How to get real on retirement without being too harsh

With many Canadians working to make last-minute contributions to their RRSP — and many others not doing so — advisors are likely having much-needed conversations about retirement savings with their clients. With challenges like longevity risk, market volatility, and debt ahead, it’s tempting to create a sense of urgency, especially in clients who are woefully behind. However, it may not be the most helpful way to go.

“Too often, discussions about retirement are rooted in fear, as if the only way to help people get serious about their savings is to scare them into it,” said George Fraser, managing director at US-based Retirement Benefits Group, in an interview with the Wall Street Journal. “By sending the message that people are hopelessly behind, the prospect of ever saving enough starts to feel out of reach and many don’t save at all.”

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Fraser said that being empathetic, especially with clients who already feel discouraged about their ability to save, can go a long way. Discussions with such clients can start with an online search showing them the public pension benefits they’re entitled to. “From that point, clients are often more engaged in learning about using savings vehicles … to cover their retirement needs.”

He added that loss aversion turns many clients off to the use of automatic enrolment and escalation schemes in retirement plans. While such strategies have been helping in boosting employee savings, people may hesitate to opt in because while it doesn’t represent an actual loss, it “sounds like taking too much out of their pockets.”

Rather than asking people how they’d feel about putting aside an additional 1% of their salary, he suggested asking what they thought about saving another penny out of every dollar they make. “A little change in language can have a tremendous impact on someone’s perspective, understanding and, ultimately, their behaviour,” he said.