Traditional retirement planning is under siege. After two bear markets in the last decade, industry insiders are challenging some long-held assumptions. One such assumption is defining “success” without context, as in positive return against a benchmark. Retirement plans used to be considered “on track” as long as they met or beat a benchmark, regardless of potential risks. Now, however, many retirement planners see investing as more than arbitrary numbers on a chart.

“Behavioral finance” is now a key component of long-term planning. In years past, advisors typically would build retirement plans to concentrate on return cravings rather than life needs. Investment plans were built with long term averages in mind rather than an understanding of basic “prospect theory”.

When the market whipsawed their hard-earned savings, those same investors became understandably emotional. They exhibited everything from overconfidence, to belief perseverance, to mental accounting, to regret… and other emotions that bring murky miscalculations into specific relief. That’s just one of the reasons today’s retirement planners look for a more integrated strategy.

“Goal-Based investing” has emerged as one of the best solutions to this problem. Instead of instructing investors about particular portfolios, advisors begin by looking at the bigger picture. They try to assess a more realistic risk capacity. Goal-based investment advisors look at the client’s capacity to endure a downturn and ability to flourish in an upturn. They take the focus away from beating a benchmark and towards client goals thereby minimizing needless portfolio risk.

Business Week recently tackled goal-based investing. They explained how investment managers are learning from institutional advisors:

“That’s where goal-based investing, or what some people call liability-driven investing, comes in. This increasingly popular approach is yet another example of the retail investing world borrowing a page from institutional investors’ playbook—trying to manage people’s assets so they better match their liabilities, which has long been a focus of pension funds.”

A key benefit of goal-based investing is that it removes unrealistic expectations. Allowing clients to focus on goals and not numbers allows for deeper discussions regarding life choices:

“It’s easier to motivate investors’ behavior by emphasizing goals than by focusing on their portfolios’ overall performance…When you communicate with clients [with specific goals in mind], they’re more concerned about being on pace. The conversation is more around what needs to be done to create additional savings and rethinking asset [allocation].”

Most important, the approach is a helpful reminder that future retirees are still people. Investors don’t always react to market action logically, so they need advice that considers their larger objectives. Goal-based investing is the essential process of taking a step back to look at the grand picture – assessing your retirement needs rather then fleeting desires, reducing untimely volatility and risk. Returns are just one part of retirement planning and a retirees’ happiness.