DENVER -- Investors set faulty retirement goals by thinking too quickly, narrowly and shallowly, according to well-known behavioral economist Shlomo Benartzi.

To address this problem, Benartzi, a professor and the co-chairman of the Behavioral Decision-Making Group at the Anderson School of Management at the University of California at Los Angeles, has developed an app that allows financial advisors to use a seven-step system to help clients set better goals and improve financial planning around those goals.

He spoke Wednesday at a session titled "The Goal Planning System: Behavioral Finance for Sound Life-Planning Decisions," at the Schwab IMPACT conference here.

Benartzi noted that many Americans spend 20 years or more in retirement in the decumulation or distribution phase -- twice the amount of time as in 1950 -- as the retirement age declines and life expectancy increases.

There are three behavioral challenges that result from this new reality, he said: Thinking too fast or making mistakes, thinking too narrowly and missing important goals, and thinking too shallowly by ignoring tradeoffs such as whether buying a new car affects the timing of retirement.

A default option for 401(k) plans that automatically enroll employees in target date retirement funds can nudge people into making better choices, but this helps only during the accumulation not the distribution phase, Benartzi said.

His app, the Retirement Goal Planning System, which is available in the Apple App Store, goes through seven steps of identifying goals.

Benartzi's presentation covered the first four steps:

  • Step 1: Identify goals in retirement and then set aside money.
  • Step 2: Pick from 12 given goals and select which ones are important.
  • Step 3: Prioritize the goals.
  • Step 4: Imagine retirement, first as if goes went well and then if things go badly.

The idea is to help determine what is important and then build a financial plan around these goals.
During his presentation, Benartzi said that there are two risks during the distribution phase of retirement: a long life and high inflation.

Delaying Social Security is the best solution for these two risks as other products are very expensive, he said.

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