Have you ever wondered why some people are able to save more for retirement than others? The reasons for falling short abound in American life: younger people lament the heavy load of student debt, which causes them to postpone milestones such as getting married or buying a first home, parents grapple with how to pay for college for their kids while also caring for their own aging parents, and people nearing retirement find it’s tough to catch up after a late start coupled with stagnant investment returns. Despite that, studies have found that there are some unusual factors that might affect whether or not you'll actually save enough (or at least more than others) for retirement. Here they are and how you can play them to your favor:
1. Graduating from College—A recent study1 comparing workers who graduated from college to workers who stopped after high school found that even after controlling for factors like access to retirement savings plans at work, income and occupation, college graduates still contribute 26% more on average to their retirement accounts. It concludes that people who have the propensity to graduate from college are more likely to display two other important characteristics needed to save for the future: self-control and a better ability to focus on the future. Basically, the things it takes to get through college also make you more likely to be saving for retirement. The conclusion here isn't that you have to go to college in order to be a good retirement saver, but that non-college grads can emulate those traits by cultivating a future focus along with financial self-control. Make it easy by setting up retirement savings to be automatic, either through increased contributions to your workplace retirement plan or if you don't have access to one, setting up an IRA with auto-transfers each month to mimic those contributions.
2. Counting the Number of Days until Your Goal—A USC study2 found that people perceived the future to be much more imminent when they thought of goals and deadlines in terms of the number of days instead of years. That subtle shift in time metrics actually motivated people to plan saving for the long-term four times sooner. For example, a 40-year old hoping to retire at 65 has only about 9,125 days until retirement, a more motivating metric than 25 years, which sounds like eons to some. Take advantage of this psychological nuance by translating your goal into the number of days to get there and it just might boost your motivation to save more.
3. Learning About Financial Planning Concepts Like Saving and Investing—Various studies have correlated financial planning knowledge to positive retirement planning behaviors, which supports the case for increased financial literacy education. This may seem like a no-brainer, but if you really want to set yourself up for long-term savings success, then you need to take the time to learn these concepts. The good news is that as more employers implement financial wellness programs, more people have access to financial education and the type of guidance that empowers you to make more informed and positive financial decisions throughout your life. In fact, Financial Finesse's research shows that people who have engaged with their financial education programs at least five times are saving almost 50% more toward retirement than less frequent users.
4. Calculating How Much You Need for Retirement—Knowledge may move the needle a little, but applying that knowledge helps even more. Research suggests that people who run the numbers on their own retirement preparedness have much higher savings balances at retirement than those who just save what they can. It seems simple, but it makes a difference. Ideally you would run a retirement calculation annually to track progress and make adjustments as needed.
It would be great if we could also find a correlation between things like eating ice cream and being retirement-ready, but so far no one has done that study. Besides, if there was, I’d already be retired and set for life! In the meantime, these research-backed correlations will have to suffice.