How Some Investors Saved 50% More

While some people view risk as synonymous with opportunity, the majority of us don’t enjoy the roller coaster ride of investing.  Our natural proclivity for risk-avoidance can, unfortunately, become a deterrent in deciding how much we save. Without having specific goals, investors often default to a relatively low contribution rate to retirement accounts and other investment vehicles.  They commit only how much they feel comfortable investing, rather than looking at how much they actually need to be saving in order to fund their retirement or other financial goals.

In the November issue of the Journal of Financial Planning, Professors Michael Finke and Terrence Martin published a study of 7616 people born between 1957 and 1965, looking at whether working with a financial planner produced improved outcomes for accumulated retirement wealth.  Here are their conclusions:

Results indicate consistent evidence that a retirement planning strategy and the use of a financial planner can have a sizeable impact on retirement savings.  Those who had calculated  retirement needs and used a financial planner… generated more than 50% greater savings than those who estimated retirement needs on their own without a planner. 

When I read the executive summary of their article, I wondered if perhaps the results reflected that higher income people were simply more likely to use a financial planner.  However, the authors took this into consideration.  They controlled for differences in household characteristics such as income, education, and home ownership… Even after controlling for socioeconomic status, households that used a financial planner and calculated retirement needs had significantly higher retirement wealth accumulation across all quantiles relative to households with no plan. 

Interestingly, the authors noted that this result of 50% higher wealth was not due to investment performance.  When they looked at individuals who used a financial advisor who was not doing a comprehensive plan (such as a stock broker), they noted that using a planner without estimating retirement needs had little impact on accumulation compared to having no retirement strategy at all.  

And that’s why we put planning first at Good Life Wealth Management.  Goals dictate actions.  Only when we have a clear picture of what you want to accomplish will we will know if you are on track or behind schedule.  We’re more willing to save when we are working towards a finish line, as opposed to worrying about what the market is going to do next.  If you’re looking for a comprehensive advisor to bring clarity to your goals and to carry out your game plan, I hope you’ll give me a call.