When it comes to retirement, there's plenty to worry and dream about. But according to a recent survey, the three biggest worries that clients of financial advisers face seem somewhat easy to solve. Or at least they do to those who spend time studying such things.
In its survey, Principal Financial Group found that slightly more than eight in 10 advisers say their clients' top dream is greater financial security in retirement.
And according to advisers surveyed, their clients' greatest retirement worries are, in order, outliving their savings (87%); the ability to enjoy the same quality of life in retirement (79%); and the ability to afford good medical care (70%).
Not surprisingly, the survey showed that clients who can "easily visualize their financial dreams may be less worried about retirement." But the survey also showed that very folks are spending much time visualizing. Only one in 10 advisers said their clients find it "easy to picture their financial dreams."
Given those worries, we posed these questions to those in the business of giving advice: What would you tell Americans to do to alleviate their greatest worries? And two, what would say to Americans who can't picture their financial dreams? Here's what they had to say.
Dealing with your worries
In general, when it comes to dealing with your worries, it's important separate those worries that have some merit from those without merit, according to Dr. Marty Martin, an associate professor at DePaul and a financial psychologist at Aequus Wealth Management. "After distinguishing among the worries, then do some 'what ifs' of the worries and develop a planning or coping response for each worry."
This technique, Martin said, is called stress inoculation training in psychology and is also used with pilots in training in simulators where they learn how to fly under ideal conditions and nightmare conditions so that if the nightmare actually happens, the pilot is better able to respond rationally. The same holds true for those planning for retirement, he said.
For his part, Victor Ricciardi, a behavioral finance expert and finance professor at Goucher College, said it's easy to understand why Americans are worried right now, given what happened in 2008. "This event in financial history causes people to suffer from the behavioral finance concept known as anchoring," he said. "With the anchoring process, people latch on to a belief that may or may not be true and apply it as a reference point for future decisions."
And the best way to deal with anchoring, according to Ricciardi, is acknowledge that it exists and try to avoid the negative emotions associated with this historical event. "Over the long-term, investors should make sure they have an appropriate percentage of their portfolio in stock mutual funds and not avoid this stocks because of the historical events of recent times."
Besides using stress inoculation training and acknowledging anchoring bias, advisers say there at least four steps to take to overcoming your worries.
First and foremost, Ron A. Rhoades, JD, CFP, an assistant professor at and program chair of the financial planning program at Alfred State College, recommends putting in place a comprehensive financial plan.
If you can't do this yourself, consider hiring "truly objective financial adviser." (Rhoades recommends seeking out fee-only advisers, in particular, such as those who are members of the National Association of Personal Financial Advisors (www.napfa.org), and the Garrett Planning Network (www.garrettplanningnetwork).
"Far too many individuals miss out on substantial opportunities to save on interest payments, taxes, and expenditures and they make poor financial decisions because they have never had an experienced financial planner sit down and discuss all aspects of their planning with them," he said. "Additionally, many Americans lack self-control when it comes to their finances; a good financial planner can utilize tools and methods to assist clients with the necessary self-control to save enough and make good, smart financial decisions."
Next, Rhoades recommends ignoring short-term market movements, unless you have designs on rebalancing your investment portfolio. His advice: Adopt a strategic asset allocation for the long term, and stick with it.
Three, Rhoades says, your investment plan should have a strategy for what to do if either of two things occur. "First, what if a 'dirty bomb' were to go off in a major U.S. city, and the stock market fell 40% in one day?" he asked. "Second, what if a 'double-dip recession' occurs, or another Great Recession, with an associated deep and prolonged stock market downturn. If your investment plan or what some call an 'investment policy' addresses what you will do should either of these events occur you will not worry as much."
And lastly, Rhoades urges us all to remember that stocks and stock mutual funds because of their inherent volatility are long-term investments. And to achieve the higher long-term returns that the stock market offers, Rhoades said you'll need to diversify, diversify, diversify; keep total fees and costs associated with investments reasonably low; invest tax-efficiently; and adhere to the long-term plan you adopt for your future, changing it only every five or more years (unless of course there is a significant unexpected change in your personal finances).
Visualize your future
You're not alone if you don't have a picture of what your retirement future might look like. But there are ways to visualize your future. "If you cannot picture your financial dreams, then first determine whether you can picture or vocalize your life dreams or the dreams for your children or grandchildren," said Martin.
If you cannot do any of these, Martin suggests asking yourself questions such as these: How did you achieve the goals over your lifetime including your financial goals? How did that happen? Did you plan? Can you use same tools and techniques to "picturing your financial life during retirement?"
For his part, Rhoades also had some questions for Americans who can't picture their financial dreams? "Ask yourself this question: 'If a doctor told you that your lifetime would end in five to six years, and you would be as healthy during that period as you are now, what would you like to do or accomplish during that time so at the end of your life you had no regrets?' Be very specific with the answers."
Then, if you have minor children, after answering the question one time, re-answer the question but now assume your children are grown and have good starts in life, said Rhoades.
"Remember that savings and the accumulation of wealth is not an end, but rather the means to accomplish your lifetime goals," said Rhoades. "You have to know your desired destinations or goals in order to develop an 'interactive road map' for where you are headed, what side trips or adventures are planned along the way, and how will you experience the joys which can be found in the close relationships you have fostered with family and friends."
MarketWatch special events: You're invited
MarketWatch extends a special invitation to our readers who are in New York next month to attend one of our live events on retirement.
"How to Deal with Retirement's Biggest Risks" is the topic of a MarketWatch panel discussion set for 8 a.m. Tuesday, Sept. 13, in New York, hosted by Robert Powell. Join us for this breakfast event featuring Dr. Kathryn McCabe Votava, president, Goodcare.com; Joseph Coughlin, director, AgeLab; and Rick Miller, CFP, founder of Sensible Financial Planning. They'll discuss how to protect and grow your retirement savings, how to cope with long-term health-care costs, how to live the retirement lifestyle you seek and provide a road map that can help you manage those risks.
If you'd like to join us for this free event, email your RSVP to MarketWatchevent@wsj.com by Friday, Sept. 9.