Thinking your way to a better retirement - By Anne Tergesen

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Here’s a 21st century concept: A free web tool and mobile app that aims to help people think more effectively about what they really want in retirement.

Designed by Shlomo Benartzi, a UCLA professor and chief behavioral economist at Allianz , the app follows a seven-step process that incorporates research from the fields of behavioral finance and psychology.

The app is designed to “give people a place to think,” says Benartzi, “It sounds a bit funny. After all, we use websites and apps to do things like get information and shop. It’s rather unusual to have an app that’s dedicated to helping people think, but I think that’s what’s really needed” in retirement planning.

Benartzi is the co-creator, with the University of Chicago’s Richard H. Thaler, of “Save More For Tomorrow,” a program used by more than half of the nation’s 401(k) plans to get participants to agree to automatically increase their retirement plan contributions annually.

Going offline

While the Retirement Goal Planning System may be helpful to people of any age, it is best suited to mid-career and older workers. The reason: entry-level employees have one overriding retirement-oriented need — to save as much as possible. But as people age, “the one-size-fits-all approach” no longer works says Benartzi. “Their circumstances and preferences are all so different.”

The app’s goal: To help people “step back and ask – What do I want to achieve? What am I missing? And what matters most to me?” – all key questions that you should ideally answer before sitting down with an financial adviser to construct a retirement plan.
The program starts by asking users to go off-line and list “all the goals you have for retirement” on a blank sheet of paper.

Step two: To browse a “master list” of a dozen goals — compiled with input from “dozens of financial advisers and hundreds of individuals” — and add to the initial list, Benartzi writes in a companion book titled, “Thinking Smarter: Seven Steps to Your Fulfilling Retirement…. And Life.” The “master” goals include: financial independence, travel & leisure, healthcare, a second career, bequests, self-improvement, social engagement, and giving back.

Why the two step goal-setting process? To ensure you don’t forget or overlook anything that’s important to you. For a variety of reason — including a tendency to “think too fast” and only focus on “the options in front of you” — people often make this mistake, says Benartzi.
Buckets
After refining your goals, the app asks you to sort them into three buckets — choosing the three “most important,” the four that are “moderately important” and the five “least important.” Again, behavioral techniques are behind the bucket exercise, says Benartzi.
“It’s really hard to rank your top 10 goals, so we don’t ask people to decide what’s their 7th most important goal and what’s their 8th. It’s a lot easier to put things into three categories.”

The final four steps involve “stress testing” one’s goals, by imagining a range of outcomes — from the worst possible retirement to the best. Because people often find it hard to “stretch their imaginations enough,” the program prods them — by giving them good and bad scenarios and asking them to come up with a story to explain these outcomes.

“If you ask people to predict how old or young they might be when they die, it’s very difficult for them to” fathom dying soon, says Benartzi. “But if you tell them, ‘let’s assume you die next year. Tell us how that happened,’” they can better imagine that outcome — and might re-prioritize their goals as a result, he adds.

To get users to “think through what might change in their lives in unexpected ways,” the program asks them to think about their 20- and 30-year-old selves – and whether their priorities and goals have shifted in the intervening years.

“People who didn’t think they’d want children now say they wish they had started on their families earlier,” he says. “The purpose is to point out how difficult it is to predict what we’ll be like in ten or twenty years.”
The solution? Step six, which prods users “to learn from others who have experienced retirement,” says Benartzi. Again, the program gives users specific examples of people in their 60s, 70s, and 80s — such as “a lady in her 80s for whom travel is not that important” — and asks them to come up with explanations for those preferences.

“People find it easy to understand that” someone in her 80s who doesn’t travel may be constrained by her health, he says. “Once you raise those possibilities, it’s easier for them to imagine what might change down the road” — which again, might cause a user to shift his or her goals and priorities.

Culled from Marketwatch