Goldman Sachs and Syntoniq Study Retirement Savings Behavior
Goldman Sachs Asset Management (GSAM) recently collaborated with behavioral finance research firm Syntoniq to explore the factors influencing retirement savings decisions among Americans. The aim was to understand how cognitive traits impact financial planning for retirement. The findings, included in GSAM’s Retirement Survey & Insights Report 2023, reveal that individuals well-prepared for retirement often exhibit four key cognitive traits: high levels of optimism, a strong future orientation, financial literacy, and a focus on rewards rather than risks.
Traits Linked to Better Retirement Preparedness
Individuals displaying these optimal traits reported higher retirement savings, less financial stress, better balance in managing competing priorities, and a stronger commitment to financial planning. However, only 10% of working respondents possessed all four traits, while 5% exhibited low levels of enthusiasm, future planning, financial education, and risk orientation. The majority (85%) demonstrated a mix of these characteristics, resulting in varied success in saving for retirement.
Chris Ceder, Senior Retirement Strategist at GSAM, noted, “These results suggest that possessing some optimized attributes may help individuals navigate the Financial Vortex of competing priorities that often hinder retirement success.”
Optimism and Future Orientation Drive Savings Success
Optimism and future orientation were strongly correlated with higher retirement savings. Among highly optimistic respondents, 83% reported their savings were on track or ahead of schedule, compared to 41% of those with low optimism. Similarly, 73% of those with a strong future orientation felt confident about their retirement savings, compared to 50% with a short-term focus.
Unsurprisingly, individuals with high levels of optimism (78%), reward orientation (55%), and future orientation (70%) were more likely to have a personalized retirement plan. Those with both high optimism and future orientation were particularly proactive, with 83% having a tailored plan compared to just 33% of their less optimistic and future-oriented peers.
Importance of Financial Literacy
Financial literacy, including understanding concepts like compound interest and inflation, played a crucial role in retirement planning. Those with higher financial literacy regularly reviewed their retirement accounts, maintained substantial emergency funds, and managed their spending effectively. Higher financial literacy levels were more common among older respondents, those with partners, individuals from wealthier households, and those with higher education levels.
Diverse Income Generation Preferences
The study found that financially literate individuals preferred generating retirement income from multiple sources, favoring guaranteed, consistent, inflation-protected income streams. In contrast, less financially educated respondents tended to rely on a single income source. Those struggling to save were particularly interested in guaranteed income options and sought professional financial advice more frequently.
Implications for Retirement Plan Design
Incorporating behavioral insights into retirement planning can enhance personalization and align behavioral preferences with plan design. Plan sponsors and financial advisors may benefit from considering cognitive traits as a component of personalization. The research suggests that fostering a savings mindset through optimism and future planning, alongside educational initiatives, can help individuals focus on essential financial decisions.
The findings are based on a GSAM and Qualtrics Experience Management survey conducted in July 2023, involving 5,261 U.S. workers and retirees.