Helping clients live life to the full in retirement

Greg Davies

Every generation has its own financial concerns, many of them influenced by anxieties and attitudes associated with a particular age. Aviva asked Greg Davies, an expert in investor psychology and Head of Behavioural Finance at the behavioural fintech Oxford Risk, for his insights into how advisers can help people who are approaching retirement, as well as those who have already retired and are worried that maintaining their hoped-for lifestyles may prove difficult.

The sixties football genius George Best once said, “I spent a lot of money on booze, birds and fast cars. The rest I just squandered.” According to Greg, some surprising wisdom is to be found in the “fifth Beatle’s” infamous quote.  From his experience, he finds “it’s best to spend money on great experiences, family and friends for your happiness and wellbeing”.

However, spending a lifetime’s hard-earned wealth on enjoyable times – or even helping your family – can prove emotionally challenging, says Greg, given that those in their sixties and seventies are naturally anxious about whether they have sufficient wealth to enjoy a comfortable old age and, if necessary, fund the cost of treating illness and potential care requirements.

Indeed, Greg believes, “worries about these issues may dominate financial decision-making and prompt many to squirrel money away rather than enjoy it or use it”.

That means they may be reluctant to help their offspring – who are likely to have children of their own and may be looking to capitalise a business or pay education fees – even though they want to, and at a time when the younger generation is most in need of help. Older people may also sacrifice the enjoyment their retirement years should bring because they are prey to anxieties about becoming a ‘burden’ on their children.

Advisers can help liberate older clients from these fears. Greg believes many people think about retirement finances in terms of a pot that is constantly diminishing as money is spent. But he points out that “if those savings are large enough, money can be withdrawn, and the remainder still has the potential to grow if it remains invested”.

Moreover, says Greg, products such as equity release, annuities, and health and life insurance can ensure future financial security.

Drawing back the emotional curtains on equity release

Equity release can certainly be a very useful tool, but there are sentimental barriers that have to be overcome – such as the pride involved in paying off a mortgage and fully owning a home that holds a lifetime’s memories.

Moreover, due to a concept known as mental accounting, people tend to think of their overall wealth as divided into pots with ‘emotional curtains’ between them, and it can prove difficult to regard individual assets as part of an overall financial safety buffer.

Draw back that mental curtain, says Greg, and “equity release offers the elderly the capacity to live fuller lives in the knowledge they have an asset that they can dip into when required”.

Interestingly, Aviva’s own research shows that while many homeowners are reluctant to explore equity release, due to guilt at taking from an inheritance, children have no problem with their parents using equity release.¹ In other words, the guilt associated with this product is unfounded.

The liberating power of annuities

Greg says that annuities, like equity release, have a poor image despite offering significant advantages:

“There is an issue in behavioural psychology called ‘framing’. So, if you tell people about the possibility of putting down a lump sum to secure a regular income for the rest of their life, no matter how long, most react enthusiastically. But suggest an annuity, and they respond negatively.”

The fact that the income from annuities disappears when the holder dies and can’t be passed onto children deters many. But as Greg argues, “The flip side is children have some protection against the financial burden of supporting their parents in old age. Being liberated from some of the worries about financing old age can also help clients make more considered decisions about their remaining wealth and how they can help their children and grandchildren through gifting, as well as simply enjoy the rest of their lives.”

Clearly, there are many potential financial solutions to the natural financial anxieties to which older clients are prey. Understanding those concerns and breaking down the associated mental barriers can deliver emotional and financial freedom for your older clients.

¹ Aviva Quantitative Research July 2022

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