Grandma’s much anticipated Arctic cruise becomes a slow drift away on an ice floe. Grandpa mortgages his kidneys to pay for a new heart. Social Security is deader than disco.
That bleak vision is only a slight exaggeration of the retirement catastrophes foretold by the media, financial firms, and many experts. It’s a scare tactic that’s moved the tone of the U.S. savings and retirement conversation from a constructive call to action to an alarmist frenzy. Building a solid financial future isn’t easy—wages are stagnant, markets have been disappointing, and Americans are getting older and living longer. Half of U.S. households are at risk of not having enough to maintain their living standards in retirement, according to Boston College’s Center for Retirement Research. Still, focusing only on the difficulty of the challenges can make the problem worse.
Fear is a poor motivator, as those who advocate exercise and smoking cessation know. Environmentalists have also figured this out. One study by two professors at the University of California at Berkeley found that the more catastrophic the prediction about climate change, the more skeptical listeners became. Erik Carter, who holds workplace seminars for the financial education company Financial Finesse, often encounters people who have given up in the face of what they perceive as an insurmountable challenge. When he speaks with workers about retirement, pessimists far outnumber optimists: “They’re discouraged to take any action,” he says, “because they just don’t think they’re going to retire.”
At the heart of their fear is the fate of the financial safety net Americans subsidize with every paycheck. Just 6 percent of the millennial generation expect to get the full benefits from Social Security, according to the Pew Research Center. Half believe they’ll get nothing at all. The trust fund built up to pay for baby-boomer retirements does run out in 2033, but even then Social Security should be able to pay 77 percent of benefits. And that’s assuming politicians can’t come up with extra revenue for what is arguably the government’s most popular and effective program. Pew finds more than 80 percent of all generations, including millennials, support Social Security and Medicare.
The situation for Medicare and health care in general is shakier, but there are signs the growth in costs is slowing. The federal government’s 10-year spending projection for health care has fallen $900 billion since 2011.
Most policymakers and companies admit there’s a problem with a retirement system that asks everybody to structure their own financial futures without help. As a result, more workplaces are offering financial wellness programs and advice from independent advisers. Workers are being saddled with less paperwork and fewer decisions. Retirement plans are automatically signing up employees for 401(k)s, gradually increasing their savings rates, and putting them in target-date funds that give them appropriate asset allocations for their age.
There’s another way to improve the odds of accumulating enough money for retirement, says Harvard Business School professor Michael Norton: Rather than thinking about savings as this dreary thing that “will sustain you until you die,” focus on specific things you’re setting aside money for. How many times a week do you want to eat out when you retire? How about a summer in Paris or a world tour? Think of today’s spending in terms of opportunity cost. Forgo new swimsuits this summer, book the savings, and you’re that much closer to adding a pool to your retirement dream house. Setting those kinds of goals makes saving much more enjoyable. “You’re rewarding yourself when you retire,” Norton says, “rather than just taking from yourself now.”