Your Retirement Is About Your Future – So Shouldn’t Retirement Advisors Be Listening to Futurists?
Are you going to run out of money in retirement? What can you do to reduce the risk that you will? What are the best financial decisions you can make now in order to optimize your resources? How much more do you need to save, and in what? What future financial risks do you face – and how can you reduce these risks as much as possible?
These are a few of the key questions we face when it comes to thinking about our financial future. The profession that has developed to help people in this area is “retirement planning” – a subset of personal financial planning. Retirement planning is mostly about managing risks you may face in the future. We need to do this before the risk arrives!
I think that one of the basic lessons of risk management is that you don’t wait until it happens. You make plans in advance. I teach finance – and risk management is a powerful tool, but you have to do it before the risk takes place. You have to insure your house before it burns down. Nobel Prize Laureate Economist Robert J. Shiller
Retirement planners are supposed to help you;
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clarify your retirement goals,
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assess your current situation,
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make projections that reflect an educated guess of your financial well-being throughout your lifetime
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come up with a plan that will ensure you don’t run out of money,
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prioritize and implement your financial “to-dos”
Along the way, retirement planners (and I am one of those) need to make assumptions about the future. Planners look at the world out there, and look at the particulars of you and your family. Then, they take a set of assumptions and paint a picture of your financial future. Shortfalls and risks are identified, and a plan of action is drawn up so you know how to make it work. Now you have a “retirement plan”!
So given that retirement planners are helping you plan your future, don’t you think we should expect them to consider what the future might be like? Surprise surprise – they don’t!
Currently, the vast majority of financial planners use assumptions that are simply using historical data or an average of the last 20-40 years. In other words, planners don’t really think about the future, they just assume the future will be some version of the past.
For example, when it comes to the crucial assumption of life expectancy, the industry norm is to reference the tables that show average expected life spans after age 65 – and then perhaps add a few years for good measure. Let’s say the longevity tables say that males and females who attain age 65 on average live to 82 and 85 respectively. That is based on how things are now. Then the financial planner (or more likely, the software the planner is using) might assume that you will live to 90 or 95. That may seem reasonable today, but we are not talking about today – we are talking about how things will be in the future!
The world is not standing still! In fact, the rate of change is accelerating. Over the next 20-30 years, which is a typical retirement planning time horizon, the amount of change that we will live through will be breath-taking. Retirement planners who give their clients the idea that they can rely on a retirement plan that assumes virtually no change is not only simplistic, it is downright dangerous to your wealth!
Retirement planners are futurists who don’t know they are futurists. Perhaps even 30 years ago, this was not such a problem, as people lived shorter lives, plus the world did not seem likely to change all that much in the course of a 15-20 year retirement. Now, projections made without some consideration of the amount of change we will live through are about as helpful as a 20 year old map of (name a city).
If you or your advisor object by saying, “No one can predict the future, who knows what will happen?” that is not good enough. The challenge of forecasting is not easy, but to ignore that radical change is not coming is worse! I believe financial planners need to make reasonable efforts to incorporate possible and probable futures into their retirement plans and their advice. However, virtually no advisors are doing this, no doubt because they don’t have training in forecasting, or knowledge of the key trends.
There is another profession that focuses entirely on assessing possible and probable futures – the Futurist profession. It is time for financial planners to incorporate the insights of futurists. They need to do their best to help their clients consider life scenarios that take into account possible future outcomes. They need to become Retirement Futurists!
Those who have not noticed that the world is rapidly changing may say, “What could change that much to really matter?” Here are just a few answers to that;
Life spans; Medical technology is propelling advances. Cures to most diseases are in sight. Extending healthy life spans – possibly by many decades, is in the cards.
Medical Expenses: With a flood of new medical devices, procedures and drugs inundating the medical system, it is unlikely our relatively slow regulatory systems will keep up (that is old news). Medical treatments important to your life and the lives of your loved ones will very likely require “medical tourism” – i.e. travelling to another country. Is this part of your planning?
Future jobs/occupations; automation, robotics, artificial intelligence are already changing (and replacing) many jobs. What jobs are viable in the future? What skill sets are most valuable? What will you do if you need to keep earning a living?
Costs of Goods & Services; advances in robotics, AI, and nanotechnology are likely to drastically reduce or eliminate the costs of many of our day-to-day expenses. (think 3D printing, nano-solar power, and collaborative/abundance economies) But when, what, and how much will this affect you?
Pension Viability; longer life spans, large government debt loads and lower investment return environments are likely to impact the ability of pensions to pay out promised benefits. Pension cuts become very likely. What should we reasonably assume will happen? (Ignoring this is just not helpful!)
Do these things matter to your financial future? YES!! Is your financial advisor talking to you about them? Probably not. But we need not blame anyone. Instead, we can be an instigator of the dialogue that needs to happen. Do yourself (and everyone) a favour and share and discuss these ideas. Share them with anyone planning for retirement or interested in their financial future. Share them with your financial advisor. Why not ask them to read and respond to this article?
When it comes to changing the financial advice industry, this will take many, many voices, but I do think there are ears that will listen. Nearly every advisor I have met is genuinely desirous of doing a good job for their clients. But thinking clearly about an accelerating rate of change is not easy. To earnestly consider the future impacts of exponentially growing technologies is not part of most people’s day – including your advisor. If you express your own concerns about how to prepare for this very different future, you will be listened to.
It is time for any profession that purports to give you advice about your future to study likely trends, and incorporate financial strategies around possible and probable impacts of accelerating technology. Otherwise, the value of this advice is, in my opinion, highly questionable. What do you think?
Live long, live well, and prosper!
Michael
P.S. Your comments are always welcome!
Robert Shiller quote from; http://www.newrepublic.com/article/117411/robert-shiller-adjust-tax-brackets-if-incomeinequality-worsens
