Happily Ever After: How to Help Retirees Make Lifestyle Choices They'll Love

Sep 3, 2019 @ 12:01 am

After years of putting money into IRAs, 401ks, and other forms of retirement savings, most retirees want one thing: a chance to finally enjoy that money. Do you know how to help them enjoy that money the right way?

We're not talking about the financial consequences of overspending. Obviously, blowing through retirement savings is a bad idea and, as a financial consultant, you already know how to help people manage their finances wisely. But your clients are more than the sum of their savings. And not all bad choices are purely financial.

Take this story told by Dr. Michael Finke, CFP®, Dean and Chief Academic Officer at The American College of Financial Services in his article “How Behavioral Finance Paves the Road to Happiness in Retirement.” After a presentation, a recent retiree admitted that she was guilty of making a terrible retirement choice. For years, she'd dreamed of owning a home on a remote Mexican beach. As soon as she retired, she bought that home and moved there. Two months later, she moved back to the States. It turned out that the isolation made her miserable.

This particular retiree is hardly alone in making a poor purchasing decision. Many new retirees make big purchases they think will make them happy, only to discover that they don't like driving around the country in an RV, or they aren't particularly fond of maintaining a classic car, or they feel all alone in that new ranch house in the country.

So how can you help your clients avoid making choices that may not be financially devastating but are definitely regrettable? The key is to understand behavioral finance.

Behavioral finance is an advanced form of financial planning that seeks to understand clients on a much more personal level. Rather than making decisions based entirely on financial considerations, behavioral finance takes into account a client's desires, values, and goals and uses those to put together financial strategies that make sense for the bank account and the person.

When it comes to advising those entering retirement, behavioral finance includes making sure clients know what will truly make them happy, so they don't waste a lot of money chasing a poorly considered “dream.”

In his research, Finke has uncovered two truths applicable to the vast majority of people:

  1. Buying things like clothes, durable goods, cars, and gifts don't significantly increase life satisfaction.
  2. Social spending categories, such as eating out with friends or going on vacations, do increase life satisfaction. In fact, research shows that quality time with friends is a particularly strong predictor of well-being in retirement. Even more than time spent with our own kids. Only time spent with a spouse among those with a solid marriage provided greater satisfaction.

For soon-to or recently retired clients, these truths reveal the need to make sure their purchases don't end up removing them from social bonds. Or, if those purchases do remove them from established bonds, that they are the types of people capable of quickly making new bonds in new places. Finke suggests advising clients entering retirement to rent the RV or beach home before spending tens of thousands of dollars buying one. That way, they can see for themselves whether the purchase would make them happy or leave them regretting their decision.

Of course, behavioral finance is more involved than simply asking a few questions or providing a few tips. Behavioral finance is a systematic approach to financial advice that is best learned through careful instruction. If you're interested in elevating the advice you give—and growing your practice in the process—you can gain behavioral finance expertise by earning the Wealth Management Certified Professional® (WMCP®) designation offered by The The American College of Financial Services.

Through the WMCP® program, you'll learn how to tailor financial plans to individual needs, desires, and goals. It's a great way to give your clients more value. And help them live more happily in their retirement.


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