For the past 20 years, my teammates and I have been privileged to work with thousands of employers nationwide on issues related to work/life. As you might expect, the dominant needs of their workforces have evolved considerably over the years. A decade ago, for instance, only a small portion of my organization’s total caseload was related to adult care. Today, adult care cases are second only to childcare cases. We’re also spending more time helping employees with legal and financial issues and providing them with tools to improve their general health and wellness.
But there’s one work/life need that is taking the American workforce by storm. It’s a need that every worker shares and one that grows in importance as our nation’s workforce ages. It’s the need for sound retirement planning tools.
Unfortunately, the tools currently available to the vast majority of workers are failing them. Indeed, I’d go so far as to say that traditional retirement planning, in general, is failing us all. Consider these facts:
These figures are taken from the most recent annual Retirement Confidence Survey, released by the Employee Benefit Research Institute, American Savings Education Council, and Mathew Greenwald & Associates. The report is fascinating, if a bit frightening. In summarizing their findings, the report’s authors go on to say: “Many workers have unrealistic expectations about how much of their preretirement income they will need when they retire.” And: “The majority of workers are imprecise when it comes to projecting their standard of living over the length of their retirement.” And: “Few workers have a good idea of how much it takes to fund a comfortable retirement or give thought to key retirement issues.” Many other experts report comparable findings.
Clearly, an alarming number of workers are misinformed or completely uninformed about the basics of sound retirement planning. It’s not their fault. Retirement planning experts are telling them a variety of “truths.” Some say workers will need 70 percent of their annual preretirement income to live comfortably. Others say it’s more like 80 percent. Still others claim that 90 to 100 percent is necessary. What’s most revealing about these recommendations is not that they vary so widely. It’s that they’re all based on formulas that have little to do with the individual planning her or his retirement. In fact, these recommendations-and the findings of the Retirement Confidence Survey-actually point up the root problem here: traditional retirement planning focuses almost exclusively on finances, and this is a recipe for failure.
Yes, finances are absolutely essential to good planning. But the traditional approach to retirement planning forces us to make financial decisions in a vacuum because it treats the non-financial aspects of retirement as an afterthought. What do I want to do with the rest of my life? Where do I want to live? What will give me energy, joy and vitality? Questions such as these are all but ignored by the traditional planning experts and their tools, yet these questions hold the keys to making sound financial plans! The answers to these questions help to clarify our post-retirement income needs and expenses. They also enable financial planners to assist us more effectively in creating appropriate investment strategies.
I believe retirement planning should be based on what we want to do with the rest of our lives. No matter what the answers are, finances are a means to these ends. What we need, then, is a more holistic approach than the current finances-only approach. We need a form of planning that incorporates our key financial and non-financial issues and, equally important, addresses them in the right order-life planning decisions first, financial planning decisions next.
Obviously, it can be difficult to answer big “life-planning” questions. But getting clarity (even just a little) regarding our life plans is well worth the effort. It goes a long way toward reducing the stress and uncertainty that so many people feel as retirement looms. It can also give individuals a sense of control over their own destinies, which will certainly engage them more fully in planning their own futures. Given the findings of the Retirement Confidence Survey and other polls, it’s clear that workers are not engaged in planning. In fact, many of them dread it. Without question, much of that dread is based on financial worries. But I return to my theme: until we’ve determined what we want to do with our lives after retiring, we simply can’t determine with any accuracy what kinds of resources we’ll need.
Earlier, I said that it’s not the fault of the nation’s workers that they’re so confused about or unaware of how to plan for their retirement effectively. It’s also not the fault of their employers (although, in my opinion, America’s employers play an important role in championing a better approach to retirement planning). In a sense, it’s not even the fault of the so-called experts who advocate a finances-only, one-size-fits-all approach to retirement planning. After all, we can’t expect brokers and mutual fund companies not to promote their investment products aggressively. But we can certainly do a better job of helping employees make informed retirement decisions.
This isn’t about placing blame. It’s about recognizing that we’ve reached a moment of truth. The time has come to trade in an old system that is no longer working. It’s time to provide our workforce with a better alternative to retirement planning-one that doesn’t ignore critical life-planning decisions and one that encourages them to make decisions in the correct order.
To bring about this new approach, I believe that financial planners, employers and companies like mine will need to work together and create integrated, holistic programs that engage workers in entirely new ways. After all, we’re not just helping them with their bank accounts. We’re helping them plan for the rest of their lives.