Airline Pilots Need a Special Breed of Advisor
An American Airlines pilot recently created a stir on the internet when he posted his pay stub for all to see — with year-to-date earnings of $457,894.51 through mid-December. While that number may seem eye-popping to many, it’s nothing special, according to several advisors who spoke with Rethinking65.
“It’s not uncommon for a senior pilot to make $400,000,” says Weston Pollock, managing partner of Smith Anglin Financial in Dallas. “We have some clients who make close to a million. They really have to hustle. They have to pick up trips. And they work their tail off. But for some of them, that’s their lifestyle. They want to work as much as they can because they know they can’t work forever.”
Pollock should know. He’s one of a small cadre of financial professionals who specialize in advising the high-flying high earners who are airline pilots. “We found a long time ago that as skilled as these guys are in flying planes, a lot of them really need financial planning help,” says Pollock, whose firm serves only pilots.
Planner, Pilot
“Their career is a lot different than average corporate America,” says Jesse Reed, a private wealth manager with Creative Planning Aviation. “There’s a lot of planning considerations that are unique to them, and they speak a different language. Part of getting the trust of an airline pilot, you’ve got to walk the walk, speak the language and understand what their lifestyle is.”
Reed, a CFP professional and BFA (Behavioral Financial Advisor), is well-suited for the role. In addition to heading the aviation division of Creative Planning, a sprawling nationwide independent advisory firm, Reed is a longtime pilot for Delta Airlines. He is also a former naval aviator and combat veteran, having piloted the F/A-18 fighter, and served as an instructor for the legendary Navy Fighter Weapons School, better known as Top Gun.
Reed concurs that the American Airlines pilot’s $457,894 annual pay is nothing out of the ordinary. Airline pilots are unionized and are paid by the flight hour, not on salary, he notes. Key factors affecting a pilot’s pay rate include seniority (the number of years worked) and the type of plane (larger, wide-body planes with more passenger-carrying capacity are more lucrative).
Referring to the American Airlines pilot’s paycheck, Reed says, “When I heard those numbers, it sounded like a pretty typical wide-body captain who’s been at an airline at least 12 years, probably more like 20 or 25.”
Reed works with a wide range of airline pilots, from those just starting out to those near retirement. The industry has changed considerably over the years, he says. In the past, only pilots with significant seniority would get captain positions with major carriers, while younger pilots would be relegated to the lower-paying first officer, or copilot, role.
But now, “on a given week, I’ll talk to a 25-year-old pilot at a major airline who’s a captain already. It used to be that would usually take over a decade to upgrade to a captain position. Now there’s people in their mid-20s doing it,” he says.
These younger pilots need financial guidance, Reed says. “They’re high-income earners with not much saved up,” he says. “For the first time in their lives, they’re seeing money that they just couldn’t even comprehend just a couple years ago.”
Waiting Until It’s Almost Too Late
But Pollock and Scott Wisnewski, a Milwaukee-based wealth manager with Johnson Financial Group who advises airline pilots, say their clients are mainly older pilots who came to them near retirement, and those who have retired. “Many of my current clients are either within a year of retirement or they’ve already retired,” Wisnewski says, explaining that they mostly range from 65 — the mandatory retirement age for airline pilots — to 80. “They’re very busy,” he says. “They don’t prioritize turning their retirement benefits into a paycheck, so to speak, until a little bit later on.”
In an effort to bring in younger pilots, Wisnewski suggests to his clients, many of whom are captains, to put a good word in with their first officers. He says these clients often express regret for not seeking financial advice earlier in their careers. “It’s, ‘Man, I wish I would have known that earlier.’ I say, ‘It doesn’t hurt to have a conversation if you think we can help someone you know.’ And I have no doubt that they make those suggestions.”
Dead Zoners
Reed says there’s a special class of airline pilots — “dead zoners” — facing a financial predicament as they approach retirement. These pilots flew for airlines that still offered pensions before going out of business.
“Prior to all the bankruptcies in the late 2000s — 2007, 2008 — a lot of airlines had a traditional defined-benefit plan model,” Reed explains. “And a lot of pilots that had been at these airlines for a while weren’t saving a whole lot on their own because they were banking on having a pension when they retired.” When the airlines went under, the pilots found their pensions significantly reduced, and many are now close to retirement and behind in their savings, he says.
“It’s a bit of a planning challenge for them, because they put all their eggs in the defined benefit plan basket, not realizing the risk that that carried,” he says.
Generous 401(k)s Spill Over
Nowadays, airlines, like other industries, offer their employees 401(k)s — but more generous than most. Reed says that while companies typically offer a 5% match in their defined contribution plans, most of the major airlines now provide a “non-elective contribution” of 17% or 18%. “Yeah, it’s amazing,” he says.
As a result, high-earning pilots tend to max out their 401(k) limit during the year, but their union contracts still require airlines to make that contribution of 17% or 18%, Reed says. “So, that opens the door to the second account that most airlines are going toward, what we call a spillover account. Depending on what airline you work at, it could be a cash-balance plan. It could be a health-savings plan. But in some cases, airlines just put that money in your paycheck in the form of cash.”
Wisnewski says the trick is maximizing those generous benefits. “Accelerating their contributions to their 401(k) plans earlier in the year, they tap out and maximize on that, and then the airline company will spill benefits over into those specialized benefits,” he says, noting that this includes Health Reimbursement Arrangements (HRAs).
“Not a lot of professions have that,” says Wisnewski, referring to HRAs. “That’s something the airline pilot union has lobbied hard for … because, as you may well know, airline pilots’ health can sometimes take a toll. It’s a high-stress job.”
‘If You Aren’t Lying, You Aren’t Flying’
A recent Reuters article noted that some airline pilots who experience mental health issues are afraid to report them for fear of being grounded. The problem is so common that airline pilots have a saying, “If you aren’t lying, you aren’t flying,” according to the article.
Stress comes in many forms for pilots, Reed says. For commercial pilots, the foremost stress is the uncertainty of the industry, he says, noting that furloughs or layoffs are a threat during down times. Plus, “you’re entrusted with the safety of hundreds of people every single day you go flying,” he says.
Military flying is of course stressful, too, he says. “Essentially, it’s an inherently more dangerous job, because you’re intentionally putting yourself in harm’s way,” says Reed, who flew combat missions in Iraq and Afghanistan.
“But from a financial perspective, at least with the Navy, I knew I was going to get the same paycheck every two weeks. It’s very predictable,” he says, while airlines are cyclical. For example, pilots “got really scared during Covid,” he says, and budget carrier Spirit Airlines is now furloughing pilots. Spirit’s parent company filed for bankruptcy in August.
A Welcome Conversation
Pollock, of Smith Anglin, says the stress is only increasing. “The job itself certainly is more challenging and more stressful today than it probably ever has been, with the packed planes and unruly passengers and the way airlines are trying to ‘turn and burn’ at the airports, tightening the time that a plane will arrive and leave,” he says.
Reed says that while stress and other mental health challenges are a serious problem for airline pilots, federal regulators and airlines are striving to be more accommodating. He wrote in a recent article that the National Transportation Safety Board convened a conference in December, “Navigating Mental Health in Aviation,” to better evaluate and support aviation professionals, which he called “a welcome conversation that’s long overdue.”
“The FAA medical examiners have made it clear, ‘Hey, we want you to raise your hand ask for help. We’re not trying to take your medical away. We want to get you out there and healthy and flying again as soon as possible,’” Reed says.
“We have had pilots, due to mental health reasons, take a leave of absence from their airline,” Reed tells Rethinking65. Airline disability policies usually will cover pilots during that time, although not at their pay rate. “And it depends on the nature of the ailment. Is it mental health? Is there a substance abuse issue? Maybe when they’re not flying, they’re struggling with an alcohol issue.”
Physical Examinations
On top of mental health concerns, pilots also must undergo physical examinations every six months, a process that can reveal health problems that result in the loss of their medical certification. Reed says he’s been grounded more than once by medical problems. “I’ve had orthopedic injuries. Apparently, I’m not meant to play basketball anymore,” he quips. “I’ve injured myself a few times as I get older and lost my medical (certification).”
“Those are scary occurrences for a pilot, because now you’re on a disability plan,” Reed explains. “It’s not making you whole to what you’re used to making as an active pilot.”
To guard against these eventualities, Reed stresses the need for financial contingency planning. “A lot of airline pilots need help with that planning,” he says.
“We’re really good about dealing with unexpected threats in the air, about handling emergencies, fires, all the scary stuff that they do in the simulator,” Reed says. “But we seem to be really bad as a group when it comes to our life contingencies. So, once we take the uniform off and we get home, it’s not uncommon for an airline pilot’s personal life to kind of be a disaster.”
Wisnewski says the physical examination requirement, while stress-inducing, has benefits. “If you walk around an airport, you don’t see a large preponderance of very obese or not physically fit pilots. There’s a reason for that,” he says.
A routine physical exam uncovered a serious medical issue for one client. “Yes, it did cause some problems, being grounded, not being able to fly,” Wisnewski says, conceding that means a loss of income. “But in that case, my client actually looked at the rigors of the medical screening as a blessing, because it allowed him to discover an issue early on that he was able to mitigate. And then he went on to fly for another 15 or 20 years.”
Side Hustles and Plan B
Reed says many pilots start side gigs as a backup, “because they don’t fully trust the industry.”
“So, we get a lot of pilots that get heavily involved in real estate; they open businesses on the side,” Reed says. “I’m a classic example. This investment management job for me initially started off as a side hustle, and then just through the grace of God became my primary career over the years.”
Reed says he and his group are familiar with the contract benefits of all the major airlines. “So, when we sit down with a client, we actually run their disability numbers as if they were going to go on disability tomorrow.”
But he goes further and advises clients to develop a “Plan B” in case they are prevented from flying. “Sometimes that Plan B is a side gig. Sometimes the Plan B may be a spouse going back to work. Sometimes the Plan B is to buy more occupational disability (insurance). There’s no stock answer, because everyone’s situation is different,” he says.
Reed says that contingency planning has brought him great satisfaction when pilots and their families have been “truly terrified” by loss of work. “After we ran them through a planning process and reminded them of the contingencies that we had already been planning for — something like this — just to see the relief on their faces — ‘Hey, we’re actually going to be okay. We can ride this out for quite some time because we’ve done a good job of planning.’ That’s just as satisfying to me as seeing someone succeed in retirement.”
Remember the Families
Wisnewski says advisors should consider their airline pilot clients’ off time as well as their work situations. While they may face grueling flight schedules, they typically also have longer stretches of time off, he says.
Many pilots have expensive hobbies, like flying their own planes or boating, he says. “Talk with them about being financially aware of the things that they enjoy and like to do,” he advises.
“Sometimes the best financial advice for them long term is to be present with their family, to be honest. Value that time,” Wisnewski says. “Because divorce is expensive, right? I have a number of clients who are at two or three times (divorced). And that’s the difference between me having a client in their mid-70s in retirement who has, say, $5 to $8 million that they’ve saved over time … or the client that has $1 million because they’ve had to split it up a few times.”