Most Americans understand that they need to save more and invest better in preparation for retirement, but often struggle to do so because of competing financial needs.
New research released Tuesday by Capital Group may have uncovered a way to motivate more saving: visualizing desired life in retirement.
APCO Insight conducted an online survey in April of 1,202 American adults — 402 millennials, 400 Gen Xers and 400 baby boomers — of varying income levels who had investment assets and some responsibility for making investment decisions for their families.
Eighty-five percent of respondents said Americans needed to save more for their retirement, but acknowledged that rising housing and health care costs, student debt and the cost of raising a family made that difficult.
Capital Group’s survey included an experiment to better understand what might motivate people to increase the amount they are willing to save for retirement.
Pollsters asked half of the respondents to envision the lives they wanted to lead in their post-retirement years before determining what percent of each paycheck to save in a retirement plan. The other participants were asked simply to say how much they wanted to save for retirement.
Those 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.
“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,” Heather Lord, head of strategy and innovation at Capital Group, said in a statement.
“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.”
Capital Group noted in its full report that the financial industry often stresses worries or guilt to motivate people to pay more attention to planning and saving for retirement. “Fear generally doesn’t work, however, and people tend to resent it.”
In contrast, it said, research from behavioral economists on motivating long-term savings and improving 401(k) plan design shows that the right attitude can change everything.