- Clients’ basic human behavior may prevent them from saving for retirement.
- You can help clients unravel the complex investment environment.
- Automation may help clients save in ways they hadn’t thought of.
If you’ve been wondering why it’s so difficult to help your clients save for retirement, the explanation may boil down to basic human behavior. A recent report from the Stanford Center on Longevity looks at studies in psychology and behavioral economics to reveal that while people know they should save, they often don’t because the investment environment may be too complex. Even basic financial literacy may not be enough because people don’t know how to put their understanding into operation or evaluate their performance.1
“Research suggests there is a gap between the actions people say they will take or want to take vs. the steps that they actually take.”1
This is where you can really help. Current retirement plans push people into a do-it-yourself model while many clients may be more help-me-do-it or do-it-for-me types.
Helping your clients see their overall financial picture and what they have and need for retirement may be of the biggest reasons people turn to a financial professional. You can also suggest baby steps your clients can do themselves to automate saving when they find putting aside money to be challenging. Here are a few ideas:
Your clients can set up an automatic bank transfer from checking to savings on the days their paychecks are deposited. That way the money is set aside before they can spend it, which conquers the tendency to save what is left (if any) after spending. Be sure to have them check for bank fees for multiple transfers and work around that. They could also check to see if their employer’s payroll department will do an automatic deposit of a percentage of their paycheck into a separate savings account.
If your client has a 401(k) through their employer, have them set up an automatic pretax contribution. Work with them to decide how much of their paycheck they can (safely) put toward retirement. If they have an employer match, they should consider it to be at least that amount so they aren’t losing out on any compensation. Then work with them on how much they can increase their contribution each year in order to reach their retirement goal.
If your clients are looking for ways to put a little extra money in their retirement account and they seem to use credit cards for everything, encourage them to exclusively use one credit card with a strong cash back rewards program. That way they can start earning money back for large and small purchases including groceries, gas, lunches, and coffee breaks. Just make sure they are paying the card off as they go so they don’t incur debt. Then when they cash in their points, make sure they put that money straight into their retirement account.
Clients who tend to do a lot of online shopping can also earn cash back rewards through websites such as Ebates and BeFrugal. By adding these browser extension buttons, they can activate cash back rewards with just one click after landing on a participating store website. It automatically routes them to a trackable link to record their online purchase, add coupon codes, and generate reward dollars. They will then get a check in the mail for the savings. Again, make sure they are depositing that extra money right into their retirement account.
By using some savvy technology tricks, your clients can beat their own challenges to save money by putting it away before they see it and earning extra funds on the shopping they normally do. Then they can watch that retirement nest egg grow with little extra effort and your smart guidance.
Things to Consider:
- The struggle to save may be perfectly normal, but it still needs to be done.
- You can help clients see and simplify their retirement strategy.
- Technology provides tools to help automate savings.
1“The More Design,” Stanford Center on Longevity, June 2017.
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