Many financial institutions and advisers may not be positioned well to help older middle-income workers with their most important retirement planning decisions. Adding to the problem, many institutions' profit and compensation models don't align well with the goal of delivering help to these older workers.
Let's examine the reasons why.
A recent study by the Stanford Center on Longevity (SCL), in collaboration with the Society of Actuaries (SOA), identifies the following retirement planning decisions as having the biggest financial impact on middle-income workers:
Currently, many advisers focus on deploying savings to generate income in retirement. They often receive compensation from transaction charges that come from selling annuity products or by assessing asset-under-management (AUM) charges against invested assets. The SCL/SOA study identifies potential financial conflicts of interest in the following situations:
It's also the case that retirees make many critical decisions at a single point in time and may not require ongoing monitoring and adjustment. For example, consider a retiree who:
This example is a variation of the Spend Safely in Retirement Strategy, which SCL/SOA recently identified as a viable retirement planning approach for middle-income retirees. A retiree may need a significant amount of help to understand and set up such a strategy but may not need much help or advice once it has been implemented. Ideally, financial advisers will devise services and payment schemes that fairly compensate them for the initial work at retirement and then subsequently get paid for services only as used.
Here are examples of one-time planning services that can really help older middle-income workers:
Here are some possible business models that can serve the middle-income worker and also possibly address the issues regarding financial institutions and advisers:
Of course, many financial institutions, advisers and insurance companies that charge in the traditional fashion can help you with these important initial planning decisions as part of their services. You'll want to make sure that they won't confine their services just to selling you their products or investing your savings. And you'll want to ask how much you'll be charged and for how long you'll be paying.
Employers are in an ideal position to help their older workers by shopping for unbiased and skilled retirement advisers, or by providing financial wellness programs. You might want to ask if your employer's 401(k) plan offers such advice.
More important, employers can also help by offering alternative career paths for older workers to enable them to downshift and continue receiving valuable medical and other benefits until they eventually retire.
Note that the considerations for planning services discussed here apply to middle-income workers, defined as those with less than $1 million in retirement savings. However, the traditional financial advice business models can still work well for more affluent retirees who need customized solutions, more refined strategies and ongoing advice throughout retirement.
Many older workers face daunting retirement planning challenges. You'll need to be a savvy shopper to find a pro who can make the biggest positive impact on your retirement.