Merrill Lynch is making a big bet on a new retirement planning approach based on 'life priorities.'
Imagine planning a getaway for your family. You’d probably start with a few basic questions. Where will you go? What’s the best time of year? How much should you spend? These are natural considerations. They are also a terrible way to start the process.
Better to ask: What emotions do I want to experience? What’s the purpose of this trip? What feelings do I want to have when the travel is over? Once you decide that the trip is mostly about fitness, or family bonding, or culture, or just idle relaxation, you can more easily move on to the practical questions and enjoy some certainty about the outcome you desire.
Retirement planning is like that too. No longer is it purely a math game, where you choose a retirement date and an arbitrary goal like $1 million and then try to maximize returns to get there by age 65 or 67. Not quite a decade ago, author Lee Eisenberg tried to divine The Number and created a stir over how much individuals would need to save to reach financial security. But post-recession, the retirement industry is moving to a different model. Relationships and experiences come first. Financial planning, including how long to work, plays a supporting role.
This new approach is driven partly by what’s known as the new normal, an economic climate where growth, pay raises and stock market returns promise to run slow for decades. Yet the population continues to age; folks continue to retire, having hit The Number or not. It’s time to focus on what you have and how to achieve the goals that really matter.
In a sign of this thinking, Bank of America Merrill Lynch unveiled a goals-based retirement saving strategy called Merrill Lynch Clear. It will be at the center of all discussions with clients going forward, and later this year the strategy will be incorporated in Merrill-administered 401(k) plans with some $250 billion of assets. Financial advisers will begin with each client by assessing the relative importance of seven common “life priorities” that emerged during more than a year of research. Those priorities are health, home, family, finance, giving, work, and leisure. This assessment becomes the basis for a savings and investment plan.
Merrill has hired what may be Wall Street’s only a full-time gerontologist and partnered with leading experts in each life priority. Those include Marc Freedman, CEO of Encore.org, an authority on jobs and other productive engagement in later life; the luxury travel firm Virtuoso, which plans and books leisure travel around experiential goals; and Michael Liersch, an economist with a doctorate in cognitive psychology, who serves as behavioral finance director.
The basic idea of the Clear strategy is that life priorities are always shifting—your desire to start a hobby business might give way to college savings when your third grandchild arrives, or you might decide you want a ticket to go around the world three years from now. “It’s about monitoring life goals, not just account balances,” says David Tyrie, head of retirement and personal wealth solutions. As life goals shift, so should your portfolio.
That raises the troubling prospect of frequent portfolio moves, which can lead to excessive fees. But most people in or near retirement have a good idea of the direction they want to go; Tyrie says “course corrections” probably shouldn’t occur more than once or twice a year, if that. The nice thing is that they will be driven by life goals that you set and understand, not an arbitrary and potentially risky hunt for higher returns.
Merrill is making a big bet on Clear, which is part of a five-year strategic shift towards goals-based wealth management. If it works, the payoff could be huge. One of boomers’ biggest life priorities is their Gen Y offspring, now launching into careers and life in a tough climate and with little of the financial know-how they seem to crave. Helping boomers take care of what matters most to them—their kids—could help reel in the next generation of clients.