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Jake Northrup

Retirement Planning > Spending in Retirement > Lifestyle Planning

Why This Advisor Tells His Clients ‘Retirement Is Obsolete’

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“It’s better to live rich than to die rich,” Samuel Johnson, sage 18th century writer and scholar, inferred.

But you can do both, insists Jake Northrup, financial planner and founder of Experience Your Wealth, in an interview with ThinkAdvisor.

He calls the concept of retirement obsolete. “Retirement is a villain,” the certified financial planner argues.

His strategy is to not wait until retirement to do the things you’ve dreamed of but instead, use some of your income or savings to experience that good stuff while you’re still young.

Saving along the way and not using your long-term investments for as long as you keep working are key, he stresses.

Northrup recommends that his young clients with families — the bulk of his practice — “phase into retirement as opposed to jumping right in the water.

“Our plan is to earn more longer in a way that allows you to work when you want, wherever you want, how you want, doing something you love,” he adds.

The advisor, 30, founded Experience Your Wealth in 2019 after five-plus years at Ballentine Partners in Waltham, Massachusetts, where, as a senior wealth advisor, he worked with ultra-high net worth clients.

In the interview, he discusses his current strategies, which include job-income reduction — what he calls “semi-retirement;” taking a pause in saving for retirement and using that money to fund a longed-for passion.

In addition, in this market downturn, he recommends saving for a big trip, say, in a high yield savings account not exposed to the market, while keeping long-term investments in place.

Akin to the FIRE movement but with the emphasis more on “Financial Independence” than “Retire Early,” Northrup’s tack is for younger people to “save for flexibility and optionality in the future so they can make decisions that are aligned with their values.”

His clients are “travel-loving young families who don’t buy into the work-nine-to-five-until- you’re-65 concept” and then abruptly retire, he says.

His firm has 55 clients and ongoing revenues of $350,000.

The peripatetic Northrup has designed his practice so that he himself is able to work from anywhere in the world — and has: Antarctica, Argentina, Greece, Italy, Portugal and most of the United States.

The chartered financial analyst, who graduated with a bachelors degree in business administration and finance from the University of Massachusetts Amherst, has been an adjunct professor at Boston University, where he taught retirement planning and employee benefits for BU’s Financial Planning Certificate Program.

ThinkAdvisor recently interviewed Northrup, who was speaking from his home base in Bristol, Rhode Island. Here are highlights of our conversation:

THINKADVISOR: What’s your message to prospective clients?

JAKE NORTHRUP: In our marketing, we say, “Retirement is a villain.”

Really. In what way?

You don’t want to just save for retirement. You want to experience your life.

We want to help you align your money with your life as soon as possible.

Our plan is to earn income longer — doing it in a way that allows you to work when you want, wherever you want, how you want, doing something you love.

It’s experiencing the life [you wish for] throughout [the years] as opposed to waiting until retirement.

How and why did you come up with this idea?

I realized that I can have much greater impact on someone’s life when they’re making their money as opposed to when they’ve already been paid their money [in retirement].

But what about the need to have a nest egg for retirement?

Instead of saving for retirement, we urge our clients to save for flexibility and optionality in the future so they can make decisions that are aligned with their values.

You’ve said that the concept of retirement is obsolete. Please explain?

When Social Security was created, most work was physically demanding. Now the majority of work isn’t, depending on your career. So you can likely work longer.

Going from working at 100 [mph] to hitting the brakes to zero isn’t as popular anymore. It’s unhealthy for someone to work their whole life and then suddenly stop.

You need to engage with people and keep active. That’s why a lot of people who “unretire” pursue possibilities that motivate them.

What’s “unretire”?

Some people retire, and then six months later start a business or pursue a hobby or work part-time.

Why else is retirement “obsolete”?

You may not want to stop working because you love what you do or want to turn a long-held passion into a business venture.

If you earn income for a longer time period, it allows you to experience your [longed-for] life along the way as opposed to waiting until you “retire” to pursue your dream.

Does your philosophy have much in common with the FIRE [Financial Independence, Retire Early] movement?

We resonate with the first part, financial independence, but not as much with the retire early part.

We aren’t 100% aligned with the foundation of the FIRE movement, which is to retire as early as you can. We don’t do the planning around, “I want to stop working at age 45,” say.

Are there certain financial requirements to using your strategies?

It all comes down to cash flow. We really get into the weeds with clients on that. It’s the heartbeat of their finances: what’s coming in, what’s going out.

You don’t want someone to be spending more than they’re taking in, especially when they don’t have enough saved up [yet] in investment accounts to support them.

We discuss how much their finances would be impacted by things like taking a sabbatical or buying a vacation home or changing jobs.

What’s the demographic profile of your target client?

We work with travel-loving young families that have greater than $200,000 worth of household income and who don’t buy into the “work nine to five until you’re 65” concept.

They want to do things a little differently. They want to find the right responsible balance of paying down debt and investing for the future but also experience the “right now.”

What if clients have complex financial needs? Can you help them?

Yes. We start with that young family niche and then look at their [particular] planning needs.

They can have things like equity compensation: stock options or restricted stock in public and private companies. These [present] unique planning opportunities for us.

And clients that have greater than $100,000 of student loan debt — doctors, dentists, veterinarians — have unique needs too.

The third [of these groups] is business owners or people that are aspiring to own a business.

What are some of the main differences in how you’re building financial plans for your clients?

The clients are of an age at which they can reduce income, like taking a step down the ladder by getting a lower-paying job. We call that semi-retirement.

We ask them: What’s your semi-retirement age, and how much income do you need to be earning [at that stage]?

So it’s more about what you want to do and what would make you happy if money weren’t an obstacle.

What do they want to do?

A lot still want to be contributing to their career: going back to school or starting a business. We help them figure out the income levels that they need to support them so they can fill in the gap.

Where do taxes play into this scenario?

We pay a lot of attention to trying to minimize taxes, but we don’t let the tax tail wag the dog.

Whatever clients choose to do with their life, the taxes follow.

But how can a young small-business owner just take off and travel around the world? And what will they do for money when they want to retire?

It’s definitely a lot more difficult if you have a business that’s depending on you.

So, then, what about people who are employed?

We have a married couple, W-2 employees, who are taking 12 months off traveling around the world. A key part is that they’re not pulling any money from their long-term retirement investment funds.

You certainly don’t want to [draw down] your long-term investment accounts just to travel, but it’s okay to pause saving for a year.

However, it’s not OK to blow up your future. You don’t want to go backward. But it’s OK not to go forward as fast.

That’s the strategy you used with this couple?

Yes. We helped them stop saving into a long-term account for a year.

You need to make sure that if you do something that’s untraditional, you’re not uprooting your entire life to do it — you’re doing it in a responsible way.

You need to make sure you’re making the right financial planning decisions along the way.

What other clients are enjoying the lifestyle they aspired to instead of waiting till retirement to do it?

One couple — one of the spouses is self-employed; the other, W-2 — bought a vacation home so they could bring their kids and parents there and enjoy it while they’re young.

It was important to them to be with their parents and have everyone in the family come together. We helped them figure out how much money they could allocate toward a home per year and include the rental income they needed to have.

That was a pretty big purchase they made early in life while they were putting money into their investment accounts.

What’s another client example?

When we started working with one of our couples, they had no kids. The wife was in her early 40s; the husband, in his early 50s.

What was blocking them from having a family was a very high-paying job that demanded their time. The wife ended up quitting that job, changed industries and started a family.

So in this case, they took a pay cut and weren’t saving as much for the future. They made the decision through the lens of what’s going to maximize their life that will dramatically impact the next 10-plus years way more than staying in their former role.

We like to give our clients that type of confidence so their financial decisions are connected with their life, and they’re not just trying to pursue everything they want for when they’re 65.

But what happens much later on when the clients do want to retire? Will they have enough to live on in the lifestyle to which they’re accustomed?

Yes, because it’s something we plan [for]. We’re not assuming that everyone will work until they’re 75 or 85. There’s certainly a stage where we don’t want people to feel like they’re handcuffed to continue working.

Rather than have a [cut-off] when they stop, it’s more like a slower decline where they phase into retiring as opposed to jumping right in the water.

And does that translate to having enough money for the lifestyle they want when they stop working?

Yes, as long as they’re saving along the way and aren’t going to be using their investments for as long as they keep working.

The math will work out that the longer you work, the less you need saved up. If you continue working till 70, you need a lot less than if you work till 65.

What happens if there’s a bad stock market, like now? Does that put a big crimp into this sort of plan?

Not for my clients right now because they’re still about 20- or 30-plus years away from retirement. However, we have some clients that were at the point of potentially needing to retire.

That’s where earning income for a longer time becomes one of your number one assets. You can control that. You can’t control inflation or the investment market.

What’s an example of how your clients might best respond to a market downturn?

Let’s say you’re doing part-time work. One way to help combat the market going down is to take less money out.

So being able to turn your income up and down is like having a tool that can help combat factors that are outside their control.

Suppose a client couple was planning to take a big trip and quit their jobs. Then the market plummets. Using your strategy, can they feel comfortable going on that trip?

This exact thing happened with a client I have. We’ve been helping them save for the past few years, and they were planning to pull some money out of investments to fund a [sabbatical].

Then we reframed that and said, “You want to keep everything invested for the long term and just have your sabbatical savings in a high-yield savings account that’s not exposed to market movement.”

So, if planned for properly, [a down market] shouldn’t dramatically impact them because any money they’re going to need to make that decision shouldn’t be invested in the stock market anyway.

Your firm’s business model calls for charging clients an upfront fee of $1,500 and a fixed annual fee thereafter. How do you determine the latter amount?

We use income and net worth. We take one percent of the client’s earned income and add it to 50 basis points — 0.5% — of their net worth. That puts them in one of five flat-fee ranges, which go from $5,000 up to $20,000 a year.

Then the flat fee is broken into monthly or quarterly payments — whatever works out for the client.

Do you have any minimums?

The minimum is $5,000 per year according to income level. But we don’t have a minimum when it comes to investment assets because we don’t charge [based on] AUM.

Your practice is entirely virtual — and it’s also paperless. How can you operate an advisory without using paper?

We meet with all our clients on Zoom and show them [documents] via screen-share. So we don’t need to print out anything and send it to them.

Do you work from an office?

We don’t have an office. We do everything only with a laptop. All our documents and processes are electronic.

So when clients open an investment account with us, it’s all done via DocuSign. When we send them a contract, it’s via AdvicePay, which is a different software.

We have everything saved on OneDrive and utilize eMoney for financial planning software.

I’m able to work from a laptop anywhere in the world. That certainly makes things easier.