When it comes to retirement, nothing rings truer than the phrase “the sooner the better.”
And yet, people are holding out on their future selves by holding off on saving for retirement. The reason could be that they’re not able to picture themselves when they’re older — at least that was the case for 56% of adults who participated in a 2016 Prudential Challenge Quiz. The company calls this the “longevity disconnect bias.”
“We really don’t understand our future selves,” said Jennifer Putney, vice president of participant engagement in Prudential Retirement’s full service solutions. People plan for the near-term, or want to take care of their parents, children and even pets, but when it comes to who they’ll be in 20 or 30 years, “we just don’t connect with it.”
Prudential’s survey is based on behavioral economics. As part of the study, nearly 50,000 people were asked a series of questions and shown pictures of loved ones and strangers. They were also forced to see rendered images of themselves a few decades older. The way they reacted to the latter was similar to the way they reacted to strangers.
In another experiment, people were asked to place stickers on a board near the ages of the oldest people they knew. Many of the stickers accumulated around the 90 to 100 marks, indicating people could expect to live well into their 80s, 90 or even older. “We need to start preparing now,” Putney said.
And yet, so many people do not. One-third have no money saved for retirement, and 23% have less than $10,000 saved, an online survey of more than 4,500 people this year carried out by personal finance website GoBankingRates found. Another 10% have $10,000 to $49,000; 8% have $50,000 to $99,000; 8% have $100,000 to $199,000; 5% have $200,000 to $299,000; and 13% have $300,000 or more.
Slightly less than half of millennials, or 42%, have no retirement savings, but those that are saving are on track. Generation Xers are behind on their savings, largely due to the Great Recession that cost them an average of 45% of their net wealth. About three in 10 respondents 55 years old and older had no retirement savings, the GoBankingRates survey found.
The younger generation doesn’t see retirement as a priority, thinking first about student loans and financing the present instead, said Kristen Bonner, research lead at GoBankingRates. This mentality puts them at a disadvantage, however. “It is especially important for young people to realize the money they put away for retirement in their 20s, and by the time they get to retirement age, that number is going to be huge compared to, say, waiting until they’re 30,” Bonner said. “Five to seven years with interest helps tremendously in the future.”