Behavioral science seems to be the most promising way to help address the looming retirement crisis, with auto-plan features having a tremendously positive impact over the last decade. But it seems like we’re just at the beginning of exploring other simple yet effect ways to help people save more for retirement — without increasing the costs and administrative burdens for plan sponsors.
For example, Harvard’s Brigette Mondrian assigned students in her master class on Behavior Economics and Public Policy the task of coming up with creative new ideas.
Using the concept of loss aversion, one student suggested that participants should be shown the annual value of a match when deciding whether and participate and how much to contribute. Rather than percentages, which can be hard to calculate or understand, an actual dollar amount would trigger peoples’ aversion to losing something tangible. After participants see that amount, what if one choice given them was, “Contribute to Get Your Maximum Match?” Then we could consider changing the match percentages from, for example, 50% up to 5%, to 25% up to 10%.
Other ideas, like the use of Roth accounts for younger people and making plans and investments simpler while relieving administrative and regulatory burdens, were also suggested. More ideas to come, hopefully.
