Helping people achieve retirement readiness isn’t as simple as telling them how much they need to save. Multiple factors compound the ability to save, including income level, outstanding debt, longevity, overall health, domestic arrangements (partnerships, children, etc.), retirement age, and even the type and place of work. These factors aren’t fixed or constant—they vary by demographic and over the course of a lifetime. The number of scenarios is almost limitless, but consider a few of the more significant inputs.
Income and Debt
Income levels are an obvious factor in one’s ability to save. It’s not feasible to ask someone to save more when their current income barely covers expenses. As well, obligations to pay down loans or credit card balances often require a significant share of income, further impacting how much can be saved.
A recent Experian report found that Generation Z carries the lowest debt load, but the levels change significantly for other generations. Generation X (ages 41-56) has about six times the amount of debt of Generation Z, followed by Millennials (ages 25-40) at just under four times as much debt, with Baby Boomers (ages 57-75) close to the same level at approximately three and a half times as much debt. The Silent Generation (ages 75+) only has two times as much. Not surprisingly, debt increases as individuals enter middle age, likely due to residual educational obligations, new mortgages, automobile purchases and general credit card debt. It gradually eases with time as dependency responsibilities change, mortgage balances are paid off and household expenses decrease.
The data shows the need to factor in more than just how much an individual earns. The picture must include other obligations and how feasible (or infeasible) it is to save at various points. Realistic suggestions that take into account true financial ability can be more successful—and motivating— than a generic standard that is not tailored to actual circumstances.
The equation is pretty simple: the longer one lives, the more savings one needs. Life expectancy is a complicated statistic as variances among race, gender, socioeconomic level and access to health care get smoothed out when examined in aggregate. But life expectancy has historically been on an upward trend that is expected to continue. In 1950, U.S. life expectancy at birth was about 68 years. By 2022, this had increased to just over 79 years, with projections to further grow to almost 86 by 2072. According to the book "100 Plus: How the Coming Age of Longevity Will Change Everything, From Careers and Relationships to Family and Faith," by Sonia Arrison, due to advances in science and healthcare, some babies born today may be able to live to be 150 years old.
Unless people work longer, the number of years spent in retirement will increase, requiring more realistic ways to project retirement income needs. As well, the focus needs to broaden to include the draw-down phase, and how to invest to ensure lifetime income and then manage the decumulation of assets.
The use of a retirement fund might also be changing due to how—and where—people work. Recent trends have pointed towards more mobility in employment, with younger generations more comfortable with frequent job changes or even changing careers. Ninety-one percent of Millennials expect to change jobs every three years. Changing jobs means changing workplace retirement plans. Technology to support rollovers and stop leakage is imperative. And tools and calculators should also adapt for differences in employer contributions whether through varying levels of matching or a mixture of compensation that might include cash or equity.
Different Kinds of Work
Relating to another trend in how and where people work, Forbes magazine reports the gig economy swelled 33% in 2020, with 2 million new "gig workers" in that year. Statista expects gig workers will rise to about half the U.S. population. This figure calls attention to a need to provide better savings and retirement options for those workers in the gig and small business space who don't have access to a traditional DC plan.
Robust and Customizable Support
With all of these variables changing over time, feeling financially insecure is not uncommon for savers as they move through the various stages of their lives. Not knowing where to start or what steps to take can be daunting at best, and discouraging or even humiliating at worst.
Closing the gap across all demographics and improving outcomes requires tools that help educate and empower savers to make choices that work as part of their total financial picture. Analytics and profiling can pinpoint what guidance individuals might need depending on recent events in their lives, with automation that educates and supports them through such transitions.
Individuals can more confidently take control of their financial journey when they understand the impact of changes in spending, savings, and investments. Models should adjust to reflect the time horizon to retirement as well as the impact of money spent elsewhere. Data can also predict behaviors and then be used to influence positive outcomes or to counter less productive behaviors.
Financial journeys are clearly personal and complex. But technology and analytics make it more possible than ever to help individuals become more financially “well,” through big or small steps, throughout their lifetime.
To learn more about Financial Wellness, watch our "From Financial Stress to Financial Wellness" webinar.
Written by Danielle Villar
Product Manager, Retirement Solutions