As more people than ever reach old age around the world with less and less in savings, Nobel prize-winning economist Paul Krugman explains how employers can educate their employees about preparing for retirement.
Paul Krugman: If I were running a business, which thank God I'm not, but if I were running a business, I don't think there is that much that I can do--I can't solve the nation's problems... You can try to provide more security to your employees for their later years, but I think a large part is just making sure that people are well-informed. We have lots of evidence from behavioral economics that people, particularly making decisions about the fairly distant future, making decisions about retirement plans, do not think it through. The notion that everybody knows what's best for himself is really not true when it comes to making decisions about retirement.
I think firms should be trying really hard as a public service and also just to be a good employer to be informing their employees about what their choices are, what the likely outcomes are, honestly telling that you need to do the following if you want to have enough to live on after you retire. So that's a Do The Right Thing, which is not actually going to cost money. It's just a question of being . . . giving good advice, and I think that's what . . . That's incumbent because a lot of people have really made bad decisions as part because nobody pointed out to them that it was a bad decision.
If you're an individual thinking about retirement, the main things I would say is, first of all, it comes upon you faster than you can imagine. As someone just approaching 60, I can tell you that the last 35 years went by awfully fast, and you really need to start making provision. That's the . . . It's a really strong temptation, it's a natural human thing, to imagine that the days when you'll actually be asking, "Do I have enough to retire on?" are unimaginably distant and to low ball the amount that you need to put aside, but it's a mistake. It's . . . you know, I've had the good fortune I think that I'm in pretty good shape as I'm moving towards that destination, though stuff can still happen, but lots of people, friends of mine, are not, and it's because when they should have been thinking about it hard, when they were in their 30s or their 40s, it seemed like an unimaginably distant thing.
Put it this way: we used to, as a nation, have private savings rates. Households put nine or ten percent of their income into savings. In recent years, that has been as low as basically zero. And the old ways were right. The old system was right. People should be putting aside a lot, and probably during prime earning years it should be more than that. Retirement, as I say, it comes along. People live longer than they used to. You're going to want to have that cushion.
Directed / Produced by Jonathan Fowler & Elizabeth Rodd