Are financial woes keeping young high earners from actively planning for retirement?

Are concerns about outstanding student loans and a high-interest housing market keeping young high-earning Americans from actively thinking about retirement planning?

Andrew Evans, CEO & founder of Florida-based Rossby Financial, said many young Americans who can be deemed “high earner, not rich yet” or HENRYs may be earning between $150,000 to $238,000 annually, but “outside factors” leave them with little cash flow.

Many are more focused on this financial challenge than on retirement, he said.

“It’s not like they’re not doing well in terms of income, but there are circumstances that are just beyond their control that they can’t advance through just yet,” he said.

Nonetheless, Evans said it is important for advisors to breach the topic with young clients sooner rather than later, and to be empathetic about their unique financial challenges.

“The sooner you can get them operating inside of a solid retirement plan, you’re giving them a better step forward to now stash away that money and prevent them overly paying taxes where they don’t really need to,” he said.

What are HENRYs focused on?

In Evans’ experience, most young, wealthy Americans are “stashing away money in their 401(k)”, and possibly even more than their parents did, but in a more mechanical than active way.

“They just kind of see it as something that they do,” he said. “They’re not that terribly engaged in it, but they understand that, ‘Oh, if I put money in, this is going to grow, and my employer is giving me money as well. Great.’”

For this reason, Evans said many are not as concerned about saving for retirement as they are about paying off debt and trying to buy a house.

“Cleaning up student loan debt [has] been an ongoing problem for them. I mean, I do have clients that are very high-income earners in their late thirties, but they have this massive debt that they’ve just been doing their best to chip away at,” he said.

Compounding that issue is the high cost of living and high taxes, which chip away at their income and make it harder for them to pay down the principal because many are “just paying to live.”

At the same time, Evans noted many young, high-income-earning Americans are “looking to purchase a house in a very difficult market.”

“They have been working so hard to increase salaries and earnings, but they haven’t been able to stash away enough money for a 20% downpayment, and now interest rates went up the way that they did,” Evans said. “That’s a struggle because now…it’s like, well, geez it is maybe cheaper to rent.”

Getting the conversation started

Evans said that, as with any other generation, the general philosophy of starting young “always, always, always makes sense” and applies to conversations about retirement planning as well — even if young Americans don’t believe their cash flow is in the right place just yet.

“You might be making $210,000, but you don’t have the cash reserves — that’s okay. If you focus on this long-term goal, not saying that’s the only thing you do, but if you can continue to save now, you will inevitably build up a little bit more of a nest egg,” he said.

For advisors, he said the focus should be on finding out the unique retirement goals of young clients and keeping in mind that conversations about tax and retirement go hand-in-hand for high-income earners.

“Retirement programs are their best opportunity to reduce their taxable income because, even though they still need the cash flow, they still want to buy these things and so forth, in the end, nobody wants to pay more taxes than they have to,” he said.

By getting the retirement planning conversation started, Evans suggested, advisors can help HENRYs address both their retirement options and tax benefits.

Be their ‘Obi-Wan’

Evans also noted that the approach financial professionals take matters because younger clients “all want help” but “don’t want to be ‘talked at.’”

“You need to be their Obi-Wan Kenobi,” Evans said. “There’s not enough empathy shown. There’s not enough vulnerability by advisors shown to them, saying that I understand where you are. I understand what you’re going through. We were there as well, so I can be a good guide for you to help you hit that [goal].”

Additionally, he encouraged advisors to consider putting forward “a proper content offering” to reach younger clients through digital platforms, such as creating podcasts or YouTube videos, or writing financial literacy information and making it available online.

“You can’t just send out mailers or do dinners or rely on referrals forever,” Evans said. “You have to engage them where they are, and they’re on Patreon. They’re on TikTok. They’re on Twitch streaming. So, you have to advance yourself forward.”

Rossby Financial, founded in 2023, is an independent national RIA offering financial products and services.

Rayne Morgan is a content marketing manager with PolicyAdvisor.com and a freelance journalist and copywriter.

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