Saving for Retirement

Seeing the Elderly You

by Elaine Schwartz    •    Oct 27, 2012    •    633 Views

More of us are worried about financing retirement. But it’s not the “gloomy boomers” who said three years ago, at 50 or so, that they feared outliving their money. Now, according to Pew Research, the most worried demographic is adults in their late 30s.

However, if you look at the St. Louis Fed graph below, we are not doing a very good job of saving. One reason might be our relationship with our future selves.

I just read a fascinating study about retirement savings decisions in which researchers created elderly lifelike images of participants in a virtual mirror. The results? People who actually saw their future aged selves saved more. And, when experimenters had those self images respond happily or sadly to amounts of savings, more was set aside.

Where does this leave us? With Social Security and Medicare soon to experience severe financial difficulties, retirement savings are ever more important. And yet most of us, worried or not, tend to favor current consumption over saving. For that reason, social scientists and neuroscientists are suggesting how to change our savings behavior. Richard Thaler and Cass Sunstein have described a default savings option that people would actively have to reject. Or maybe the answer is some form of pre-commitment before the actual time to make the savings decision arrives. And now, we are also advised that if we see our elderly self, we can diminish the “empathy gap.”

A final thought: Observing your future self could relate to a host of decisions. For example, before devouring 10 chocolate chip cookies, should your virtual mirror reflect the weight gain?

Sources and Resources: My reading for this post took me to a Bloomberg article, the “virtual mirror” research, and the Pew Research study on retirement worries. I also looked at the St. Louis Fed for savings trends and went back to Nudge by Thaler and Sunstein.

The ratio of personal saving to disposable personal income, our personal savings rate, is dipping.

US Personal Savings Rates are Low

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