Overcoming our behavioural barriers to saving


One of the biggest barriers to saving more for retirement is our own behaviour.

Behavioural economists such as Professor Richard Thaler of the University of Chicago have long looked at ways to overcome savings inertia.


Certainly, most of us accept that Australians typically have inadequate savings to provide a reasonable standard of living in retirement. Many of us, however, simply never get around to doing anything about it; relying heavily on compulsory super and eventually the Age pension.

Understandably, there are always plenty of other pressures on our income such as paying off home mortgages and bringing up children.

If you are looking for a sharp dose of reality regarding retirement savings, first consider the statistics. The last Retirement Savings Gap report (PDF), written by financial researcher and consultancy Rice Warner, calculated that Australia had a retirement savings gap of $727 billion at June last year or $67,000 per person.

This gap is defined as the amount of extra money needed to provide a "reasonable" retirement lifestyle for the life expectancies of Australians. The reality is that half of us will live beyond our life expectancy. And it should be emphasised that Rice Warner's savings gap takes into account the Age pension.

While the Australian Government's current inquiry into the financial system, chaired by David Murray, is examining superannuation and savings as part of its brief, the challenge of savings for retirement is, of course, also a very personal issue. This is in addition to the matters that Government may address.

The New York Times' Your Money section this month has been publishing opinion pieces by regular contributing columnist and financial planner Carl Richards about the inadequacy of retirement savings and some of the personal options facing individuals.

"For the sake of argument, let's agree the numbers are true and we're woefully behind on savings," writes Richards, pointing to saving stats in the US.

Richards suggests that after recognising that our retirement savings may be insufficient, we face various options:

  • "Pretend" the figures on inadequate savings do not apply to us - even if they do - and don't bother to use a retirement savings calculator to access our real position.
  • Put off doing anything about our saving until "tomorrow". Unfortunately, "tomorrow" often never comes.
  • "Secretly believe in magic". This applies to those who count on something wonderful suddenly occurring out of the blue - such as winning the lottery - to close a savings gap.
  • Make some "tough" changes and decide to really save during our time left in the workforce.

"I recognise," Richards sympathetically writes, "that some people are literally counting every penny when it comes to keep a roof over their heads and food on the table. But for the rest of us we can choose to make it [saving more] a personal issue."

Saving money for retirement is one thing; investing that money is another. Many Australians choose to save and invest by making salary-sacrificed contributions into a super fund with a balanced portfolio.

In his recent articles for The New York Times, Richards suggests that readers look at The Little Book of Commonsense Investing by Vanguard founder Jack Bogle, which highlights the benefits of low-cost traditional index funds and Exchange Traded Funds (ETFs) tracking broad market indices.

Have you considered making the closing of your own retirement savings gap a personal issue?

By Robin Bowerman
Smart Investing
Principal & Head of Retail, Vanguard Investments Australia
11 November 2014



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