Retirement Planning Advice: Get Started

TIAA-CREF, the big financial advising firm that works with educators and non-profits, has an interesting new study out on retirement planning advice. The immediate takeaway is that many of us are concerned about getting good financial advice, yet we too often fail to act on the advice we get.

The group surveyed 1,006 adults at random by phone in mid-summer this year. A startling half (51%) said they didn’t know where to start looking for retirement planning advice, and 74% said they had trouble knowing whom to trust.

Nearly half (47%) said they rely on friends and family for retirement planning advice, followed by financial services firms (34%), their own banks (33%) and then their employer (17%).

Nevertheless, those who did turn to financial services firms or an employer for retirement planning advice very strongly tended to believe what they heard (64% and 66%, respectively).

The really telling point, from our perspective, is that most people come very late to the topic of retirement planning advice. From the report:

Americans’ concern that they will run out of money in retirement peaks in early middle age—often a period of considerable financial pressure. About six in 10 Americans age 45 to 54 said they frequently have this worry.

It’s understandable, even natural, for people to put off worrying about retirement. When you are in your 20s and 30s, the idea of quitting work and relying on savings seems impossibly far away. You might be focused more on your career (after all, making money is the first step) or starting a family (why else are we here?) or even simply trying to enjoy life.

We get it. Money can be no fun to think about. But that’s exactly why we’re such big proponents of passive investing. If a person in his or her late 20s or early 30s can get over the hump of simply saving more, then investing need not be a chore at all. By far the most powerful tool at a young person’s disposal is time to allow for compounding.

It is that very same cohort of young folks who are most predisposed to use online tools to manage their own money, a trend which should give financial advisers pause.

From TIAA-CREF:

Not surprisingly, 18- to 34-year-olds also were much more comfortable than other age groups using online financial tools, with nearly 60 percent of them saying they already do so. By comparison, only 19 percent of consumers 65 and older said they use such tools.

Much like online trading ended the monopoly brokers once enjoyed, online investing could — and in our view, should — displace basic asset allocation advising. Yet many financial planners think of that as a major part of the retirement planning advice they have to offer.

Does that mean that young people don’t need retirement planning advice? Of course not. They do need competent tax and IRA advice. Nor does this report mean that near-retiree or retiree investors cannot benefit from using online tools.

Far from it: Most financial advisers will tell you straight up (if they are honest about the research) that the single most important retirement planning advice they could offer you is the strength to avoid trading. Retail investors get into the most trouble when they try to hop in and out of positions too quickly, giving up potential gains and sitting far too long in highly appreciated — and thus overbought — sectors.

Retirement planning advice value

That’s not to say a simple 60/40 stocks and bonds split, but a truly diversified portfolio that includes U.S. stocks and bonds but also allocations to a range of uncorrelated assets, including ETFs such as SPDR Gold Shares (GLD), foreign developed stocks through iShares MSCI EAFE Small Cap Index (SCZ), emerging markets via Vanguard Emerging Markets Stock ETF (VWO) and real estate using SPDR DJ Wilshire REIT (RWR), among others.

The vast majority of investors would prosper over the course of an investing career just by following a fairly simple asset allocation plan that takes into account their risk tolerance and guides them toward low-cost, effective ETFs to achieve those goals. And one that rebalances with a reasonable frequency.

Retirement planning advice is important. Getting highly qualified help with a long-term retirement savings plan can make the difference between retiring on time or retiring at all. Just make sure you get what you pay for.