How Digital Financial Advisory Tools Can Help Lower Income Americans Retire

By Michael Mori, Daniela Sanchez, and Maria Alejandra Sandoval Dalberg Design

In the United States, 56 million adults aged 50 years and over live on low-to-moderate incomes — many are anxious about making ends meet in old age. Financial advice is tailored to higher income earners in position to fully retire, but the reality is different for this underserved group of Americans.

Research we conducted together with the Financial Health Network found that most financial services, especially those meant to help with planning savings and investment for retirement, are poorly suited to the economic and financial realities of low and middle income Americans over 50. Most have struggled with low earnings that have not kept pace with education, housing and healthcare inflation, and consequently are approaching retirement age with insufficient savings and investments.

Moreover, the massive economic disruption and rapidly widening inequality of the past two decades of American economic life has meant many in this group have experienced extended periods of un- and under-employment and ongoing income volatility, making planning, saving, and investing especially difficult. 

Our qualitative research into the financial lives of this group of low-to-moderate income (LMI) pre-retirees – those with annual household incomes below $82,000 – describes the unique ways in which they manage their finances and understand their limited prospects for full retirement. In doing so, we explored their economic and financial aspirations for old age, and the behaviors and strategies they routinely consider and employ to manage their changing reality and prepare for a time when they will no longer be able to work full time.

We also worked with LMI pre-retirees to better understand how they use both analog and digital technology to manage their finances. This enabled us to understand more clearly how to design a digital financial technology tailored to their needs. To this end, we focused on one of the most compelling opportunity areas for improving the financial health of this group — tailoring financial coaching and planning services to help them better and more adaptively prepare for an uncertain future in old age. 

Financial Health Network then leveraged our research and analysis to outline findings, insights, opportunity areas and design recommendations in this report. We believe this design research can help financial service providers and partnering organizations develop relevant financial advising tools with strong digital components that could help this underserved group reach their financial goals as they approach retirement age. This research can inform the design of products and services of banks, credit unions, non-profit organizations, and fintech developers seeking to fill the gap.

We also developed a prototype digital financial coaching tool using participatory design methods with LMI pre-retirees. This prototype reflects the attitudes, needs, preferences, and ideas of people within this underserved group, and provides a concrete starting point for building digital coaching tools that can holistically address their unique needs. The prototype can also help providers tweak the designs of existing products and services to be more relevant, inclusive, and effective for LMI pre-retirees. You can explore our prototype in this video. 

Finally, to help providers and product designers better design digitally enabled experiences for this group, we developed six design principles and a blueprint of the ideal service flow, which you can find in the report. These resources can guide the design and delivery of better user interaction and experience to enable adoption and sustained engagement by LMI pre-retirees.

Understanding the Social, Financial, and Economic Lives of LMI Pre-Retirees

We deployed a human-centered design process that started with an initial phase of desk research, followed by qualitative design research, and participatory digital product prototyping. We interviewed and worked with LMI pre-retirees — people between the ages of 50-64 with annual household incomes below $82,000 — from 21 states across America’s Northeast, South, West, and Midwest regions. Many participants were retired or had partially retired early. Conversations and participatory sessions provided unique insights into their retirement preparedness, existing financial barriers, and preferences for financial advice or coaching products. 

If I could afford it I’d sit down and talk to a financial planner, but right now if I paid the financial planner, I wouldn’t have anything left to plan with. He’d have all the money and I’d still be sitting here.

Many older LMI pre-retirees struggle with a wide range of financial challenges, including affording day-to-day expenses, housing, healthcare, and debt payments (often incurred when raising their children). These financial challenges compound with the economic struggle many face to earn a healthy and stable income in a rapidly shifting economy, making it very difficult for people in this group to build towards and plan for retirement. 

Additionally, many have experienced and continue to experience exposure to financial shocks, including high out of pocket healthcare costs, divorce, job loss, and difficulties finding work because of disabilities, unexpected health challenges, and redundant skills, amongst others. For some, these circumstances not only limit their ability to prepare for the future by saving or investing, but also increase uncertainty around what their future financial needs might be. For many, retirement as it approaches moves further and further out of reach. 

Many people we spoke with had already come to the realization they will never be able to fully retire and were anxious about their financial future, having realized they would have to work at least part-time, even as their body aged and began to fail on them, in order to subsidize fixed income sources like social security and other public benefits. Some we met, though relatively few, had some savings and assets (e.g. a home). 

We have a little left over some months, and then other months it gets eaten up and you have to go with whatever you have left and catch-up.

Notably, very few LMI pre-retirees said they would be able to rely on friends or family for support, a marked difference from people with whom we research in similar low and middle-income segments in emerging markets. Participants often said their children and extended family have financial struggles of their own, and cannot afford to help, especially when raising kids. This may in part be due to the effects of class and well-documented reductions in intergenerational socio-economic mobility in the US. To put it simply, the children of LMI pre-retirees also have low and moderate incomes in an economy where wages are not keeping pace with cost of living.

Over the course of their lives, many LMI older adults have faced multiple financial crises and have developed financial strategies focused primarily on meeting essential daily needs, rather than on planning and building wealth. Such strategies typically do not address retirement or support planning for maintaining quality of life in old age. This means many LMI pre-retirees face the prospect of greater financial insecurity and lower standards of living as they age, especially those who have struggled to make significant savings and investments or cannot rely on family and friends for support, as well as those with health problems that may prevent them from working full time.

Despite many shared similarities, LMI pre-retirees’ financial lives vary depending on their social, financial and economic context. We describe this variance amongst LMI pre-retiree sub-segments, including differences in their attitudes towards digital technology as well as their adoption and usage patterns, in the report.  This detailed analysis can help with tailoring digital financial services, especially planning and coaching tools, to the broader group as well as its unique subsegments. 

Designing Digital Financial Coaching Services for Lmi Pre-Retirees

For the most part, LMI pre-retirees find existing retirement planning and financial coaching services irrelevant to their financial lives and too costly, making it more likely they will approach retirement age underprepared and undersupported. Moreover, we found LMI pre-retirees do not feel seen or heard by financial service providers, who they believe care little for their struggles, a belief they see reflected in the design, marketing and pricing of mainstream retirement planning and investment services. Even the notion of a financial advisor is off-putting for many in this group who – often rightly – do not consider themselves the target users of these products, which they view as designed for wealthy and financially savvy people. 

I would want my financial advisor to be an expert on my generation, knowing about what’s going on for people in my age range and being in tune with what my world is like, where I’m coming from and the kind of person that I am.

A digital financial coach, however, seems more attractive and accessible to many, especially when they are given the time and support to learn how to use it. We were able to classify LMI pre-retirees into three different groups that span the financial health spectrum, and identify financial advising services best suited to each group. The most financially healthy – Resilient Planners – are better supported by expert financial advisors. The two other groups – Cautious Seekers and Exhausted Survivors, the most financially vulnerable – benefit more from financial coaching services, and are open to it, according to the research. 

Still, our study of fintech products on the market determined that most are not reaching them, presenting an opportunity in the market. One factor described in the report is that retirement is framed by most financial service providers as a ‘destination’, a stage in life that is reached in your 60s; or a leisure moment, perhaps spent traveling the world; or it is seen as a rigid fixed outcome that has involved being resilient and independent all through life. 

But for most LMI pre-retirees, their reality is quite different, and as a result they feel discouraged from engaging with ‘retirement’ products. A reframing of retirement as ‘security and quality of life in old age’ would sound more relevant to this segment and perhaps reach them more effectively. This messaging could drive adoption of tailored financial planning and coaching tools designed to support LMI pre-retirees throughout their journey towards achieving quality of life in old age, no matter how each individual person might define this and what their journey may look like.

Our prototype digital financial coaching tool incorporates LMI pre-retiree feedback and preferences, and seeks to overcome the eight barriers to product adoption and continued use we identified in our research. These barriers, embodied in most existing retirement planning and coaching services currently on the market, include limited relevance, legitimacy, trustworthiness, and simplicity, amongst others. You can find a detailed analysis of these barriers and recommendations to overcome them in the report published by the Financial Health Network.

Filling an Urgent Gap in the Market for a Growing and Vulnerable Group

LMI pre-retirees are a unique and growing group with specific – and urgent – financial advising needs tied to aging. Millions of older low and middle income Americans face an uncertain financial future with few financial services designed to help them prepare and manage their finances as they age out of the labor force. The gap in digital financial services is even wider, despite their potential for easier customization and tailoring, greater scalability, and LMI pre-retirees demonstrated eagerness to engage and learn. 

Most fintech products on the market are designed for younger or wealthier segments, whose economic and financial lives look very different. Dalberg and the Financial Health Network hope that by offering valuable insights into the financial needs of this population, as well as concrete ideas and prototypes for digital design, financial service providers and their partners will heed the call. The Financial Health Network’s report and Dalberg’s design principles, recommendations, and digital financial coach prototype provide an excellent starting point for financial service providers seeking to build on this urgent opportunity.

Download the report here.

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