Leverage the Uncertainty Crisis

Leverage the Uncertainty Crisis

Chia-Li Chien, PhD, CFP®, PMP® Aug 09, 2018

I don’t particularly like reality TV shows. There is really no point to watching others’ problems when you have plenty of clients’ issues to deal with, not to mention your own. There are so many uncertainties—the world is experiencing recent extreme weather conditions such as high winds, high temperatures, pervasive drought in some areas and excessive rain in other areas that cause floods, enormous fires in CA and the American west as well as much of the northern and western Europe. CA Governor Brown calls this the “new norm” and Dr. Michael Mann of Pennsylvania State University believes that the climate change is getting worse at an accelerated rate (Mann, 2018). There is uncertainty in the financial world as well—the market, hidden inflation, interest rate hikes, and the economy—all potentially correlating with our administration’s policies on tariffs, taxes, immigration, etc. Like it or not, we’re all watching the U.S. reality TV show.

The economic behavior pioneer researchers Dr. Tversky and Dr. Kahneman identified representativeness heuristics that exist when making judgement under uncertainty (Tversky & Kahneman, 1974). The representativeness heuristic simply means that people are insensitive to probability outcome, predictability, misconception that it’s different next time, overconfidence, and overestimating. In other words, people are confused and tend to exhibit unfavorable financial behaviors.

In the financial planning industry, there are a) SEC’s proposed rules for advisers and brokers (Seidt & Hauptman, 2018), and b) Tax Cuts and Jobs Act (TCJA) (Beach, 2018). What can you do in your financial planning business to influence your clients with favorable financial behaviors as well as re-tool your business to meet the demand?

Mr. Evan Beach (Beach, 2018) used TCJA related content and seminars via digital marketing to attract CPAs and CFPs for TCJA specific changes and its impacts to clients. They did not waste a crisis from the changes in TCJA. In fact, they leveraged the change in TCJA to grow their business.

Let’s walk through an example with a financial planning practice that specializes in retirement income planning. We’ll call this financial planning practice XYZ. The target client profile of XYZ is female business owners aged 45 and above. XYZ calls them Cindy. Cindy’s business often is in the following industries: construction, nonmedical therapies, and private schools. Like Phoenix Beach, XYZ uses digital marketing to invite prospective clients Cindy to practical retirement strategy webinars and in-person seminars where real world statistics such as the following will help influence clients. The content below is based on my recent research (hereafter called ”base model”) using U.S. retirees survey data in 2011 from The U.S. Census Bureau’s 2008 Survey of Income and Program Participation. Financial planning professionals can cite this source to build their content.

Financial planning professionals often focus on accounts that they manage for clients when planning for clients’ retirement. However, the majority of household assets are not these accounts (Lichtenstein, 2012), and clients don’t just rely on the withdrawal from them. The majority of the retirement income came from Social Security retirement benefits. (Pension Rights Center, 2017)

Additionally, financial planning professionals use planning software to calculate the amount needed during retirement. The software often is based on the formula of present value of a growing annuity (PVGA). There are several assumptions to determine PVGA: a) how much retirees withdraw from their accounts, b) the inflation constant, c) the average market return (includes the allocation), and d) number of years in retirement. Please remember, these accounts are a portion of their overall assets in household balance sheets.

The reality is that the largest assets of the retirees’ households are often home equity assets, not the accounts held by the financial planning professionals. The average market return is not effective when calculating over a long period of time. Much of the past research indicates that rolling historical returns are optimal. No one knows how long clients will live, but the Social Security Period Table calculates up to age 119.

The base model simulates retirement withdrawal from various households’ assets including:

  • Social capital assets like Social Security retirement benefits and pensions
  • Portfolio of financial assets (all account holdings)
  • Real estate (rental) assets like rental income

Retirement strategies from other household assets such as home equity and business holdings are not included.

Base model uses S&P 500 as an index for stock returns and intermediate government bonds as an index for bond returns in calculating the increases or decreases of the portfolio of financial assets each year based on the 2016 Morningstar dataset. Success means that, if one survives to age 119, one will still have some assets remaining.

Base model finds that the average weighted population success rate is 65.9% for couples and 43.0% for single households when using an equity allocation of 50%. But there is not a significant difference when using higher equity allocations.

Success rates at 0% show for more than half of the population or 56.7% in singles households and about one third or 34.1% in couples households. Of those households that have success rates above 90%, 37.3% of the couples and 59.6% of singles households cannot meet their average retirement living expenses based on their residence state and their age groups. In other words, they will outlive their household assets. The majority of these are female singles households. The financial burden of these unsuccessful retirees falls to their families if not the state they reside in.

Leverage the Uncertainty Crisis by Chia-Li Chien, PhD, CFP®, PMP®
Leverage the Uncertainty Crisis by Chia-Li Chien, PhD, CFP®, PMP®
Leverage the Uncertainty Crisis by Chia-Li Chien, PhD, CFP®, PMP®

Base model also finds that retirees with higher net worth have confidence to spend more than the average retirement living expenses per that state and age group. Retirees households that own real estate assets (rental income), have direct business holding, own homes, and have mortgages tend to be more successful or have confidence to spend more than the average retirement living expenses.

Using base model research findings in webinar or seminar content can shed some light on the reality in the U.S. retiree population. Just like in the TCJA example, the base model research findings help financial planning professionals to have meaningful conversations about retirement with a plan of action.

Most importantly, XYZ niches in retirement income planning exhibits the pull marketing effect. Pull marketing means that prospective clients seek you out. The base model research findings are facts of the U.S. retirees’ reality as well as potential emotional triggers if used appropriately.

Don’t waste today’s uncertainty crisis. Leverage the uncertainty to help your prospective clients as well as the well-being of the overall society. Best of all, if you don’t know where to start, many experts like myself can deliver the research findings for your audience. You can’t time the stock market. But timing is everything if you want to benefit from the uncertainty.


Beach, E. T. (2018). How to Use the TCJA to Build Your Business. Journal of Financial Planning, Ayg 28-29.

Lichtenstein, J. (2012, Dec). Financial viability and retirement assets: A look at small business owners and private sector workers. Retrieved from Small Business Administration: https://www.sba.gov/sites/default/files/files/rs401tot%20(1).pdf

Mann, M. (2018, Aug 7). Climate change is making wildfires more extreme. (W. Brangham, Interviewer) https://www.youtube.com/watch?v=a0heBE3IuOw

Pension Rights Center. (2017). Sources of income for older adults Table 7. Retrieved from Pension Rights Center: http://www.pensionrights.org/publications/statistic/sources-income-older-adults

Seidt, A., & Hauptman, M. (2018). Understanding the SEC’s Proposed Rules for Advisers and Brokers. Journal of Financial Planning, Aug 18-23.

Tversky, A., & Kahneman, D. (1974). Judgment under uncertainty: Heuristics and biases. Science, 185(4157), 1124-1131.

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