The Boulevard to Financial Independence

As the housing market does a nose dive in certain areas of the country and analysts suggest that we’re not yet through the worst of it as adjustable rate mortgages continue to reset, many people nearing retirement are getting a bit more anxious.  Somewhere around 50% of Americans are counting on their home as a significant part of their retirement nest egg.

I had coffee last week with someone and he started talking about Boulevard R’s calculations.  He assumed that we were counting the equity in his house as an asset that could be counted toward his retirement.  Lots of Americans are counting on the recent gains in the housing market to fund their retirement.  Unfortunately, your home is not something that you want to bank on.

First of all, you have to live somewhere, unless you plan on selling your home and spending the rest of your life living on a tropical beach in a tent (doesn’t sound half-bad, though it might be hard to fit all your furniture inside).  Second, you’re not going to get nearly as much money out of your house as might think.

Randy laid out the math nicely in an earlier blog post.

There are a lot of expenses when it comes to tapping the equity in your home.  Naturally, banks and other lenders are particularly good at getting more of your assets into their pockets.  Up until recently, I believe that the market capitalization of financial services companies included in the S&P 500 accounted for over 20% of its total value.  It’s quite rare for any sector to be so dominant and it’s a position that financials have held for multiple years.

So soon, Boulevard R is going to be implementing a new feature to allow users to count the equity in their home (though we don’t recommend it and urge consumers to beware of reverse mortgages, at least until they become a more reputable financial transaction without so many hidden fees or with such poor conditions).  The stark reality is that for many Americans, they’ve saved so little they’re going to need to tap into all the assets they can.

One more reason to do all you can to get on track now, even if that means delaying retirement a bit.  Just don’t get stuck in the trap that you can just work forever.  According to McKinsey, 40% of current retirees were forced to stop working earlier than they had planned, primarily through either layoffs or becoming disabled on the job.

There are a lot of downers when it comes to retirement.  There’s hope though- if you understand where you stand, become better informed and start to make incremental changes now, you’ll be able to navigate to a secure retirement.

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There was an op-ed in Investment News the other day that underscored the reason why consumers are distrustful of their financial providers and increasingly dissatisfied.

The article briefly discussed the scarcity of qualified financial advisors and then provided a first person account (from the perspective of a newly minted planner) of how the planner profession had an aggressive emphasis on sales and branding.  In essence, the article said that in the planner job market, sales skills are more than it is  a strong grasp of fiancial planning.  While knowing how to attract and retain clients is important, the ability to move product shouldn’t take precedent over the knowledge of appropriate client solutions.

It’s not like consumers haven’t noticed.  Nearly 70% of investors feel that “financial advisors and advisory firms put their own interests ahead of their clients” (Annual Securities Industry Association Investor Survey). Given this statistic, the interests of consumers and the interests of their providers seem seriously out of alignment. A recent study put out by BAI advocates that banks need to focus on establishing a dialogue with customers around their plan for retirement. While this is an important first step, a dialogue that doesn’t result in a retirement plan with the consumer firmly in the driver’s seat is insufficient. Planners need to act as customer advocates, not product advocates.

New startups, like Cake Financial, are beginning to recognize that there is a significant opportunity in providing unbiased advice to consumers while leveraging the knowledge of it’s users. Similarly, Boulevard R is developing features that will deliver the customized advice that consumers need to get on track for retirement- including experts who can respond to technical questions, as well as peers who are coming up with creative ways to save for retirement.

This sort of alignment (or common sense) with what consumers are looking for, will ultimately benefit everyone involved. Even though financial services is a conservative industry, we hope that providers start to think more creatively about how they can best serve their customer’s needs so that they can drive that 70% down towards 0%.

By Matt

For me, the word innovation brings to mind things like the iPhone, velcro, biofuels and defibrillators. Banking and trading stocks does not rank too high on this list.

Financial services, as an industry, is traditional and competitive around a couple key metrics like transactional costs, assets under management and rates of retention. While the insurance channel may be an extreme example, aversion to risk is the general rule and taking chances on new products or new approaches to services is generally not part of the culture. There are some large companies initiating innovative new programs, like ING, Citizen’s Bank of Canada and BofA, but they are largely the exception.

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By Matt

There is a big focus on Boomers in the financial services industries, most notably around their IRA rollovers. Pretty soon there is going to be a lot of money set in motion as Boomers cash out of their existing jobs and roll their retirement plans over, as they embark on something new. This last week I’ve been reading Turning Silver Into Gold and while the title sounds reminiscent of a self-help book, the insights it offers on the Boom demographic are really valuable.

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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:
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By Matt

This week I had a really inspiring conversation with Jason from Wesabe. He was very open about how they have been successful and how they’ve connected with the community of users who are active in personal finance. When we were talking, he mentioned that the blog post he wrote on what holds people back from getting their financial house in order really catalyzed interest in what they were doing. I went back and re-read it and it reminded me of a Mintel research paper I also re-read recently.

Their argument goes like this:

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