Despite good intentions, many of us struggle on the path to reaching our retirement savings goals. We encounter small obstacles along the way that can prevent us from making decisions or taking action to improve our long-term financial health. Failing to do so can lead to a variety of struggles later in life once our careers have ended.
In Mexico, for the average worker that translates to receiving less than 40% of her current salary during retirement – a number that’s less than half of the recommended rate to meet daily expenses. Because of the current retirement savings system nationwide in Mexico, achieving a comfortable retirement hinges on individual workers taking initiative and making additional voluntary contributions beyond the automatic amount. However, even with recent government efforts to increase the ease and accessibility of contributing, only 0.3% of all active account holders do so in a given year. This has contributed to a troubling level of poverty (27%) among the Mexican elderly.
Approaching this problem from a behavioral perspective allows us to better understand the barriers influencing low retirement savings and identify new solutions to an old problem. With funding from MetLife Foundation, ideas42 worked in collaboration with CONSAR, Mexico’s commission for the national retirement savings system; the 11 retirement savings administrators, or Afores; and the Afore national association, Amafore, in an effort to design low-cost, scaleable solutions aimed at increasing voluntary contributions among Mexicans.
By applying a behavioral lens to the Mexican retirement landscape, we uncovered the complexity of the pathway individuals must embark on to successfully and adequately save for retirement. We began our work in this space through in-depth interviews with Mexican workers and retirement administrators, and analyses of savings habits that informed many interesting insights about retirement.
For example, we found that people may never start actively thinking about retirement unless prompted. In Mexico, this is compounded by the fact that often people don’t notice prompts or cues from the retirement savings system, or from those around them, to consider saving for their distant future. Even if people do direct some of their attention to retirement, they still might not begin to save at that particular moment for a far-off future that’s abstract, blurry, and unknown. Instead, they may “hide” from the problem and pretend it doesn’t exist, or become overconfident, believing that they’ll have time to save enough later.
We then collected these insights in a recently published, comprehensive report. Our report (available in English and Spanish in the side column) provides high-level behavioral design recommendations for policymakers and practitioners in the Mexican retirement savings industry to increase voluntary retirement savings. We are currently working to implement various interventions with key members of the retirement savings system to generate proven, scalable designs that could improve the long-term financial health of millions of people in Mexico and elsewhere in Latin America.