Picturing Life In Retirement Leads To More Savings: Survey
The economy might be thriving, but retiring comfortably still takes plenty of work, planning and a good advisor.
A large majority of Americans agree they need to save more and invest better to prepare for retirement, but new research reveals an action that may make all the difference: When people envision how they want to live in their retirement years, they are motivated to save more.
The research, based on a survey of 1,202 American adults conducted by Capital Group, home of American Funds, also examines Americans' changing expectations for their retirement years, revealing that only one in 10 Americans believe strongly that traditional models of employment and retirement will be the norm for most people in the coming decades.
"When people think about their 60s, 70s, 80s and beyond, they overwhelmingly view that part of life as a time of freedom and independence compared to their 20s and 30s," said Heather Lord, senior vice president and head of strategy and innovation at Capital Group. "Our survey reveals that people who envision the life they want in retirement recommend saving more of each paycheck in a 401(k) account. This simple insight — if you can picture your retirement, you can save for it — can help Americans secure the financial future they want in their later years."
Americans largely believe that advances in health care, technological innovations and their financial situation will enable them to lead better and more diverse lifestyles in their later years versus prior generations. Nearly six in 10 survey respondents (58%) believe their retirement years will be more positive than that of their parents and older generations.
People understand they need to save more for their retirement. Eighty-five percent of survey respondents believe Americans need to save more and invest better to prepare for their 60s, 70s, 80s and beyond. But with so many competing financial needs — rising housing and health care costs, student debt and the cost of raising a family — Americans often struggle to save enough for their retirement.
Capital Group's survey included an experiment to better understand potential motivators for getting people to increase the amount they are willing to save for retirement. Half of the survey respondents were asked to envision the lives they want to lead in their 60s, 70s and 80+ years before determining what percent of each paycheck to save in a retirement plan.
The other half were only asked how much they wanted to save for retirement. Survey participants who were asked to picture their retirement years recommended saving 31% more per paycheck in a retirement savings plan on average than the second group of respondents. For women and millennials in the first group, the result was a 40% to 50% positive swing in the average recommended 401(k) savings rate.
The takeaway? If people picture their retirement years, they are motivated to save more.
Americans Need More Opportunities
Americans also predict big changes for society, the workplace and the economy. Only 11% of respondents believe strongly that traditional models of employment and retirement will be the norm for most people in coming decades.
Eighty percent expect that flexible and part-time jobs will play a bigger role in supporting retirement savings, and 79% feel that Americans will need more opportunities to work, earn and save later in life. Further, most Americans expect to self-fund their retirement. In addition:
- Three quarters (73%) expect their 401(k) and IRA accounts to be among their top three sources of financial security in retirement years.
- Two-thirds (63%) of boomers list Social Security as one of their top three expected sources of retirement income, compared to only one-third (32%) of millennials and 43% of Generation X respondents.
- About one in five (18%) millennials said full-time or part-time work would be important for their financial security in retirement, twice the level of boomers (9%) and higher than Gen Xers (14%).
- Six in 10 boomers (60%) expect to be financially secure in their 60s, and 54% expect to be doing okay financially in their 80s.
- By contrast, only 48% of millennials and Gen Xers believe they will be financially secure in their 60s. This drops to 41% for millennials and 43% for Gen Xers for their 80s and older.
"The financial services industry sometimes accentuates worries and guilt to get people to pay more attention to planning and saving for retirement," Lord added. "Fear doesn't generally work. We believe — and our survey shows — that imagining one's later years is a powerful exercise that helps drive increased average savings per paycheck for retirement. This insight could contribute to innovative retirement plan design and behavioral techniques to help Americans build bigger nest eggs for retirement."
For additional information and the full report, click here.
This article appeared in Insurance News Net.