If Retirement Time Is On Your Side, Use It Wisely! by Richard Davies, Alliance Bernstein
Younger American workers are eager and engaged. According to our latest DC participant survey, they’re enthusiastic and confident about saving for retirement. But they have very low scores on just how to do it.
Eager, Young, but Unaware
In our new survey of defined contribution (DC) plan participants, we found three distinct personas defined by their overall attitudes toward investing:
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- Capable: confident investors
- Eager: young, unaware participants
- Conservative: cautious savers
Each group holds relatively distinct financial attitudes, perspectives and knowledge levels. One group, Eager participants, was notably younger than the other two—by roughly 10 years based on median age (38, versus 50 for Capables and 46 for Conservatives). And with that relative youthfulness, they’re also highly enthusiastic and confident.
But that’s not enough to carry the day when it comes to sound investing.
Time to Crack the Books
We asked a series of eight basic financial literacy questions in the survey. The results were another stark differentiator of Eagers from the other two groups—and not in a good way. A whopping 40% of Eagers got only two answers or less correct (Display 1). If you’re in the dark about investing basics, enthusiasm and confidence can be a liability.
Retirement income plans – If You Build It (Online) They Will Come
But one great asset among Eagers is their willingness to learn. They’re much more likely than the other two personas to sign up for in-person plan seminars or education sessions. And they’re even more interested in participating online or by phone.
Eagers are also social-media savvy. These mostly younger workers welcome whatever their DC plans make available to them via social media. Nearly half of them say they would read and explore plan materials if they could access them through mobile phones or tablets. They’re also more interested than the other two persona groups in learning more about investing (58%) and simplifying their finances (81%).
Quarterly forecasts for expected income in retirement are more appealing to Eagers (Display 2). And they’re ready to “put their money where their mouth is.” We asked our respondents if they’d pay $1 quarterly to receive a personalized forecast; 60% of Eagers said they’d be very likely or somewhat likely to do this. That willingness was significantly lower for Capables (45%) and Conservatives (42%).
Hey, Big Spender…
But Eagers may be a bit too willing to spend money in general. We asked each survey respondent if he or she was more of a spender than a saver; very few respondents in the Investor (7%) or Saver (1%) personas agreed or strongly agreed that they consider themselves spenders. In stark contrast, 68% of Eagers classified themselves as spenders.
Various reasons may contribute to that spender viewpoint. But there’s one factor that may greatly influence why younger workers don’t save: time.
There’s anecdotal evidence that most people find it nearly impossible to imagine themselves more than 20 years older than they are today. If you’re a 20-year-old in college, you simply can’t envision being 40. If you’re 65, you can imagine being 80 or so, but not 90! No matter what age you are now, the viewable age horizon is never more than 20 years. If that’s the case, then the idea of being 65 years old—in other words, the very notion of retirement—has no personal meaning until people are at least 45 years old. Until then, time, which could be the greatest asset to your long-term savings, is not on your side.
The concept that retirement itself is unimaginable to many participants could have far-reaching consequences for the retirement savings challenges that face America and the world.
The views expressed herein do not constitute research, investment advice or trade recommendations and do not necessarily represent the views of all AB portfolio-management teams.
“Target date” in a fund’s name refers to the approximate year when a plan participant expects to retire and begin withdrawing from his or her account. Target-date funds gradually adjust their asset allocation, lowering risk as a participant nears retirement. Investments in target-date funds are not guaranteed against loss of principal at any time, and account values can be more or less than the original amount invested—including at the time of the fund’s target date. Also, investing in target-date funds does not guarantee sufficient income in retirement.