Goldman Sachs Asset Management Survey Shows How a Retirement Mindset Matters
NEW YORK, November 14th, 2023 - In a newly released supplement to the firm’s Retirement Survey & Insights Report 2023, Retirement Mindset Matters, Goldman Sachs Asset Management collaborated with Syntoniq, a behavioral finance research organization, to evaluate the behavioral factors that may motivate and influence Americans’ retirement savings tendencies.
The July survey of 5,261 US workers and retirees shows that certain financial behaviors may help close gaps between retirement savers’ intentions and their reality, and a retirement mindset matters at all stages of life.
Based on Syntoniq’s analysis, those with greater ease in preparing for retirement show four “optimal” behavioral traits: high optimism, high future orientation, high financial literacy and a having a reward orientation (rather than a risk-orientation).
Individuals assessed to have high levels of these four traits reported more retirement savings, less stress when managing savings, more comfort managing competing priorities and a higher level of engagement, for example, by setting up personalized financial plans and changing investments in volatile markets, compared to those assessed to have low levels of these four traits.
Yet only 10% of working respondents exhibit all four “optimal” traits, while 5% exhibit all four reciprocal or “suboptimal” traits – low optimism, low future orientation, low financial literacy, and risk focus. The vast majority (85%) possess a blend of these traits and report mixed success in saving for retirement.
“These results demonstrate that possessing certain ‘optimal’ traits can help people navigate the Financial Vortex of competing priorities that all too often interfere with retirement success,” said Chris Ceder, Senior Retirement Strategist with Goldman Sachs Asset Management.
“The analysis suggests that people who are positive about their future may sacrifice for it in the present, establishing budgets, living below their means, and prioritizing long-term savings, while those who are primarily focused on their current quality of life may struggle with allocating to longer-term savings needs.”
Incorporating behavioral insights into the retirement planning process can add a new dimension of personalization and help better align plan design (i.e., products and services) with behavioral preferences.
“By digging deeper to understand these behavioral factors, financial professionals may be able to better understand what motivates and influences retirement savings decisions,” Mr. Ceder said.
When it comes to levels of retirement savings, high optimism correlated most among survey respondents with reported higher retirement savings. Highly optimistic respondents are more likely to report that their retirement savings are on track or ahead of schedule (83%), compared to 41% with low optimism.
Those with high future orientation answered similarly (73% reported that their retirement savings are on track or ahead of schedule v. 50% with low future orientation). Of those who are low in both traits, 31% reported that their retirement savings are on track or ahead of schedule.
Having a personalized retirement plan is more common for those with high optimism (78% v. 42% with low optimism), reward focus (65% v. 55% with risk or prevention focus), and high future orientation (70% v. 48% with low future orientation). A personalized retirement plan is particularly prevalent among those with both high optimism and high future orientation (83%) and less common among people with both low optimism and low future orientation (33%).
Impact of Financial Literacy
Financial literacy reflects a level of understanding of basic financial concepts, such as compound interest, inflation and diversification. Those with high financial literacy report that they regularly review their retirement savings, have substantial emergency savings, and keep spending in check. Among survey respondents, higher financial literacy was more prevalent in older people, those with partners, higher amount of household assets, and higher levels of education.
Implications for Defined Contribution Plan Design
Plan sponsors and financial advisers may wish to consider the potential benefits of behavioral mindset as an aspect of personalization. The survey shows it may be helpful to recognize employees’ behavioral factors and educate employees to avoid their potential behavioral pitfalls.
“Promoting optimism and future orientation may be important to encourage a savings mentality,” Mr. Ceder said. “Educational initiatives, communication campaigns and expanded services that promote our future selves may engage workers in their retirement mindset.”
“With all the financial information available, people can be overwhelmed by retirement planning. Personalized tools and education can cut through the clutter and help people focus on the decisions that matter. Behavioral finance is another factor in personalization and may help better align motivations with retirement savings goals.”
Income Generation Preferences
Behaviors also play a role in retirement income generations: those with high financial literacy reported preferring guaranteed, consistent, inflation-protected income from diversified sources, while less financially literate respondents reported favoring retirement income from a single source.
Guaranteed income generally is most desired by those who report struggling to adequately save. Those with a risk focus prefer guaranteed income and professional financial advice.
“Most Americans do not plan to reach retirement underprepared, yet the gap between their desired and actual retirement income is evident,” Mr. Ceder said. “By integrating behavioral traits into plan design and financial planning services, financial professionals can better personalize education, advice and guidance to what motivates each individual saver, potentially leading to more positive retirement outcomes.”
Methodology
The findings discussed are based on a July 2023 survey conducted by Goldman Sachs Asset Management and Qualtrics Experience Management of 5,261 US individuals. A diverse set of perspectives came from 3,673 working people and 1,588 retirees (age 50-75) from the Baby Boomer, Generation X, Millennial, and Generation Z generations. To better understand how people make retirement savings decisions in the face of many competing priorities, we engaged behavioral economists Syntoniq. Syntoniq is a behavioral finance technology company specializing in behavioral analysis that empowers individuals to better understand their financial decision making and bridge the gap between their financial objectives and outcomes. We do this by building fun, engaging, and insight-driven tech solutions backed by cutting-edge research in behavioral finance and decision science. As a team, Syntoniq brings together decades of combined research experience in behavioral science, social psychology, and quantitative finance to turn psychological insights into measurable value.
About Goldman Sachs
The Goldman Sachs Group, Inc. (NYSE: GS) is a leading global financial institution that delivers a broad range of financial services across investment banking, securities, investment management and consumer banking to a large and diversified client base that includes corporations, financial institutions, governments and individuals. Founded in 1869, the firm is headquartered in New York and maintains offices in all major financial centers around the world.
About Goldman Sachs Asset Management
Bringing together traditional and alternative investments, Goldman Sachs Asset Management provides clients around the world with a dedicated partnership and focus on long-term performance. As the primary investing area within Goldman Sachs, the business delivers investment and advisory services for the world’s leading institutions, financial advisors, and individuals, drawing from a deeply connected global network and tailored expert insights across every region and market. Goldman Sachs has $2.5 trillion in assets under supervision globally as of June 30, 2023. Driven by a passion for their clients’ performance, Goldman Sachs Asset Management seeks to build long-term relationships based on conviction, sustainable outcomes, and shared success over time.