If the looming health savings crisis isn't enough to scare people into saving for retirement, maybe a healthy dose of peer pressure will do the trick.
That's the theory Putnam Investments is putting to the test. The money management firm is adding a new feature to its 40(k) management system called “How do I compare?” to allows users to see how their own progress towards saving for retirement compares to their peer group and to top savers.
“Research shows that social comparisons can have a powerful effect on changing behavior,” Edmund F. Murphy, head of defined contribution at Putnam Investments, said in a statement. “We believe this concept has tremendous application in the retirement savings space to potentially help raise contribution rates.”
The feature draws data from the entire network of Putnam 401(k) plan users. The data is then broken down according to age, income and gender to offer more fine-grained comparisons. All Putnam 401(k) participants will be able to access this information within several months.
Users who discover they are lagging behind peers will have access to resources to help them catch up. The “How do I compare?” tool will be incorporated into Putnam's existing Lifetime Income Analysis Tool, which predicts how current savings will translate into future retirement income and offers advice on how savers can best meet their goals.
Tools like this couldn't arrive at a more relevant time. Americans are failing to meet retirement savings targets at alarming rates. The National Institute for Retirement Security predicts that America as a whole is short on savings by between $6.8 and $14 trillion. Meanwhile, the Social Security Administration has announced that neither Social Security nor Medicare can be sustained without adjustments to the current system of taxes and payouts.
“In the end, we are seeking to provide the information, support and incentive that people need to plan, prepare and proactively raise their retirement savings rates,” Mr. Murphy said.