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New research shows how to talk to seniors about their investments.
Titled “Behavioral finance and the post-retirement crisis,” sponsored by Allianz Insurance, and released in May, this report compiles findings on how older investors perceive risk and make financial decisions.
Ten top psychologists, consumer behavior experts and behavioral economists contributed to this report.
Here are some of their suggestions on how to frame conversations with seniors around risk and investing.
Focus on income
Anyone dealing with seniors recognizes their focus on regular income.
As a result, how you present an investment can have a big impact on how it’s received.
When presented as providing income, 70% of investors over 50 chose an annuity.
By contrast, only 21% chose the exact same annuity when positioned as an investment solution with monthly returns for life.
Hyper-aversion to loss
Investors experience the pain of a loss twice as strongly as the benefit of a gain.
For retirees, however, the pain of a loss is five times stronger than the equivalent gain.
That means that when talking to seniors, you need to be very conscious of the sensitivity to loss.
Desire for control
Given their fear, you’d expect retirees to opt for protection and guarantees.
However, studies show the reverse is true.
The reason – many retirees shy away from products with guarantees because they don’t want to give up control.
So when talking to retirees, you need to address concerns that they’ll be locked in and lose access to their savings.
The impact of inflation
Advisors know the devastating impact of even modest levels of inflation in eroding retirement spending power.
However, unless you help them think this through, many seniors tend to focus on the nominal amounts they’ll be receiving and to ignore the impact of inflation. This is one way that advisors can add value to client conversations.
