Reality Check

Five things advisers can do to help participants 50 and older to prepare for a leaner, and likely meaner, retirement
Reported by Judy Ward
3. Talk with them face-to-face about contributions and allocations

Talking 50-plus participants—who may be bogged down with mortgages, hefty credit-card balances, and their kids’ college tuition—into saving more for retirement is “a hard sell” right now, Della Vedova agrees, but he has an approach to deal with that. “It is all about a plan: People are willing to do a plan. We are very big advocates of auto-escalation—that is part of the solution, regardless of age [provided that a plan sponsor wants to do it]—but we think that people older than 50 need a little more custom, detailed approach.”

O’Shaughnessy and his colleagues find that, if they meet with participants in groups, and especially one-on-one, they agree more often to increase their contribution to the employer-sponsored plan. “The average person, if he or she did anything in recent months, reduced the contribution or stopped contributing,” he says. “The herd mentality is to do the opposite of what is in the best interests of participants. The only way we can really convey our beliefs is to get directly in front of people.”

When he talks to participants about contributing more, Ciullo uses very simple comparisons to convey the idea that many investments are effectively on sale now. “I say, ‘If you went out to buy a new pair of shoes, you would want them to be 50% off, right?’” He can show them data about how the market inevitably has risen after previous economic downturns. “After we take the emotion out, we ask them, ‘Does it logically make sense to increase your contribution? Look at what you put in in February—you just made 20% on that contribution in March.’”

Likewise, meeting face-to-face with nervous 50 and older participants helps avoid freak-outs about their asset allocation. “What we do not want to see is everyone jumping into cash,” Andonian says. He and his colleagues meet with anxious people at the workplace and tell them, ‘Your instinct is fair and reasonable,” but they also explain the importance of remaining in equities to achieve their savings goals. “They know it is logical. Many of them say, ‘I just needed someone to say that. Let’s stay the course,’” he says. “As an adviser, you are basically playing psychologist. All you can do is go back to the fundamentals.”

Probably fewer than 5% of the 50 and older participants his company works with have fled to cash, Andonian says, but some older participants cannot sleep at night amid the market downturn. If a client feels overcome with anxiety, “as much as we would like the client to be prudent and stay the course, there is something to be said for, ‘Let’s slide it to cash.’” However, if someone wants to do that, he explains the implications: “Guess what? You are not retiring. You are going to have to continue working.”
Tags
401k, Defined contribution, Post Retirement, Retirement Income,
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