The Surprisingly Straightforward Solution to America’s Retirement Problem

Among all the policy levers we can pull to help address the retirement issue in the United States, the most effective may be astonishingly straightforward.

Just providing them with basic financial guidance. One-on-one. According to a stunning new study, merely speaking with a financial counselor may be enough to increase people’s savings rates significantly.

The survey showed that those who visited with a financial counselor were ten times more likely to start a retirement account within a month than those who did not. And among those who already have an account, the amount they are likely to save in the month they see a financial adviser and the next month is around five times the amount they are likely to save in any other month.

Notably, the study only examined circumstances where the adviser initiated contact rather than the customer. Therefore it is not the case that individuals call advisers because they have already decided to increase their savings.

From 2011 to 2021, the research was conducted in Switzerland and involved approximately 20,000 clients of a large Swiss bank. Individuals obtain investment goods, savings, and checking accounts from the same institution in Switzerland, which has a massive but highly consolidated financial industry.

Despite Switzerland’s reputation for financial expertise, only approximately 60% of the population has a retirement account, and only about a third invests in equities directly or indirectly. Owing to the tax-advantaged structure of the Swiss retirement system, persons without a retirement account are missing out on free money.

According to a research report, the marginal income-tax rate for an individual earning the equivalent of $84,000 per year is approximately 20% in Switzerland. (Oh, and for all those who believe Europe to be a paradisiacal or tax-hell region, the researchers report that the marginal income-tax rate in Switzerland is around 20%.)

According to the study, individuals with varying education degrees did not react differently to guidance. Less educated individuals were as likely as highly educated individuals to increase their savings rates. And there was little to no difference between men and women, although women were marginally more likely to increase their savings rates.

Those who do not believe we are facing a retirement catastrophe have likely not seen the data. Certainly, it’s easy to overstate these things; obviously, we don’t all need $3 million; nonetheless, for every individual who has saved practically nothing for retirement, many others have saved almost nothing. According to data from the Federal Reserve, households in the bottom 25% of the distribution had a median of $4,700 in their retirement accounts. Best of luck with it!

The advice cannot address problems like low income, but the outcomes are likely to be favorable regardless of income level, and they cannot make the situation worse.

Now that several states are implementing “auto-IRA” programs to help lower-paid workers save for retirement, auto advice may be the next step. America might be on the right track, but services like financial advisers can be offered at a corporate level. Similar to how medical insurance in companies is explained to their employees, a rep from the carrier will come in and pitch the various programs their employer offers. The same can be done for retirement options, explaining how they work. Giving employees the resources for such expertise can go a long way at almost no cost to the employer.