Everything depends on your attitude, especially when it comes to investing and saving for retirement.
It should come as no surprise that some economic actions help bridge the gap between retirement savings objectives and reality, but Goldman Sachs Asset Management has just determined which are the most important.
The four ideal behavioral characteristics are high levels of optimism, future orientation, financial education, and reward arrangement (as opposed to risk orientation).
When compared to people who were found to have lower levels of these four traits, those who possessed them reported higher retirement savings, less stress when managing their finances, greater ease when juggling competing priorities, and increased engagement—for instance, by creating customized financial plans and adjusting investments in volatile markets.
However, the company added that only 10% of working respondents have all four “optimal” traits, while 5% have low optimism, low future orientation, poor financial literacy, and risk focus. These characteristics are shared by the vast majority (85%), who report varying levels of success with retirement savings.
Optimism is great.
High optimism was most frequently correlated with reported higher retirement savings among survey respondents. Compared to 41% of respondents with low optimism, highly optimistic respondents are more likely to report that their retirement savings are on track or ahead of schedule (83%).
Future-Orientation
Similar responses were given by those with high future orientation (73%) who said their retirement savings were on track or ahead of schedule, compared to 50% of those who had low future orientation. Only 31% of those with low levels of both attributes said their retirement savings were on schedule or ahead of schedule.
High optimism (78% compared to 42% with low optimism), reward focus (55% versus 55% with risk- or prevention-focused), and high future orientation (70% vs. 48% with lower past orientation) are the three types of people who are more likely to have a personalized retirement plan. People with high optimism and high future orientation are more likely to have a personalized retirement plan (83%) than those with low optimism (33%).
The effects of financial literacy
Basic economic concepts like compound interest, inflation, and growth are reflected in financial literacy. Those with a high level of financial education report regularly reviewing their retirement funds, having substantial emergency savings, and controlling their spending.
Older people, those with partners, higher amounts of home equity, and higher levels of education were more likely among poll respondents to have higher financial literacy.
Implications for Designing a Defined Contribution Plan
According to the survey, plan sponsors and financial advisors might consider the potential benefits of cognitive mindset as a personalization component. It demonstrates how identifying individuals’ behavioral cues and teaching them to avoid potential psychological pitfalls might be beneficial.
Options for income generation
Behaviors also impact retirement income generation: respondents with high financial literacy preferred guaranteed, consistent, inflation-protected income from diversified sources, while those with lower levels of literacy preferred retirement income from a single source.
Those who claim to have trouble saving enough typically desire guaranteed income the most. Those who place a high emphasis on risk favor guaranteed income and seek expert financial advice.