Experts say one of the biggest barriers to saving for our retirement is the inability to picture ourselves in the future.
Several years ago, a study published in the Journal of Marketing Research explored the reasons why Americans were failing to save enough for retirement. The study concluded that, aside from the financial barriers they face, it was because they felt disconnected from the individuals they would be in the future.1
The report suggests that, to those estranged from their future selves, saving for retirement is like a choice between spending money today or giving it to a stranger years from now. “At the extreme, with a total lack of psychological connectedness, one’s future self might seem like a different person altogether,” it says.
Laura Carstensen, co-researcher and founding director of the Stanford Center on Longevity, recruited undergraduates to take part in the study. “I ask the students to envision themselves at age 30 and they can do that very easily – they imagine themselves as today only with more money and nicer cars,” she says.
But when she asks them to conceive a much older version of themselves, they find it much harder. “At 70 or 80 there’s no image at all – they can’t picture themselves at that point in life.”
This disconnect perhaps goes some way to explain why, in the UK, only 35% of 25–34-year-olds have thought about how many years of retirement they might need to fund. Just over half of those aged 35–44 have done so;2 which is still a worryingly low proportion, given that retirement is a less distant proposition.
A lack of forward planning is especially concerning, given longevity estimates. Today, a 65-year-old male can expect to live for another 18.5 years and a 65-year-old woman 20.9 years.3 Given that younger generations are expected to live for longer, a significant portion could find their retirement savings stretched to breaking point. The quarter of working-age adults who expect to retire earlier than 654 will need to save even harder.
To achieve a comfortable retirement, a leading think tank suggests that those of working age put aside 18% of their income each year.5 This is well above the average, and much higher than the 5% minimum total pension contribution that will be required from April 2018 under the government’s automatic enrolment rules.
Saving enough for retirement can often seem impossible to those burdened with student debt, especially in light of the problem of lower incomes failing to rise in line with the cost of living. However, research suggests that, with the right interventions, there is scope to change behaviour.
Meet your future self
Researchers at the Stanford Center on Longevity hypothesised that if people could be made to feel more connected with a vividly imagined future self, they should be motivated to save more.
They conducted an experiment that allowed some participants to interact with a virtual reality representation of their body and face as it will approximately look in the future, complete with wrinkles, jowls and grey hair.
Study participants were then asked a series of questions about finances and retirement. Those who had seen their older selves answered that they were willing to put more money into long-term savings than those in the control group.
“Students who had interacted with their older avatars allocated twice as much money to their retirement savings as those students who had interacted with an avatar the same age as they are today,” says Carstensen.
The study makes for fascinating reading and represents the first demonstration of an intervention in which people can be encouraged to make more future-oriented choices.
Carstensen hopes that a cultural shift towards long-term thinking would make our future selves much happier. “When people can really connect to themselves and say, ‘That person at 70 – that’s me’ – actually, they tend to want to take care of that person more.”
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1 H. Ersner-Hershfield, J.N. Bailenson and L.L. Carstensen, Feeling more connected to your future self: Using immersive virtual reality to increase retirement saving, May 2008.
2, 4 Office for National Statistics, Early indicator estimates from the Wealth and Assets Survey: attitudes towards saving for retirement, credit commitments and debt burden, July 2016 to Dec 2016, June 2017
3 Office for National Statistics, National Life Tables: United Kingdom, September 2016.
4 See above
5 International Longevity Centre – UK, The Global Savings Gap, June 2017.