That was the tag line for a recent financial company that was trying to encourage people to save for their retirement. The idea of the marketing campaign is that everyone should know how big of a nest egg they will really need to have saved before they will be able to retire. So as part of the television advertisement you saw people walking around with an imaginary number over their head. The implication was that they know their number, so you should know your number too.
As a Certified Financial Planner™ I can respect the thought behind this kind of a marketing campaign. However, I have to wonder about its effectiveness and whether it is really doing any good. When people see an advertisement with numbers over people’s heads that are $1,000,000, $2,500,000 or $5,000,000 is that accomplishing anything?
I believe that when most people see those kind of numbers they think to themselves, “I’m never going to be able to save that much.” The numbers seem so unrealistic to the average person that it becomes meaningless. So the end result is that instead of really motivating people, these messages end up either scaring or discouraging people into inaction.
The other question is, “Where do these numbers come from?” Typically advisors will use financial calculators to generate the estimates for what their clients will need in retirement. But it’s important to be careful about relying too heavily on these calculators for retirement projections. Some of these calculators are just plain inaccurate or use faulty assumptions. It leads to the “garbage in, garbage out” syndrome.
As an example, most calculators ask you to estimate your retirement needs based on a percentage of your last year of work’s annual earnings. But what is the right percentage? Industry rules of thumb would say that you should use 75% - 80% as a minimum starting point. But what are we basing that on?
Most calculators also assume that you will spend the same amount of money every year (adjusted for inflation) after you retire. This leads to an ever increasing financial need every year of your life. I just don’t believe that is an accurate assumption. What I see happen with most of my clients is that once they reach age 80-85 their spending levels off (even if adjusted for inflation). You just don’t typically see people spend as much at an older age.
The reality is that everyone will have different goals and objectives for their retirement. As financial advisors it is our responsibility to get to know our clients on a personal level, to connect with them in a meaningful way, and find a way to motivate them to take action without scaring their pants off. We can’t use canned presentations or projections. We need to ask probing questions and then truly listen to the answers so that we can help people make accurate realistic estimates. Then we can help them get to where they really want to be in retirement.
Forrest Ross, CFP™
Retirement Services Director