When it comes to retirement strategies, price tags are often misleading. It can be difficult for plan participants to get a complete picture of the value that comes with a given service—to know what they don’t know. A lot of us have been hardwired to believe lower prices are always better, however arriving at the optimal cost relative to desired outcome requires a deeper analysis when it comes to retirement planning. Too often, measuring retirement readiness is relegated to a simple fee comparison, as one would compare the price of a gallon of gas or produce between competing stores. A comprehensive retirement plan requires an understanding as to why the savings gap exists to begin with, which factors prompt individuals to start saving and determine which impediments exist to keep them from reaching their retirement goals and objectives.
Financial professionals should be aware of this mentality as they work with participants toward maximizing their retirement savings investments. Without having an idea of what retirement will look like, employer-sponsored pensions or 401(k)s and 403(b)s that aren’t actively managed will often only go so far in meeting participants’ long-term goals. Objectives are highly personalized, which contradict the one-size-fits-all approaches that are often assumed to be the default. Participants may not fully grasp the benefits of having someone who can help them navigate the course to ensure their goals are being met and that their strategies are sound.
With the emotional rollercoaster of today’s stock market, it’s understandable how someone would be tempted to leave it to the computers to manage their account. Some might feel a sense of security that comes with letting important financial decisions be made through unthinking, unfeeling algorithms. Or if the participant is lucky enough to have an employer-sponsored pension, they may think they already have a leg up on retirement and that combined with Social Security, they’ll have enough. But as we know, that’s often not the reality.
The numbers show that most of us are not prepared for retirement. When including people who have no retirement savings at all, the Federal Reserve’s 2019 Survey of Consumer Finances found that the median person under age 55 has about $8,000 or less to retire on. Yet retirement can be notoriously expensive—the average person will likely need around 80% of their final working year’s salary each year to comfortably retire. Something is wrong with this picture. Who’s to step in and correct the course when a retirement strategy is woefully off track? Plans that don’t include some level of active guidance from a professional may not build up to be enough over time to adequately secure the desired future. It’s vital that financial professionals work with clients on a holistic financial plan that considers the client’s goals to help fund their future. Our research found that individuals who work with a financial professional contribute more to their retirement plan accounts and have greater confidence that they will meet their retirement goals as opposed to those who do not work with financial professional.
Financial professionals can help plan participants to right a wrong path. They help to identify retirement savings goals and prepare participants for healthcare expenses and long-term care needs. They can be a guide in choosing an asset allocation to help balance risk and reward along with providing the emotional benefits that come with good, personal service. Altogether, this type of 1:1 attention has the potential of adding significantly to the total wealth of investors over a lifetime.
But all too often, participants simply aren’t aware of this. How do you help them understand the unknown? The best way to build strong relationships is through demonstrating that the value exceeds the cost. Provide in-depth analyses through detailed calculations and hypothetical projections customized to each possible situation a participant could be facing in retirement. Show them where they may be falling short. Provide them with an accurate Social Security estimate based on when they plan to retire, as well as the present value of taxes paid under different scenarios, so that they know the numbers and what can be accomplished with the help of a financial professional. And, perhaps most importantly, connect with them, and be aware of when they’re feeling confused or intimidated by the jargon or choices available to them. Education can go a long way in helping participants feel confident in the strategies they have put in place. Chances are, they’ll enjoy being in the driver’s seat when they see how their own investments are shaping their future.
When retirement plan participants and financial professionals work together, there’s greater engagement. Someone is there to show how compounding interest can work for them. Someone is there to explain that a small contribution each month could lead to real benefit down the road, and that saving for retirement is generally something that should be started now—not tomorrow. By clearly identifying how they’re helping their clients achieve their long-term goals and spelling out the ways they are helping them meet those goals, financial professionals paint a clearer picture of the value plan participants are receiving over time—and build a strong partnership that can last for decades.
Fred Makonnen is Divisional Vice President, Equitable Distributors, LLC
