How do we help baby boomer clients who don’t have enough money to retire? For a number of boomers, this question has become more of daunting reality than most would like. Some clients only need tactical advice, such as tweaking their risk tolerance or increasing their retirement savings, in order to meet their retirement goals. Others, however, need to make radical behavioural changes (e.g., reduce spending, downsize housing, increase income) to come anywhere close to making their numbers work.
Behavioural change however, is much more difficult for clients than tactical change and requires advisers to step outside of their normal comfort zones. This is because it is hard to communicate the stark reality of a financial situation – the good, the bad and the ugly – then outline remedies in a way that both encourages the client, and positively motivates commitment to change. This not only takes courage and skill, but also the ability to not judge, and a belief that most situations can be optimized far more than most clients are aware.
My advice is to first help these clients establish short-term goals that will get them moving in the right direction. Once they have made progress and increased their confidence, baby boomer “catch-up” clients, will likely be ready to make bigger changes that will put them on the path to long-term financial security. So start small, then acknowledge and celebrate progress to build momentum.
One of the most challenging aspects for advisers in this situation is to raise the client’s level of awareness of the need for change without falling into a parental position – this often at times leads to increased resistance to make change. The change process will be more successful when the clients themselves identify the necessary action steps and, most importantly, link those steps to their core values. One of the easiest ways to do this is to guide clients through a process of identifying and clarifying what they care about most:
For this to work effectively, it needs to be an actual process where they explore, reflect and personally document what gives them intrinsic reward. This process doesn’t have to take a long time, but it can’t just consist of asking the question, “What are your values?” – most have never taken the time to really think it through and give an accurate answer. Once an individual has a clear understanding of what brings happiness to their lives and what is most important to them, making changes—in order to retain these values—won’t seem like difficult sacrifices any longer. The individual will then be internally motivated to stick with his / her plan and the adviser can position him / herself as a partner and not a parent.
This aligns with the premise of Nudge: Improving Decisions about Health, Wealth, and Happiness, which was named “Best Book of the Year” by the Economist and Financial Times. In this treatise on behavioural economics, authors Richard Thaler and Cass Sunstein demonstrate that sensible “choice architecture” can successfully nudge people toward the best decision without restricting their freedom of choice. They further explain that everyone who operates in an advisory capacity has the responsibility to be “a choice architect” and to present options in a context that the individual understands and can clearly identify the best path to take. “Nudges are not mandates,” they explain, but rather interventions that assist individuals in making decisions and taking actions that are in their own best interest.