Advising on Short-Term Goals for the Long-Term Future

How can financial advisers focus on retirement security if many participants are still figuring out shorter-term stability?

Art by Katherine Streeter

Similar to long-term retirement planning, short-term financial goals are significant to a worker’s overall financial satisfaction and security.

The setting and achievement of shorter-term goals are important to retirement plan participants because they create financial buffers, says Sheida Elmi, a research program manager at The Aspen Institute Financial Security Program (Aspen FSP).

Elmi’s firm recently released a report on the importance of short-term savings goals in any long-term financial plan. The study argues that short-term “cushions” are the building blocks of progress on longer-term goals and wealth protection.

“If a financial emergency comes up and participants don’t have a financial buffer, then there is nothing to rely on or turn to when an emergency comes up,” Elmi says. “Households are going to experience these financial shocks, so it’s really the role of those buffers to be able to help a family cope when something comes up and allow them to continue to save towards longer-term goals.”  

Sarah Newcomb, a behavioral scientist at Morningstar, believes mindset plays a large role in connecting the two sorts of savings. In order to adopt behaviors that make long-term stability likely, participants must first take control of their financial behaviors in the short-term.

“Mindset tends to be such a big factor in investment outcomes,” she says. “If your immediate financial situation is unstable, you can’t think ahead clearly into the future.”

The experts encourage retirement-focused financial advisers to talk with participants about both their near- and long-term goals. Tom Swain, principal and consulting actuary at Findley, says one-on-one counseling creates the most engagement and the most satisfaction among employees.

Swain says it is important, during these personalized, one-on-one sessions, for advisers to focus on short-term goals, and what the participants’ needs are, rather than starting out with retirement planning.

Lorianne Pannozzo, senior vice president of workplace planning and advice at Fidelity, agrees that discussing short-term needs is an important first approach when sitting down with a participant.

“You need to meet with a participant who is engaged with personal financial priorities before talking about retirement planning,” she says. “Finding out what’s important to them is the first step, that’s the primary way to start engagement with short-term financial goals.”

The experts agree that advisers should actively discuss the balance between saving for both the short- and long-term—and assess if retirement planning is even a realistic goal for an employee at the current stage. Some clients may need to focus on paying down bad debt, for example, while others may be suited to now make the transition to focusing on long-term financial goals.

“This is where we can talk about a managed account or advisory account for those with more complex needs,” Pannozzo says. “Different participants have different needs, and the advice solutions for them may differ based on that specific goal.”

Swain notes that online tools can be useful for helping participants map their competing financial priorities.

“Online tools can help them take the appropriate next-steps,” he explains.

Whatever a participants’ goals are, it’s important to have a comprehensive financial plan, Pannozzo adds.

“By putting together all the steps, you can have conversations about the real priorities,” she notes. “A comprehensive plan comes with understanding what your goals are, and having one is really the starting point to being financially healthy over the course of your life.”