Despite inhabiting one of the world's wealthiest nations, only 35% of Americans have a financial plan. This stark disparity stems from factors such as the cost of, and access to financial advice—along with a general discomfort when it comes to sharing financial details.
However, traditional planning methods are evolving with technological advancements, particularly artificial intelligence (AI). Simple retirement calculators are becoming obsolete—as is the practice of an advisor annually poring over a client’s income, assets, liabilities, risk profile and desired retirement age to craft a plan. Many people rely on siloed advice from a variety of institutions and online tools to inform their retirement objectives. This results in fractured experiences, and a lack of holistic advice.
A more comprehensive, scalable and accessible approach to financial planning is necessary in these modern times, especially as people are living longer due to medical advancements and healthier habits. If the wealth management industry seeks to meet the varying needs of retirees with extended lifespans, then it must adapt accordingly.
This drive to democratize financial advice aims to empower all Americans, not just the wealthy, to manage their finances effectively. Let's explore how the adoption of AI and technology can potentially mitigate the challenges facing retirees as they live longer lives and their financial circumstances evolve accordingly.
Longevity risk
The traditional three-stage life model—education, work and retirement at a predetermined age—is becoming increasingly obsolete. After all, this conventional approach was established during a time when life expectancies were significantly shorter. Recent research from the Stanford Center on Longevity reveals that fewer than half of those surveyed (46%) intend to retire at a specific age, indicating a shift in retirement planning mindsets.
One need look no further than the historically embraced 4% rule, which fails to account for market fluctuations. In bullish markets, retirees may miss out on potential wealth that could have funded enhanced healthcare or a more comfortable retirement lifestyle. Conversely, during market downturns, adhering to the 4% distribution can deplete retirement savings at an accelerated rate.
This significant change in Americans' retirement perspectives necessitates more adaptable and forward-thinking financial plans. These plans should be designed to automatically adjust to various life changes, such as shifts in retirement timing, increased healthcare expenses in later years, or longer-than-anticipated lifespans. To effectively address the complexities of extended retirements, planning must evolve beyond the rigid rules and predetermined timelines of the past, all while providing flexibility to accommodate dynamic life circumstances and associated financial impacts.
Quality Of Life
It’s crucial for Americans to have a thorough and well-rounded financial strategy in place—one that goes beyond simply covering basic living expenses in their golden years. Retirees should have access to adaptable plans that enable them to actively pursue their interests and passions. This approach can be key to ensuring contentment and fulfillment—in addition to maintaining financial security.
The ideal strategy should be readily adaptable, leveraging advanced technologies like AI to assist clients in reaching their financial goals. AI addresses who the client is, what resources they have available, what goals they have and runs robust calculations contextual to the household to serve up strategies the client can consider taking advantage of. Modern technology also empowers them to remain in alignment with their broader life goals, which vary by individual. Incorporating AI-based financial planning tools means that advisors can better prepare their clients for, and during their post-work years more effectively. It also means that families not working with an advisor today, can set and look at solving goals in a self-directed manner.
Accessibility For All
The demographics of retirees have changed dramatically over the past several decades. The traditional market focus of advisors has expanded to include a broader and more diverse spectrum of clients. Notably, there's been a surge in women seeking financial guidance.
In the future, advisors’ success will be predicated upon their ability to deliver strategies unique to all cohorts of client types, adding differentiation and value to their unique areas of expertise. And for the billions of people around the globe without access to sound advice, AI can help democratize contextual advice, at scale, across the entire wealth continuum. AI serves as a powerful tool when it comes to creating adaptable, comprehensive plans—ensuring relevance and effectiveness across different demographics and evolving individual circumstances.
Tech-Driven Solutions To The Rescue
As Americans face the financial challenges being amplified by longer life expectancies, scalable, technology-driven financial planning solutions become essential for advisors to meet modern retirees’ complex needs.
By leveraging AI incorporated into advanced planning tools, people can receive personalized and adaptive financial advice via self-directed, hybrid or traditional mechanisms to secure their financial futures, and the promise of a fulfilling retirement.
Stacie Calder is EVP of North American distribution and marketing at Conquest Planning, a disruptive, non-traditional financial advice delivery platform that leverages AI to help build personalized, dynamic plans at scale across the entire wealth continuum.