Only one in 10 Americans have the “optimal” qualities to build a strong retirement nest egg, a new study has shown.
Goldman Sachs Asset Management surveyed 5,261 U.S. workers and retirees to find out which financial behaviors are most likely to bring people comfort in their twilight years.
Researchers identified four key characteristics among those with the best savings, including: high optimism, future orientation, financial literacy and reward orientation.
The results showed that those with such behavior had higher savings, checked their savings regularly, and avoided withdrawals for retirement, among other things.
But only one in ten respondents had all four traits and 5 percent had “suboptimal” traits, meaning they were low in optimism, future orientation, financial literacy and risk orientation.
Researchers identified four key characteristics among those with the best savings, including: high optimism, future orientation, financial literacy and reward orientation
A mix of optimal and suboptimal behavior was therefore found in around 85 percent.
Here, explains what each feature means and how adopting them can boost your retirement income.
High optimism
High levels of optimism lead to favorable retirement outcomes as people strongly believe they will achieve their savings goals, the report said.
Workers with this trait are also more likely to create personalized financial plans, review their savings more regularly – at least once a year – and take healthy risks.
About 61 percent of respondents who were considered particularly optimistic had higher pension balances.
Chris Ceder, senior fixed income strategist at Goldman Sachs Asset Management, told CNBC: “When you have this level of optimism, you can easily take the steps to achieve the goals you have set for the future.”
The researchers found that optimistic people tend to be younger, have partners, more household wealth and higher levels of education.
Future orientation
The extent to which individuals were connected to their future selves also correlated strongly with good savings.
This trait – which researchers call “future orientation” (FO) – helps individuals ward off rewards in the present and focus on achieving outcomes with long-term benefits.|
In contrast, those with low FO were more likely to cash out their retirement plans when changing jobs or withdraw their savings in an emergency.
About 66 percent of those with high FO were classified as “savers” in the analysis, while only 8 percent of those without FO were.
It was found that a typical person with high FO is male, has a partner, has more household wealth and has a higher level of education.
Financial literacy
Not surprisingly, strong financial knowledge, such as how compound interest works and diversification, also helps increase workers’ savings, the report says.
High financial literacy (FL) has been associated with older people, often with partners, better education, and higher household wealth.
“Financial literacy grows over time,” Ceder said.
The study found that about 48 percent of those with high financial literacy had retirement savings of more than $200,000.
Chris Ceder, senior retirement strategist at Goldman Sachs Asset Management, told CNBC that high optimism means workers are more likely to take proactive steps to plan for their future
Risk vs reward
Survey participants were also divided into people based on “risk and reward.”
Those who were reward-focused focused on performance, while those who were risk-focused pursued goals that emphasized safety and security.
According to the report, workers and retirees in the former camp demonstrated more proactive financial behavior, which often benefited them.
And while a focus on safety and security is considered a good trait by many, the report found that people with this mindset were less proactive when it came to their finances.
A reward-seeking mentality was more commonly associated with those who had a partner and greater household wealth.