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• Research from Stanford reveals that encouraging people to commit a specific percentage of their income to their employer-sponsored savings plan successfully increased the number of participants.
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When it comes to nudging people to start saving for retirement, a new study shows one simple nudge really works.
Motivating people to save for retirement isn’t easy. Fraught decisions around when to start a nest egg, how much to set aside, and where to invest can be so overwhelming that inertia often sets in.
The number of families participating in retirement plans has steadily declined since 2001, according to the Economic Policy Institute.
Increasingly, economists who study this paralysis have shown that minimizing the complexity surrounding retirement choices inspires workers to start saving—and at higher rates.
For the study, which will appear in the Journal of Public Economics, researchers looked at a demographic with a poor track record of retirement saving—US military service members—and discovered how a single step can drive enrollments in workplace retirement programs.
The researchers found that people are more likely to sign up for an employer-sponsored savings plan when urged to begin contributing a specific percentage of their income. The mere suggestion of a contribution amount—and not the amount itself—led to a 26% increase in the likelihood that a service member would enroll in the military’s version of a 401(k).
“Our results show that just giving somebody a number—no matter what the number is—can be a helpful step in encouraging them to participate in a retirement plan,” says Jacob Goldin, a faculty fellow at the Stanford Institute for Economic Policy Research (SIEPR) and an associate professor at Stanford Law School.
The results also suggest that having to choose whether to contribute 3%, 4%, or 6% of a paycheck can be too much for some people.
“Even though they know they should be saving some amount,” he says, “when faced with a complicated choice they end up throwing their hands up in the air and don’t save anything at all.”
Read the full article about starting retirement savings at Futurity.