The Cognitive Bandwidth Crisis (Or Why We Need Pensions)
With the busy-ness and scarcity of resources in today’s society, we need a new bold option to support people in retirement.
I am writing this post today after being inspired by an episode of Patriot Act with Hasan Minhaj entitled, Why We Can’t Retire. I am a big fan of Hasan Minhaj and watch the episodes of his show in awe. The amount of work that goes on behind the scenes so that he can cover that much content in each 22-minute episode blows me away. (I mean, really, how do I get a research department like that to help me write this blog?)
Watch this episode and then come back to read my three reflections on what is now dubbed “The Silver Tsunami” by the mainstream press.
Thought #1: People are SOOO Busy
You are a busy person. I am a busy person. We currently exist in a busy world.
Do you remember back to a time when you got home from work in less than 30 minutes? You would get home before 5:30, having completed a full-day’s work and you would say to yourself, “Self, how shall I pass my evening?” You might cook yourself dinner, with actual vegetables that you chopped yourself. You might take a walk around your block and make small talk with your neighbors. You might engage in a hobby that you enjoy. HECK, YOU MIGHT DO ALL OF THOSE THINGS.
And then you would go to bed at a reasonable hour and wake up refreshed and ready to go back into work for another reasonable 8-hour day.
You may be saying to yourself, “Kimberly, pul-ease! I have never had that type of lifestyle, and neither have my peers. What you are describing is crazy talk!” And you might be right, Young Jedi. But take it from me, early in my career I did have that kind of lifestyle, and I took it for granted.
Then over the years it slowly morphed – in that “put a frog in a pot of water and slowly turn up the heat” kind of way – to the kind of dystopian hellscape that involves too much work, too long commutes, too frequent takeout food, and not enough soul-satisfying hobbies.
Have you read the book Scarcity: Why Having Too Little Means So Much by Eldar Shafir and Sendhil Mullainathan? If yes, tell me what you think! If no, please read this book and get back to me. Shafir and Mullainathan do a fantastic job of explaining how not having enough time (or not having enough money) impacts your cognitive bandwidth, or your ability to spend your mental abilities on things that are not classified as present dangers…like planning for retirement.
They even mention a study that found that overly-taxed people even present with what appears to be lower IQ scores.
That’s right, Talking About Money Community. Being too busy (or too stressed about not having enough money) can actually make you look like you are less smart. Think on that (if you are not too busy to do so).
Thought #2: People are NOT Saving Enough for Retirement
Okay, back to Patriot Act. Hasan lays out statistics similar those in an article I found on Yahoo Finance entitled, “64% of Americans Aren’t Prepared For Retirement — and 48% Don’t Care.”
Huh?
The first phrase of that title alarms me, because you know, I am a financial capability professional and I care about people’s retirement. But that second phrase (“and 48% Don’t Care”) stopped me in my tracks.
Let’s unpack this, shall we?
45% of respondents to a survey from an outfit called GoBankingRates reported that they had $0 saved for retirement, and another 19% reported that they had less than $10,000 saved, hence the 65% of Americans having nothing saved for retirement. This is a scary statistic considering that the post-World War II model of retirement savings described a three-legged stool with the three legs being represented by:
Employer Pension
Personal Savings
Social Security
With pensions quickly becoming extinct (According to the Pension Rights Center, only 22% of American workers participate in a pension plan through their work), this leaves 78% of workers with no defined benefit program to help them fund their retirement. Dear Reader, 78 workers out of 100 are on their own to plan for and save towards their retirement, and of those 78 workers, only 42 participate in their employers defined contribution (401k, etc.) plan at any level.
What happens when we take away the Employer Pension leg away from the stool, and saw off the bottom section of the Personal Savings leg? Can we even call it a stool? Is a 1 ½ legged stool helpful in any way whatsoever? It’s not helping me reach something off the top shelf of the cabinet.
Now let’s consider the “and 48% Don’t Care” part of this article. I find it hard to believe that workers do not care about their retirement. Some respondents reported that they were young and would save later. Other respondents were older and also said they would save…but they did not know how.
What I do find plausible – as I see this time and time again in the communities that I serve – is that people are so busy putting out today’s financial fires (a missed day of wages to care for a sick kid, a car repair, an overdraft fee, etc.) that they don’t have the time or the cognitive bandwidth to plan for the future.
It’s not that they don’t care, it’s that they don’t have room in their brain to care right now.
Thought #3: We Need Government-Supported Pensions
Okay, by now I have made you miserable with all this talk of how Americans are so busy and so stressed out that they do not have the cognitive bandwidth to plan for their own retirement, and that this bears out in the numbers that a full 65% of American workers are going to be Out. Of. Luck. when it comes to their golden years.
So what is a humane society to do?
This lead me down a rabbit hole to an interesting proposal out of the Schwartz Center for Economic Policy Analysis at The New School called “A Safe and Secure Retirement for All Americans: Pension Reform in the United States.”
In this proposal they site the similar statistics as the ones that I laid out above, that approximately 80% of American workers do not have pensions and therefore are on their own to save for retirement. Beyond that, by 2023 the typical retiree will glean roughly 40% of the income they need to support their household from Social Security. And chew on this: If there are no personal savings or pensions in the mix, where is this remaining 60% of needed income going to come from?
The Schwartz Center recommends a vehicle called Guaranteed Retirement Accounts (GRAs) to solve this problem. GRAs would be funded through a combination of employee, employer, and government contributions, invested in financial markets, and at the time of retirement would provide a payout in the form of an annuitized pension.
Furthermore (and I think that this one is a biggie) GRAs would be portable from one job to another, eliminating the “Golden Handcuffs” conundrum that some of my government-worker friends face when they want to leave their job-with-pension but feel trapped because they have no other retirement savings to lean on.
So what do you think? With all of the busy-ness in today’s society, people do not have the cognitive bandwidth to plan for retirement. They then do not actively save for retirement, and are left with less than what it takes to support themselves in their Golden Years. Guaranteed Retirement Accounts could be the answer. What do you think? The Talking About Money Community is all ears. Leave a comment and share your wisdom. And if you enjoyed this post, please take a moment and forward it to one or two people who you think might enjoy it too. Thanks.