Of all the policy levers we can pull to help fix America’s retirement crisis, the best may be shockingly simple.
Just getting people some basic financial advice. One to one.
A startling new research study has found that simply talking to a financial adviser may be enough to dramatically boost people’s savings rates.
People were 10 times more likely to open a retirement account in a month when they met with a financial adviser than in a month when they didn’t, the study found.
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And among those who already have an account, the amount they are likely to save in the month they meet an adviser and the month afterward is about five times as much as the amount they are likely to save in any other month.
Most important, the study only looked at cases where an adviser initiated the contact, not where the client did. So it isn’t a case of people contacting advisers because they already wanted to up their savings.
The study took place in Switzerland, and involved over 20,000 clients of a big Swiss bank over a 10-year period, from 2011 to 2021. Switzerland has a huge but highly concentrated financial sector, where individuals get investment products from the same place they get their savings and checking accounts.
Interestingly, despite the country’s reputation for financial sophistication, only about 60% of the Swiss have a retirement account, and only a third invest directly or indirectly in stocks. Due to the nature of the Swiss tax-advantaged retirement system, those who don’t have a retirement account are effectively missing out on free money.
(Oh, and for all those who think of Europe as a halcyon or a hellhole of high taxes, the researchers report that in Switzerland, the marginal income-tax rate for an individual earning the equivalent of $84,000 a year is around 20%.)
People with different education levels did not respond differently to advice, the researchers found. The less educated were just as likely to raise their savings rates as the more educated. And there was little if any difference between men and women: If anything, women were slightly more likely to raise their savings rates, though the differences were slightly.
People who don’t think we face a retirement crisis probably haven’t seen the numbers. Yes, it’s easy to exaggerate these things—no, we don’t all need $3 million—but for each person who has saved for their retirement there are a lot of people who have saved almost nothing. According to Federal Reserve data, households in the bottom 25% of the distribution have median retirement account savings of $4,700. Good luck with that.
Giving people advice cannot solve problems like low income, but at any level of income the results are likely to be positive and they could hardly make the situation worse.
Now that many states are rolling out “auto-IRA” plans to help lower paid workers save for their retirement, maybe the next step is auto advice.