section 1 - The American College Online Learning Center

(1) Advisors generally do not understand these issues either.(2) Good retirement income plans can fail because behavioral issues get inthe way.(3) One example of common self-defeating behavior is selling equities whenthe market is down.b. Current versus future consumption (saving vs. spending)(1) Desire for current consumption overrides the need for future consumption.Reason: We equate consumption with happiness.(2) Rational behavior under an economic model would predict leveling ofconsumption by saving for retirement.(3) Ambivalence about giving up current consumption for future consumptionresults in procrastination — avoiding the conflictc. Getting the client to take action(1) One answer is visualizing the future: What will life look like in the future ifyou take one path versus another?(2) Should the vision of the future focus on the positive (retirement is a timeyou can spend more time with your grandchildren) or should the focusbe on the fear of failing to plan (a life of financial dependence on familymembers)? Some clients are motivated by each approach. Differentpeople have different personalities, some respond to fear, some respondto positive reinforcement.(3) Some newer financial services practices are including a psychologist orcounselor in their practices.(4) Group sessions featuring current retirees can be helpful.(5) An approach to framing the issue and gaining a better understanding ofwhat it is like to live on much less money is to ask the client to live on halfor two-thirds of current income to better understand what that feels like.(6) Another approach is to get those in a client’s “center of influence” toreinforce the messages of saving and planning.(7) Another option can be groups of people sharing experiences about theirown planning or lack of planning.(8) Do not let automatic enrollment influence a client to save at the defaultamount. Planners should warn that the default amount is not a good wayto solve the problem.(9) Use increases in salary for retirement savings.6. Psychological issues — reviewa. Visualize the future to help value savings.b. Change the way of discussing saving: it is not spending or saving - it is spendingnow or spending later.c. For those making self-defeating decisions, psychological support may be helpful.7. Practical tips that help to motivate a client to save more:a. Saving with payroll deduction or other automated methods (the money is savedbefore we have a chance to think about spending it)3.2