I am not a conspiracy theorist.  I do not believe that the recent removal of Twinkies from the grocery shelves was part of a Communist plot.  I don’t think our own government faked the bombing of the twin towers of the World Trade Center in 2001, and I do believe that, yes, men actually landed on the moon, and no, it wasn’t all filmed in the Arizona desert.  I suppose it also makes me naïve to say that I believe Lee Harvey Oswald acted alone in the Kennedy assignation.  But I do believe that there is an ongoing effort by the media and some in the financial community to focus our attention solely on the accumulation of assets instead of the preservation and cautionary use of our assets.

Call me crazy, but I believe that we are purposely being fed unbalanced and dangerous advice from some magazines, market analysts, and some of the talking heads on TV’s financial networks.  When I tune into a television program dealing with finance, or pick up a magazine devoted to the subject of investing, there is little of substance presented that  acknowledges that there are two distinct phases of our economic lives:  accumulation and distribution.  The media seems to be pushing only the accumulation side.  Why is that?

One clue may be to check out who pays the bills.  Most of the ads in the magazines come from brokerage houses, which know only one concept of growing your savings for your eventual retirement – putting it at risk in the stock market.  Frankly, that’s not bad for someone who is in their forties and has years to make up for market losses by capitalizing on subsequent gains.  Those investors who are approaching retirement are inundated with information that directs them to the solely market-biased investing philosophies and nary a whisper is heard about safe-money approaches to savings growth.

In their white paper entitled “Accumulation Conditioning of Investors and Advisers,” Christine G. Russell and Sean M. Ciemiewicz make the point that the major media messages around retirement focus almost exclusively on accumulation, and that it has a conditioning effect.  They contend that “both investors and advisers balk at changing tactics to accommodate the spending phase of retirement.”  According to Russell and Ciemiewicz, this conditioning causes “sub-optimal” outcomes for many investors when they begin living in retirement.

Because schools offer little in the way of education on how to handle finances in the adult world, most people pick up bits and pieces here and there as they grope their way along.  If you have ever had an employer who sponsored a 401(k) plan, you probably formed many of your opinions about investing from the employee meetings where those savings and investment programs were explained.  Perhaps they dealt with asset allocation, diversification, dollar cost averaging, and the dangers of taking out loans unnecessarily.  But little is ever said about the end game, when you are nearing retirement, or what to do when the paychecks stop and it’s time to replace them with your savings – the spending phase, in other words.

What happens when those approaching retirement reach out to acquire an education?  The deck seems stacked against them.  Most advice sources seem to speak only the language of accumulation, not preservation and distribution.  Decisions at this stage of the game are more critical, too.  An investing mistake made early on in life can be lived through and overcome because time is on your side.  More money is involved in investment decisions made toward the end of our working years and into retirement.  A $1,000 error is much easier to compensate for than a $100,000 error.

Russell and Ciemiewicz also believe that seniors, like it or not, are at a cognitive disadvantage.  They contend that we peak in middle age when it comes to our ability to make financial decisions.  Couple that with the fact that all these retirees have ever heard about handling their finances tends to revolve around accumulation, and not with what to do with what they have accumulated when it is time to retire.  Naturally, their decisions are going to reflect that.  At just the time in their lives when they need to obtain and process new information on the spending phase of their lives, they experience a decline in both their ability and their willingness to do so.

Russell and Ceimiewicz also zeroed in on the root cause for many poor decisions made by retirees – reluctance to seek professional help.  They quote a survey done by the MetLife Mature Market Institute revealing that only 49% of retirement decisions were made using the advice of a financial planner.  Most were by people who trusted their own judgment and instincts.  This doesn’t surprise me.  The financial advisory community appears to be divided on many issues.  There seems to be a continental divide of sorts between those that would have every dollar and dime of a retiree’s money invested in risk-bearing investments and those who would insist that no investment risk whatsoever should be taken by anyone over 60.  As is the case with many dichotomies of thought, the truth is in the middle.  Advice seekers are confused, however, and many tend to ask the advice of a relative, friend, or co-worker before making a financial decision.  Why?  Because they feel they can trust them and that their relative, friend or co-worker has no dog in the hunt, and is apt to give them unbiased advice.  In short, the individuals are within their circle of trust, while the financial advisor is not.  Understandable!  When it comes to your money, trust plays a huge part in which you believe.  More than experience.  More than expertise.  There’s an old expression, “once burned, twice shy.”  Those who experienced dramatic losses in their retirement portfolios while their advisor sat silently by are less likely to trust so openly again.  Can you blame them?

The MetLife study reported that 48% of those who choose to take the do-it-yourself approach to retirement planning spend less than 10 hours per year in preparation for the complexities they may face in retirement.  Since their “education” to that point in their lives has been accumulation-biased, they are less likely to make informed decisions.  The report issued by Russell and Ceimiewicz makes the following observation:

“For instance, perhaps these factors account for the bias against using an annuity that many individuals exhibit.  Using an annuity for retirement income can be an effective and extremely useful tool, but when asked, or presented with an annuity option, many investors refuse to invest any of their accumulated retirement savings – even just partially.  Even the word, “annuity,” can bring forth a bias against using this product.  Excuses for not using an annuity include: ‘I have heard they are bad;’ ‘A certain TV personality said they are not a good investment option,’ ‘They have high fees so they are not good for me,’ ‘I don’t want to tie up my money for a long time,’ and ‘I can’t get my money out.’  While options and benefits surrounding various annuity types can be appealing to an individual for a portion of their assets, they often change their mind and reject the idea merely because the “annuity” word is used.  What amounts to a clear cost/benefit analysis turns into a preconceived opinion that annuities are bad.  It seems plausible that this bias was either magnified or created by conditioning.  While an annuity may not be appropriate in all instances, some annuities may help solve critical issues for retirees.”

The Wharton School, University of Pennsylvania, one of the most prestigious business schools in America.  Their research in all things pertaining to investment and retirement planning is done by professors, who have no merchandise to push, no advertisers to please, and no agenda to promote.  In other words, it is unbiased.  Their research is quite comprehensive and is available to anyone free of charge.   I’m not going to tell you their recent report on Real World Index Annuity Returns is a good book for the beach, nor is Professor David Babbel, who compiled the work, the next Stephen King.  But if you want an unbiased, factual, and statistical education, it’s worth the read.

Sadly, many Americans these days get their financial education from TV program sound bites.  I know some individuals who rely on the unrestrained antics of a stock picker on one of the ubiquitous money and investment networks.  He comes out ringing a cow bell, yelling at the camera and honking a bulb horn for comedic effect.  He’s been wrong as much as he has been right about his predictions, but hey… he’s on TV, so he must know what he’s doing, right?

The truth is, these cable and satellite television shows condition investors, not on prudent retirement strategies, but on accumulation strategy.  The messages they contain are often carefully designed to appeal to as many investors as possible and focus on the excitement of “beating the odds” by picking the winners and dumping the losers, as these show hosts perceive them to be.  Focused more on hype and ratings, they will put the spotlight on what is sexy, not on the boringly conservative “decumulation” end of the spectrum.  What drops out the bottom is an ill-informed, unprepared and often mis-invested retiring public that simply doesn’t know what it doesn’t know, which is the worst kind of ignorance one can possess.

The Russell/Ceimiewicz report concludes:

“Accumulation of assets works very well during the working and prime saving years of investors, but during one’s retirement, products used and strategies employed must change.  Failing such a change, the investor may run out of money too soon, or spend too little in retirement.  Thus, investors deprive themselves during the final phase of their lives.  Even with all the emphasis on accumulation, investors still make many questionable planning decisions. “

 What the Future Holds

 Those who know me know that I am a glass-half-full kind of guy.  I believe that, as an industry, financial advisory firms are becoming more educated as the baby boomers age and approach retirement at the rate of 10,000.  This group has demanded change all their lives and have gotten it.  When something doesn’t make fiscal sense to them, boomers don’t tolerate it for very long before they put economic pressure on the marketplace for change.  That’s why the insurance industry revamped their annuities a decade ago.  That’s why we see alternative ways of providing long term care.  This same spirit will also, in my opinion, force advisors who have blinders on to see the light and show that they understand the complexity of retirement-income planning.

I believe that experiences like the last market crash in 2008 will be a positive for retiring investors of the boom generation.  The hue and cry for more guarantees, less risk and preservation-oriented strategies for retirement will not be stifled.  Many advisors who have been looking down Wall Street and now starting to look down Main Street and are beginning to better educate their retiree clients in investing concepts that fit their stage of life and not simply going to the same well for solutions that no longer work.

There is an old expression, “nature abhors a vacuum.” Well, so does free enterprise.  Necessity is often the mother of invention in the world of business and finance.  We have yet to see many of the positive changes that will take place to make investing ones’ money a safer place.  Independent advisors with fiduciary duty to their clients, and not to any one organization, will be the first ones to catch that wave and help their clients benefit from the new direction.  I read recently an interesting article by Stanford University Fellow Vivek Wadhwa, who pointed out that one of the great concerns of the world, clean water, may see a solution through the enterprising efforts of the man who invented the Segway personal transporter, which is a one-person scooter that is becoming popular in airports and malls.  Dean Kamen calls his new device that he anticipates will keep countries such as India, China and parts of the Middle East from running out of water in this century, the “Slingshot.”  It’s a vapor-compression water-purification machine that can produce about 30 liters of 100% pure distilled water per hour using the same power as a hair dryer consumes. It can transform dirty water from any source: rivers, oceans, and even raw sewage. According to Wadhwa, Slingshot was recently tested by the Coca-Cola Company for six months in Africa and the device worked flawlessly.   Desalinating water has been going on for decades, but the energy required makes it too expensive for the masses.  This way, problem solved.  Millions of lives saved.  Disease and sickness from water-borne viruses and bacteria eliminated.  As more and more retirees flood the socio-economic scene, the tone and tune of the media will be forced to change and give them what they need instead of what serves the barons of Wall Street.  If we can put men on the moon, and we can solve the world’s water problems, then we can correct the trend of the media “conditioning” advisors and investors to their detriment.

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