If you’re an active participant in social media, it’s nearly impossible to avoid a running tally of everyone else’s spending. New cars and home renovations are all over Facebook. Vacation photos, exotic meals, and charity benefits are a fixture on Instagram.
It’s tempting to think your own life doesn’t measure up. So what the world needs is more socially driven saving — a counterbalance consisting of reminders and affirmation that people who choose to put money away are investing in a happy future, even if they are not currently driving a convertible to their beach house.
This year, Boston-based Putnam Investments, which will soon become part of the second-biggest administrator of 401(k) plans, took a step toward giving customers some of this kind of comfort — or a kick in the pants.
A central feature of its online retirement account statements is a new tool that allows users to see exactly how their savings rank against other Putnam account holders who are similar in age, income, and gender. Then, using projections, it models how their numbers would change if they set more money aside from their paycheck — and allows them to make the change in a few clicks.
Putnam refers to it as its “Joneses Tool,” as in “Keeping up with.”
Voya Financial, the ING spinoff whose online questionnaires will retain the ING branding for a few more months, has convinced 2 million people to try its ING Compare Me site since its introduction five years ago. There, people can see how their vacation spending, credit card debt, and savings habits measure up to others. It recently freshened its tools to make them simpler.
The biggest goal these companies share is to get people to set more money aside. Financial services firms win big when people do this, but so do those whose savings fall short. Putnam does not make its tool available to the general public, but it ran some numbers at my request to see where a variety of its customers stand.
The results begin among its customers who are in the median for savings across a range of four sample ages and two potential incomes for each age.
Among the various cases, the best result among the median savers was a group that is currently on track to reach just 72 percent of having a comfortable retirement income goal.
The worst group seemed destined to reach only 25 percent of the goal.
(Putnam defines comfort as having enough money saved to replace 75 percent of whatever your annual income is projected to be when you retire.) People who are in the 90th percentile of savers, however, appear set to hit somewhere between 86 and 103 percent of the goal.
The company includes Social Security in this estimate, and the tool allows people to add money they have saved in retirement accounts elsewhere so that the retirement income estimate takes all assets into account. Putnam believes that Americans are on track to replace just 61 percent of their income during retirement.
To avoid a shrunken retirement budget, many people will need to save more money. For now, however, people are saving roughly the same percentage of their paychecks in their workplace retirement accounts as they were a decade ago. The economy hasn’t helped, but inertia may be at work, too. Putnam had a hunch that by rubbing people’s noses in the high savings of their peers, it could get the laggards to make some changes.
The results so far have been impressive.
In a sample of 10,000 users, 32 percent used the social comparison tool and adjusted the salary deferral level to see how the results may change. Of those who did play with the lever, there was a 28 percent average increase in the set-aside, to 9.6 percent of the paycheck, from 7.5 percent. To make it easy for people to say yes, the Putnam tool shows what the pretax effect would be on their paycheck if they do make the change and allows them to make the switch in two clicks.
There are a couple of other twists that may be helping Putnam achieve that kind of lift. On its site, it avoids what it describes as the “accounting view” of information on display, where the balance would be the only thing a customer would see. A balance of a few hundred thousand dollars might seem like a decent amount of money, but it may not last more than a few years in retirement.
Instead, it shows a customer’s progress toward that ideal monthly retirement income goal and displays it front and center.
“We use a monthly amount in order to put things in the context of how people actually live their financial lives today,” said Steve Jenks, head of product and marketing for Putnam’s defined contribution plans.
A shortage may scare people in a way that a lump-sum balance would not. The monthly income view may also keep people calmer during market declines, since the drop in the projected monthly income figure won’t look quite as bad as the raw dollar drop in the overall balance.
Putnam also breaks down estimates for people’s health care costs in retirement, including Medicare premiums, co-pays, and costs for supplemental insurance, although it doesn’t address potential nursing home costs. Even without the long-term care costs, however, this can easily add up to hundreds of dollars each month.
“If one-third of discretionary income is going to health care, that’s a real aha! moment for some people,” said Ed Murphy, who runs the defined contribution operation for Putnam. Even before the company introduced the comparison tool, it saw customers saving more when confronted with the breakdown of those health care costs.
Putnam’s results aren’t much of a surprise to Voya Financial. In a survey last year, it found that 52 percent of people said they would feel nudged into putting more money away for retirement if their savings didn’t match up well with their peers’ savings. The fact that not that many Putnam customers made the move when confronted with the evidence suggests that people might need more of a shove than a nudge.
Some employers take the less gentle approach already with a feature known as auto-escalation. Employees can opt out, but if they don’t, the percentage deferral from their paycheck automatically goes up, usually by a point each year, until they reach the legal limit on what they can save.
Many employers choose not to offer auto-escalation, however, because more savings means more employer costs for any matching contribution.
Putnam’s social comparison tool is not available to noncustomers, which is a real shame. Here’s hoping it will pull back the curtain as a form of public service. But Voya’s ING-branded tools are worth a look. In addition to the “Compare Me” tool, it has a site that computes a “savings score” based on age, location, salary, savings, and sex.
All of this takes place out of public view, even if the social comparisons do rely on volunteers to share personal data. That means something is missing here — the ability to broadcast your own good behavior.
While I don’t think many people will be sharing their Putnam percentile rank on Facebook anytime soon, it’s possible to share incremental savings progress in a way that doesn’t seem smug. For instance, financial services companies could provide a button to allow people to share the fact that they increased the money they’re setting aside from their paychecks by at least a percentage point.