We've all played with retirement calculators that start with our assets and tell us what we'll end up with. But flipping the equation is getting big results that all plan advisors should learn from.
Plan provider The Principal Financial Group retooled its calculator a few years ago to start with what participants will need to enjoy certain standards of living when they retire. Then it determines what kind of behavior will be necessary to achieve that goal, given the assets already available.
It's a brilliant application of the planning process to mass-market retirement advice, and one that in hindsight is perfectly obvious.
Of course the conventional calculators are useless for modifying behavior because they don't translate their results into concrete benchmarks that will make the difference between either privation or luxury decades down the road.
And it's easy enough to fib on the conventional calculators in order to get a satisfying result.
But The Principal approach scares undersavers into saving more -- always a good thing for a plan sponsor and a key measure of success for advisors.
On average, starting with the goal has boosted contribution levels by 39% and could, if followed throughout working life, generate an average of $150,000 extra for each plan participant whose behavior changes as a result of using the calculator.
And at vanilla 4% sustainable withdrawal standards, that $150,000 would translate into an extra $500 a month in income, and that's not exactly an inconsiderable amount of money.
In other words, it starts with the goal