When Financial Blows Make Clients Feel They Can’t Save

Divorce, and other financial blows, can mean a sticky conversation for advisers when clients say they just can’t save for retirement.

It’s common for people to feel squeezed during or after a divorce, says Adam Nugent, president of Foresight Wealth Management. They can be facing child support and alimony payments, and possibly they have lost half their assets, or half the household income, through a split. But the feeling of loss is a perception, he tells PLANADVISER. It’s a more visible bill to pay, but the same money was spent before the divorce, and likely in similar ways.

Nugent says there are ways to keep saving for retirement when finances change. “Analyze spending in other areas to see if they can save for retirement,” he says. “A lot of times, you can go through an analysis of everyone’s finances and find that there is money to save.”

People often have memberships to gyms that aren’t being used. Common places to cut back are phone bills, going to restaurants and the daily Starbucks habit, which can be as much as $6 or $7 a day, Nugent says.

Advisers can help individuals take a hard look at their budgets to trim the fat. “We can make recommendations on saving on car or home insurance or refinance a mortgage,” Nugent says, noting that sometimes he runs through the budget and finds a client spending more than he has.

Some people are simply unwilling to save when their financial situation changes suddenly, Nugent says, “and nothing I say is going to change someone’s thinking,” he says “Emotionally, sometimes people are not in a position to save.” Younger people in particular find it easy to relegate saving for retirement to the backburner, something they say they’ll get to eventually. 

This mindset is unacceptable to Jason Chepenik, managing principal of Chepenik Financial, who takes a much harder line. He admits it is a hard conversation, but he feels clients sometimes have to be forced. “Even if it’s a reduced amount, you have to continue saving,” he tells PLANADVISER.

Drop, Don’t Stop

People may need to be taught that it is preferable to drop the amount they save than give up saving altogether, Chepenik says. Dropping the amount, from 10% to 2% or 3%, will make a difference. He counsels clients that one day things will improve. He suggests they try visualizing their lives a few years ahead, when economically things get back to a more normal state. There is nothing wrong with temporarily reducing savings because of an economic change, he says.

Chepenik uses the term RAIDS—recently acquired income deficiency syndrome—to describe the state of abruptly changed finances. All these obligations can seem like a sudden attack, he says. It is common for people to wonder where the money is going to come from.

Another concept Chepenik says he likes to teach is, “Ten percent is yours to keep.” People work so hard, he observes, and most people spend more years working than they do in school or in retirement. He thinks of retirement as a reward for all those years of working hard—and it is well deserved. “Why shouldn’t you be rewarded for all this work you do? Ten percent of what you earn is yours to keep.” He admits there are times when it is not possible to make that 10% savings, but anything a person saves can make a difference.

One of Chepenik’s favorite quotes is from the prizefighter Mike Tyson: “Everybody has a plan until they get hit in the face.” Divorce is a punch in the face, Chepenik says. He takes a philosophical perspective on this life crisis. “Shut your eyes, and three, four years will pass quickly, and you’ll find your footing and begin again,” he says.

Habits are made from behaviors that you repeat and repeat and repeat, Chepenik points out. “That’s the beauty of saving,” he says. “You don’t want to lose that habit. Always saving is vitally important for your future and for your family. “