit card debt — trends that look surprisingly similar to those reported by lower earners, according to Goldman Sachs’ latest retirement survey. Some 42% of workers earning less than $100,000 and 36% of those earning more than $300,000 say they live paycheck to paycheck. Meanwhile, just 23% of those earning between $100,000 and $300,000 say the same, creating a U-shaped relationship between income and financial strain.

For advisors, that could mean looking beyond the traditional advice to simply cut spending and save more. Instead, there may be greater emphasis on how clients put the money they already have to work. “If workers’ saving ability is being constrained by a variety of forces, the answer among the industry cannot be continuing to tell people to figure out how to save more,” said Christopher Ceder, senior retirement strategist at Goldman.

Working Hard?

Day-to-day expenses, housing costs and debt payments are increasingly affecting clients’ ability to save, with two-thirds of Gen X, millennials and Gen Z expecting to delay retirement because of competing financial priorities.

Those pressures can also bleed into the workplace:

• More than half of respondents said financial concerns affect their focus at work.
• About a third said they’ve missed work because of money troubles, while roughly the same share said they’re likely to look for another job for financial reasons.

Financial Engineering. If clients — low or high earners — can’t simply save more, advisors can look at how their portfolios are positioned.

Greater access to private markets could give investors additional diversification and return opportunities, said Wyatt Lee, head of target-date strategies at T. Rowe Price. “If you’re just playing in the public markets, your opportunity set is limited,” he said. Private credit and private equity have historically generated excess returns relative to comparable public-market investments, he added.

Advisors also may want to steer clients away from becoming too conservative in retirement. “I don’t think we’re advocating that a 65-year-old should be having 100% of their portfolio in equities,” Lee said. “We’re recommending that they should still have a substantial exposure to equities, and they just shouldn’t be fully de-risked.”