Managing Money in Retirement is Hard – Fintech May Make it Easier
The Great Recession cast long shadows of uncertainty and instability across the economic environment, with many remembering the storylines of how it impacted large financial institutions, unemployment and the stock market. The reality is that the most monumental economic shifts, which took place at a household level, had been building for quite some time.
The problems of inadequate liquid savings, the decline of pension plans, rapidly accumulating consumer debt, ever-rising health care costs and stagnant wages were not new in 2008, but they collided with an unsustainable mortgage lending system to create a crescendo of economic chaos. Even as the storylines reverse — as unemployment hits pre-recession levels and the stock market reaches record highs — the economic landscape remains permanently changed. This is true for the majority of Americans, but especially for low- to moderate-income individuals over 50 (LMI 50+).
Today, as many as 42 million adults who are 50 or older struggle with some aspect of their financial lives, according to new research by the Center for Financial Services Innovation, supported by AARP Foundation. The report — Redesigning the Financial Roadmap for the LMI 50+ Segment — shows that the work-to-retire model of building savings and paying off debt in order to retire comfortably has been replaced with far more complex scenarios and, for many, delayed retirement due to limited savings, debt burdens, medical shocks, uneven income and multi-generational living situations. Right now, LMI 50+ Americans are managing all of these dynamics alone.
Certainly, addressing all of the financial health challenges facing the LMI 50+ will require concerted effort from policy makers, employers and businesses alike. But in the meantime, there is reason to be optimistic. The financial lives of today’s LMI 50+ are different from previous generations, but today’s financial tools are different, too. The study also revealed a clear roadmap to help older adults navigate their complex financial journey. According to our research, today’s LMI 50+ individuals appreciate being able to monitor transactions and pay bills online and they desire relevant, actionable financial education and coaching for everyday financial management, much like younger cohorts. These findings should excite financial services companies, nonprofits and fintechs.
Innovating for the LMI 50+
Fintech is exploding with innovative solutions to help combat these financial challenges and improve the day-to-day financial health of individuals through myriad tactics. However, most of these solutions have been geared more toward tech-savvy millennials, with few options designed for the LMI 50+ segment. While there’s a long-standing belief that older Americans are less willing or unable to embrace technology, research shows that’s a fallacy.
In fact, 99 percent of people over the age of 50 own a tablet, laptop or desktop device, and 76 percent own a smartphone, according to a 2017 report from AARP. These numbers are only expected to increase in the coming years, opening up a population of 50 million people in the LMI 50+ cohort alone to prospective fintech innovations.
Techniques such as prize-linked savings, automated transaction monitoring and innovative approaches to creating steady income streams can help the LMI 50+ navigate tight budgets, increase savings and manage daily finances to more adequately and realistically plan for longer-term goals and expenses. Some fintech companies are already in market with tools that can help the LMI 50+ improve their financial health:
- Earn is a gamified savings tool that offers incentives for individuals who consistently set aside money in a savings account. Some providers even simulate a scratch-off lottery ticket, increasing participation.
- Eversafe is a system that allows individuals and family members to monitor financial transactions to protect against fraud. Users can designate family or other caregivers to assist in protecting their financial accounts.
- Blueprint Income is a service that allows customers to make small monthly contributions that become an insurer-guaranteed annuity, offering a predictable and reliable source of income for life. It allows workers to save for retirement without worrying about market ups and downs.
Financial services innovators have an opportunity to greatly enhance the financial lives of the LMI 50+ by designing new solutions, in addition to adapting existing products and services, and targeting them to this segment. The depth and diversity of this group create an incredible opportunity to innovate on their behalf and address their financial health challenges head on. With a little work and a targeted approach, fintech could make great strides in helping this population flourish as they age.
Photo courtesy of Ankur.