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How an Advisory Firm Helps Grounded Pilots

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Considering just how significantly the U.S. airline industry has been affected by COVID-19, it seems safe to say there have been few advisory firms whose clients have been as affected by the pandemic as Retirement Advisors of America, an RIA that specializes in serving pilots, flight attendants and other members of the airline industry.

Clients who have been “greatly impacted” by COVID-19 include “those who are looking at the end of their career,” along with “those who are at the beginning of their career,” but then there’s also everybody in between, according to Jeffrey Baumert, president of RAA.

About 96% of RAA’s clients are members of the airline industry, the “vast majority” of them pilots, he told ThinkAdvisor in a phone interview.

International flying has been “drastically reduced” and “you’re looking at airlines really changing who they are and talking about reducing” their staffing, he said. He pointed as an example to recent published reports saying United Airlines warned about 36,000 employees, including pilots, flight attendants and others, that their jobs may be cut on Oct. 1.

“For certain, October 1, there will be literally tens of thousands of airline people that will be out on the street,” Baumert warned, adding how many pilots and other airline workers lose their jobs will largely depend on how many accept early buyout packages.

Although U.S. airlines that accepted federal aid under the Coronavirus Aid, Relief and Economic Security (CARES) Act agreed to not cut jobs or salaries of employees until Oct. 1, it is widely expected they will slash jobs and pay after that.

The big dilemma right now for many RAA clients near the ends of their careers is whether they should accept early retirement packages being offered by the airlines they work for or not, according to Baumert. They have to figure out if these “early-out packages make sense for them or not,” depending on their specific circumstances, financial and otherwise, he told ThinkAdvisor, noting his firm’s advisors are helping them figure that out. Adding complexity to the situation is that “each airline’s early-out package is slightly different,” he added.

On the other hand, there are many younger pilots who have been working for an airline for five years or less, and they, in some cases, “are looking at being out on the street” potentially if they lose their jobs, he said.

Meanwhile, just about everybody is being hurt by the reductions in pay across the sector due to reduced flights and hours, he pointed out.

Two Young Pilots

Baumert pointed to the situations of two young RAA clients in their early 30s who he said are “on the bottom of the seniority list for one of the major airlines” and are concerned they may be furloughed. They called RAA to “talk to one of our folks, who actually is an airline pilot who had been through furlough himself” and was formerly in the military, he said, noting that advisor is “providing some coaching for them,” including on budgeting. The advisor is also trying to convince them not to make any of the “classic mistakes” that many investors make in times of distress, including panicking and cashing out their 401(k)s.

One of the clients is a married pilot with kids who came from the military before entering the airline industry and is a member of the U.S. Air Force Reserve. He may be able to fall back on the military for income if he ends up losing his job.

The other client is a single pilot who does not have that option, Baumert said. However, “we’re working with him to help him find some other contacts” in the airline industry or a related sector who may be able to help him find flying work if he gets furloughed, Baumert said.

One potential challenge the two clients face is they are “probably not at the beginning of the furlough list” and, by the time they get furloughed, pilots furloughed before them may have taken what few available jobs there are available, he pointed out.

Older Pilots

Baumert also pointed to the situations of two older pilot clients. One is a 57-year-old client of his who is not quite ready to retire, so is hesitant to accept an early buyout offer. The other one is 62 and will be accepting a buyout, he said.

Although both of those clients are financially going to be fine whatever happens, the 57-year-old pilot said he was “just not ready” for retirement. Baumert told that client that if he was not ready to retire, he shouldn’t, but pointed out to him that he may still not be ready emotionally to retire five years down the line.

The Traveling Saleswoman

Another RAA client that Baumert pointed to was a second-generation client who is not a member of the airline industry, but whose father is a retired airline pilot who graduated from the U.S. Air Force Academy. “We worked with him through the Delta bankruptcy in 2005/2006,” Baumert noted, adding that the advisor helped the father with college planning for his daughter, now 28.

She is in the office equipment sales business, is single, and lives in San Diego, and her job “entailed extensive travel, which is now obviously off,” Baumert said, adding that, as a result, “her company is downsizing and she is facing furlough.”

She has a “relatively small account with us” — about $72,000 — and her advisor helped her “through budgeting/expense reduction/debt consolidation etc. and coached her to build up her savings prior to potential unemployment,” Baumert noted. That client is an “example of how we work with younger clients with low-balance accounts,” he added.

While a few clients of RAA, which was recently acquired by the RIA Allworth Financial, were diagnosed with COVID-19, there were none who became sick enough to require hospitalization that Baumert was aware of, he said.

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