Emotional responses to the surrounding world can have a big influence when it comes to retirement planning and creating long-term financial security. In a survey of individuals who are participants in 401(k) plans that Prudential Retirement recordkeeps, universal behaviors that hinder respondents from achieving long-term financial security were explored.
In the study, 20,159 respondents were surveyed online and given a series of 15 questions to identify their great challenges in achieving long-term financial security. Thiry-nine percent of respondents identified "longevity disconnect" as their greatest challenge while procrastination (26 percent), optimism bias (22 percent), following the crowd (8 percent), and instant gratification (5%) were also identified as key challenges.
ShirleyAnn Robertson, who has a Certification in Long-Term Care (CLTC) and is a registered representative with Prudential, said optimism bias affects clients. There is a “euphoria of hope” that leads clients to believe everything is great when it may be time to get their financial house in order, she added.
Longevity disconnect was reported as the most common challenge for survey respondents. “You are now required to fund your retirement. Can you afford your longevity?” said Robertson, explaining how she begins the retirement conversation with clients. Because clients are not connected to the cost of living a long life after retirement, they prolong taking action. Procrastination, another significant finding among survey participants, could forfeit their time advantage. Automating financial planning can help clients make progress, she said. For example, having them make payments automatically forces clients to make progress.
Despite the negative effects these behaviors can have, certain life events trigger positive financial choices. Robertson explains that the extreme optimism clients have when meeting with an advisor after having a baby, getting married, or buying a home is enthusiasm that she often uses to fuel clients to get active in other aspects of their financial lives.