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Brian Perlman, PhD – Retirement Confidence Research Expert

Brian Perlman, PhD – Retirement Confidence Research Expert

By Brian Perlman, PhD, ChFC, CLU, Senior Vice President and CFO, Mathew Greenwald & Associates – Retirement Confidence Research Expert

Editor’s Note:
The following is the second half of an excerpt of the transcript of the live webinar Brian Perlman, PhD. provided in April, 2013 as part of the Retirement Resource Center’s Professional Development Program. The first half was published in the June, 2013 issue of Retirement InSight and Trends. Brian’s comments have been edited for clarity and length.

You can view a brief YouTube clip of the original presentation here.

You may also choose to take the full length course and earn 1 CRC®, CFP®, and/or PACE CE credit.



Read the first half of this transcript as published in the June, 2013 issue of Retirement InSight and Trends.



Use of Financial Advice

The next section talks about the use of financial advice.  This may not come as a surprise to you, but 71% of people with multiple retirement accounts make separate decisions on each account.  What this, of course, is suggesting is that people are obviously not doing a terribly good asset allocation.  And again, I’ve seen this in other research that we’ve done.  And if you’re not going to look at your different accounts together, then how can you really do an effective asset allocation?  But most people don’t do that and they keep them separate.

Roughly one in four workers sought advice in 2013.  This has been pretty steady.  In fact, in other research we’ve done, this has been pretty steady for years.  Needless to say, this varies a great deal by income, and a lot of you realize that from your practices: that the lower-income people tend to have much lower levels of seeking advice, whereas people in the high-income and high-asset range, you would see a much higher percentage for those people.

This is interesting.  Roughly one-quarter of workers act on all the investment advice they receive.  Forty-one percent say they act on most of it.  So there is a tendency for workers to not take all the advice that they’re given from their advisor, and the most common reason they give is that they don’t trust the advice that they’re getting from their advisors.

I don’t know if it is lack of trust in the advisor’s intention or the advice itself or why this is, but it is interesting that this is the biggest reason that some of them discount the advice.

We’ve seen in focus groups that trust in the advisors since the Bernie Madoff scandal – though it’s coming back – had declined quite a bit.  And this slide is suggesting that it’s still happening.

Workers are more likely than retirees to feel confident about converting savings to income.  What we’re seeing is that a large majority are confident that they will do or have done a good job of converting savings to income, yet what we know is that a lot of people don’t really do that.  But what we’re seeing is that workers tend to feel more confident than retirees who are actually in that stage where they’re doing that.  The differences are not that great, but it’s still pretty interesting.

There is a belief now that it is important to have an advisor that specializes in converting assets to retirement income, so what we’re seeing is that workers are valuing that a great deal.  And in fact, over half of plan participants think that recommendations about making savings that last will be very valuable.  It’s very similar to the previous question.  Most people are looking for advice in this area and want more advice in being able to do that.

Nonetheless, few plan participants are offered an annuity option at work.  And despite the fact that it’s not being offered, about half say that they would use it if it was offered to them.  Again, this is suggesting that perhaps there is a growing interest among workers in making their income last and in figuring out ways to generate income in retirement.

When we talked about a proposal requiring partial annuitization of defined contribution plan money, we see people are pretty much mixed on favoring and opposing that, and they are split in between.  To me this suggests, though, that this is encouraging news for people interested in annuitizing because what you’re asking is for somebody requiring them to do that, and the fact that they’re willing to say that suggests that there is some interest in this.  It is split, but clearly some workers have an interest in doing that.

Takeaways for Advisors and Consumers

When we look at this data, I want to discuss now the takeaways that we get from this data.  First of all, there are five takeaways for advisors.

  1. One is that understanding client weaknesses is very important.  And when we look at this data, it’s not so much in any individual slide, but when you look at how the slides compare with each other, you do see that clients are really not thinking consistently.  They tend to overestimate how far their money’s going to go.  They don’t have a good concept of time, and by that I mean they don’t tend to understand that X sum of money over many years is not going to go that far, and that that money erodes over time probably greater than they’re aware of.
  2. They also don’t really account for uncertainty as well as they could.  Despite the fact that they’re concerned about Medicare, they’re concerned about long-term care, they’re concerned about all these things happening, they seem to think that small amounts of money are going to take them a long way.  And in fact, when you account for that uncertainty, many of those things that they’re uncertain about could wipe out the amount of money they’re actually thinking they need for retirement.  So I think we have to understand the client weaknesses and point them out to them and explain to them how their thinking is not consistent.
  3. We need to encourage realistic goals for retirement.  We do see from this research that we’re not having enough – that clients are not setting realistic goals.  And this is always a tough one because if you set the goals too high, people get scared.  On the other hand, if you set them a little bit higher than they need to, it tends to be motivating.  So it’s hard to do this, but quite clearly the goals people have are not realistic.

    We need to also base the communication goals on acceptable lifestyle choices for retirement.  I think people need to have a realistic sense of what kind of lifestyle their money is going to produce, and I think an important step is to educate them about that and make them aware of that.

  4. It’s also important to identify changes they can make in current spending to help them save more for retirement.  We do see that people don’t believe they can save more, yet in some cases they can, and yet when the employer does it for them they’re willing to do it.  So I think that given the inconsistency in some of that data, this suggests that we can help people realize that they can do more than they think they can and that it’s something they ought to do.
  5. And finally, we’re seeing more and more that retiring clients are likely to welcome assistance with converting assets to sustainable streams of income.  And I think not just from this study, but from research I’ve seen, I think this is more and more of a growing issue for people. They really do believe that income is something important for them to have, and I think some of it is related to the fact that people are less confident and that people do realize more of the challenges they’re facing in retirement than they have in the past.

Takeaways for Clients/Consumers

We targeted five takeaways for the clients, but we added two more.

  1. First of all, clients need to understand that they can overestimate their potential income from their retirement savings.  That, in fact, we’ve seen research that suggests, again, that they tend to double what they think a nest egg will produce.  And if you count inflation, you can almost say they tend to triple it.
  2. Clients need to understand how long they’re going to live and what an income stream will produce.  They do have to have a cushion to insure them against uncertainty.

    One time in the Retirement Confident Study many years ago, we actually asked an open-ended question for the people who said they were somewhat confident, what that meant to them.  And what the people said was they were somewhat confident as long as nothing went wrong.  That, you know, if entitlements didn’t go away, if they didn’t have a health issue, if everything went fine, then they were confident they’d have a secure retirement.

    So we have to make people aware that when you get into retirement, things do happen, and you have to account for them.

  3. We also need to educate them that you can’t assume you’re going to be employable, whether it be health issues, which is the biggest issue that people are not aware of, or just their employability, which is another issue I think people tend to be a little more aware of, but people are less aware of the fact that what happens to most is they’re unable to do it.  People understand you can’t count on that.
  4. People need to be realistic about the likely benefits of a defined benefit plan. We know defined benefits offerings are shrinking, and people need to understand that they may not get a job that offers one.
  5. We also need to have people understand how delaying Social Security can contribute to their retirement security.  We see a lot of people who make the mistake of taking Social Security too early, and what ends up happening is if you live a long time, needless to say, that hurts their ability to have income.

    And there is this sort of pairing between the longer you live; the more money you need, and therefore the longer you live, the more money you get if you delay Social Security, and that’s something good to do.

  6. We also think that people should annually calculate how much to save for retirement.  We do know that there’s a connection between people who calculate what they’re saving and what they actually do.  And people who calculate what they need tend to feel better about retirement, tend to do more.  It’s something that we believe they ought to do.
  7. And finally, we need to truthfully evaluate what you can do for yourself and where you’ll need qualified advice.  I don’t think people have a really good sense of what they can do for themselves.  And again, as I mentioned, we see when we’re even looking at the whole investment area, people tend to think that because their employer offers them some really nice options in the 401(k) plan, that they can put together a good plan.

    And in fact, there’s more to it than that.  There is income allocation, asset allocation, understanding investments, etc.  A lot of people don’t really do that.So those are the takeaways, and if you want more information, you can go to the EBRI.org website and you actually can find the report and the fact sheets there.

Meredith:    Brian, I remember when I really started paying attention to the Retirement Confident Survey back in the late ‘90s, as an industry we felt that it was a good thing that the retirement confidence was higher.  Now that has changed.  Could you comment on that?

Perlman: Well, there’s a mix of things.  It’s changed because in reality, it has gotten harder.  Back in the ‘90s we had double-digit stock market returns, so although you couldn’t count on it, a lot of people that would go on forever.  Of course, that wasn’t the case nor should it have been the case.

So yes, people have less confidence.  Some of that might reflect the realities of what they’re doing.  But in general, people tend to be perhaps more confident than they should be.

Meredith: I think I’ve seen some research over the years that there is a percent of the population that in general is just overconfident about their abilities.  It’s not just when investing or how well they think they can fix their car, but they’re just overconfident in general.  Isn’t there a percent of the population that’s kind of wired like that?

Perlman:  There is a percent of the population that’s wired like that, and you can almost do a calculation by looking at people’s level of confidence on what they think they need for retirement, which I think suggests their lack of knowledge about what they need. And then what they have actually saved kind of shows their blindness?  We’ve seen people who have saved less than they really should to set their goals who are still confident.

Meredith:  For a retirement counselor or advisor, maybe that’s a good question to ferret out front, which is “Okay, now that we’ve looked at what you have, how confident are you about what you’ll be able to do?”, so you can get an idea of the pathway you have to pursue as a retirement counselor to help them get those expectations into line with what you need to do to help them, don’t you think?

Perlman:  Yes, and I think you’re going to run into a lot of clients who, I think, when you point out the realities; they’re not going to match what their perceptions are.  I think when we looked at the people who rank things as “somewhat,” some people have a tendency to put blinders on and don’t want to think about the negative things happening to them.  And I think you have to point out that when people are young, most negative things, except for job loss, don’t happen to them.  When people are older, something happens.

Whether it is a health issue, a long-term care issue, or the blessing of living a long time, people need to understand that you need to prepare for that.  They tend to put blinders on in some of those issues.

Meredith:  You know, I have a friend whose husband just retired from a job with the federal government on disability, so he can’t work anymore, and he’s only 62 or 63, but he’s already gone ahead and started Social Security.  She’s 62, in good health and working part-time.  She could continue to work and even increase her hours.  When I asked her, “How about you working more to close the income gap and delay drawing his Social Security?  Go get a full-time job somewhere and work longer and put some more money away for retirement?”  She just doesn’t want to do it.

So what are they thinking, you know?  Even though tears are welling up in her eyes and she’s saying, “I don’t know if we’re going to be able to make it.”  It’s that hope and a prayer.  Is that what it is?

Perlman:  It is.  It is a hope and a prayer.  It’s desperation.  More broadly to extrapolate to what happens to people, they do what’s called telescoping.  People look over an intermediate period of time and don’t understand the erosion that time does to money, and a lot of people don’t have the ability to see that.  And that’s where an advisor needs to point those things out to them.

Meredith:  You know, I’m just thinking as you say that, I remember presenting early retirement education programs 10 or 15 years ago.  It was the same kind of thing where with the pension that they would get, they would start retirement out maybe even a little bit better off than were when they were working in terms of after-tax income.  But, even though you tried to explain to them that “Okay, that’s going to be a fixed amount; there is no COLA on that income and that in 15 years your expenses are going to double.”  Most responded as, “Get me out of here.  I want to take the money and run.”

Again, going back to the unrealistic expectations, I think we’ve seen that over and over again.  And I think as counselors, we need to drive that home because they just don’t get it.  They don’t get how that’s really going to affect what they can do in retirement.  And maybe if you could address a little bit more about, again, when you’ve done research and you’ve asked people about that, how have they responded?

Perlman:  Life is interesting because people start putting less value on their life looking down the road.  When you have a 25-year-old, they look at their 40s as the golden years when they’ll have money and a family.  People in their 60s tend to look at their life eroding.

In fact, we did this study where we asked people – and this is similar to some of the behavioral finance studies we see today – “Would you rather have a week of vacation today or six months of vacation 10 or 15 years from now?”  And when you ask 60-year-olds about that, they’ll take the week vacation today.  And they tend to think about themselves declining and not enjoying life as much.

And so a lot of people discount what’s going to happen in their lives.  I think one of the things you have to point out to these people is that when you turn 70 or 80, you’re still going to value your life and what’s going on then.  Don’t discount it too much.  I mean, you can almost say, “Look, when you were in your 20s and were playing basketball and football and soccer and whatever else, you probably thought in your 50s and 60s, when you weren’t doing those things anymore, life would be less enjoyable.  And it’s not.”

So you almost have to point out to people not to discount how important things are going to be to you 10 or 15 years from now.

Meredith:  I have a couple of questions here from our webinar attendees.  “Do you have details regarding the income breakdown of the respondents?”

Perlman: What we tend to see is that the level of confidence goes up with income pretty dramatically.  Higher-income people are going to be more confident, and there is a pretty strong correlation with income as far as the confidence that people have.

And I should say that one of the issues that we see that’s very interesting is that despite that, there is a greater challenge for higher-income people in the sense that their lifestyle is higher.  Social Security is a much smaller piece of the income they need to support their lifestyle.  And in fact, you can almost see acceleration in what some people need to save in order to have the lifestyle they had prior to retirement.

So the challenges are still there for wealthier or higher-income people, but they tend to have a higher degree of confidence in their future.

Meredith:  Please comment more about how those not offered a DC plan would continue contributing even if 6 percent were withheld.

Perlman:  What we asked them was, “Suppose your employer automatically enrolled you into a retiree savings plan.”  We went with 3 percent or 6 percent of your pay.  “Do you think you’d be most likely to allow the contribution to increase?”

And what we’re seeing is that 35 percent would do it at a 3 percent deferral.  Eleven percent would do it at a 6 percent deferral.  They would allow or would increase their contribution.  But many people were saying they’d leave the contribution as it is.  In other words; they would allow the deferral to go through.  So most would either increase the contribution or leave it.  Very few would decrease the amount or cancel it.  Most would either allow it to increase, what they’re offering, or leave the contribution that the employer is offering in there, and would take the deferral.

And to me, that’s pretty amazing that over half would allow the contribution to kick in, which really suggests there’s a huge impact of autopilot, of auto-enrollment in this.  That these are the same people who say they couldn’t afford to save more, in many cases.

So we find that interesting.  And I’ve always heard this in focus groups that the paycheck tends to be seamless.  By the way, I do this with 401(k)s.  I’ve done this with voluntary employee benefits.  What you tend to see is that you’d be surprised how many voluntary employee benefits sell among lower-income workers.  It’s something that they can set and forget.  They almost tend to say, “It’s good for me to do it and let my employer do it for me, and I don’t have to think about it, so I’m going to do it.”

Meredith: Going back to the trust factor, isn’t it similar with employers as well?  In general, they trust employers and things offered through the employer because the employers had to vet it.

Perlman:  They do trust.  Yes, the trust is a big factor.  They trust their employers to try to do things that are good for them.  But we are also seeing a lot of just – The paycheck is a starting point.  From the paycheck, they have to figure out what to do.  If the paycheck comes out a little smaller before they see it, it just has a whole different psychological impact.

Meredith:  Thank you, Brian, so much.  I really appreciate you providing this information for us today and really helping us take a look at how people approach retirement psychologically and how we still have a long way to go in terms of helping them to make better decisions and take better actions/behaviors with their retirement savings.



Read the first half of this transcript as published in the June, 2013 issue of Retirement InSight and Trends.



Brian Perlman, PhD, ChFC, CLU, Senior Vice President and CFO, Mathew Greenwald & Associates - Retirement Confidence Research Expert

Brian Perlman, PhD, ChFC, CLU, Senior Vice President and CFO, Mathew Greenwald & Associates – Retirement Confidence Research Expert

About the Presenter:

Brian Perlman, PhD, ChFC, CLU is a partner at Matthew Greenwald & Associates and has close to 25 years’ experience conducting research for the financial services industry. As a Ph.D. risk research psychologist, he is also a chartered financial consultant and chartered life underwriter, and he brings a unique perspective when it comes to research.

At Greenwald, Brian has done work for over 30 financial services companies and just the big names that you can think of: MetLife, Prudential, Mass Mutual, Northwestern, New York Life, The Hartford, Principal, Money Magazine, Bank of America, Fidelity Investments: Just big names. And these assignments have included numerous qualitative and quantitative studies on life insurance and investment issues.

Retirement Speakers Bureau

Retirement Speakers Bureau

Prior to working with Greenwald, Brian spent 10 years as director of strategic research for the American Council of Life Insurance, where he was responsible for running the Monitoring the Attitudes of the Public or the MAP program.