August 16, 2004
The path to retirement can be a long haul, so author David Shapiro recommends using GORP: goal-oriented retirement planning. The admittedly cutesy acronym does not diminish the gravity of Shapiro's topic, funding retirement for the millions of American Baby Boomers who have not yet saved enough.
Shapiro, CEO of Retirement Solutions of Los Gatos, Calif., introduces the concept of GORP in his new book, Retirement Countdown: Take Action Now to Get the Life You Want. "The intent of the book is to get people to realize the seriousness of planning for retirement and the predicament that most Americans are going to have to face," said Shapiro, who had been CEO of VARDS/Info-One, now owned by AnnuityNet in Herndon, Va.
Although paltry nest eggs and inadequate savings rates are both symptoms of the problem, emotional issues may loom even larger, Shapiro said, adding, "The biggest hurdle that people have is procrastination."
Much of the book deals with the emotional aspects of saving and getting people to start thinking about retirement. The reality is that 80% of Americans will have to work in retirement, Shapiro said, and those are the people whom he seeks to help with this book.
"The 20% of people who don't have to worry are the ones who have access to tools that are not all that meaningful to them," he said. Most broker/dealers are looking for bigger fish, the affluent clients with $1 million or more in assets. Those are the people whose primary concern is investment management, Shapiro said, not retirement planning.
The target audience for the book is the bulk of people, who need to start by first focusing on a goal for savings and retirement. "Let's forget about the investment side of this thing. You don't start just by saving money," he said.
This is where Shapiro's concept of GORP arose. Retirement planning is "an immense undertaking" for most people, he explained. "What the book does is [help people to] take this monolithic task and break it down into a couple of pieces." GORP creates a goal and then works toward it by looking at the cost of its various components, such as vacation planning, health insurance, income insurance and long-term-care insurance.
For instance, an investor who is 40 today may elect to put off buying long-term-care insurance until 55, but then the question becomes, how to save for that goal? With a known time horizon and a knowledge of current costs for long-term-care insurance, it is possible to calculate what assets to invest and how to invest them to meet that particular goal, Shapiro said.
"The first thing you have to do is reapportion your investments if you have a mismatch between investment characteristics and the goal," Shapiro said. "The book takes that process and makes it very intuitive, breaking it into easy steps." One thing that will become clear to many readers is that they will need help in accomplishing all this, Shapiro said. However, is the financial planning industry ready to respond to that need?
Broker/dealers have been moving in fits and starts to a fee-based advice model, and investment product marketing is rife with retirement doomsday predictions. Nonetheless, a major shift to serve the needs of the vast majority of Americans has not yet taken place because most distributors cater to wealthier clients who do not need this level of fine-tuning to ensure an adequately funded retirement with various risks mitigated. As the industry talks more about the need for comprehensive advice, it also must begin to serve the clientele who will need that type of advice.
"The question is, as we shift from a product-based industry to a process-based industry, how can we then get the word out to people who truly need that help?" Shapiro asked. "That's what we have to do as an industry." In a perfect world, Shapiro said, adviser compensation would be asset-based or fee-based, so there would be no difference between selling a mutual fund or a variable annuity. But the issue of compensation still looms large. So many advisers continue to gravitate toward customers and products that provide them with a better income, and working with smaller clients is simply not as efficient or profitable.
Even so, someone will step into the void created by the broker/dealers. With a bricks-and-mortar presence in communities and established relationships, banks may be able to serve in that role.
However, Shapiro said that some people are still not going to be as interested in going into the bank for their financial planning advice but would rather have someone visit them in their homes. "Banks have not been as quick to hop on that model. [But] folks like TIAA-CREF are going to start to modify their business models and become much more aggressive," he predicted.
If fund companies want to turn the millions of Baby Boomers into loyal customers, they, too, may want to rethink their business models.