As I look forward to my first £802 per month pension payment later in the year (already earmarked as a not-unwelcome contribution to the school fees pot), I am reminded I may not be the typical retiree.
However, I am in turn amused and irritated by the commentary surrounding retirement planning; in particular from those claiming copyright on “good retirement advice” and its associated processes.
This almost puritan quest for the standardisation of retirement planning reflects two disturbing industry tenets: ideas unsupported by historic data are unreliable and tools like cashflow planning are essential instruments.
While the pantheon of financial planning celebrities opines on retirement planning “dos and don’ts”, the most important wisdom – understanding the behaviours and aspirations of retirees – has been reduced to a stereotype. For some, unfortunately, the fun seems to be in the analysis and debate, rather than the advice and the outcome.
Sermonising on cashflow modelling, sequence risk and sustainable withdrawal rates echoes that contention. Much of what passes as “academic research” on these subjects is at best subjective scenario analysis and, at worst, pseudo-science, both testing outcomes against a historic market dataset.
Indeed, the conclusions drawn are given gravitas by sleight-of-hand, since the data is borrowed heavily from US sources which, in turn, have selectively reprocessed or regurgitated US studies of varying shades of authority that bear little relation to the UK experience.
You can calculate the probability of rolling a double six with dice but not the sustainability of a withdrawal rate. However powerful the analysis tools, solutions are being proposed for a model client that bears little resemblance to a real one.
Perhaps the most insidious aspect of current retirement planning is the stereotyping evidenced in conversations about retirees. In a survey of advisers, nearly half advise clients under the age of 40 and think younger clients prefer advisers of a similar age because they can relate to their circumstances. The corollary of this is that younger advisers cannot relate to retirees, who must have very different behaviours to their younger clients.
In 2006, during the launch of Selestia’s innovative Collective Retirement Account, I coined the acronym BIFs for people “Born in the Fifties”, raised in a period of cultural and political upheaval, and who have been well-served by asset growth over 40 years.
The unique set of circumstances that produced that reward (the discount rate falling from 35 per cent to zero, for example) is rather less likely to be repeated over the next few decades. BIFs may not appreciate being patted on the head and herded into the corral marked “allotment”. They have the life to enjoy that they would have aged 25, had they the wherewithal.
Indeed, Standard Life’s Death of Retirement report confirms that negative stereotypes about what it is like to be old persist among the young, while the antithesis is more likely to be true.
Psychologist Honey Langcaster-James declares: “This is the life stage when you will be happiest, likely to be in an established relationship, financially secure and most importantly, clear in the direction of your life… Ironically, the lifestyle age of an over 55 is closer to one that those under 25 are perceived to lead”. I concur wholeheartedly.
The issue is sustainability of personal and family fulfilment, not necessarily income withdrawals. It is a philosophical, rather than statistical issue.
This is where I believe qualified life coaches like Chris Budd have rather more to offer the advice community than manipulation of tax rules, tools and software, potentially becoming the catalysts for better relationships between advisers, younger and older, and their retiree clients. Being able to leave your biases and prejudices outside the client meeting room requires unusual self-control, and almost certainly remarkable listening and body language processing skills.
Asking clients leading questions based on the need to whip out the cashflow modelling software or the latest asset allocation tool seems to be a constraining feature of the modern advice process.
Media guru Marshall McLuhan recognised this in the 1960s when he warned that we build tools and then the tools shape us. We were becoming slaves to our support systems.
In advisers’ case, this translates as back office, asset allocation tools, outsourcing, platform selection, but perhaps most of all the “robust, repeatable” processes that encourage advice by conveyor-belt. Their limitations shape advisers’ behaviour, rather than advisers selecting behaviours, and adding infrastructure to support those behaviours.
BIFs are better prepared psychologically to do what they want in their golden years, but may need “Have you thought about…?” guidance.
A generation ago, when your hips and knees went, it was a life changing event. Today, you get yourself a new set and ski the Vallée Blanche (again). BIFs are less likely to think of themselves as seniors; being called Grandad is not what I envisioned the last time I danced at Wigan Casino. And they are less likely to stop playing contact sports after their third knee operation (I stopped playing football aged 62).
As Number 6 in “The Prisoner” declared 50 years ago: “I am not a number!”. Much as the powers that be might imagine our delight in being confined to an Italianate village on the south coast, not all of us want to conform to a prescribed, industry-standard retirement. Retirement planning should be more about behaviours in retirement and less about the solution that funds it.
Fit solutions to retirees, and not vice versa.
Graham Bentley is managing director of gbi2