When it comes to saving for retirement, I could use a little help from friends. I don't need them to contribute to my savings, but I'd benefit from peering into a window to their personal finance and retirement planning. Knowing how other people allocate their money every month could help me clarify my own financial action plan.
A recent article by the Wall Street Journal said some research on "peer comparison" shows some people are motivated to save more when they know how much their co-workers are contributing to a 401(k) or other retirement accounts. A new survey by T. Rowe Price indicates half of the respondents would save more for retirement if they found out they did not have as much saved as their peers. However, one-third said the comparisons wouldn't affect them at all.
Feeling discouraged by the numbers
Another study by Stanford University, cited in the same article, showed some people actually saved less when they found out about their co-workers bigger nest eggs. I personally find it disheartening to hear about people who have a net worth of more than a million dollars because I feel as though I have so far to go to get there. However, in many cases, the people are in completely different situations. They may be much older or make much higher salaries.
Measuring myself against my peers
I was most motivated to change my personal savings and spending habits after using the ING "compare me" tool which let me measure myself against other people who are the same age, make a similar household income and are also married. When ING tested out the concept on employees, they found 21 percent increased their contributions to retirement plans or joined a savings plan.
Having a different priority about housing
I found out that I'm different than my peers in many different ways when it comes to my housing situation. I discovered I have much less mortgage debt than my peers with $104,000, compared to the average $198,613. However, I actually put more of my money toward my mortgage to pay it down. I was spending $1,500 a month, while my peers allocate $1352 toward their mortgages. Since I recently refinanced to 2.75 percent, I may consider mimicking my peers in this category.
Saving enough for retirement
The other way the peer comparison was helpful to me was when it came to retirement savings. I never know how much I should save for retirement. I found out that my idea of $1 million actually matches what my peers think would be enough for retirement. I started saving at age 28, which matches my peers. As far as actual savings to this point, I have about $30,000 more saved for retirement compared to my peers. However, 56 percent of my peers have increased their contributions to retirement savings in the past few years, while I have actually reduced mine.
Overall, using peer comparison tools and reading the most recent investor surveys motivates me to review my own financial planning. I don't want to keep up with the Joneses in terms of material possessions, but I would like to know that I'm on the right track. What would be even more helpful is being told the exact saving and spending habits of my peers who went on to be millionaires.
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