How Technology Is Reshaping The Way Americans Prepare For Retirement
The stereotype of older Americans staring blankly at technology, seemingly befuddled at how to use modern devices, becomes more outdated by the day. Retirees increasingly use technologies like smartphones and the Internet to learn, shop, and stay in touch with friends and relatives.
While individuals can reap the rewards of these innovations in retirement, technology will also play an important role in growing the retirement savings of today’s workers — long before they reach their golden years.
With too many Americans failing to set aside the funds needed for a secure retirement once they stop working, there is a need for a coordinated effort from the financial services industry, policymakers, and other stakeholders to improve access to simple, easy ways to save to live more comfortably in retirement.
Technology is already reshaping how Americans prepare for retirement, with innovations in automation and data analysis leading the way. Last year, the Georgetown University Center for Retirement Initiatives (CRI) convened a group of industry leaders, policymakers, and stakeholders to examine how technology is changing the retirement savings landscape.
Many 401(k) retirement savings plans for employees now come standard with auto-enrollment, automatic payroll deductions, and “set it and forget it” target date funds. Individuals increasingly use mobile apps to track their investments and online tools to facilitate their financial planning and budgeting.
All of these innovations increase participation by making it easier to save and invest for retirement. Technology demystifies retirement investing, and simplifies the process, making savings much easier. Yet, despite all the promise that technology holds, Americans still have some wariness of the many platforms and tools now available to them.
With near-daily stories of hackers compromising personal information from one company or another, cybersecurity rises to the forefront of the conversation. The financial industry must be prepared to reassure Americans that their data are safe.
Of course, hackers aren’t the only threat that individuals see to their personal information. As online services come under scrutiny for the unauthorized collection and misuse of user data, consumer concerns about privacy grow and public trust continues to be eroded. Research from Mercer found that 49% of Americans fear having their financial data shared with others if they use technology-driven tools for financial planning.
To maximize the benefit of technology in retirement savings, Americans must feel comfortable sharing details with providers who can use those data responsibly to make better recommendations for savings and investment options. Fortunately, millennials have already shown a greater willingness than their parents to allow online services to hold their financial data, which represents a hopeful sign for the future of retirement innovation. Bain & Company reports that 73% of individuals age 18 to 34 are willing to buy financial products from technology companies, as compared to 42% of those 55 and older.
Artificial intelligence, machine learning, and other uses of Big Data can help improve investment returns and allow retirees to have more cash available to sustain a desired quality of life after they leave the workforce.
Today, more-sophisticated data analysis allows a new level of personalization. By taking into account the financial realities of individuals and information about their life goals, technology can foster greater engagement in retirement savings planning while simplifying the options to improve decisionmaking.
Online education platforms, planning tools, and other innovations enable employers to deliver better advice and support to their employees who often cannot afford and may not want to use financial planners. That means more employees get access to better information. With at least one-third of workers saying they haven’t calculated how much money they will need for retirement, this is an urgent need.
Consumers hunger for more access to technological solutions to their financial challenges. Some 85% have an interest in online financial tools, according to Mercer, and they want their employers to help in this regard. In fact, Thomsons Online Benefits found that organizations that use technology to communicate with their workforces are 60% more likely to engage their employees in their benefit programs.
It used to be that only the most-organized individuals would buy software to track personal expenses and build family budgets. It required a lot of preparation and manual data entry. Today, more individuals take advantage of online services from their banks and easy-to-use personal finance sites like Mint to better understand how they spend their money each month.
The reality is that Americans want to be well-prepared for retirement. They understand that the retirement paradigm has shifted from one focused on defined benefit pension-style plans to a defined contribution “DIY” environment that requires their active participation and savings — and it is not easy.
According to Mercer, individuals are willing to make tough choices, with 85% saying that they are prepared to change their current lifestyles to have a better living in retirement. They just need to have the information, knowledge, and tools to make the decisions to accomplish this outcome.
While technology alone will not solve America’s retirement savings crisis, it can play a vital role in improving the outcomes for millions of retirees. Concerns regarding security and privacy must be addressed, and innovative solutions will improve participation, increase engagement, boost savings, and improve long-term financial stability in retirement.