Saving for retirement: The greatest challenge facing Spanish baby boomers
The 7th Survey on the Saving Habits of the Spanish Population; prepared by Instituto BBVA de Pensiones-Mi Jubilación (BBVA Retirement Pensions Institute – My Retirement), focuses on the Spanish baby boomer generation. The survey offers very revealing insights into the perception that people born between 1957 and 1977 (aged 42 to 62) have about their financial standing regarding their retirement. Elisa Chuliá, a member of the Forum of Experts of the BBVA Retirement Institute has taken a deep look a the survey’s results to narrow down the financial traits that define this generation.
In terms of volume and financial characteristics, Spain’s baby boomer generation is a group that’s as wide as it is varied. According to the 7th Survey on Saving Habits of the Spanish Population by BBVA Pensiones – Mi Jubilación, 20 percent of respondents have trouble meeting their monthly financial obligations, 37 percent are able to make ends meet but without saving, and 41 percent are able to save some money at the end of the month. Of the latter, almost six out of every ten (58 percent) save at least €300 every month.
In average, respondents save €463 every month, which is, in principle, a positive thing "However, most of these savings are not included in a financial strategy," says Elisa Chuliá. In fact, 80% of respondents say they just keep their savings (or most of them) in their checking accounts. “A relatively low percentage of people use their savings to build a pension plan (36%), create or increase deposits (27%), invest in mutual funds (17%) or buy shares in the stock market (9%),” explains this expert. “Keeping money in a checking account is seen as a hassle-free and secure (not perceived as risky) option; also, the advantage of immediate liquidity encourages this type of 'inertial', so to speak, behavior.
The insecurity perceived about the future of pensions in Spain also drives many to adopt “conservative lines of conduct.” Although understandable from a psychological standpoint, waiting to see where economy’s heading can be detrimental in the long run, since “the accumulation period is a crucial element to all financial planning strategies.”
Making ends meet
According to the survey, a significant proportion of baby boomers (around 60%) are not saving any money. Does this mean that they can’t save at all? “Many of them surely can’t, because with what they make, they can barely meet their basic expenses,” says Chuliá. However, there are people who, in principle, could save, but don’t because of lifestyle-related reasons. "Saving also means depriving yourself of some expenses that give you access to goods and services that some people may consider as part of a desirable quality of life."
Elisa Chuliá with Luis Vadillo, director of the BBVA Pension Institute, in the presentation of the 7th Survey on the Saving Habits of the Spanish Population; prepared by Instituto BBVA de Pensiones-Mi Jubilación (BBVA Retirement Pensions Institute – My Retirement).
Uncertainty and the future
Baby boomers share, in general, a rather pessimistic view of their retirement. 56% of respondents don’t think their pension payments will be enough to afford them a comfortable retirement, and seven out of ten believe that the pension they will receive will be less than the overall amount they contributed to the Social Security. This pessimistic outlook is due to widespread “misinformation regarding the link between our social security contributions throughout our working life and the amounts we receive during retirement. Given this lack of information, people often think that they have contributed more than what they’re going to get back.”
And this lack of trust also permeates the question of whether or not we will even be able to collect a pension in the future. Here’s where younger 'baby boomers' (aged 42-47) are more skeptic: only half of them (49%) believe they will receive a retirement pension. "The farther from retirement, the more unsure people are about their future pensions."
Given the uncertainty about where the pension system is heading, almost eight out of ten respondents (77%) consider that "it makes sense to save for retirement." Also, a large majority (69%) of baby boomers have a favorable opinion about the possibility of each worker having their own individual Social Security account (notional account), something that Elisa Chuliá considers to be a positive sign. "If, one way or the other, the financial pressure on the Social Security system (which is going to grow substantially as baby boomers start reaching retirement age) is going cause pension replacement rates to decline, wouldn't it be reasonable to overhaul the system so as to increase its transparency for contributors and retirees?” wonders Elisa Chuliá. "That is the main reason why, in my opinion, a notional account system should be adopted."
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