When Guy Alton, CFO of St. Bernard Hospital in Chicago, thinks about retirement, he doesn't envision long strolls on the beach or leisurely tours of the Italian Riviera. Instead, the 53-year-old Alton wonders whether he can cover the basic expenses of life after work.
That concern is understandable. With three children in college, Alton faces a nearly six-figure annual education bill. In addition, a late start in saving means he must build his retirement fund in a relatively short period of time. "Earlier in my career I was definitely not saving as much as I needed to save," he says. "The unfortunate thing is that when you're younger and have kids, you often don't have the spare cash to put away as much for the future as you should."
A surprising number of Alton's peers share his concern. A recent CFO magazine survey of 476 finance executives at companies of all sizes found that nearly 40 percent lack confidence that they will achieve their long-term financial goals. That figure may be understated, contends Michael Leonetti, CEO of Leonetti & Associates Inc., a Chicago-based wealth-management firm. "I have a feeling that the actual number of finance executives who aren't prepared for retirement is higher than 40 percent," he says, speculating that it may be closer to 55 percent. While many if not most fall in the top 1 percent income brackett, Leonetti explains, "they have built a lot of things into their lifestyle that they don't want to pull back from." Moreover, since many CFOs are in their 40s and 50s, they face the classic problems of the "sandwich generation" — paying for their children's education while helping their aging parents.
Compounding the problem are worries shared by just about anyone facing retirement. These include the soaring cost of health care, tepid investment markets, and the prospect of reduced Social Security payments (see "Planning for the Future," below). Health care — chosen as a top concern by 80 percent of respondents — looms especially large. Since only a dwindling number of companies offer retiree health benefits, and because workers aren't eligible for Medicare until age 65, most who retire at a younger age will have to pay for their own health care. Alton says that employer-provided coverage is one reason why he will wait until at least 65 to retire.
Still, shouldn't CFOs, who spend their days creating and enforcing corporate financial plans and serving as fiduciaries of their employees' pension assets, be in the best position to prepare for retirement? After all, most start from a position of strength: the average total cash compensation for CFOs was nearly $500,000 in our last CFO Compensation Survey (see "Changing Fortunes," October 2004). Moreover, 71 percent believe that they can invest their funds as well as any professional money manager. Yet, as with many investors, concerns about savings levels and uncertainty about the future have tempered their confidence about meeting retirement goals. One thing is clear, though. Judging from the finance executives we talked to, there's certainly no lack of attention being paid to the issue.
A Conservative Bent
Cautious by nature, CFOs have learned that their financial expertise doesn't necessarily translate into personal investment acumen. When asked about their biggest investment mistakes, the top response was related to "buying into the Internet bubble." And many of the other answers — "not pulling back in 2000"; "opening a margin account"; "trying to time the market"; and "overloading on employer stock" — speak of investor confidence gone awry. (For more, see "Best and Worst Investments," below.)
Those mistakes have been magnified, says Ted Yoos, wealth manager for Boston-based Back Bay Financial Group Inc., because we've "been in a five-year period in which the broad stock market — as measured by the S&P 500 — had close to a zero percent return through the end of June."
Not surprisingly, CFOs have grown more conservative in response. Only 6 percent now call themselves "very aggressive investors," compared with 29 percent five years ago. And the percentage calling themselves "conservative" has increased from 24 percent to 38 percent.
A case in point is Jules Fisher of Possis Medical Inc., a medical-device company based in Minneapolis. Although the crash in technology stocks affected only part of his portfolio, it reinforced his conviction that retirement investing requires attention, patience, and diversification. "I want to be careful to stay focused on the long term, which is hard to do," he says. For Fisher, this has meant steady allocation among a mix of mutual funds, including value, growth, and international funds. His long-term focus has paid off through such investments as the highly regarded SoGen International Fund (now the First Eagle Global Fund), which has returned more than 17 percent in the past five years.
Gil Borok, global controller of Los Angeles-based real estate firm CB Richard Ellis (CBRE), is another finance executive taking a cautious stance. Borok, 38, puts half of his 401(k) money in bonds and half in equity mutual funds, with the rest invested in his house or held in cash balances. In Borok's case, this approach is not a reaction to any market losses but a long-standing strategy that reflects his attitude toward retirement planning. "I don't think you should be aggressive about investing for retirement, because this is your future," he says. And while he concedes that the approach "may be a little conservative for someone my age," Borok says, "it reflects my personal philosophy. I don't believe in overextending myself."
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