Retirement Watch

Adapting to new ideas of retirement

A one-size-fits-all approach won't work for clients who have changing goals

Jul 25, 2010 @ 12:01 am

Investors have a new definition of retirement. Recent research has showed that many now define retirement as “when I'm unemployable” instead of “when I achieve a certain asset goal.”

The idyllic view of retirement as a leisurely stroll on the beach -doesn't resonate with many Americans. There are numerous reasons for this — from the economic crisis and changing life stage expectations to wide variations in investor preparedness and savings practices.

Investment advisers who market a retirement of leisure, or structure products to deliver on that vision, may be turning off clients and prospects who don't aspire to that kind of retirement or who perceive it as being unattainable. It is important to communicate in nuanced ways, recognizing that age and wealth are just starting points in developing segmented sales strategies and product marketing.

This is particularly important when working with investors who still have years to save for retirement. Unlike the retirement income market, there is less competition for the underserved younger-investor market, yet the payback is potentially great.

Our research has expanded beyond initial work studying pre- and post-retirees to track this segment, which we call “accumulators.” This group is made up of savers 28 to 64 who are at least five years away from retirement, a total of 80 million households with $14 trillion to $15 trillion in investible assets.

In a series of focus groups across America in January, these investors spoke of retirement as something that is inevitable but should be put off for as long as possible.

Many in their 50s and 60s don't consider themselves pre-retirees. They are postponing retirement to hold on to the income stream from full-time employment until they are forced out of the work force, which they acknowledge will happen eventually.

Age and having a certain amount of money are almost never mentioned on their pre-retirement checklist as criteria for triggering the decision to think seriously about retiring. Their focus is making sure that certain goals are fulfilled, from achieving career milestones to seeing children settled.

Consider how a marketing message that stresses saving to achieve a leisurely retirement might be received by one of these investors.

The predictable formula of dollar cost averaging into target date funds won't resonate with people whose primary concern is losing their income stream before they have generated enough assets to survive without it. For investors concerned about being unemployable and needing a base level of income to survive, providers might be more successful offering solutions that insure against the possibility of unemployment, such as disability insurance.

In the focus groups, we also spoke with the most savvy and diligent savers of this segment, labeled “peak accumulators,” who practice a series of solid financial behaviors (e.g., they spend less than they make, or have an emergency fund). They are the most frustrated with messaging from the financial services industry and think that they are getting cookie cutter sales pitches when what they want is personalization.

Other key findings are what we call “screaming unmet needs.” They are, “Tell me what you do,” and, “Tell me how much you charge.”

Sounds simple, right? But there must be a lot of firms that aren't doing a good job.

The result is that trust is at the top of the list for today's investors, right along with pricing, according to our research.

The industry agrees that it can improve products and services for this market.

Our benchmark survey of 16 financial services providers with $13 trillion in assets last month confirmed that industry executives think that they have a ways to go in terms of meeting the needs of those saving for retirement. None of the executives said that current accumulation solutions are working well for this market.

The best way for the financial services industry to understand and ap-proach these investors is through behavioral segmentation, which goes beyond age and wealth demographics.

The companies that do more-detailed segmentation, tailor their communications and product sets to the needs of these customer segments, and have clear pricing and value propositions will win the hearts and wallets of this large and potentially profitable market.

Chris Brown, founder and principal of Sway Research LLC, and Laura Varas, president of Mast Hill Consulting Inc., are partners in Hearts and Wallets, a multiyear retirement and savings investor research series.


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