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Retirement lasting longer than childhood makes habitual saving essential

Global, May 27, 2015

Improvements in life expectancy lead people to believe they will live well into their 80s, setting the expectation that retirement will last longer than childhood. This requires a robust approach for financial planning.

This is the main conclusion of Inspiring a World of Habitual Savers, the Fourth Annual Aegon Retirement Readiness Survey, that was launched earlier today. The survey, which evaluates the retirement readiness of individuals around the world, highlights that those who always make sure that they are saving for retirement - habitual savers - are far better prepared than those who do not.

Although it is not surprising that habitual savers will likely have saved more by the time they reach retirement age, it is noteworthy that their habits transcend simply setting funds aside and include higher degrees of planning and other retirement preparations.

Longer retirements

The survey found that people expect their retirement to last, on average, 20 years. People are enjoying longer, more active retirements that, in many cases, will last longer than their childhoods. Such developments call for changes in how individuals prepare and save for an extended retirement as well as highlight the need for assistance from policymakers and employers.

The survey is one of the largest and most ambitious of its kind. This year's survey, conducted in collaboration with Transamerica Center for Retirement Studies, measures attitudes to and aspirations for retirement among 16,000 respondents in 15 countries spanning Europe, the Americas, Asia, and Australia.

Opportunities to inspire a world of habitual savers

While the majority of people can now look forward to a long retirement, with opportunities beyond the imaginations of previous generations, global population aging also poses profound challenges to society. Retirement can potentially last two, three or more decades. It requires that individuals start saving at a young age, save and invest consistently over their working lives, and take a sound approach to financial planning. The survey looks at opportunities to inspire a world of habitual savers and makes a series of recommendations for individuals, employers and governments.

Inspiring a world of habitual savers

The report identifies a new blueprint for retirement saving, making habitual saving a global trend. Worryingly, as many as 4-in-10 people are not saving anything for their retirement, but 55 percent of them have aspirations to save for retirement. For most people, saving habitually is a realistic aspiration given that the average habitual saver earns approximately USD 41,000 a year, according to the survey's findings. The power of habitual saving is further boosted when combined with starting to save at an early age.

The survey also reveals that habitual savers are more prepared for retirement. Seventy-nine percent of habitual savers have a retirement strategy and 48 percent have a backup plan. As a result, more than 36 percent of habitual savers feel confident that they will retire in a comfortable lifestyle, three times as many as the non-saver group.

What can help increase savings? Beyond receiving a pay raise, the survey findings illustrate ways employers and policymakers can play an important role in promoting habitual saving.

 

Employers play an invaluable role in helping their employees save

Just 41 percent of all employees globally say they have access to a workplace retirement plan with an employer contribution, highlighting the opportunity for more employers to offer such benefits to their employees. Above and beyond offering a plan, employers can do more to encourage their employees to save, for instance by facilitating automatic enrollment and automatic escalation. Fifty-nine percent of employees who are currently not saving, but who aspire to do so, view the prospect of being automatically enrolled in a workplace retirement plan with a contribution rate of 6 percent as being an attractive option.

Employers can also build and promote the availability of retirement planning-related resources to help employees in their preparation for retirement. Only 14 percent of employees say they received educational materials and just 12 percent are able to manage their retirement savings via an online portal. Building awareness around important savings triggers such as receiving a pay raise represents a major opportunity for affecting changes in employee savings behavior.

 

Policymakers can further promote savings and retirement security

Governments play a vital role in facilitating and encouraging people to take more responsibility for their own retirement security. Reforms to incentivize participation in employer retirement plans and update outdated labor laws to remove obstacles to people working longer can facilitate savings and retirement security.

Such reforms should include incentives for participation in employer retirement plans, as well as workplace changes to permit people to continue to work productively past normal retirement age. One-third of global respondents say that having access to more generous tax breaks on long-term savings and retirement products would encourage them to save more for retirement. Despite the current pressure on public finances in many countries, it is crucial that governments maintain a commitment to these tax incentives.

Active living and healthy aging is essential for realizing retirement dreams

Promoting health and vitality is essential in helping people to achieve and enjoy their aspirations of an active retirement. Seventy-seven percent of the survey participants who describe themselves to be in excellent health are positive about retirement, compared with 49 percent of those in poor health. Achieving the goal of active retirement requires people to maintain a healthy lifestyle during their later years.

Employers and governments can play a role here through providing access to employment and other health and wellness programs for older workers. Currently just 24 percent of employees say their employer offers them the opportunity to switch from full-time working to part-time when they reach normal retirement age.

 

Fostering a favorable environment for habitual saving is a shared responsibility

Saving on a consistent basis can have a significant impact on a person's outlook and preparations for retirement. The survey found that habitual savers annual income was broadly in line with the average income in the countries we surveyed. Furthermore, 80 percent of habitual savers felt positive about retirement and 74 percent described themselves as being in good or excellent health.

With these results, habitual saving is a behavior that should be encouraged if people are to realize their dreams of a comfortable retirement. While the responsibility for retirement saving falls mainly on the individual's shoulders, there are opportunities for employers and governments to create an environment where habitual saving is made easier.

 

 

 


 

About Aegon Center for Longevity and Retirement

The Aegon Center for Longevity and Retirement (The Center) is a collaboration of experts assembled by Aegon with representation from Europe, the Americas, and Asia. The Center's mission is to conduct research, educate the public, and inform a global dialogue on trends issues, and opportunities surrounding longevity, population aging, and retirement security.

About Transamerica Center for Retirement Studies®

The Transamerica Center for Retirement Studies (TCRS) is a division of the Transamerica Institute, a nonprofit, private foundation. TCRS is dedicated to conducting research and educating the American public on trends, issues, and opportunities related to saving, planning for, and achieving financial security in retirement. Transamerica Institute is funded by contributions from Transamerica Life Insurance Company and its affiliates and may receive funds from unaffiliated third-parties. TCRS and its representatives cannot give ERISA, tax, investment or legal advice. Follow TCRS @TCRStudies. 

 



Written by: Aegon

The Aegon Center for Longevity and Retirement

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The Aegon Center for Longevity and Retirement

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