Engaging the head-in-the-sand investor


There’s no doubt about it, planning for retirement is complex. Estimating future spending needs, future tax rates, inflation, life expectancy, medical costs and making risk-return trade-offs can be bewildering – especially in today’s volatile markets. A portfolio that was on track to achieving its goals five years ago may look very different today.

Trying to plan for a future self 10, 20, 30 years out can feel a lot like science fiction to many.
In the same way that we as individuals have changed substantially over the last three decades, we’ll change again in the decades ahead. Little wonder then that saving for retirement can feel to some like “a choice between spending money today or giving it to a stranger.”1

Plus, the world is changing so quickly, it’s hard to predict what life will be like decades from now. Heck, a decade ago neither the iPhone, iPad nor Facebook even existed yet2. Consider how much those three products alone have changed how people communicate, interact and access information in such a short time. Maybe all this complexity helps explain why people generally spend more time planning a vacation than they do planning for their retirement3; why 33% of pre-retirees would rather clean their bathroom than spend time planning for their retirement4; and why only one in three adults in their 50s has ever tried to devise a retirement plan5.

And yet, being engaged in retirement planning is necessary. Research has shown that those who don’t plan are likely to wind up with less wealth than those who do6. It may well be statistics like that one that have 61% of baby boomers saying they’re more afraid of running out of money than they are of dying7.

It doesn’t need to be that way though. There are easy steps investors can take to assume more ownership of their retirement – and having the support of an advisor can be key. As you’ll read in the latest Investor Newsletter, engagement means the advisor and the investor participate, coordinate, anticipate and recalibrate together.

What does that mean, in brief?

Participate : help your client picture themselves in the future by exploring what their future self might want, desire or need. Where might their future self want to live? What activities will engage and challenge their future self? What would be possible for their future self if their needs and wants were fulfilled? The more the investor can relate to their future self, the easier it will be to make financial sacrifices today.

Coordinate: help your client determine whether they’re on track to be able to finance the lifestyle they envision. How does their current wealth compare with the cost of the life their future self desires? Do any adjustments need to be made?

Anticipate: all good plans foresee contingencies. Markets move, tax rates change, health care options and life expectancy may adjust. Help your client insulate their plan from unforeseen events.

Recalibrate: windfalls and shortfalls comes and go, but disciplined engagement in retirement planning is a way of life. Develop an ongoing engagement plan with your client.

1  Hershfield H., Goldstein, D., Sharpe, W., Fox, J., Yeykelis, L., Carstensen, L., Bailenson, J. (2011). Increasing Saving Behavior Through Age-Progressed Renderings of the Future Self. Journal of Marketing Research. American Marketing Association, 48, S23-S37.
2The iPhone was released in 2007, followed by the iPad in 2010 and Facebook was launched in 2004.
3Willett, Mary. (2008). A new model for retirement education and counseling. Financial Services Review 17, p. 105-130.
4National survey by Aetna and Financial Planning Association. Telephone survey was conducted October 20-24, 2011 among a random national sample of 2,031 adults aged 45-75, from which 1,009 individuals with health insurance other than Medicare or Medicaid were identified.
5Lusardi, A. & Mitchell, O. (2011). Financial Literacy and Planning: Implications for Retirement Wellbeing. NBER Working Paper No. 17078.
6Lusardi, Annamaria. & Mitchell, Olivia S. (2007). “Baby Boomer Retirement Security: The roles of planning, financial literacy, and housing wealth.” Journal of Monetary Economics, Elsevier, vol 54(1), p. 205-224, January.
7Allianz Life Insurance survey cited in Ignites.com article, Boomers Dread Retirement Shortfall: Survey, June 21, 2010.RFS 9317-b



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