Karyn Golden’s income was approaching $200,000
as she lived a carefree single existence at the peak of her career in Chicago,
20 years ago. She brokered real estate deals, served on boards and lunched with
political leaders. She never imagined she would be where she is now – 70
and down to her last $200 in savings.
But like many people, her life changed unexpectedly. First an
employer went bankrupt; then the financial crisis in 2008 shut off most jobs in
real estate and left her struggling to find work outside her field, and then
cancer. She used up nearly all her savings paying for doctors and living
expenses while sick and unable to work.
“I should have saved more, but no one told me,” said
Golden. “I didn’t know what I was supposed to do.”
Golden’s regrets are common. According to a study by the Rand
Center for the Study of Aging, 67 percent of Americans ages 60 to 79 wish they
would have saved more for retirement earlier in life. But they often ran into
money disasters that got in the way.
Contrary to popular retirement saving strategies that are based
on the assumption that procrastination is the root of the problem, the Rand
researchers think there should be more focus on the probability of money
disasters, which are much more common than most people assume. That scare would
get people to focus on saving more during good times.
Instead, the approach that has become popular in recent years is
simply to nudge people to save small amounts on a regular basis through a
process known as automatic enrollment. It is a no-brainer approach that does
not ask people to think about life’s setbacks or what they should be saving
early in case they lose their job later.
A problem with the nudge approach is that it usually means
taking a constant percentage of a person’s pay out of each paycheck – often 3
percent. That is going to be far too little if down the road a person loses
their job and cannot save anything for few years.
A better approach, according to the Rand researchers, is to get
people to expect life’s upsets and save more when they are able.
Just looking at the fragility of jobs can be eye-opening. In a
single year, half of working adults encounter a 25 percent spike or dip in
their income that lasts at least a month, according to the Urban Institute. For
low-income people, that increases to six months.
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