Americans Aren't Saving As Much As They Used To For Retirement. How Do You Change That?
Planning for retirement depends on a lot: how long someone is willing and able to work, how much they're able to save as they go, what assets they have on hand and how long they will live.
The financial landscape of life after work looks different for everyone.
Martin Neil Baily is an economist with the Brookings Institution and author of the report called "The Retirement Revolution: Regulatory Reform to Enable Behavioral Change." He talked on a recent episode of KERA's Think about how people approach retirement savings.
How workers save for retirement
There’s often a default option. The employer says, "Unless you tell us differently, it’ll go into this fund," or perhaps a couple of funds. One of them is often a target date fund. That’s the kind of fund that says when you’re young we’ll mostly put you in equities stocks, and when you get older we’ll gradually shift you so you move more into bonds and therefore have a safer investment structure as you approach retirement. The less risk as you age.
Why the savings rate might be lower than it was several decades ago
People have put money into their houses, so people are looking for their houses being the best way to invest. And of course with the gyrations in the stock market and low interest rates, one can understand why buying a house has seemed like the best alternative. And then for those people who have invested in the stock market, at least since 2008 the stock market has done extraordinarily well, so a lot of people start thinking, "I don’t have to save as much because actually my portfolio is going up substantially over time."
How to encourage people to save more
One of the things that’s been tried, this is one of the advances in economics in recent years, of behavioral economics, is that companies should automatically enroll people into their saving retirement plan. They will have the option of not saving if they choose not to, but their automatic option is that they save part of their salary or wage. And that’s been found to substantially encourage people to save.