The ability of people in their 30s, 40s and 50s to visualize their future selves—that is, to see themselves, literally and figuratively, as someone 80 or older—leads to better retirement-related decisions.
That’s the premise behind years of work by psychologist Hal Hershfield, a professor of marketing, behavioral decision making and psychology at the Anderson School of Management at UCLA, whose research findings and insights into our future selves and their connection to retirement savings have been tapped by several prominent financial services firms as well as the Consumer Financial Protection Bureau.
I met Hal more than a decade ago when I asked him to speak at a conference on retirement income and to explain his work using a show-and-tell tool he developed. The tool employs computer-assisted imagery to age a person’s photo and show how they would look a few decades into the future. While video technology has vastly improved since then and now can do a much more realistic job of aging, even in 2011, seeing an older version of oneself was powerful. People who “experienced” their older selves and replaced either a hazy mental picture of themselves in the future or no picture at all, increased their saving to protect the person with whom they now felt a closer connection—their future self.
At the time of the conference, I thought the ability of advisors to give clients a glimpse of the future was a powerful and appealing tool that could be incorporated into retirement planning. Attendee feedback showed that advisors liked the presentation, but most thought using the tool would be a bit too “woo-woo” for their business. In this observer’s opinion, doubts about the tool’s ability to increase AUM or otherwise help drive advisor revenue were probably the more meaningful concern for many advisors.
I spoke with Hal recently to find out what has changed over the 18 years he has worked on the future self.
“More advisors are now aware of the concept, but still only a relative few are using it in their conversations,” he said, noting that the defined contribution business continues to be alert to innovations based on behavioral economics.
Hershfield describes his insights into increasing retirement savings as more of a “boost” than a “nudge,” a term applicable to the work of his colleague at UCLA, behavioral economist Shlomo Benartzi, who, along with Nobel Laureate Richard Thaler of the University of Chicago, developed the Save More Tomorrow program. That program, adopted by many defined contribution plans, pioneered the ideas of making opting in to plan participation the default choice (participants are free to opt out), as well as automating increases in annual contribution percentages and tying the increase to salary hikes. These behavioral nudges have increased 401(k) balances significantly.
“Boosts by their nature have a smaller impact on savings than a nudge, but they are still significant,” said Hershfield. He and Benartzi are working on a major, soon-to-be-announced project that incorporates boosts and nudges, as well as artificial intelligence, that will enable plan participants to visualize their ideal retirement and then take action based on what they see.
For advisors, Hershfield suggests that incorporating future-self conversations can be impactful in many ways, leading to more successful and fulfilling retirements and stronger advisor-client relationships.
“While saving enough for retirement remains a concern for society generally as well as for many people specifically, I get asked by many advisors about how to encourage retired clients who are financially secure to spend more of their money,” Hershfield said. Ironically, those diametrically opposed challenges can each be addressed by having discussions about the kind of life clients want in retirement and about how the client’s future self will look back at the life that he or she has lived.
My own two cents about why so many advisors avoid such conversations—and why they thought this whole future-self approach was kinda out there when Hal presented it more than a dozen years ago—is that they feel uncomfortable talking about emotion-laden issues that don’t lend themselves to mathematically precise answers. For most advisors, it’s far less stressful to run a Monte Carlo analysis that produces a 99% success rate, for example, than it is to help clients define what a 99% successful retirement looks like in their own mind, and what concerns they may have about achieving that result.
For help with having such conversations, Hal suggests material he developed for the CFPB. Free downloads from the agency’s site include a video, transcript and slides of a future-self training webinar and a practitioner resource guide. Take a look while the site remains accessible.
Comments, observations, suggestions? Please email [email protected]