Helping Americans improve retirement preparedness

The increase in the number of Americans who are facing a shaky financial future because of their lack of retirement preparedness is of grave concern to many financial professionals and highlights the important work they have to do in helping their clients attain a secure financial future.

Numerous surveys have identified this lack of retirement preparedness among Americans. For example, a survey by Mutual of Omaha said that although 88% of the study’s respondents believe that they have a responsibility to protect their own or their family’s financial future, many expressed uncertainty in how to accomplish that goal. And only one in four said that they feel confident in their financial future.

Overall, just 26% of respondents can be considered Protection Confident, or feeling secure, about their financial futures both today and 10 years in the future. That leaves the remaining 74% either uncertain about their protected future or falling into the Protection Threatened category, the survey said.

Another survey by USAA Life Insurance Company paints a similar picture – this time for younger Americans. The survey said that nearly half (49%) of Generation X and millennials, ages 35-54, believe that they will never be able to retire. Four in ten adults over the age of consumers 18 are also concerned about their retirement savings.

Improving retirement preparedness

Helping the young save for an event that seems so far off when they are often faced with balancing competing financial priorities is a challenging task at best, and Scot Macfarland, practice management consultant with Momentum Independent Network, recently offered some useful ideas advisors can use to take on this challenge.

“Our advisors take many steps to ensure that our clients have the highest chance of retiring, from our youngest clients to our currently retired clients ,” he said.

In behavioral finance, he added, younger people often view large and far-off goals, like retirement, as difficult to achieve. The reason for this can be deeply held beliefs, emotional responses, or simply not knowing how to start. “As financial advisors,” he pointed out, “we can help these clients at the beginning of their savings journey. We can help them overcome these mental hurdles and challenges.”

One step advisors can take to do this is to help clients identify the reasons they have for holding these beliefs. These beliefs may be based on flawed assumptions and are best understood before any changes are considered. For example, Macfarland said, they may not understand that their savings can grow if invested. Or, they may be concerned about the volatile nature of the markets or they may be reflective of their current comfort level with current personal or economic factors.

Create a plan or strategy

Advisors can also create a plan or strategy with these younger people. This plan includes:

• Spending less money than they make. “This generally requires the clients to create and follow a budget,” he pointed out.
• The advisor can use the information collected from the client to tie savings and investment strategies to longer-term goals.
• In addition, the advisor can help clients make their savings towards retirement automatic. This can include automatic retirement savings, automatic savings increases, or investment accounts or models that allocate the investments automatically, he said.

Advisors can also help clients stick to the plan. “People are more likely to reach their goals if there is an “accountability partner” to help them stay on track,” he pointed out. They can provide this accountability support by:

• Simply sending the clients a monthly email reminder of their goals and targets.
• Setting regular progress meetings for clients who have more complex or difficult target goals.

Finally, Macfarland said advisors can leverage technology to make these solutions easier for clients and themselves. There are tools and resources that offer help in creating and sticking to a budget, including at some banks, he said.

Many of the modern financial-planning software packages in use today offer one-topic planning modules that clients can complete for themselves in order to identify their gaps and needs. “Clients can use these printouts as a starting point for a conversation with their financial advisors,” he said.

Ayo Mseka has more than 30 years of experience reporting on the financial services industry. She formerly served as editor-in-chief of NAIFA’s Advisor Today magazine. Contact her at [email protected]. 

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