7 Behavioral Finance Nudges to Help Employees Save for Retirement

7. Use examples, not statistics.

Telling a participant that “experts warn 1 out of 3 could face poverty in retirement” is not as effective a way to warn of possible low-saving consequences.

It is more effective iif participants learn the story of one individual who is experiencing that poverty because of a lack of savings.

Touching the emotions, rather than the analytical mind, is far more effective in spurring a change in behavior.

6. Use a stretch match.

Pushing employees to save more by reconstructing your retirement savings plan match.

This could compel employees to save more to get it all, resulting in higher savings levels.

For instance, offering a 100 percent match on 3 percent contributions will only result in 6 percent savings — but offering a 50 percent match on up to 6 percent of employee pay will result in a savings level of 9 percent.

And a 50 percent match on amounts up to 10 percent will spur a 15 percent contribution level.

5. Cut down on investment choices.

Too many choices can result in participants choosing nothing at all, since people can be overwhelmed when faced with too many options.

Alternatively, they might split their contributions among all choices, which—if too many aggressive options are available—could result in their selecting unsuitable investment vehicles.

4. Pay attention to the choice menu.

Don’t top-load the menu of investment choices with either the most conservative or most aggressive options, since people often opt for the first choice when faced with a list of possible investments.

That could put people into the wrong type of investments for their needs.

Instead, perhaps consider leading off with a “basket of funds,” such as a target-date fund or balanced fund, that can be beneficial for a majority of participants.

3. Get employees to visualize what retirement will be like.

Making participants think about where they’d like to retire, which activities they’d like to indulge in during retirement and what their health might be like can get them to think beyond a short-term payout.

Such a payout could end up being spent way before the end of retirement. But visualizing retirement might help participants to consider ways to make money last longer and preserve investment options to allow funds to continue to grow.

2. Make them opt out instead of opting in.

Inertia is a very powerful force, and if people have to actively choose to join a retirement plan or to select a certain level of contribution they may just not bother.

If instead they have to choose to bail on a plan, or dial down a contribution percentage, they may just not bother with that, either, resulting in higher participation rates and higher contribution rates as well.

In addition, using auto-escalation can keep them adding more to their accounts just because they haven’t gotten around to reducing their contributions.