Retirement Shock : A Little Hand-Holding Goes A Long Way

If I were running a business—which thank God I'm not—but if I were running a business, I don't think there's that much that I can do. I can't solve the nation's problems. You can try to provide more security to your employees for their later years, but I think a large part is just making sure that people are well informed.

We have lots of evidence from behavioral economics that people, particularly when making decisions about the fairly distant future—making decisions about retirement plans—do not think it through. The notion that everybody knows what's best for themselves is really not true when it comes to making decisions about retirement. I think firms should be trying really hard, as a public service and also just to be a good employer, to be informing their employees about what their choices are and what the likely outcomes are. Honestly telling them that they need to do the following if they want to have enough to live on after they retire, is essential.

So that's a do the right thing, which is not actually going to cost money; it's just a question of giving good advice. I think that's what's incumbent, because a lot of people have really made bad decisions, partly because nobody pointed out to them that it was a bad decision.

If you're an individual thinking about retirement, the main things I would say are: first of all, it comes up on you faster than you can imagine. As someone, you know, just approaching 60, I can tell you that the last 35 years went by awfully fast. You really need to start making provision.

There's a really strong temptation—it's a natural human thing—to imagine that the days when you'll actually be asking, "Do I have enough to retire on?" are unimaginably distant and to lowball the amount that you need to put aside. But it's a mistake. I've had the good fortune, I think, that I'm in pretty good shape as I'm moving towards that destination. Though stuff can still happen, many people, friends of mine, are not.

It's because when they should have been thinking about it hard—when they were in their 30s or their 40s—it seemed like an unimaginably distant thing. Put it this way: we used to, as a nation, have private savings rates; households put 9 or 10% of their income into savings. In recent years, that's been as low as basically zero.

The old ways were right; the old system was right. People should be putting aside a lot, and probably during prime earning years, it should be more than that. Retirement, as I say, comes along, people live longer than they used to, and you're going to want to have that cushion.