There’s a lot future retirees can learn from current retirees, and whether the lessons are aspirational or terrifying, they can make a difference for clients who struggle with putting off the pleasures of today for the security of tomorrow, according to consultant Ken Dychtwald.
“At any age, retirees can be grouped through their life experiences, mindset, financial security and behaviors into four different groups,” said Dychtwald, CEO and founder of Age Wave in Orinda, Cali., which researches aging and financial habits in America. These archetypes, he said, are Purposeful Pathfinders, Relaxed Traditionalists, Challenged Yet Hopefuls and Regretful Strugglers.
“And perhaps looking at them is a good way to have discussions with your clients,” he continued. “‘Which of these would you like to be? And I’m going to show you how to get there.’”
The four archetypes are the result of a new study conducted by Age Wave, Edward Jones and Harris Poll called Longevity and the New Journey of Retirement, which is the third in a now-annual series meant to give financial planners insights into the many facets of retirement so they can improve outcomes for clients.
The inaugural survey in 2020, The Four Pillars of the New Retirement, found that in order to have a happy, secure retirement, retirees needed to have and maintain meaningful inroads in four areas: health, family, purpose and finances.
Dychtwald, who presented the findings of the 2022 study at the Next Chapter 2022: Rockin’ Retirement virtual conference, said he saw an opportunity to expound on the Four Pillars concept and tease out specific details that could be an asset to financial planners as they help clients prepare for a retirement that could last 30 years, almost as long as their earning years.
“Early and holistic preparation across the four pillars can have a big payoff,” he said.
The study broke retirees down into four personality groups—Purposeful Pathfinders who always saved and were financially literate (23%); Relaxed Traditionalists who started saving a little bit later than Pathfinders but are still doing well in retirement (26%); Challenged Yet Hopefuls who started saving in their 40s but are still positive about retirement (20%); and the largest of the four groups, the Regretful Strugglers (31%).
Dychtwald said he hopes planners can use these archetypes to strengthen their messaging to clients about taking care of their future selves. The effect of early, consistent investment is easy to explain—if someone saves $5,000 a year from age 25, they’ll have $935,000 at 65, but if they start at 45, they’ll have just $207,000. But seeing and hearing a theoretical example is not the same as hearing and seeing the results of that example, and in the context of the other possible results.
“Retirement is evolving. It’s changing from what our parents’ version used to be. It’s now a new chapter in life, and it has the potential of being an active and enjoyable journey,” he said. “And you need to be an expert at the different stages of that journey.”
Purposeful Pathfinders are the most aspirational of the archetypes, as they’re well prepared, he said. According to the survey data, they started saving around age 34, the youngest of all retiree segments, and they remain active and engaged in life. They’re highly likely to volunteer in order to keep contributing to the world, and they’re looking for new ways to reinvent themselves.
“They feel like they’re living their best years,” Dychtwald said. “And they believe that they’re defining the new retirement.”
Relaxed Traditionalists are also doing well in retirement. The survey data showed they started saving in their late 30s, and for them retirement is about relaxing and enjoying themselves. They are almost as well prepared financially as Purposeful Pathfinders, and nearly half say they feel they are in great shape financially. And while they’re not as engaged as Pathfinders (they’re not particularly interested in trying new things, and volunteering is not a high priority), they rate their happiness as high and are the most open to relocating, including to adult-living communities.
Challenged Yet Hopefuls lead active lives and are focused on continual self-improvement, the survey found, and they rate themselves as happy and positive. But they waited until around age 45 to start saving for retirement, and so their life in retirement is limited because of that lack of financial preparation. They also were more likely than not to have made early withdrawals from their retirement accounts.
“They may feel they’re doing OK in the present, but the future trajectory is not promising, and they may well have to find ways to continue earning money or to spend far less in order to survive in their later years,” the survey report said.
Regretful Strugglers struggle not just financially, but also in relation to the other three pillars of health, family and purpose. Only half said they spend quality time with family and friends.
“A majority of Regretful Strugglers say they cannot live comfortably on the resources they have accumulated. A third admit they’re in serious financial trouble, and 43% say they are financially worse off in retirement than they were during their working years—even with the support of Social Security and Medicare,” the survey stated.
While they started saving for retirement around 42, which is three years before those retirees in the Challenged Yet Hopeful group, and fewer made early withdrawals from their retirement accounts, other setbacks along the way—illness, caregiving, divorce or death of a spouse—seriously impacted their ability to ensure a comfortable retirement.
“These people are pessimistic, and they are not enjoying their retirement at all,” Dychtwald said. “They’re the least active in retirement, and they’re the most likely to feel anxious and isolated.”
Taking this new collection of data points, Age Wave also plotted the archetypes against the Four Pillars and found that Purposeful Pathfinders, not surprisingly, graded themselves the highest across the board in health (88%), family (97%), purpose (98%) and finances (96%). Also not surprisingly, Regretful Strugglers graded themselves the lowest in health (30%), family (59%), purpose (37%) and finances (21%).
In the middle were Relaxed Traditionalists and Challenged Yet Hopefuls, who graded themselves similarly in family and health. The Traditionalists scored much higher in finances (75%) than the Hopefuls (42%), but Hopefuls rated themselves higher in purpose (86%) than Traditionalists (71%).
Fifty-two percent of Pathfinders and Traditionalists said they currently work with a financial advisor, while just 6% of Hopefuls and 8% of Strugglers said they do.
“The two groups who are doing the best in their later years are the ones who had a financial advisor on their team for years, and in most cases decades,” Dychtwald queried.
Overall, 61% of retirees said they wish they had planned better for the financial aspects of their lives in retirement, he said. “An almost equal number, 54%, said they might have planned financially, but they should have planned for how to spend their time, where they wanted to live, and how they would make new friends,” Dychtwald said.
“You may not think your job as a financial professional is about asking people questions about the non-financial aspects of their lives, but they don’t have anyone else to talk to about this,” he said. “There are no experts who have risen up.”
Dychtwald likened a financial planner to a whitewater rafting guide on an rapids excursion, one who knows the terrain ahead but lets the client choose whether to go around a rapid or through it. “They’re essential to giving us a heads up to what’s coming, giving us choices for how we’re going to navigate through it, and then making sure when we don’t go over a cliff,” he said.
In addition to the four personality archetypes, the study revealed that, with longevity expectations pressuring advisors to use 95 as a rough guide for age of death, there are four phases of retirement: Anticipation, where the planning takes place; Liberation/Disorientation, which is the first couple of years when everything is new; Reinvention, a phase that’s the heart of retirement and can last from year three to 14 or so, and Reflection/Resolution, which lasts from year 15 onward.