Retirement seems simple enough. The longer your money has to grow, the more money you should have when you retire. For years, financial advisors recommended people save at least $1 million to enjoy a comfortable retirement, but that number could go even higher as life expectancy increases. However, a recent survey by GoBankingRates revealed 56% of Americans have less than $10,000 saved for retirement, with a third of the population having put away nothing at all. Many people appear savings illiterate, but behavioral economists believe it’s the way people behave, not a lack of knowledge about what needs to be done to retire comfortably.
“The biggest challenge is not saving enough,” says Liz Davidson, the founder and chief executive of Financial Finesse and author of “What Your Financial Advisor Isn’t Telling You”. She says, “Historically, there’s been a lot of focus on returns. The return is on what you save, and most people aren’t saving enough.”
One major conclusion behavioral economists find is that an employee needs “nudging” by their employer to save enough. This includes having automatic enrollment in savings plans, asking employees whether they would like to increase contributions when they receive a raise, and limiting choices available in those plans so workers would need to opt out of portfolios likely to have the highest returns. Besides upping the savings rate, scaling back on lifestyle and delaying retirement are concrete ways to be able to live comfortably after leaving the workforce.
Retirement planning is personal because everyone is different. When people start considering how long they want to be in the workforce, who they will be responsible for, all their sources of income, and their future costs, they can come up with a clear estimate of their savings. Saving for retirement is a daunting task for everyone, but little changes can better prepare us for the future.
Read more here: “Getting Workers to Save More for Retirement ” (Paul Sullivan, NYT)