Maslow's hierachy of needs and traditional retirement planning: something doesn't add up
By Cal Burgess
Retirement Servicing Group PLLC
It’s not too late to protect clients' retirement with a guaranteed income stream for life.
For many, the approach to retirement planning is in direct conflict with Maslow’s hierarchy of needs. For the first time since the 1920s, the American employee is approaching retirement without addressing their basic core needs. We have never approached an epidemic of this magnitude before. The good news is it’s not too late to protect clients' retirement with a guaranteed income stream for life.
Maslow’s hierarchy of needs, first introduced in 1943 by Abraham Maslow, identifies the core roots of developmental psychology. This concept shows how basic human needs must be met in order for decisions to be formed with success. In other words, you can’t formulate a sound financial decision without addressing basic needs, such as establishing where you live and how you plan to pay the bills.
So in theory, clients shouldn’t be subjecting all their retirement funds to risk when they have failed to provide an income stream.
Maslow’s hierarchy has five basic platforms. The first level of this five-step model is the physiological stage, which identifies the basic needs of the human body: food, water, shelter, etc.
The second level is safety, the third is love/belonging, the fourth is esteem/confidence, and the fifth is self–actualization — the ability to make a sound decision once all your basic needs are met. Only when the first level of needs is satisfied can the next stage be approached, and so on.
The second level of Maslow’s hierarchy is putting many retirement dreams at risk. The safety level requires that the needs of employment (income), resources and property should be adequately addressed before you can proceed to the third level of love/belonging. Without the security of income during retirement, the basic financial needs of housing, health and consumption fail to exist. This is the equivalent of hiring an interior decorator when you don’t have an income stream to pay for the mortgage.
Once again, it is counter intuitive to subject your retirement funds to market risk when you haven’t established an income stream to meet your basic needs.The foundation of the traditional financial planning model is failing to address the need for income in retirement. This is going to cause severe problems moving forward. The last decade is commonly referred to as the lost decade. Most retirement savings plans, including deferred compensation plans, are totally exposed to market risk, causing most retirement plans to be delayed by 10-plus years.
When you take into account that most employees from Generation X and many baby boomers do not have a pension to meet their basic safety needs, it isn’t difficult to figure out we are approaching a dire situation.
Today, congressional approval ratings are the lowest in U.S. history, and the faith in our financial sector is not too far behind. Investors are fleeing securities, causing the 10-year U.S. Treasury to reach record lows. With the Federal Reserve getting closer to another round of quantitative easing, any entry level financial professional can tell you these actions are not without consequence. Many experts believe that these actions are likely to cause a bond bubble that could throw the market into panic mode by driving the value of bonds south when interest rates are forced to rise in hyperinflation. The actions of our country dealing with this financial crisis are short-term solutions designed to buy time in hopes that a contingency plan presents itself. There is no history of federal spending of this magnitude to help form a logical end result; so in essence, we are approaching this blindly.
All one can do is protect, or ensure, their basic needs during retirement with contractual agreements in order to have the best chance to make sound decisions. Insurance repositories have identified the need for an income stream within retirement, which acts as a replacement to the pension, and have delivered accordingly. There is no other industry on the planet that offers lifetime guarantees that are unaffected by future market conditions.
If the basic needs of Maslow’s hierarchy are not met, panic and desperation set in, leading to unsound financial decisions. Investors who do not have an income stream are likely to participate in bigger risks in order to catch up with their retirement goals, exposing themselves to more volatility. There is no way to know how the crisis will play out; however, when you protect your future needs with a guaranteed income, you will be well equipped to handle any turbulent times ahead. Those who fail to have an income stream, in place will regret not doing so, especially once entering retirement.