The news is full of stories about how difficult it is for people to save for retirement. Guaranteed pensions have gone the way of the Dodo and Social Security is projected to run out of funds in 20 years, leaving workers to rely on their own personal savings and employer-sponsored defined contribution plans.
If someone is able to retire on time and with enough money to live comfortably throughout their retirement, was it luck, discipline or some other factor that allowed them to do it? The answer varies depending on who you ask.
Stig Nybo, president of pension sales and distribution for Transamerica Retirement Solutions and author of “Transform Tomorrow: Awakening the Super Saver in Pursuit of Retirement Readiness,” published in 2013, believes that despite the challenges facing the retirement industry, there are individuals out there who do everything right, including saving as much as they can as early as they can.
He calls these folks "Super Savers," and they don’t have to be high wealth individuals to fall into this category.
As part of the research for his book, Nybo interviewed a middle class woman who chose to spend less than she earned and prioritized automated savings so that she would see her account balance build over time. From an early age, she learned that saving money and spending less than you earn was important.
That story offered a “glimmer of hope when you hear it is impossible to do,” Nybo said. “It is not impossible to do. It requires we form good habits around savings. We understand these things are possible but we must make sure we are focused on them and develop good habits around them during the course of our lifetime.”
The book focuses on changing savings behavior at the societal level.
“We know consumerism is out there in a very prolific way. We know people have a difficult time saving on their own and would typically rather buy something today than wait until tomorrow when they have the money to buy it,” Nybo says. “How do we change behavior to get people to save more and have that behavioral change stick?”
He compared what needs to be done with retirement savings to the "Keep America Beautiful" campaign that launched in the late 1960s. That campaign set out to change people’s perspectives about littering and keeping America clean. The organizers explored the underlying causes of littering and found that the two primary drivers were the context in which people found themselves and individual beliefs around littering.
If there was a garbage can within reach, most people would put their garbage in the can. If there was no place to throw their garbage, that prompted littering behavior, Nybo says.
“We looked at that example of belief and context of behavior and applied it to saving and worksite retirement plans: how are we driving behavior from the top down belief way and how we are driving them from a context standpoint,” he says. “What we found is that when we started to use automatic enrollment, we found that was a tremendous driver, a contextual driver of behavior.”
The belief piece is also important. Most people stay at a job an average of 5.5 years, which means that no matter how good their company’s retirement plan is or how many incentives a plan sponsor offers, a worker’s context changes continually based on where he finds himself next. That means that workers have to believe that saving for retirement is important.
“You can’t disrupt that by taking money out, spending it, buying a Winnebago. That is very disruptive of savings over time,” he says.
Every person interviewed for the book pointed to the idea that it isn’t about how much money you make as to whether you are a good saver or a poor saver, Nybo says. “A common theme was not about how much people make. It is not about their position and not about education. It is fundamentally about habits,” he said. “Being exposed to the idea of saving in a way that is positive and is about prioritizing.”
Anthony Webb, senior research economist at the Center for Retirement Research at Boston College, agrees that wealth isn't necessarily an indicator that someone is able to retire early or on time. A lot of it has to do with luck.
“You can have households in their early 50s on track to maintain their standard of living in retirement, but some are blown off track in their 50s and early 60s,” he says. The two biggest culprits are experiencing an “adverse health shock and involuntary job loss.”
He adds that a recent research paper shows that about 30 percent of households are retiring involuntarily. “Something forced them to prematurely curtail their working lives," Webb says. "Even if you prematurely curtail your working life for only a few years it can have devastating consequences."
A household that retires at age 70 instead of age 62 will get 76 percent higher Social Security benefits and eight additional years in which to contribute to their retirement plans, Webb points out. They also will earn interest and dividends on those contributions, which can make a huge difference.
As far as demographics are concerned, certain socioeconomic groups are more likely to be on track to having an adequate retirement income.
“If you are white, college educated, if you have a white collar job you are more likely to be on track,” Webb says. “And you are especially more likely to be on track if you have a defined benefit pension plan. It doesn’t mean that anybody who is a minority, not college educated and single is not on track, but there is definitely a correlation there.”
He says he doesn’t believe that telling people what to do is the way to get Americans to save for retirement. “I don’t think lecturing people is the way forward. If you are a low wage worker and you have a choice of paying any two of three items, either rent, food or your 401(k) what do you pay?”
Webb says the problem is that “we make it hard for low wage workers to save, so a lot of low wage workers are not even eligible for a pension plan and they get less tax benefits out of 401(k) plans in the first place.”
One solution would be for Americans to move to a similar plan that was adopted in Australia or England. The government mandates that everyone set aside a certain percentage of their pay for retirement savings.
Andrew Meadows, consumer and brand ambassador for The Online 401(k), took part in a cross-country road trip last year to film a documentary looking at whether or not people are saving for retirement.
What the film crew found is that most people don’t believe they will have enough saved for retirement.
“There’s no safety anymore,” Meadows says. People don’t have faith in investments like they used to.
“Everyone thinks that the more you change jobs, the more names you get on your resume, the more saleable you are, but it doesn’t build relationships. Our parents worked very differently. They worked for the electric company for 25 years to get their pension and a gold watch. There is no reward for loyalty anymore."
Meadows points out that people who make less money in their lifetimes may actually be better off than people who have always made a lot because they will be better prepared to live frugally in retirement.