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One barrier to saving may be ignorance about how putting aside money today translates into higher retirement income down the road
New research indicates that providing workers with retirement income projections (that is, an estimate of how much income their retirement nest egg would produce based on their current savings rates) affected the amount saved in workplace retirement plans.
The findings are based on a field experiment testing the effect of retirement-income projections on savings decisions, conducted with University of Minnesota employees. The April 2013 study report Do Income Projections Affect Retirement Saving?, by Boston College's Center for Retirement Research, showed that income projections accompanied by information on retirement planning could increase savings rates. Compared with a control group, individuals who received retirement-income projections were more likely to increase their retirement plan contributions during the next six months. Those who increased their savings did so by, on average, $1,150 more per year compared with those in the control group.
"The positive effect on saving works, in part, by boosting individuals’ knowledge and confidence," the report states. Compared to the control group, those receiving income projections reported less difficulty in finding information about how much to save for retirement and being better informed about retirement planning than they were six months earlier. They also reported being more certain about their expected retirement income and more satisfied with their financial condition.
But the effect of income projections on savings was negligible among those who admitted they had difficulty paying bills, preferred to “live for today” or tended to procrastinate. "Cognitive ability and financial literacy generally had little effect" on whether providing income projections led to increased savings, the researchers found.
A variety of retirement income calculators are available online, including those from nonprofits such as AARP, theFinancial Industry Regulatory AuthorityandChoose to Save, a project of the Employee Benefit Research Institute.
Stephen Miller, CEBS, is an online editor/manager for SHRM.
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