The Boulevard to Financial Independence

By Matt

I was just going over my notes from some discussions I’ve had with a behavioral economist at MIT and I thought there are some key points on retirement planning that are worth sharing. Since Boulevard R’s mission is to help motivate consumers to get on track for retirement, the more widely this latest research gets out (this same professor at MIT is working on a similar, non-commercial application of what we are creating), the better for everyone.

Some key concepts and take-aways:

• Motivate consumers by starting with what they want to do in retirement (their retirement vision). The key to really assisting consumers is to help them visualize what their retirement would look like and work with them to figure out how they can afford it.
  Ameriprise, even with all its consumer satisfaction issues, is big into this (sorry if everyone’s seen this; I’m TV-less):

• Play to consumers’ strengths and acknowledge their weaknesses
  • People don’t understand $ value trade-offs. For example, if you do X now (i.e. buy a car), what will you not be able to do in retirement as a result of this purchase?
• A dollar amount has no direct hedonistic component
  ice cream vs. $5
  • ice cream = person will be more happy, since it has a direct hedonistic component
  • $5 = marginal utility is highest, because there are almost an infinite number of things you can do with $5 and from a logical standpoint it appears to be the best possible gift, however the person is happier with the ice cream, since they know what they are getting.

• For a better solution, eliminate direct dealing with $ amounts and show the user how their goals (i.e. buy a home) trade-off with each other. Communicate what it means for their other goals if they buy a smaller house
• People are unmotivated by putting money in a big pot (i.e. deposit $2,000 in your Fidelity account or save $1,200,000 by the time you retire).
• In part because retirement planning is so complex, consumers generally parrot back what they have been told about. For example, that they are aggressive investors or that 70% of their present salary is enough to cover them in retirement. The professor said that when people come into the lab it turns out that they need more like 100% of present salary and they start to realize they may need to seriously adjust their goals.
• Retirement planning is a 2 step function:

1. Minimum Requirement- what is the absolute minimum needed to live in your area?
2. Additional quality of life- this is a utility function above your minimum requirement

These are some of the basic principles that drive the interaction of our application. We’d love to hear what other concepts you think are important in motivating consumers to get on track for retirement.

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