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Commentary

The Power of a Personal Connection to Retirement

For many, simply knowing retirees can change how they view preparing for retirement.

There’s a good chance that we honed many of our skills with a little help from our friends. Learning is often a team effort: We’ve attended classes taught by teachers, received advice from family members, and attempted home repairs by modeling our behavior directly after an online video of a stranger. With the power of social learning in mind, I investigated whether having retirees in our network can help us prepare for retirement ourselves.

Over the course of seven separate studies (from several unrelated lines of experimental and cross-sectional research), I posed a simple question: "How many retired persons do you personally know?" With this information, I used a statistical procedure called a meta-analysis (an aggregation of analyses across a number of studies to compute an overall effect size to gauge the practical significance of an effect) to examine the overall effect of knowing retirees on a set of psychological and behavioral variables related to retirement preparation. More details on the methodology and the studies included in the meta-analysis can be found in the full report.

Each of these studies included one or more of the following three psychological variables, which capture intention to prepare for retirement:

  1. How important the person finds retirement preparation to be.
  2. How interesting the person finds retirement preparation to be.
  3. Whether they plan on talking about the topic of retirement with their peers.

I also considered two behavioral measures of retirement preparation. The first behavioral measure was an asset-allocation task based on prior research in which people allocate a hypothetical $1,000 to five sources: the amount allocated to a retirement savings account is the dependent variable. The second measure was a spending preferences task in which people select how much they would prefer to spend before versus after retirement (preferences to spend less during working years than during retirement reflect greater retirement preparation).

What We Learned About the Impact of Social Listening on Retirement

The number of retirees one knows had the largest impact on the perceived importance of retirement preparation, accounting for approximately 3.6% of variance in this variable. In fact, this was the only correlation that was consistently present across all the studies I included in the meta-analysis.

The number of retirees one knows also accounted for approximately 1.2% of the variance in how interesting one finds retirement to be (the second-largest effect).

However, the third psychological variable--talking about retirement--was unrelated to the number of retirees one knows. Furthermore, the number of retirees one knows was unrelated to both behavioral indexes of retirement preparation.

So, what can these results teach us?

1. Simply having retirees in one's social network offers some benefits to retirement planning. These results demonstrate the power of social learning in retirement preparation. Indeed, first-hand exposure to the journey of retirement can show us just how important the process is. For advisors, these results suggest clients at any stage of their own retirement voyage could benefit from simply getting to know a retiree.

2. The behavior gap needs a bridge. Having retirees in one’s social network may have been enough to spark intention to prepare for retirement, but action appears to be stalled. In other words, there’s some evidence of a distance between wanting to do something (prepare for retirement) and actually doing it (spending a little less now to spend a little more later).

How can we go about building this bridge between intention and action? One method is called implementation intentions. These are concrete and executable if-then statements that can help people take the extra step to close the gap. Instead of forming a fairly general goal (“I want to save for retirement”), an implementation intention identifies a specific behavior you’ll exhibit in a specific situation. One example can be a rule such as: “If I get a raise, then I will increase the amount I contribute to my retirement account.”

With these kinds of concrete plans in place, our goals become more feasible and comprehensible--and we’re more likely to see them through.