In most industries, retiring at 40-something would be out of the question. But banking, isn’t most industries and getting out young used to be quite common. You still hear of the occasional banking retiree in the fifth decade of life – Kevin Shea, a 48 year-old rates salesman at Goldman Sachs retired last month, for example. But there are more and more people like Simon McWhirter, the 40-something ex-UBS MD who’d like to retire, but can’t.
Joshua Matthews, managing partner at Maseco Private Wealth, a London-based wealth management firm which specializes in helping U.S. citizens overseas to manage their finances and works with a lot of U.S. bankers, says the inability to escape financial services with all your faculties intact is causing a few problems.
“The thing with banking is that compensation used to grow exponentially,” says Matthews. “In your first year you made x, and it grew 20% to 50% every year after that. By the time you reached your mid-30s, you could have five or six years of excellent earnings and that would be enough to retire.”
While this scenario no longer applies in most cases and is accepted as passé by young people entering the industry now, Matthews says its passing is a source of bitter regret for everyone who went into banking in the early 2000s expecting to be out quickly, only to find that all their hard work wasn’t going to pay off after all.
“If you were 35 or less in 2008, your earning potential has been destroyed,” he says. “We see bankers who are 41 or 42 now and have missed out on what should have been their most significant years of earnings after the financial crisis.”
On one hand, these disappointed bankers want to get out of the industry, says Matthews. On the other, they don’t know what else to do. “We work with a lot of bankers who figure they’re working crazy hours for a fraction of what they were previously paid in an industry where the prospects are less good than they used to be, and who want to work out how much they need to get out,” he says, adding that most cases, this is just an “intellectual exercise” and they decide to hold onto their seats and collect their salaries.
When middle-aged bankers receive bonuses nowadays, Matthews says they behave very differently to the way they did in the past. “People used to hold onto the stock in their companies. Now they sell it at the first possible opportunity – too many people got wiped out by the bank stock collapses in the crisis. It’s seen as way too risky to hold stock in your employer any more.”
Matthews says plenty of 40-something bankers have become very, very cautious about how they invest their bonuses. “People are 100% more risk averse. They expected to be in a completely different position from a net wealth perspective at this stage in their lives and are careful with the money they have been able to make.”
Matthews advises his banking clients to have a diverse portfolio of investments hedged against their business area. “If you work in a distressed debt firm, you want to invest in equities, if you work on an institutional equity sales desk, you want to invest in distressed debt. You need exposure to whichever area will benefit when your earning power falls.”