Are You Overlooking The Most Important Decisions For Preretirees And Retirees?

When it comes to retirement decisions and strategies, many preretirees and retirees overlook the most important ones they need to consider for their particular circumstances and goals. Instead, they may often place a low priority on more important retirement decisions and place a higher priority on decisions that won’t significantly impact their financial wellbeing. Let’s see why.

Many Preretirees And Retirees Should Consider Reprioritizing Their Decisions

More than half of all preretirees and retirees would like help making key decisions from a financial professional, according to “Disconnected: Reality vs. Perception in Retirement Planning,” a recent survey and study from the Stanford Center on Longevity. And indeed, they do need help, since more than half of the pre-retiree and retiree survey respondents rated their financial situation as fragile or barely able to get by.

When asked which decisions they wanted help with, many survey respondents chose those that involved saving and investing for retirement. Since those were important decisions when they were saving for retirement, their responses are understandable. However, for most people, there are other decisions that will have a much larger influence on their financial security when it comes to transitioning into retirement and living well in their later years.

For example, 64% of surveyed pre-retirees wanted help with investing for retirement; this decision was ranked the highest when it came to wanting help from a professional. By contrast, for most pre-retirees, deciding when to retire is the decision that will truly have the largest impact on their retirement security. However, this decision was ranked ninth in importance by pre-retiree respondents.

Similarly, deciding when to start Social Security benefits has the second-most influence on financial security for most retirees. In the survey, it was ranked fifth in importance by pre-retiree survey respondents.

What Decisions Will Have The Biggest Impact On Retirement Security?

Based on my research on retirement strategies and decision-making, below is my ranking of the top five retirement decisions and tasks for most pre-retirees and retirees:

1. When to retire;
2. When to start Social Security benefits;
3. Supplementing Social Security income and building a portfolio of lifetime retirement income from pensions and systematic withdrawals from savings;
4. Preparing a budget for living expenses and determining whether your total retirement income will be sufficient; and
5. Developing a plan to pay for medical expenses in retirement.

Note that the only decision involving investing is the third decision listed above, and then it is most relevant for retirees with substantial retirement savings (about $500,000 or more).

What Can Be Done To Help Pre-Retirees And Retirees Make Important Decisions?

Thoroughly understanding all the factors surrounding the most important retirement decisions and strategies is beyond the expertise and experience of most pre-retirees and retirees. Because of that, it will take considerable effort to educate them about the issues and their decision options.

The Disconnected study identifies a robust, three-phase approach to guiding pre-retirees and retirees to make effective decisions:

1. Engage and educate pre-retirees and retirees regarding the various decisions and strategy options.
2. Guide them to make decisions given their circumstances and goals.
3. Enable by helping them implement their decisions.

Too often, retirement professionals and their clients start with the second step—they jump right into analyzing potential solutions without laying the decision-making groundwork first. Instead, they should start with the first step, which is to help them understand the importance of various decisions and convince them to spend time exploring their options.

The Disconnected study identifies two techniques that can help pre-retirees and retirees engage with the decisions they face:

• Tell them stories of people who are wrestling with the same decisions, which can motivate them to take action, and
• Ask probing questions about their goals, which can help them focus on the key decisions they’ll need to make.

“Keep it simple” is a guiding principle that can work well. Pre-retirees and retirees will likely be better able to absorb more complex information after they have engaged with the decisions they’re facing and are committed to spending time analyzing their options.

There’s a lot at stake here for pre-retirees and those just recently retired. If you’re in one of these groups, it’s important that you understand that the decisions you face will impact your financial security for the rest of your life, which could last 20 to 30 years or more. You’ll want to identify and understand the decisions that will have the most impact on your financial security and think through how you’ll make these decisions. You’ll also want to seek financial professionals and institutions who can guide you through the journey. You can do it.