The holiday weekend has come and gone. Did it meet expectations? Did it provide, if you are of a certain age or inclination, a moment to reflect on the future — more specifically, your future?
If not, it was a lost opportunity. But I am here to help, by jump-starting the conversation you should have had with yourself. And so I will propose that we start by taking a look at how you and your employer and plan sponsors can hack your retirement.
Now some of this has applications in how you manage your leisure time, as many of you just did over the Fourth of July holiday, or everyday consumer purchases. For that we can thank behavioral economics, a transformative science whose proponents — folks like Richard Thaler, Robert Shiller, and Danny Kahneman — have won Nobel prizes and changed how we think about decision-making.
1. Visualize yourself as older: People who can see themselves as older tend to save more for retirement. Even better than that, just imagine yourself with gray hair. Some researchers have used computers to generate images of individuals, showing how they will look decades from now. In multiple studies, participants who are shown realistic computer renderings of their future selves devoted more resources toward retirement savings.
Neuro-economists like Colin Camerer, professor of behavioral finance and economics at the California Institute of Technology, uses technologies to create immersive hyper-realistic imaging in order to help people “better imagine what various futures might be like.”
Once people see a life-like realism of their future, it leads to profound changes in how they allocate assets. They save and invest more, and generally change their behavior as if saving for retirement is actually important to them.
2. Plan-sponsor nudges: This one is more for employers — make changes in the default settings of corporate retirement plans to improve outcomes for workers. Consider these three simple change: Make enrollment automatic for all new employees at the company; deductions from wages are programmed into payroll, and workers must opt out if they wish to avoid saving. Second, set a qualified default investment alternative, typically a target-date mutual fund, which automatically invests the dollars rather than letting the cash pile up in a money-market account. Last, use an automatic step-up to raise employees’ plan contributions based on time with the company.