Anne Lester on the future of retirement

Anne Lester knows retirement. For 20 years, she was the head of Retirement Solutions at JPMorgan, and today she speaks about the subject around the world. At INVEST 2023, she shared her insights about advising the next generations of retirees, the reforms changing the retirement landscape and how she overcame her own personal trouble with saving.

TRANSCRIPT:

Nathan Place (00:10): Well, hello and welcome to this live edition of Leaders. I'm Nathan Place, retirement reporter for Financial Planning, and today we have the pleasure of talking with Anne Lester. Anne was the head of retirement solutions at JPMorgan Asset Management for 20 years. She is also the co-founder of the Aspen Leadership Forum on Retirement Savings, and she speaks around the world about retirement. In fact, she's here direct from her trip through Europe, which sounded amazing. So Anne, welcome! Thank you for being here.

Anne Lester (00:43): Thanks for having me.

Nathan Place (00:44): Our pleasure. So I'll just dive right in here. You've written a lot about the psychological barriers to saving for retirement, and one of my favorite quotes of yours is, "Stress makes us stupid." So why don't we start with that quote. Maybe you could explain to us a little bit what that means.

Anne Lester (01:01): Yeah. There's actually been a lot of research showing that stress makes us stupid. And there was a really great book written by a guy named Eldar Shafir, a behavioral psychiatrist, actually psychologist at Princeton University, talking about the effect on people's ability to make decisions when they're under stress. And there's a lot of documented evidence that we literally become less able to make decisions, we become less able to exercise willpower, delay gratification. All of these things just kind of start flying out of the window when you're under stress. And you can just imagine, I hit the popcorn when I'm getting stressed. I mean, there are all these habits that people have to help them cope that are not always very healthy. And I think another thing that happens is you can just imagine if you're so focused on making your rent payment, you're not going to be thinking strategically about, is there a better way to manage this cashflow or that cashflow? You're just trying to get through the day.

Nathan Place (02:04): Right. Yeah, absolutely. And that's sort of unfortunate, isn't it? Because when you're the most stressed, that's when good decision making is the most important.

Anne Lester (02:11): Right. The expense, if you will, the tax of stress on your ability to make good decisions is really, really high. And as you say, it's like a double whammy because you need the most help, and you're least likely to give yourself that help by making a better decision.

Nathan Place (02:26): So that leads right into my next question, which is you've also said that savings ideally should happen before the money hits your bank account. Can you explain that a little bit?

Anne Lester (02:35): Yeah, I mean, I think that's been behind all the success that we've seen, actually, in savings rates going up inside of 401(k) systems, which is automatic enrollment, and that money is put into your savings account before it ever hits your bank account. And to me, that's one of the... People have different versions of it. "Pay yourself first" is a way people think about it.

But really I think one of the most important reasons behind that is that you don't have to make a decision about saving. If you're not actively choosing to save, you've already set it up to run in the background. So you never put yourself in that — do I want to do this or that? Do I want to save this money or do I want to go buy tickets to the show that's coming to town in a month that I'm dying to see? You eliminate possibilities for making decisions you'll later regret.

Nathan Place (03:26): Right. Sort of putting it on autopilot.

Anne Lester (03:28): Exactly. Yeah, exactly. And that is just extremely well documented to work.

Nathan Place (03:33): So you just reminded me, with your mention of auto-enrollment, it's been a very busy few years for retirement reforms, both from Congress and from 401(k) record keepers. What are some of the reforms that you think show the most promise for helping people with their savings?

Anne Lester (03:48): Well, I think you could go back to the Pension Protection Act, which is now 15-plus years ago, and really see dramatic changes in the comfort level with plan sponsors, consultants, record keepers, everybody with these fundamental auto-enrollment. That's just been the biggest game changer.

One of the things that I think has been changing that I think is really good is more people are aware of the damage that auto-enrollment can do if it's not coupled with auto-escalation. So all that stuff was in the original Pension Protection Act. So that's been legal and blessed and all that for years. But for I think really sound reasons, companies have been afraid to automatically increase savings rates because they thought their company, their employees would be really unhappy. And let's be real, if you've taken money out of your employee's paycheck and it goes into a 401(k) plan, it's expensive to undo that, so you have to pay taxes on it, and it's like, it's kind of a mess.

(04:47):

So I think there was a lot of reluctance by employers to do that, and I think we've seen just a ton of evidence again, that employees really like it. One of the scariest things I've ever heard was in the focus groups that I was running a year ago, year and a half ago now for my book, was a group of people that identified, who thought they were saving enough money for retirement but weren't. And they said, "Well, I'm just saving at, my employer automatically signed me up at 3 or 5%. And because my employer did it, I know it's the right amount to be saving." So to me, that's terrible. So there was a whole bunch of stuff done 15 years ago. The most recent legislation, I think is also really exciting because it's going to make more headway in getting more plans up and running. So...

Nathan Place (05:42): This is Secure 2.0?

Anne Lester (05:42): Secure 2.0, right. There's so many employers who have small and medium sized companies who, either because it's bureaucratic difficulty, or just the outright hard dollar cost of setting up a plan, I just think there's been tremendous progress in making it easier for small plans to be created and to sort of access this incredible workplace savings program, that when we give people the access to it and when they take advantage of it, it really does work really well.

Nathan Place (06:11): I also want to ask you about the youths of today. You have two children who belong to the millennial and Gen Z generations. How do you think those savers are different in terms of their retirement saving habits, and what advice do you have for them?

Anne Lester (06:25): Well, it's interesting. I think they're a lot more worried about money than, certainly, I ever was at their age. And I think generationally, there's just been so much in the press and stories — student loans are a very different burden on today's 20- and 30-somethings than they were for me, certainly as a parent of one of them. I would also say, though, that there's a higher degree of information, education and awareness. And for certainly younger workers who are working for companies where there is auto-enrollment, they're actually saving more in into 401(k) plans than previous generations. So it's kind of a good news, bad news thing. I think there's some real headwinds economically for them, right? Student loans, much higher housing prices. So I think their dollars are going less far than ours did, but at the same time, I think there's a much greater awareness of the importance of saving and the need to save. So I'm really hopeful that it'll be difficult, but I'm really hopeful that we'll see some real progress being made.

Nathan Place (07:34): You made a really interesting point though in our prep call, which was that there's kind of an interesting difference with millennials and Gen Z when it comes to who they trust for financial advice. I wonder if you could talk about that a little bit.

Anne Lester (07:46): Yeah. I always feel like, and maybe this is me talking as a parent, but I always feel like we're Charlie Brown's teacher with the "wah wah, wah wah," and they just look at you. I think there's a real distrust of expertise, and again, I suspect this comes from so many years of being marketed to specifically by companies who are doing targeted individual ads. And I think kids today are much more sophisticated and skeptical about expertise, and I think they almost actively don't trust it. And so they're much more likely to look for, and this is also true for young people in general, your peer network, your peer universe is much more important to you than your parents or your teachers. So there's, I think, a really very high degree of trust in things they hear from peers, not just what they read on the internet. I think that's a bit mistaken, but really sort of peer to peer information. And I would say I've spent a lot of time on social media looking at the information out there, and some of it is terrific, and some of it is not. And I'm not sure people are able to differentiate between the good and the kind of not terrible, and then the outright disastrous stuff. So that to me is a bit worrying.

Nathan Place (09:04): Yeah. We've written a lot about the rise of the "finfluencer" at Financial Planning, and it's certainly a major concern.

Anne Lester (9:12): And I remember talking to my kids about this and writing some pieces about this, and it's like, so who would you rather trust? Somebody who is your age with no background, or someone who will go to jail because they're a regulated financial services professional, if they say something they shouldn't? And then I get the, "Well, banks are just trying to make money." And I'm like, "You think the finfluencers aren't? Like, let's think about their business models a minute." But I'll be talking about this actually in the talk I'm giving during my breakout session, but I think that the most compelling thing about the finfluencers is the role of storytelling. And I think we as experts, when we start talking about portfolio construction and benchmark returns, people's eyes roll up into the back of their heads. They don't know what we're talking about, and they don't actually care.

(10:00):

And so certainly there's some people who love geeking out on it. And then that's the sort of Reddit GameStop day trading people. And actually in the focus groups I did, there's a group of people who are doing well and know it, and I call them the crypto bros. They skew very male, and they skew very geeky, and in a different age, they might have been geeking out about baseball stats, and now they're geeking out about economic stats. It's a super identifiable group of people, but everybody else is just turned off by that jargon. And the way we talk makes people — alienates our audience.

Nathan Place (10:35): So we may actually have something to learn from influencers, as it turns out.

Anne Lester (10:38): I think we do. I think they're very effective storytellers and the perceived credibility, and it's not just that information is, I think, often when done well, much more digestible, but they're approaching things. And again, I'll be talking about this this afternoon with empathy, because so many of them are, "Hey, I've walked this road with you and here's what I learned. You can do it too." And that's such a different emotional place to be than having somebody use language that makes you feel like you can't ask questions, because then you'll show them how stupid you are.

Nathan Place (11:09): Speaking of storytelling, I wanted to ask you a little bit about your personal savings story. So you've said in the past, and this is hard to imagine now, but that money used to burn a hole in your pocket.

Anne Lester (11:19): Oh, it still does. It still does. No, listen, it took me a long time to accept that I have relatively poor impulse control. I mean, I really do. And it's true with food. It's true with having a third glass of wine. It's true with money. And I have just learned over the years to stop beating myself up for it because it's just the way I'm wired, and be much smarter about creating behavioral guardrails for myself. I used to think it was a moral thing. If I were a better person, I wouldn't eat that third cookie. Forget the better person thing. How about just not having the cookies in the house?

Nathan Place (11:57): Right. I remember you mentioned this, the moral lens that we use a lot of the time.

Anne Lester (12:02): Yeah. I think a lot, not everybody does this, certainly, but I think a lot of us, when we're trying to change habits, we don't beat ourselves up and really are very self-critical. And I think, certainly for me, one of the big lightbulb moments for my own finances, and when I stopped being a victim of my spending, let's put it that way, was when I started researching building the target date funds for JPMorgan and learned about behavioral finance and brain wiring. And I'm like, oh, it's not that I'm bad, it's that I'm wired to behave like this. Oh, I get it. So I can just forget the willpower basically, and figure out other ways to accomplish my goals. As long as I kept framing it as a willpower thing, I was setting myself for failure.

Nathan Place (12:43): So what were some of the ways that you did accomplish those goals?

Anne Lester (12:46): Automate, automate, automate. And really be ruthless about squirreling things away in long- term accounts I couldn't touch. And then you also have to be disciplined about those evil little credit cards, because you can run into trouble there too. And so that's a harder one, because most Americans have credit cards. I think they can be very powerful ways of managing cash flow, but you've got to really be disciplined about not letting that debt creep up. And I think that's, I don't have any super good answers for that other than just manage your total credit card exposure. So make sure you don't have more limit than you can pay off in six or 12 months if you have to. But they're great emergency, you know, you should really have real emergency savings. But credit cards can be, again, a smoothing of cash flows. They can be very effective.

Nathan Place (13:34): All right, Anne. Well, that's pretty much all the questions I had for you. Is there anything you'd like to add to end this talk?

Anne Lester (13:40): No, I think it's so great to be able to come and chat with you about these things and to, I hope, share some insights that I've learned over the past three years, sort of trying to move from an expert, working in a sort of strictly financial professional world into a little more of the real world, and trying to help more individuals understand how they can make their financial lives better. So I'm really excited to be here talking about it.

Nathan Place (14:05): Yeah, us too. Our pleasure. All right. Well, I'd like to thank our guest, Anne Lester. Thank you so much for being here. Thank you for sharing your time and your insights. This has been Leaders for Financial Planning. Thank you so much.