Gordon Powers

The continuing disappearance of defined-benefit pension plans, coupled with the recent introduction of the Conservative government's "do-it-yourself" pooled pension plans, leaves more and more Canadians on their own when saving for retirement.

It's difficult to picture a time that's so far away and subject to so much change. Yet that's precisely what workers are asked to do as they plan for a period that may last a third of their lives or more.

One simple number that would be useful, even if it's just an approximation, is the monthly income you can expect in retirement, based on your account's slowly increasing balance.

Investors across the border will soon have access to this information, so how about you?

A bill introduced in Congress last year would require 401(k) pension plans to provide participants with this sort of information annually.

Putnam Investments was one of the first U.S. fund companies to introduce a tool to help plan participants project the monthly income their savings might generate in retirement. After crunching the numbers, more than a third of participants decided to boost their savings rate, Putnam reports.

While adding some sort of income guesstimate to plan statements sounds fairly straightforward, it would require plan providers to rework their entire approach to providing retirement information.

Some employers are worried about potential liability if they give workers a retirement-income projection that may fall short of the mark. Others simply don't see the advantage of highlighting what for many must look like a rather dismal future.

But knowing what the future might hold in terms of income can have a really positive impact on our later-in-life experience.

University of Michigan's Constantijn Panis, for instance, has shown that retirees who can envision where they'll end up in retirement are generally happier than those who can't. What's more, these individuals maintain their level of happiness over time.

Given option A (a large amount of their own money readily available to be spent as flexibly as they wish) or option B (the comfort of knowing that they have a steady income in perpetuity), most people chose the latter, he reports.

It's all about how clearly we can envision an uncertain future.

When talking with employees at seminars or company-sponsored luncheons, I usually ask the 50-somethings in the audience whether they wish they had saved more.

The resulting outpouring of regret really galvanizes younger employees — if only because they want to believe they won't be so careless. But that doesn't necessarily lead to action.

Researchers hope to close this preparedness gap using virtual reality technology to show people what their future might hold.

Enabling younger employees to see themselves as they will be when they are much older can transform their urge to spend today into a willingness to save for tomorrow, says Stanford University professor Daniel Goldstein.

Goldstein and other researchers at Stanford are tapping into what is called the Proteus effect, named after the shape-changing Greek god. The effect of appearance on behaviour, they maintain, carries over from the virtual world to the real one, with intriguing consequences.

To prove their case, they placed participants into an immersive virtual reality environment, allowing them to view themselves in a virtual mirror. Half of participants saw digital representations of their current selves in the mirror, while the other half saw age-morphed versions.

Each subject was then asked to allocate a windfall among four options: buy a gift "for someone special," invest in a retirement fund, pay for a "fun and extravagant occasion," or put the money in a chequing account.

When it came to putting money toward the retirement account, those who saw their elderly avatars reported they would save twice as much as those who didn't.

Goldstein is currently testing a web-based tool that uses similar software to change the appearance of test subjects' photos as they make other choices about retirement.

He hopes to increase the vividness of trade-offs between current and future consumption by showing participants images of both their current and age-morphed selves with facial expressions that change in accordance with a selected saving rate.

As users move a slider to the left, which indicates earning more now and saving less, a photo of them as a young person gets happier, while a computer-aged representation of them as an older person begins to frown. Save more, however, and your older self begins to smile.

The tool could also be modified to address retirement income needs by helping prospective retirees "see" themselves in their 80s, while also including actual data about actual savings habits.

In the future, this tool may become more wide ranging, showing other visual representations of outcomes, such as comparing the homes of a retiree who saved successfully with one who didn't.