Do we save enough for the golden years?

Icelanders are, like other nations, getting older. This can be can be attributed to better health, better quality of life, and medical progress. Data from Statistics Iceland shows that the population of people older than 65 has grown by 70% since the turn of the century, and these figures are estimated to rise even further. 

This significant increase involves diverse challenges for our community and furthermore raises the question whether people save enough money to maintain their standard of living during their old age, which is getting longer and longer. Úlf Níelsson, professor at the University's Faculty of Business Administration, is tackling these questions in his current research.
 
"This fundamental question has until now received more attention in models in theoretical economics than studies based on data from the real world. The reason is first and foremost lack of sufficiently solid data for an adequately large  cohort. The Nordic countries have in recent years begun to gather and publish detailed data on pension savings and individual accumulated wealth. This has opened up the possibility of answering the research question more accurately and clearly than before," says Ulf.

Ulf says his research interest generally lies in personal finances and their interaction with behavioural finances, but he says that individuals often behave differently in the real world than models in theoretical economics stipulate. "I tackle two research questions in my project.  First of all, are people saving enough for their retirement - and which groups are likely to not save enough money? Secondly, what motivates people to use their savings once retired? Both these questions are key factors for both academics and economic policy makers, as they are directly linked to the financial health of pensioners and the maintenance of the Nordic welfare system. We hope to answer these key question better and more comprehensively than before by using  newly accessible data on people's pension asset," he adds.

Úlf is working on the project in collaboration with a Danish Pension Research Center, of which he is a member. "The centre pays for access to international data and all those participating in the project are researchers at the centre." 

When asked, Úlf says that the final research results are not yet available but are expected to reveal that considerably more people save enough for their old age than research based on data from the United States indicate. "In the study we will also try to calculate whether varying levels of mandatory pension savings - for example in different professions - does not only affect pension savings but potentially also other capital accumulation, for example investment in real estate, bonds, debt accumulation, level of consumption etc., " Úlf adds. 

The results are thus not only important from a theoretical point-of view, but also from a societal one as it is imperative for the government and policy makers to have solid data that provides them with the opportunity to react and prepare for a future crisis in pension issues and to discover where the problems lie. "Saving for retirement is extremely important if people wish to enjoy the same quality of life and standard of living in their final years as they have until now. If people save too little for their old age it can also lead to systemic poverty traps and inequality between certain groups, such as those with low-paying jobs, limited education etc. Too little pension savings can furthermore put such pressure on public economics that it can undermine the welfare state," concludes Úlf.