New research indicates that providing workers with retirement income projections (that is, an estimate of how much income their retirement nest egg would produce based on their current savings rates) affected the amount saved in workplace retirement plans.
The findings are based on a field experiment testing the effect of retirement-income projections on savings decisions, conducted with University of Minnesota employees. The April 2013 study report Do Income Projections Affect Retirement Saving?, by Boston College's Center for Retirement Research, showed that income projections accompanied by information on retirement planning could increase savings rates. Compared with a control group, individuals who received retirement-income projections were more likely to increase their retirement plan contributions during the next six months. Those who increased their savings did so by, on average, $1,150 more per year compared with those in the control group.
"The positive effect on saving works, in part, by boosting individuals’ knowledge and confidence," the report states. Compared to the control group, those receiving income projections reported less difficulty in finding information about how much to save for retirement and being better informed about retirement planning than they were six months earlier. They also reported being more certain about their expected retirement income and more satisfied with their financial condition.
But the effect of income projections on savings was negligible among those who admitted they had difficulty paying bills, preferred to “live for today” or tended to procrastinate. "Cognitive ability and financial literacy generally had little effect" on whether providing income projections led to increased savings, the researchers found.
A variety of retirement income calculators are available online, including those from nonprofits such as AARP, the Financial Industry Regulatory Authority and Choose to Save, a project of the Employee Benefit Research Institute.
Stephen Miller, CEBS, is an online editor/manager for SHRM.
Financial Advice Improved Savings Rates, SHRM Online Benefits, April 2012
Employers Doubtful of Employees' Retirement Readiness, SHRM Online Benefits, October 2012
Encourage Employees to Defer Adequate Pay to Their 401(k), SHRM Online Benefits, May 2012
401(k) Match: Higher 'Thresholds' Drive Participation, SHRM Online Benefits Discipline, July 2012
Secret to a 401(k) Plan’s Success: The Income Replacement Ratio, SHRM Online Benefits, April 2012
SHRM Online Benefits page
SHRM Online Health Care Reform Resource Page
SHRM Online Retirement Plans Resource Page